Definitions Bond Rating
If your firm has no debt at all, your current debt interest rates are the prime rate and you are awarded an AAA bond rating. As your debt-to-assets ratio increases, your current debt interest rates increase. Your bond rating slips one level for each additional 0.5% in short term interest. For example, if the prime rate is 10%, and your short term interest rate is 10.5%, then you would be given an AA bond rating instead of an AAA.