What does a credit rating downgrade typically do to a company's borrowing cost?
- A Increases it, because lenders demand a higher risk premium
- B Decreases it
- C Has no effect
- D Only affects equity investors
Answer
Increases it, because lenders demand a higher risk premium
A downgrade signals higher default risk, so investors require a greater yield. Downgrades can also trigger covenants and force some funds to sell the bonds.





