S&P Global Ratings

S&P Global Ratings
Company type	Subsidiary
Industry	Financial services, Credit rating agency
Predecessor	Standard & Poor's Corp.
Founded	1860
Founder	Henry Varnum Poor, Henry William Poor (H.V. and H.W. Poor Co.); Luther Lee Blake (Standard Statistics Bureau)
Headquarters	New York City, United States
Area served	Worldwide
Products	Credit ratings, financial research and analysis
Parent	S&P Global

S&P Global Ratings—previously known as Standard & Poor's and commonly referred to as S&P—is a prominent American credit rating agency operating as a branch of S&P Global. It specializes in delivering financial research and analysis related to equities, bonds, and commodities. Among the Big Three credit-rating firms, which also include Moody's Ratings and Fitch Ratings, it holds the position of the largest. Its main office is situated at 55 Water Street in Lower Manhattan, New York City.

Corporate history

The origins of the company trace back to 1860 when Henry Varnum Poor authored History of Railroads and Canals in the United States, a comprehensive compilation of essential financial information concerning U.S. railroads. In 1868, he partnered with his son, Henry William Poor, to establish H.V. and H.W. Poor Co., which published annual reference works such as Poor's Manual of the Railroads of the United States.

In 1906, Luther Lee Blake founded the Standard Statistics Bureau, aiming to provide financial data on companies beyond the railroad sector through updateable 5-by-7-inch index cards.

The year 1941 marked the merger of Poor's Publishing with Standard Statistics under Paul Talbot Babson, resulting in the creation of Standard & Poor's Corp.. Later, in 1966, The McGraw-Hill Companies (now S&P Global) acquired the firm, thereby broadening McGraw-Hill’s offerings in financial information services.

Credit ratings

Functioning as a credit rating agency (CRA), S&P Global Ratings assigns credit ratings to debt instruments issued by public and private entities, including governments and agencies. The firm holds the status of a nationally recognized statistical rating organization (NRSRO) as designated by the U.S. Securities and Exchange Commission, highlighting its integral role within financial markets.

Long-term credit ratings

S&P evaluates borrowers using a rating scale ranging from AAA down to D, with gradations such as BBB+, BBB, and BBB− between AA and CCC. Additionally, it issues credit watches that signal potential rating changes: positive for upgrades, negative for downgrades, or stable when no change is anticipated.

Investment Grade

AAA: Represents the utmost credit quality, indicating an exceptionally strong ability to fulfill financial obligations.
AA: Denotes very strong creditworthiness, slightly below AAA; includes sublevels AA+, AA, AA−; roughly equivalent to Moody's Aa1-Aa3 ratings.
A: Reflects a strong capacity to meet commitments but with increased sensitivity to economic fluctuations; encompasses A+ and A.
BBB: Indicates an adequate ability to repay debt but with greater exposure to adverse economic conditions.

Non-Investment Grade (speculative)

BB: Less susceptible than lower ratings but still faces considerable uncertainties.
B: More vulnerable than BB but currently capable of meeting obligations.
CCC: Highly vulnerable and dependent on favorable circumstances.
CC: Extremely vulnerable.
C: Very vulnerable; may be undergoing bankruptcy proceedings yet continues to service debt.
R: Under regulatory oversight with potential selective payment on obligations.
SD: Has selectively defaulted on certain debt obligations.
D: In default on most or all financial commitments.
NR: Not rated.

Short-term issue credit ratings

For short-term debt assessments, S&P assigns ratings from A-1 down to D. The highest short-term rating is A-1+, indicating exceptional capacity to meet financial liabilities. The evaluation process considers factors such as country risk and currency used for repayment.

A-1: Strong ability to meet short-term obligations
A-2: Adequate capacity but vulnerable under unfavorable economic conditions
A-3: Capacity likely weakened if adverse economic scenarios occur
B: Considerable speculative risk; current capacity exists but accompanied by significant uncertainties
C: Susceptible to nonpayment; reliant on favorable conditions
D: Defaulted on payments or has filed for bankruptcy

Governance Ratings

S&P regards corporate governance as a crucial element in safeguarding investors and fostering value generation.

CGS Ratings

Between 2000 and 2005, S&P provided Corporate Governance Scores (CGS) for publicly traded U.S. firms upon request. These confidential assessments evaluated governance frameworks but were phased out as part of a strategic business shift.

GAMMA Ratings

S&P introduced GAMMA (Governance, Accountability, Management Metrics and Analysis) scores aimed at investors in emerging market equities, emphasizing governance-related risks. The issuance of standalone governance scores ceased in 2011, with governance evaluations subsequently incorporated into global credit rating methodologies.

Management and Governance Evaluation Criteria

In November 2012, S&P released criteria to assess management and governance factors impacting creditworthiness for insurers and non-financial companies. These evaluations support overall credit assessments by integrating enterprise risk management insights. Ratings for management and governance range from weak to strong, reflecting both positive attributes and governance shortcomings.

