NACM Statement on Fitch, S&P Ratings Actions

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Columbia, Maryland: August 18, 2011-Fitch Ratings recently affirmed its top-tier AAA sovereign rating of U.S. Treasury securities, just a little more than a week after fellow ratings agency Standard & Poor's (S&P) controversially downgraded the U.S. from AAA to AA+.

Both agencies' reasons for their affirmation, and downgrade, of the United States' debt runs parallel to the most critical, yet basic, tenets of credit. There are a number of striking similarities between statements in S&P's eight-page explanation of the U.S. downgrade and the "5 Cs of Credit," said officials with the National Association of Credit Management (NACM).

"The 5 Cs are Character, Capacity, Capital, Collateral and Conditions," said NACM President Robin Schauseil, CAE. "When S&P refers to America's ‘political brinksmanship,' they're really making a judgment on the country's character, just as a commercial creditor would do so with one of its customers."

"In the world of trade credit, a credit applicant with character is one with the moral qualities that oblige them to pay as debts become due," she added. "While the U.S. isn't applying for credit with S&P, they're making the same judgment that thousands of credit managers make every day when denying credit to companies who lack character, the kind of character that makes them handle their finances as agreed."

Fitch, in their affirmation of U.S. debt, relied on other Cs of credit, most notably capital, conditions and capacity. "Fitch said that while their outlook could turn negative after the President's Joint Select committee makes its recommendations, the U.S. economy remains one of the world's most productive, meaning we have the ability to generate enough capital to avoid default," said Schauseil. "They added that the conditions in the U.S. are expected to ‘regain momentum' and that America's ‘flexible, diversified and wealthy economy' enhances the capacity of the economy to handle shocks."

"S&P seems to have taken a more conservative approach, basing its decision on the country's character, while Fitch remained confident in U.S. debt because of its capital, market conditions and capacity to pay," she added. "That the two agencies can use some of these 5 Cs to come to two different conclusions illustrates how diverse and complex the field of credit management really is, and how valuable the 5 Cs are as a broad tool for judging creditworthiness."

About the National Association of Credit Management
The National Association of Credit Management (NACM), headquartered in Columbia, Maryland, supports approximately 16,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services, which improve the management of business credit and accounts receivable. NACM's collective voice has influenced legislative results concerning commercial business and trade credit to our nation's policy makers for more than 100 years.

NACM has a wealth of member experts in the fields of business-to-business credit and law. Consider using NACM as a resource in the development of your next credit or finance story.

Source: National Association of Credit Management

Contact: Caroline Zimmerman, 410-740-5560



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