What does one of the most well known credit rating agencies believe is important when evaluating a borrower?
Consider the opinion of Standard and Poor’s about The United States’ creditworthiness and how it changed today from stable to a negative outlook as reported in wsj.com. The rating agency considers these borrower qualities in making their rating decision:
1. Flexibility and Diversity in Business: Can you as a business borrower adapt to changing economic and market conditions or are you cemented in one market, one product, one region? As a business borrower do you have multiple sources of revenue streams or a single concentration of revenue risk? The higher quality borrower will have multiple revenue streams and the ability to adapt to changing market conditions.
The same logic can apply to consumer borrowing. As a consumer, are you employed in an industry that has poor prospects going forward? Do you have alternative revenue streams such as consulting or side line businesses that you develop in your off-the-clock time? Could you adapt to the termination of your primary income stream? Do you have the flexibility to quickly generate new revenue because you have current skills training?
2. Unique external liquidity: The U.S has a globally recognized currency which gives it unique external liquidity in the currency marketplace. If the standard global currency changed to the Euro, for example, the U.S. would lose this key characteristic and its credit rating would be impacted. Do you have a competitive business advantage that opens doors in the marketplace that are closed to others? Does your company have high barriers to entry from competitors which gives you unique leverage? Uniqueness is a revenue safety barrier and can make your business a more attractive credit risk.
How will you enhance your flexibility, diversity and uniqueness to make you or your business a more attractive borrower?
- Standard & Poor’s Lowers U.S. Public Debt Outlook To “Negative” (outsidethebeltway.com)
- S&P Slashes Outlook on U.S. to ‘Negative’ Amid Soaring Debt (benzinga.com)
- U.S. credit rating outlook lowered to ‘negative’ by Standard & Poor’s (latimesblogs.latimes.com)
- Statement of Treasury Assistant Secretary for Financial Markets Mary Miller on Credit Rating Agency Announcements Today (benzinga.com)