Tata Motors may have successfully bought the two iconic brands Jaguar and Land Rover (JLR), but concerns remain on the high debt that the company is acquiring to fund this acquisition.

Also, several analysts feel that what Ford could not do for so many years – turn the brands profitable – Tata will also find difficult to achieve. One small note: Land Rover is currently in the black, but only just so. Considering the massive amount of investments made by Ford in these two brands, a positive return on investment is still far away.

Now comes the news that rating agency Standard & Poor's (S&P) has lowered corporate credit rating on Tata Motors by one notch to ''BB'' from ''BB+'' after the company finalized its recent acquisitions.

The background

This was not entirely unexpected, as the agency had placed the rating for review as early as January, when Tata Motors was announced the front-runner for the Ford brands.

(See: Long-term prospects of Jaguar-Land Rover deal positive: Tata Motors MD)  Tata Motors has declared that it will pay $2.3 billion for JLR, and intends to raise $3 billion to finance the purchase, as well as for working capital and help fund the manufacture of the Nano.(See: SBI, Citigroup, JPMorgan to provide $3 billion for Tata Motors' Jaguar-Land Rover acquisition)

What is a bond?

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. These bonds have a higher risk of default or other adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive to investors.

What is a credit rating?

The higher a credit rating for a bond, greater is the risk associated with it. This rating refers to the probability and probable loss upon a credit event (i.e., the obligor defaults on scheduled payments or files for bankruptcy, or the bond is restructured).

The most popular credit rating scale uses, in order of increasing risk, ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, with the additional rating D for debt already in arrears. Government bonds and bonds issued by government sponsored enterprises are often considered to be in a zero-risk category above AAA; and categories like AA and A may sometimes be split into finer subdivisions like ''AA-'' or ''AA+''.

What is a BB rating?

A BB rating reflects bonds with speculative fundamentals. The security of future payment is only moderate. According to S&P, ''The rating action reflects Tata Motors' heightened financial leverage, resulting from the US$3 billion bridge loan mobilized to fund this transaction''.

It also reflects a more challenging business environment, both for the company's domestic passenger and commercial vehicle segments in India and for the high-end luxury car segments in the key markets for Jaguar and Land Rover, S&P said.

This means that bonds issued by Tata motors will now be considered riskier and find fewer takers.

The current ratings remain on negative watch, which reflects concerns related more to Tata Motors' long-term financing arrangements for replacing the existing bridge facility and limited details on its plans for the transition of JLR operations, the ratings agency said.