U.S. Long-Term Credit Rating Downgrade

On August 5, 2011, after the enactment of the Budget Control Act of 2011, S&P downgraded the United States' long-term sovereign credit rating from AAA to AA+. The decision was driven by concerns that the fiscal consolidation measures were inadequate to stabilize medium-term debt trajectories, alongside diminished confidence in the effectiveness and predictability of U.S. fiscal policy amid ongoing budgetary challenges.

The U.S. Department of the Treasury identified a $2 trillion miscalculation in S&P’s deficit estimates, challenging the validity of the downgrade. S&P later admitted this error but maintained that it did not alter their rating determination, adjusting their debt forecast to $20.1 trillion (85% of 2021 GDP) under corrected figures compared to the initial $22.1 trillion (93% of GDP) estimate.

In 2013, the U.S. Justice Department initiated a $5 billion fraud lawsuit against Standard & Poor's concerning its rating practices. Speculation arose regarding possible retaliation linked to the downgrade since Fitch and Moody's faced no similar charges. In 2014, a court ruling compelled the Justice Department to grant S&P access to evidentiary materials related to the case.

France's Long-Term Credit Rating Downgrade

On November 11, 2011, S&P erroneously announced a downgrade of France’s AAA rating. French officials strongly criticized this mistake and advocated for tighter oversight of private credit rating agencies. Subsequently, on January 13, 2012, S&P officially lowered France’s sovereign rating from AAA to AA+, marking its first downgrade since 1975 for Europe’s second-largest economy. Concurrently, eight additional European nations experienced downgrades: Austria, Spain, Italy, Portugal, Malta, Slovenia, Slovakia, and Cyprus.

Publications

Since 1922, the firm has issued The Outlook, a weekly advisory newsletter catering to both retail and institutional investors. Credit Week, produced by Standard & Poor's Credit Market Services Group, delivers detailed analysis and updates on global credit markets and ratings developments. Furthermore, Standard & Poor's provides an array of editorials, market commentaries, and updates covering sectors such as corporations, industries, equities, fixed income instruments, mutual funds, economic forecasts, and investor education—all accessible through subscription.

S&P Dow Jones Indices also manages several publicly available blogs including Indexology, VIX Views, and Housing Views, which contribute to its leadership in market insights and analysis.

Involvement in the 2008 financial crisis

Credit rating agencies such as S&P faced significant backlash for their contribution to the 2008 financial crisis. They assigned top-tier AAA ratings to high-risk collateralized debt obligations (CDOs), which misled investors regarding the actual level of risk involved. Following the collapse of the real estate bubble in 2007, a large number of loans defaulted, resulting in substantial financial losses for investors relying on these inflated ratings. For example, institutional investors incurred losses amounting to $125 million on $340.7 million worth of Credit Suisse CDOs that S&P had rated AAA.

The fact that S&P, Moody's, and Fitch Ratings receive payment from companies to evaluate their debt has raised concerns about potential conflicts of interest and the impartiality of their assessments within this "pay to play" framework.

In 2015, Standard & Poor's agreed to a $1.5 billion settlement with the U.S. Department of Justice, various state governments, and the California Public Employees' Retirement System over accusations that its flawed ratings deceived investors during the financial crisis.

Sovereign debt rating controversies

In April 2009, S&P called for "new faces" within the Irish government, a statement perceived as meddling in Ireland’s democratic affairs; the agency later clarified that their remarks were "misunderstood."

S&P acknowledged an error amounting to US$2 trillion in its rationale for downgrading the United States’ credit rating in 2011 but insisted that this mistake "did not affect the rating outcome."

Ruling by Australian Federal Court

In November 2012, Judge Jayne Jagot from the Federal Court of Australia determined that a competent rating agency would not have assigned AAA ratings to Rembrandt 2006-3 CPDO notes under those specific conditions. The court concluded that S&P’s AAA rating was misleading and deceptive, constituting negligent misrepresentations to Australian investors by falsely suggesting that the notes had an “extremely strong” capacity to fulfill financial commitments without sufficient basis. Judge Jagot held Standard & Poor's jointly accountable alongside ABN Amro and Local Government Financial Services Pty Ltd.

Antitrust investigation

Following a ten-month inquiry, in November 2009 the European Commission (EC) officially accused S&P of abusing its monopoly position as the sole issuer of international securities identification codes for US securities by imposing licensing fees on European financial institutions and data vendors. The EC labeled this practice as "unfair pricing," emphasizing that these codes are indispensable for functions such as reporting and settlement and cannot be replaced.

S&P manages the CUSIP Service Bureau, which exclusively issues International Securities Identification Numbers (ISIN) within the United States on behalf of the American Bankers Association. The EC claimed S&P exploited this monopoly by charging license fees to banks and information service providers operating within the European Economic Area (EEA). It noted that similar organizations worldwide either do not impose fees or limit them strictly to distribution costs rather than usage-based charges.

External links

S&P Global Ratings
S&P Dow Jones Indices
Introduction to Credit Ratings – Standard & Poor's
Overview of Standard & Poor's History