Path to Extinction: Only 3 US Companies Still Have AAA Credit Ratings
Wednesday, 16 Apr 2014 07:00 AM
By John Morgan

Their numbers have been dwindling for years, and now only three U.S. companies have the coveted AAA credit rating from Standard & Poor's.

Automatic Data Processing was the latest U.S. blue chip to lose its pristine AAA rating from S&P, downgraded this week after it spun off its auto-dealers services unit, USA Today noted.

That leaves only Johnson & Johnson, Exxon-Mobil and Microsoft as companies rated AAA, which is reserved for companies with the unassailable financial strength and discipline.

In 1980, there were more than 60 U.S. companies with AAA ratings. That number declined to six in 2008. Since then, General Electric, Pfizer and now ADP have fallen out of that esteemed ranking.

While sometimes companies manage to pull themselves back up, it's not an every-day occurrence. S&P noted Kellogg was downgraded to AA+ on Dec. 12, 1984, but succeeded in regaining its AAA status in July 1987.

"But other times, losing the AAA rating is the beginning sign of more serious woes," USA Today said.

For instance, Ford was rated AAA in 1970 and General Motors had that rating in 1953. "Both, though, saw their bonds fall to junk status in 2005 and the companies faced significant financial challenges since then," according to USA Today.

Although S&P may have become more selective with its AAA credit rating for U.S. corporations, The New York Times reported that rating agencies such as S&P and Moody's have ethical conflicts in the way they compile their ratings.

The agencies rank the credit not only for corporations, but also for a host of other financial sector products and services, including such arcane items as the collateralized debt obligations that helped fuel the disastrous U.S. housing bust.

"In the scrutiny after the financial crisis, it became clear that not only were the ratings inflated, but also that the business model of the rating agencies contained a troubling conflict of interest: The rating agencies are paid by the very issuers whose securities they are rating," The Times noted.

A recent letter from the Consumer Federation of America to the Securities and Exchange Commission (SEC) asks the SEC to come up with regulations governing credit ratings agencies to solve their "shoddy rating activities."

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