Investor Glossary-downgradeInvestor Glossary-downgradeInvestor
Glossary-downgradeInvestor Glossary-downgradeInsightful stock
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downgrade is a reduction in the rating awarded a debt or equity
security. A major credit agency downgrades the debt of a company
or governmental entity when its financial situation
deteriorates. The downgrade tells investors they are less
certain to receive the interest payments and return of capital
they are due. The downgrade usually has the effect of reducing
the security's price and raising the issuer's cost of capital. A
downgrade in the rating of a stock by a security analyst (e.g.,
buy, hold, sell) has more varied effects. If the downgrade is
issued by a leading analyst who is known for forecasting moves
in the stock's price, the downgrade can cause a major sell-off
in the equity. If the analyst has a less stellar reputation, the
downgrade may have little impact. Another key factor that
determines the effect of a downg