WACC is the weighted average cost of capital. It is the minimum return that a company must earn to satisfy all the stakeholders (viz lenders and shareholders) who give money to the company.
Lenders demand interest for the loans that they give to the company. The interest rate that they demand is equal to Risk free rate (ie rate on government securities) plus premium for risk of lending to the company. This is why banks charge lower rate to AAA borrowers and higher rate to lower rated borrowers.
