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  • A Brief Explanation of Moody's and S&P U.S. Rating Action 2011

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    Jean-Baptiste Carelus
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    Moody's zig while S&P zag's. Why the difference? This paper presents a summary explanation.

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    Moody's zig while S&P zag's. Why the difference? This paper presents a summary explanation.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    46 views2 pages

    A Brief Explanation of Moody's and S&P U.S. Rating Action 2011

    Uploaded by

    Jean-Baptiste Carelus
    Moody's zig while S&P zag's. Why the difference? This paper presents a summary explanation.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    WhytheDifferenceinU.S.RatingActionBetweenMoodysandStandard&Poors? OnAugust2,2011MoodysaffirmedtheratingoftheU.S.atAaa.Standard&Poorsfollowedon August6,2011withadowngradefromAAAtoAA+.Howcanthetworatingagencieslookingatthe samedataarriveatdifferentconclusions?Thispaperpresentsasummaryexplanation. InconfirmingtheAaarating,Moody'salsorecognizedthattoday'sagreementisafirststeptoward achievingthelongtermfiscalconsolidationneededtomaintaintheUSgovernmentdebtmetricswithin Aaaparametersoverthelongrun.(Moodys,Aug.2,2011) ThedebtmetricsandAaaparameters Thedebtmetricsisatooltomeasuretherelativecapacityofanationtopayitsdebt.

    Thediagrambelow showsthatanationmayberatedBaaifithas moderatelystrongeconomicstructureasmeasuredbyGDP moderatelystrongcorporategovernanceandtransparentpolicies lowdebtburdenwhencomparedtoitsaccesstoresources moderateriskofdirectandsuddenthreattodebtpayment

    Source:Moodys

    Thesearerelativemeasures.AnexactratingisbasedonhowtheU.S.comparestoothernations. U.S.strengths highGDPpercapita longhistoryofastableprivateenterpriseandtransparentcorporateandregulatorygovernance accesstoassetsthatcanbesold,additionaltaxes,andadditionalborrowing stablepoliticalenvironment

    Therearetwoprimaryfactorsinfluencingarating 1. Capacityistheabilitytopay.Itisameasureoffundsavailable. 2. Willingnesstopayisqualitative.Willingnesstopayisnoteasilymeasured. ThedifferenceinratingactionsmaybeattributedtoaMoodysfocusontheU.S.capacitytopaywhile S&PnotonlyfocusedontheU.S.capacityinitsdiscussionofthedebtlevelbutalsoonitswillingness. S&PsconsiderationofcapacityandwillingnessisseeninthefollowingpassagefromtheAugust6,2011 pressrelease. Theprimaryfocusremainedonthecurrentlevelofdebt,thetrajectoryofdebtasashareofthe economy,andthelackofapparentwillingnessofelectedofficialsasagrouptodealwiththeU.S. mediumtermfiscaloutlook. JeanBaptisteCarelusisaconsultantspecializingineconomicandstatisticalanalysisofstructuredcredit. HemanagestheRatingAdvisoryServiceatNavigantEconomics(asubsidiaryofNavigantConsulting)and isaformercreditanalystatStandard&Poors. TheRatingAdvisoryServicehelpsclients Contact: JeanBaptisteCarelus Office:16462274215 Cell:15164269739 jcarelus@naviganteconomics.com Developstrategiestoobtainandmaintainthebestratingpossiblethusminimizingborrowing costs Understandthecriticalratingissuesandanticipatetheratingconsequencesofpolicyoptions Preparehighlyeffectivepresentationsanddocumentationforratingmeetings Developingastructureformanagingtheratingprocessonayearroundbasis

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