What causes the steep precipice in risk or yield from triple B to double B? First and foremost, we should address the size of the issuer. Often when looking at high yield instruments, we are dealing with companies who are smaller than average, and as a result, present a risk in their ability to handle adversity such as the loss of a major customer or an economic or business related shock. Much of the high yield world is comprised of middle market companies, which are called as such purely for their size. In some cases, there is nothing particularly risky about these companies. They're simply too small to be considered investment grade. Again, there is no designation for what makes small, middle, or large for a credit rating. In general, sales greater than 7 billion US and EBITDA greater than 2 billion US qualify for investment grade standing. A second big factor is the amount of existing leverage or debt in the capital structure. Debt, unlike equity implies a legal right to the return of capital, but if there are many lenders in the capital structure, the guarantee of getting paid back becomes weaker. Also, debt has a fixed charge of interest. Now the interest rate can be floating. The point here is that the charge is regularly occurring. The demands of making regular burdensome interest payments could impede a company from running efficiently. High leverage therefore implies high risk and is often a prime indicator of sub investment grade. We look at leverage as both a level of debt in the capital structure, as well as the amount of leverage relative to an earnings or cash flow metric. In the high yield world, debt to EBITDA is the primary leverage ratio. Greater than three times debt to EBITDA is a warning sign and 3.5 x and up, especially for smaller, less profitable, less established companies is most likely to lead to a sub IG rating. Companies can also fall from investment grade to sub investment grade. The original high yield or junk bonds were called fallen angels due to the fact that the companies had once been investment grade than lowered to sub investment grade. In many cases, this was due to poor earnings performance over time, which prevented them from meeting investment or expense needs or worse debt servicing needs companies can also become less stable due to management problems or structural problems within the company. The regulatory environment of the country the business operates in can also make an issuer investment grade, as well as a previous history of default.