Aswath Damodaran 165
Interest Coverage Ratios, Ratings and Default Spreads:
Small Companies
Interest Coverage Ratio Rating Typical default spread
> 12. 5 AAA 0. 35 %
9. 50 - 12. 50 AA 0. 50 %
7. 50 – 9. 50 A+ 0. 70 %
6. 00 – 7. 50 A 0. 85 %
4. 50 – 6. 00 A- 1. 00 %
4. 00 – 4. 50 BBB 1. 50 %
3. 50 - 4. 00 BB+ 2. 00 %
3. 00 – 3. 50 BB 2. 50 %
2. 50 – 3. 00 B+ 3. 25 %
2. 00 - 2. 50 B 4. 00 %
1. 50 – 2. 00 B- 6. 00 %
1. 25 – 1. 50 CCC 8. 00 %
0. 80 – 1. 25 CC 10. 00 %
0. 50 – 0. 80 C 12. 00 %
< 0. 65 D 20. 00 %
This table is constructed, using smaller non-financial service companies (<$ 5
billion market cap) that are rated, and their interest coverage ratios. The firms
were sorted based upon their ratings, and the interest coverage range was
estimated.
These ranges will change over time, especially as the economy strengthens or
weakens. You can get the updated ranges on my web site.
