In light of Standard & Poor’s Ratings Services downgrade of the rating on the United States of America, we have lowered the ratings on a number of entities and debt issues whose creditworthiness is directly or indirectly linked to, or heavily dependent on, the credit quality of the sovereign.
While we don’t view sovereign ratings as ceilings for other entities, sovereign credit risk is a key consideration in our assessment of nonsovereign ratings because the wide-ranging powers and resources of a national government can affect the financial, operating, and investment environments of entities under its jurisdiction. Standard & Poor’s issuance of a rating higher than the sovereign reflects our view of an entity’s willingness and ability to pay its debt as superior to that of the sovereign. Moreover, it reflects our view that if the sovereign does default, there is an appreciable likelihood that the entity or its debt won’t follow suit.
History shows that a sovereign default can directly result in defaults by related borrowers, as can the deterioration in the economic and operating environment that is typically associated with a sovereign default. Therefore, our lowering of the U.S. sovereign rating to ‘AA+’ from ‘AAA’ has had a number of knock-on effects.
This report summarizes those effects in the following areas:
- Government-Related Enterprises
- Public Finance Debt
- State and Local Governments
- Banks and Insurers
- Structured Finance
- Nonfinancial Corporate Borrowers
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