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Standard & Poor's (S&P) is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian S&P/TSX, the Italian S&P/MIB and India's S&P CNX Nifty. The company is one of the Big Three credit-rating agencies, which also include Moody's Investor Service and Fitch Ratings. Its head office is located on 55 Water Street in Lower Manhattan, New York City.
History
The company traces its history back to 1860, with the publication by Henry Varnum Poor of History of Railroads and Canals in the United States. This book was an attempt to compile comprehensive information about the financial and operational state of U.S. railroad companies. Henry Varnum went on to establish H.V. and H.W. Poor Co. with his son, Henry William, and published annually updated versions of this book. In 1906, Luther Lee Blake founded the Standard Statistics Bureau, with the view to providing financial information on non-railroad companies. Instead of an annually published book, Standard Statistics would use 5" x 7" cards, allowing for more frequent updates. In 1941, Poor and Standard Statistics merged to become Standard & Poor's Corp. In 1966, the company was acquired by The McGraw-Hill Companies, and now encompasses the Financial Services division.
Credit ratings
As a credit-rating agency (CRA), the company issues credit ratings for the debt of public and private corporations. It is one of several CRAs that have been designated a nationally recognized statistical rating organization by the U.S. Securities and Exchange Commission. S&P issues both short-term and long-term credit ratings.
Long-term credit ratings
The company rates borrowers on a scale from AAA to D. Intermediate ratings are offered at each level between AA and CCC (e.g., BBB+, BBB and BBB-). For some borrowers, the company may also offer guidance (termed a "credit watch") as to whether it is likely to be upgraded (positive), downgraded (negative) or uncertain (neutral). Investment Grade
AAA: An obligor rated 'AAA' has extremely strong capacity to meet its financial commitments. 'AAA' is the highest issuer credit rating assigned by Standard & Poor's.
AA: An obligor rated 'AA' has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree. Includes: o AA+: equivalent to Moody's Aa1 (high quality, with very low credit risk, but susceptibility to long-term risks appears somewhat greater) o AA: equivalent to Aa2 o AA-: equivalent to Aa3 A: An obligor rated 'A' has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories. o A+: equivalent to A1 o A: equivalent to A2 BBB: An obligor rated 'BBB' has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.
BB: An obligor rated 'BB' is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitments. B: An obligor rated 'B' is more vulnerable than the obligors rated 'BB', but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments. CCC: An obligor rated 'CCC' is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments. CC: An obligor rated 'CC' is currently highly vulnerable. C: highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations CI: past due on interest R: An obligor rated 'R' is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. SD: has selectively defaulted on some obligations D: has defaulted on obligations and S&P believes that it will generally default on most or all obligations NR: not rated
The company rates specific issues on a scale from A-1 to D. Within the A-1 category it can be designated with a plus sign (+). This indicates that the issuer's commitment to meet its obligation is very strong. Country risk and currency of repayment of the obligor to meet the issue obligation are factored into the credit analysis and reflected in the issue rating.
A-1: obligor's capacity to meet its financial commitment on the obligation is strong
A-2: is susceptible to adverse economic conditions however the obligor's capacity to meet its financial commitment on the obligation is satisfactory A-3: adverse economic conditions are likely to weaken the obligor's capacity to meet its financial commitment on the obligation B: has significant speculative characteristics. The obligor currently has the capacity to meet its financial obligation but faces major ongoing uncertainties that could impact its financial commitment on the obligation C: currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation D: is in payment default. Obligation not made on due date and grace period may not have expired. The rating is also used upon the filing of a bankruptcy petition
S&P 500 free-float capitalization-weighted index of the prices of 500 large-capitalization common stocks actively traded in the US. S&P 400 MidCap Index S&P 600 SmallCap Index[8]
S&P has developed criteria and methodology for assessing corporate governance since 1998 and has been actively assessing companies' corporate-governance practices since 2000. In 2007, the methodology of stand-alone governance analysis underwent a major overhaul to strengthen the risk focus of the analysis based on the group's experience assigning governance scores. GAMMA analysis focuses on a number of risks that vary in probability and expected impact on shareholder value. Accordingly, S&P's analysis seeks to determine the most vulnerable areas prompt to potential losses in value attributable to governance deficiencies. Recent developments in the international financial markets emphasize the relevance of enterprise risk management and the strategic process to governance quality. GAMMA methodology incorporates two new elements, addressing these areas of investor concern. It also promotes the culture of risk management and long-term strategic thinking among companies.
