Thursday, February 5, 2009

Triple A Ratings - Do they really matter?

Companies are struggling to keep their AAA ratings, but if recent history is any indicator, does it really matter? It's become clear that there are some major problems in the ratings systems with the fall of Lehman brothers and junk bonds being mechanically assigned a top rating.

Although in the short term, companies will struggle to keep their AAA investment grade rating, in the long term, the ratings system will have to become more transparent and requires a major overhaul in order to not repeat the errors of the past and change is inevitable. The only real question is how and when the reform will manifest and how many revisions are needed before confidence in debt market will resume.

Essentially, saying that you will try to maintain a Triple A rating is saying you are pursuing the approval of an obsolete system only because there is no other alternative. Evaluate management decisions accordingly.

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