Is It Too Much To Ask S&P To Just Say What It Means? (GE)


Don’t you just love the rating agencies? Despite being kicked around the block for designing their entire businesses and rating systems around not annoying their customers (the companies whose bonds they rate), they still aren’t calling a spade a spade.

Witness today’s S&P downgrade of GE debt. In typical rating agency fashion, S&P didn’t downgrade the actual bonds. They downgraded the “outlook.” Because unlike all others who rate securities, S&P is so scared of rocking the customer boat that they can’t actually downgrade the security until it has long since stopped being whatever it was rated when they first began downgrading it.

GE’s cash flow outlook is worsening. So S&P downgraded the debt. The market–and GE–can handle the truth. (And the market isn’t brain dead, so it treated the downgrade as what it was and kicked GE in the teeth.)

Yes, we’re quite familiar with rating euphemisms.  But now that S&P has had its public whipping and has a good excuse to change, would it be too much to ask it and Moody’s to junk their preposterously arcane rating systems and adopt simple, clear ones?

AP: Standard & Poor’s on Thursday changed its outlook on General Electric Corp (NYSE:GENews) and its finance arm to negative, and said there is at least a one-in-three chance it will cut GE’s credit rating from the top “AAA” in the next two years.

“The negative outlook is based partly on the concerns regarding General Electric Capital Corp’s future performance and funding,” S&P said in a statement.

“In addition, fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade,” the rating agency said. “We will continue to monitor GECC’s success in executing on its funding and liquidity plans in light of capital market turmoil.”