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Bondholders Lose to Shareowners in Ratings Peak: Credit Markets

Companies have more incentive to reward shareholders at the expense of bondholders as the benefits of maintaining high ratings disappear, signaling two years of improved creditworthiness may be peaking.

Non-financial companies rated A by Standard & Poor’s have an average cost of capital 10 basis points, or 0.1 percentage point, more than those rated one tier lower at BBB, according to Morgan Stanley analysts. The higher-rated companies had a 30 basis-point advantage 18 months ago.