The Business Case for Relinquishing AAA Credit Ratings

Status symbols don’t last forever. The original Queen Mary no longer sails, Cadillac stopped making the DeVille in 2005, and having an S&P credit rating of AAA isn’t what it used to be. ExxonMobil CEO Rex Tillerson told CNBC in March that he hoped to maintain a triple-A rating “because it’s important to us reputationally.” But when push came to shove, raising the dividend and buying back shares were higher priorities than keeping debt low enough to preserve that pristine credit reputation. Last month, S&P Global Ratings knocked the company down to AA+. That leaves only two nonfinancial corporate AAA’s in the U.S., Microsoft and Johnson & Johnson, down from 60 in 1980.

A triple-A rating is a token of balance-sheet perfection. Investors accept lower rates on the bonds of AAA-rated companies because their formidable financial resources mean there’s almost no risk they’ll miss a payment. S&P judges a triple-A borrower to have “extremely strong capacity to meet its financial commitments,” while a double-A borrower has only “very strong capacity.” The top rating at rival Moody’s Investors Service is Aaa.