GAMMA methodology components 1. 2. 3. 4. Shareholder influence Shareholder rights Transparency, audit, and enterprise risk management Board effectiveness, strategic process and incentives
GAMMA scale
For the GAMMA score, the S&P uses a numeric scale from one to ten (with ten being the best possible score). At the S&P's discretion, a GAMMA score can be publicly disseminated or used privately.
GAMMA-10 and GAMMA-9 in S&P's opinion, the corporate-governance processes and practices at the company provide a very strong protection against potential governance related losses in value. A company in these scoring categories has, in S&P's opinion, few weaknesses in any of the major areas of governance analysis. GAMMA-8 and GAMMA-7 in S&P's opinion, the corporate-governance processes and practices at the company provide strong protection against potential governance related losses in value. A company in these scoring categories has, in S&P's opinion, some weaknesses in certain of the major areas of governance analysis. GAMMA-6 and GAMMA-5 in S&P's opinion, the corporate-governance processes and practices at the company provide moderate protection against potential governance related losses in value. A company in these scoring categories has, in S&P's opinion, weaknesses in several of the major areas of governance analysis. GAMMA-4 and GAMMA-3 in S&P's opinion, the corporate-governance processes and practices provide weak protection against potential governance related losses in value. A company in these scoring categories has, in S&P's opinion, significant weaknesses in a number of the major areas of governance analysis. GAMMA-2 and GAMMA-1 in S&P's opinion, the corporate-governance processes and practices provide very weak protection against potential governance related losses in value. A company in these scoring categories has, in S&P's opinion, significant weaknesses in most of the major areas of analysis.
Well the rating is BBB- S&P just gone to pessimist and revised its outlook for India country rating negative. BBB- is the last rung in the ratings grade of S&P, downgrade from here meaning India will be having speculative grade rating. Well the implications of the downgrade if that happens will affect Debt & equity. Indian Companies will be borrowing at a higher rate in the global markets.
If the downgrade happens many of the FII will not be able to invest as the country rating may not fall in the investment grade. Rupee might come under pressure. But it opened stronger today and was up 11paise in the early trade.
I would not like to criticize anyone but there are serious concerns that I would like to address in this post. Its ok that S&P credit rating 4 India Inc. is negative, but what is the credibility rating of S&P? When The Republic of Ireland, original home of the busted economy, has a higher S&P rating than India. Greece defaulted and they were not declared as junk. To my surprise I got a sms text from one of my friend and it was quoted that even the S&P agrees that money from India goes to Italy. India Rating: BBB Italy Rating: A+. The Rating Agency is getting nuttier day by day? There is no reason whatsoever for Stand and Poor to revise its outlook on India as of now. Except for some concern about the growth rate deceleration in the fiscal year just ended theres no immediate problem that should send any warning signal to the investors as such. A seven percent growth in these times when the European countries are actually undergoing a recession is a down to earth good performance. Concerns about Chinas falling growth rate should cause more worry to the investors. Where Moodys confirms China Aa3 rating, outlook positive today. The fiscal deficit estimates are only slightly higher. And as regards economic reforms why at all a rating agency should bother itself with that? A sovereign nation should have its own say! Nobody can impose conditions on us! Of course India needs to do better, but S&Ps rating must not be taken at face value. After their recent disasters, conservatism is in. Ratings agencies like S&P, Moodys, Fitch, are a matter of convenience, so people who dont want to think for themselves can feel good about making decisions for which they have spent no intellectual capital of their own. Unfortunately, our financial system has adopted these agencies ratings into the rules of the system, thereby giving the agencies unwarranted influence over investment outcomes. It might be said that S&P, Fitch, & Moodys combined are more powerful than any government. One has to remember that all of these wonderful ratings agencies thought the economies of the planet were in good shape until the 2007-2008 debacle. Hindsight is always 20/20.