The Future of "AAA" Ratings: Who Has It & Who Will Lose It

Current Corporate Triple-A ratings

In the 1980’s there were more than fifty Triple-A rated non-finance companies.  That is now down to only four at S&P.  Automatic Data Processing, Inc. (NYSE: ADP), Johnson & Johnson (NYSE: JNJ), Exxon Mobil Corporation (NYSE: XOM) and Microsoft Corporation (NASDAQ: MSFT).

Microsoft Corporation (NASDAQ: MSFT) recently issued a $2.25 billion bond deal, and S&P quickly assigned its “AAA” rating.  Moody’s gave a “Aaa” rating on the new debt issue as well.  Microsoft has perhaps the lowest cost of borrowing of any major company.  Despite the rise of Apple Inc. (NASDAQ: AAPL) and smartphones and tablets posing a threat, Microsoft has incredible metrics.  Interestingly enough, Fitch Ratings gave ‘only’ the new issue a rating of “AA+.”

Automatic Data Processing, or ADP,  is a surprise on the list due to a cyclical nature of its operation.  The big stand-out name, however, is Exxon Mobil.  Its “AAA” rating seems a shoe-in.  Even its huge acquisition of XTO for some $41 billion did little to jeopardize its rating because its  market cap is the largest in America.  The company was smart because it did the deal for roughly $31 billion in stock plus it assumed $10 billion in debt.

J&J is one we are more concerned about than the ratings agencies.  Moody’s said that it is still well above the Triple-A hurdle.  The risk is the endless recalls.  Moody’s did address this but seemed to have more concern that J&J might make acquisitions or might spend too much on buybacks.  The rating remains “AAA” and its rating outlook is “Stable.”

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