S&P puts US on Creditwatch ‘with negative implications’ | FT Alphaville

S&P puts US on Creditwatch ‘with negative implications’

…”there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days.”

United States of America ‘AAA/A-1+’ Ratings

Placed On CreditWatch Negative On Rising

Risk Of Policy Stalemate


· Standard & Poor’s has placed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the United States of America on CreditWatch with negative implications.

· Standard & Poor’s uses CreditWatch to indicate a substantial likelihood of it taking a rating action within the next 90 days, or in response to events presenting significant uncertainty to the creditworthiness of an issuer. Today’s CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the

U.S. within the next 90 days. We have also placed our short-term rating on the U.S. on CreditWatch negative, reflecting our view that the current situation presents such significant uncertainty to the U.S. creditworthiness.

· Since we revised the outlook on our ‘AAA’ long-term rating to negative from stable on April 18, 2011, the political debate about the U.S.’ fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled. Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues. Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.

· As a consequence, we now believe that we could lower our ratings on the U.S. within three months.

· We may lower the long-term rating on the U.S. by one or more notches into the ‘AA’ category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.

Interestingly, the statement goes on to say the risk of a payment default is small — but warns about ongoing political shenanigans:

· We still believe that the risk of a payment default on U.S. government debt obligations as a result of not raising the debt ceiling is small, though increasing. However, any default on scheduled debt service payments on the U.S.’ market debt, however brief, could lead us to revise the long-term and short-term ratings on the U.S. to ‘SD.’ Under our rating definitions, ‘SD,’ or selective default, refers to a situation where an issuer, the federal government in this case, has defaulted on some of its debt obligations, while remaining current on its other debt obligations.

· We may also lower the long-term rating and affirm the short-term rating if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering to the extent that questions persist about Congress’ and the Administration’s willingness and ability to timely honor the U.S.’ scheduled debt obligations.

Related links:
S&P warns that chance of downgrading U.S. credit rating is 50 percent – Washington Post
Moody’s puts the US on review for possible downgrade – FT Alphaville