Institutional portfolio managers face rating-based constraints established by investment policy statements (IPS) in their delegated management which, similar to formal regulations, restrict investment in bonds below certain rating levels. We analyze how prices and liquidity of corporate bonds traded by institutional investors react to downgrades crossing these internal limits. Consistent with the existence of a non-regulatory transmission channel, downgrades through regular IPS ratings have a greater impact on the market than downgrades crossing regulatory boundaries, such as the investment-speculative frontier and the NAIC's risk-based capital system thresholds. Our results reveal the existence of other source of rating-related frictions that should be considered.