Triple A Quality Fades as Companies Embrace Debt

The triple A rated company is nearly extinct. Just a handful of companies in the world retain the coveted rating from Standard & Poor’s after ExxonMobil was downgraded. In the US, the number has fallen to two – Johnson & Johnson and Microsoft. In 1992, there were 98 US companies that held the highest rating from S&P. The demise of triple A-rated companies reflects a dramatic rise in the use of debt to help bolster shareholder returns and fund takeover activity. There is roughly $62bn of triple A-rated corporate debt outstanding — more than four-fifths of which is from the two companies — dwarfed by the $419bn of double A debt and $1.78tn of single A paper in the US. “In a way, double A has become the new triple A, when you have a lot less triple A debt out there,” says Nick Gartside, chief investment officer of international fixed income at JPMorgan. At its depths in September 2008, corporate lending evaporated as banks retrenched, leaving groups with immediate financing needs on the ledge. “It is the result of the financial crisis,’’ he says. “The severity of this shock is now being factored into a lot of these [rating] models. Credit may not be available at any price in a crisis and that’s something to consider.” Prof Siegel adds: “Companies, unless they are unbelievably cash-rich, are just not being given triple A ratings. We won’t get back to the number of issues we had in the 1960s that might have had a triple A rating. Those are perhaps gone forever alongside the rise of global competition.” (FT)

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