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Credit ratings agencies mum so far on debt-ceiling deal

August 1, 2011 |  1:56 pm

Standard & Poors President Deven Sharma As Congress worked Monday to approve a deal to raise the debt ceiling, the major credit ratings agencies remained publicly silent about whether the spending cuts would be enough to save the nation's triple-A credit rating.

Some analysts said a downgrade still was possible.

"The chances of a downgrade after this deal remain substantially high," said Ajay Rajadhyaksha, head of U.S. fixed-income strategy at Barclays Capital.

Standard & Poor's, Moody's Investor Service and Fitch Ratings all declined to comment Monday on the bargain struck between the White House and congressional leaders for a two-step hike in the $14.3-trillion debt ceiling.

The ratings agencies apparently are waiting for Congress to approve the deal before weighing in.

Administration officials have been in close contact with the agencies in recent weeks. But White House spokesman Jay Carney said Obama administration officials were not sure if the initial cuts of $917 billion over the next decade, with an additional $1.2 trillion to $1.5 trillion coming in a second step, would be enough to avoid a downgrade.

"We certainly hope that that sends the signal that Washington is getting its act together and dealing with these tough issues," Carney told reporters.

The major ratings agencies have taken different public stances on what the U.S. needed to do in order to avoid a downgrade.

On Friday, Moody's said it probably would confirm its triple-A rating if Congress and the White House agreed to "an increase in the debt limit sufficient to last more than a short period of time." The deal reached Sunday would do that, with an initial $400-billion increase in the debt limit and another increase of at least $1.7 trillion if automatic budget cuts are triggered by the failure of a bipartisan commission to agree to reductions by later this year.

Fitch said last month that it would downgrade if the U.S. failed to meet its debt payments because the debt ceiling was not raised. If Congress approves the deal Monday -- or even in the next few days -- it should avoid that fate.

Standard & Poor's has taken a harder line. The firm indicated in July that it would downgrade the U.S. credit rating if a debt-ceiling deal did not cut spending by about $4 trillion over the next 10 to 12 years. For that reason, Rajadhyaksha said S&P could be the only major ratings agency to downgrade if the deal is approved.

Gary Schlossberg, senior economist at Wells Capital Management in San Francisco, agreed.

"If you took them at their word over the last couple of months, this clearly falls short of what they were looking for," Schlossberg said.

But S&P President Deven Sharma seemed to move the bar last week. He told a House hearing that a package of cuts of less than $4 trillion could still satisfy S&P and leave the U.S. credit rating unchanged.

For that reason, Schlossberg said it's unclear what will happen. "It’s a question mark," he said.

 RELATED:

CBO confirms that debt-ceiling plan would cut $2.1 trillion

S&P president says rating firm doesn't expect U.S. debt default

U.S. may be able to pay bills beyond debt-ceiling deadline

-- Jim Puzzanghera

Photo: Standard & Poor's President Deven Sharma. Credit: Associated Press

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