Fitch explains decision to put US credit rating on watch

Fitch Ratings has focused its communications strategy on educating the media about its decision to place the US' credit rating on negative watch last Tuesday. But it has been careful to stay out of the bigger political story.

CHICAGO: After placing the US' credit rating on negative watch last Tuesday, Fitch Ratings has focused its communications strategy on educating the media about its decision but staying out of the broader political story.

Fitch's assessment precedes an actual downgrade, which would cut the US government's “AAA” debt rating. The agency, which is the third-largest of the major debt-rating companies behind Standard & Poor's and Moody's Investors Service, expects to make its final review public by the end of the first quarter.

Meanwhile, the last time Washington toyed with the idea of refusing to raise the debt ceiling, S&P downgraded US long-term debt to “AA” in August 2011. Currently, Moody's has no plans to change its “AAA” rating of US debt.

Fitch issues approximately 50 to 75 rating actions each day. That typically happens in a regimented way in terms of timing, process, and disclosure, said Daniel Noonan, MD and global head of communications at Fitch. However, the broader media took notice in this high-visibility situation.

“The journalists we work with on a regular basis understand credit ratings and understand the context of the announcement,” he explained. “The biggest challenge in all of this to us was making sure that specifically the broader media that doesn't cover us on a daily basis understands our role, what our opinion means, and what it doesn't mean.”

The ratings agency has decided to let its statement, in which it attributed the country's risk of defaulting on its debt to Washington's “political brinkmanship,” speak for itself and “educate” the barrage of broader members of the media that have been in touch since the announcement.

“I have to say, the story has been broadly understood; this has been a constructive exercise,” said Noonan.

If Fitch does issue a downgrade, lower ratings at the state and local level may go into effect, meaning local governments may have to pay more to raise funds for things like roads, schools, and hospitals.

“It's not [Fitch's] role to insert itself in the debate, or be participants in the political process,” Noonan added. “It is a part of our role to observe the impact the process is having, and the credit-worthiness of bonds – in this case, the US Treasury bonds.

Fitch is not working with an agency to respond to the crush of media attention and is handling the matter in-house.

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