What it is:
How it works/Example:
At Moody's, the A3 rating comes after the Aaa, Aa1, Aa2, and Aa3 ratings. The A rating itself denotes that whatever securities are being rated are "upper-medium grade and are subject to low credit risk." The modifier 3 "indicates a ranking in the lower end of that generic category."
At Standard & Poor's, the A rating comes after the AAA and AA ratings, respectively. The A rating itself denotes a "strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances." S&P can further modify the rating by adding a + or – to show the relative standing within the major rating categories.
Why it matters:
Credit ratings attempt to measure the probability of default. Both the A- and A3 ratings are firmly in the "investment-grade" category, which means that they are among the safest obligations in the market.
For example, many institutional investors (such as pension funds) are forbidden from investing in bonds rated below investment-grade. So if a bond is downgraded from A- to "junk" status, the fund manager would have to sell it. On the other hand, a fund manager of a junk bond ETF might want to buy it.