The risk of a debenture issue can be classified taking into account the ability of the issuer for the payment of principal and interest. This type of service is performed by rating agencies. There is usually an inverse relationship between quality or classification of a debenture and its rate of return on maturity. High quality bonds have lower rates of return.

The work of the rating agencies is a factor in reducing the costs faced by companies as the note of a classified operation reduces the cost of information agents on the market.

The ratings assigned to securities and corporations are just temporary signs representing a technical opinion on the perceived risk of default (Declaration of non-payment of principal and income by the due date given by the debtor) at any given time.

The rating process involves the analysis of a series of quantitative and qualitative factors, where past and present assist analysts in the foresight process for assigning ratings. The rating applies to a specific issue, thus becoming an opinion or judgment of the ability of an issuer to pay its obligations over time.

In conducting the examination of the issue of risk are taken into consideration the four C’s : character, capacity, collateral and covenants. The first C – Character management is the foundation for credit quality, including the ethical reputation, qualification and operational performance of the network executives.

The second C – ability to pay obligations includes assessing the balance sheets of past, present and future. Spreadsheets performance analysis, cash flow and financial projections underpin analysts questioning the causes and the means used to obtain the results.

The third C – side involves not only analysis of the pledged assets but also the quality and value of assets not recorded, since both form the basis of cash flow of the issuer.

The fourth C – covenants or other terms and conditions of the issue may establish restrictions regarding the management of the issuer in the conduct of financial affairs . Violation of any restriction provides investors to take preventive or corrective actions before the deterioration of payment capacity of the station.

The analyst responsible for analysis assigns a risk rating to the issue which is voted on by members of the committee, after discussion and questions. Google finance news offers a good source of current information about companies and equities.

The main advantages offered by the debentures include attractive funding cost, debenture issue generates lower costs than the costs of various mutual banking operations. They reduce the complexity of managing the loan portfolio and investors achieve large capacity as financial institutions. Debentures provide adequate cash flow of the issuer and provide freedom to the company management as to the conditions of the issue.