The subject of all debates, the assessments of these agencies are an integral component in the economic life of States and companies.
Like Fitch and Moody’s, S&P Global uses the letter rating system, ranging from AAA to D (illustration) (AFP / ALASTAIR PIKE)
Thermometer of the financial health of States and companies, rating agencies play a central role in the world of finance, although they have been heavily criticized in recent years.
After having gone relatively unnoticed since the sovereign debt crisis in Europe at the turn of the 2010s, they returned to the limelight with the sharp increase in public debt following the Covid-19 crisis, against a backdrop of “whatever”. it costs” generalized.
Before the verdict from the S&P Global agency expected on Friday for France, they were particularly closely monitored this year in France in the wake of the downgrading of the French rating by the Fitch agency in April.
The assessments of these agencies are supposed to reflect the economic health of the States:
to rate a country, they evaluate growth, debt, deficit, expenditure, tax revenue, etc.
in order to establish a diagnosis that will guide financiers in their investment decisions. They also use subjective criteria specific to each State.
Sacrosanct “triple A”
The three main international rating agencies, the American S&P Global, Fitch and Moody’s, use a system materialized in the form of letters, ranging from AAA, the best possible rating, to D for payment defaults, via B and C.
“The ratings are divided into two categories: investment, for the best ratings, and speculative, for the worst,”
the distinction between the two being around the “BB” rating,
Slim Souissi, professor and researcher at the University of Caen and former member of the Fitch rating agency, recently explained to AFP.
These ratings can be associated with an outlook, positive or negative, giving the potential evolution in the medium term. S&P Global gives France an “AA” rating but with a negative outlook, meaning a risk of being lowered by at least one notch to “AA-“.
An influence to put into perspective
With these assessments, the agencies assess the debt repayment capacity of a State, a company or a local authority. And the lower the rating, the more likely investors will be to charge a higher interest rate to lend money, because the debt will be considered riskier. In recent months in France, the rate for borrowing over a ten-year maturity has already reached its highest level in twelve years, around 3% or more.
The negative chain effects of a deterioration are not always automatic, “especially for countries whose currency or debt represents a safe haven like the United States” explained to AFP Julien Marcilly, chief economist of the Global firm Research Advisory, specialized in the economic strategy of States. “We should not overestimate the impact of rating agencies,
their assessments reflect underlying vulnerabilities already known to investors”
he added.
Another criticism of the agencies is that they are remunerated through payments from companies that want to be rated in order to successfully borrow on the financial markets.
During the subprime crisis (variable-rate mortgage loans granted in the United States to low-income households) triggered in 2007, rating agencies were singled out for having given the best possible rating to financial products that were, however, at the origin of the outbreak of the crisis.