M7-18. Interpreting Credit Ratings

KLA-Tencor reports the following information in the Management Discussion & Analysis section of its 2018 10-K report.

Our credit ratings as of June 30, 2018 are summarized below:

Credit Rating Agency	Rating
Fitch	BBB+
Moody's	Baa+
Standard & Poor's	BBB

Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the semiconductor and semiconductor equipment industries, business acquisitions, our financial position and changes in our business strategy.

1. Is KLA-Tencor above or below investment grade? Hint: See Exhibit 7.3.

2. KLA-Tencor has reduced the level of its financial leverage over the past several years. How does the reduction in financial leverage likely affect the companys credit ratings?c. What effect will less financial leverage have on the companys borrowing costs? Explain.