Standard & Poor’s is an American financial services company that provides research on stocks, bonds, and commodities.
Standard & Poor’s Long-Term Credit Ratings
Standard & Poor’s gives ratings to issuers of long-term debt securities, which are sometimes used for retirement planning. These issuers are assigned ratings on a scale of AAA to D. In addition to assigning ratings, Standard & Poor’s also offers guidance as to whether an issuer is likely to be upgraded or downgraded in the near future.
AAA: These issuers have extremely high financial strength, and very strong capacity to meet their obligations.
AA: This rating differs only slightly from AAA. These issuers have a strong capacity to meet their obligations. AA issuers may also be designated as AA+ or AA-.
A: Issuers who have a strong capacity to meet their obligations but may be somewhat susceptible to adverse business conditions are issued the “A” rating. The stronger recipients of an “A” rating may get an “A+”
BBB: This rating represents an adequate ability to meet obligations, but difficulty could arise in the future due to unfavorable economic conditions.
BB, B, CCC, CC, C: These ratings are assigned to issuers with carrying degrees of financial vulnerabilities. These issuers are still current on their obligations, but their issues are considered speculative.
R: An issuer with an “R” rating is under regulatory supervision owing to its financial condition
SD: Recipients of an “SD” rating have defaulted selectively on obligations.
D: These issuers have defaulted on their obligations, and Standard & Poor’s believes that they will continue to do so.
NR: Assigned to issuers that are not rated.
Standard & Poor’s Short-term Issue Credit Ratings
Standard & Poor’s uses a different rating scale for short-term debt issues. These securities may receive a rating on a scale from ‘A-1’ to ‘D’. The A-1 rating may also be designated with a plus sign (+). This indicates very strong financial strength.
A-1: Issuer’s capacity to meet its financial commitment is strong.
A-2: There may be a susceptibility to adverse business conditions, but the issuer’s capacity for repayment is satisfactory.
A-3: Unfavorable business conditions are likely to weaken the issuer’s capacity for repayment.
B: Issuer has the capacity to meet its current obligations, but the future is uncertain.
C: Currently vulnerable to nonpayment, the issuer is dependent upon favorable business conditions in order to meet its obligations in the future.
D: Payment is in default. Obligations have been missed on a due date. This rating is also used in bankruptcy petitions.
Standard & Poor’s Indices
Although Standard & Poor’s is well-known for their credit ratings of debt issuers, they are perhaps best known as a publisher of stock market indices.
The S&P 500 is a massively popular benchmark of the U.S. stock market. It is a free-float capitalization-weighted index of 500 large-capitalization common stocks in the U.S. Along with the Dow Jones Industrial Average, the S&P 500 is the most widely-used stock market index in the U.S. The S&P 500 is also a common benchmark for indexed annuities, which are used for retirement planning.
The S&P 400 and S&P 600 are other popular Standard & Poor’s indices. The S&P 400 is a price index of 400 mid-capitalization stocks in the U.S., while the S&P 600 tracks the prices of 600 small-capitalization U.S. stocks.