Saturday, March 14, 2009

Triple-A Rated Companies

The AAA credit rating, the gold standard in corporate finance, isn't just an endangered species. It's almost extinct at this point in Corporate America.
On Mar. 12, Standard & Poor's took the prized triple-A rating away from General Electric (GE). The move, from AAA to AA+ - still at the upper echelon of corporate credit quality - was widely expected by fixed-income investors, who fretted for months over GE's exposure to bad debt through its GE Capital arm.

GE still holds its top Aaa rating from S&P's rival, Moody's Investors Service. But Moody's already put GE's rating under review for possible downgrade—a stance the ratings agency reiterated Feb. 27 even after GE cut its dividend to save the conglomerate $9 billion per year.

Just Five AAA Holders

The downgrade leaves just five U.S. non-financial companies with the top credit rating from S&P. The triple-A rating seems secure at ExxonMobil, Johnson & Johnson, Automatic Data Processing and Microsoft. Pharmaceutical giant Pfizer also holds a triple-A rating, but on Jan. 26 S&P put the rating on watch for a possible downgrade, after Pfizer said it would borrow $22.5 billion to buy rival Wyeth.
Difficult Criterion
Companies enter the triple-A elite only when ratings agencies determine they have, in Riccio's words, "extremely little risk of default" on their debt. Thus, investors feel comfortable lending to Microsoft or Johnson & Johnson at lower interest rates. That lowers the companies' financing costs.

No comments:

Followers