MIRA INFORM REPORT
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Report Date : |
19.10.2012 |
IDENTIFICATION DETAILS
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Name : |
THE MEN’S WEARHOUSE, INC. |
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Registered Office : |
6580 Rogerdale Road, Houston, TX 77072 |
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Country : |
United States |
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Date of Incorporation : |
03.05.1974 |
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Legal Form : |
Public Company (NYSE = MW) |
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Line of Business : |
Operates as a specialty apparel retailer |
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No. of Employees : |
12,200 |
RATING & COMMENTS
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MIRA’s Rating : |
A |
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RATING |
STATUS |
PROPOSED CREDIT LINE |
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56-70 |
A |
Financial & operational base are regarded healthy. General
unfavourable factors will not cause fatal effect. Satisfactory capability for
payment of interest and principal sums |
Fairly Large |
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Status : |
Good |
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Payment Behaviour : |
Regular |
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Litigation : |
Clear |
NOTES :
Any query related to this report can be made
on e-mail: infodept@mirainform.com
while quoting report number, name and date.
ECGC Country Risk Classification List – June 30th, 2012
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Country Name |
Previous Rating (31.03.2011) |
Current Rating (30.06.2012) |
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United States |
A1 |
A1 |
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Risk Category |
ECGC
Classification |
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Insignificant |
A1 |
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Low |
A2 |
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Moderate |
B1 |
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High |
B2 |
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Very High |
C1 |
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Restricted |
C2 |
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Off-credit |
D |
UNITED STATES - ECONOMIC OVERVIEW
The US has the largest and most
technologically powerful economy in the world, with a per capita GDP of
$48,100. In this market-oriented economy, private individuals and business
firms make most of the decisions, and the federal and state governments buy
needed goods and services predominantly in the private marketplace. US business
firms enjoy greater flexibility than their counterparts in Western Europe and
Japan in decisions to expand capital plant, to lay off surplus workers, and to
develop new products. At the same time, they face higher barriers to enter
their rivals' home markets than foreign firms face entering US markets. US
firms are at or near the forefront in technological advances, especially in
computers and in medical, aerospace, and military equipment; their advantage has
narrowed since the end of World War II. The onrush of technology largely
explains the gradual development of a "two-tier labor market" in
which those at the bottom lack the education and the professional/technical
skills of those at the top and, more and more, fail to get comparable pay
raises, health insurance coverage, and other benefits. Since 1975, practically
all the gains in household income have gone to the top 20% of households. Since
1996, dividends and capital gains have grown faster than wages or any other
category of after-tax income. Imported oil accounts for nearly 55% of US
consumption. Oil prices doubled between 2001 and 2006, the year home prices
peaked; higher gasoline prices ate into consumers' budgets and many individuals
fell behind in their mortgage payments. Oil prices increased another 50%
between 2006 and 2008. In 2008, soaring oil prices threatened inflation and
caused a deterioration in the US merchandise trade deficit, which peaked at
$840 billion. In 2009, with the global recession deepening, oil prices dropped
40% and the US trade deficit shrank, as US domestic demand declined, but in
2011 the trade deficit ramped back up to $803 billion, as oil prices climbed
once more. The global economic downturn, the sub-prime mortgage crisis,
investment bank failures, falling home prices, and tight credit pushed the
United States into a recession by mid-2008. GDP contracted until the third
quarter of 2009, making this the deepest and longest downturn since the Great
Depression. To help stabilize financial markets, in October 2008 the US
Congress established a $700 billion Troubled Asset Relief Program (TARP). The
government used some of these funds to purchase equity in US banks and
industrial corporations, much of which had been returned to the government by
early 2011. In January 2009 the US Congress passed and President Barack OBAMA
signed a bill providing an additional $787 billion fiscal stimulus to be used
over 10 years - two-thirds on additional spending and one-third on tax cuts - to
create jobs and to help the economy recover. In 2010 and 2011, the federal
budget deficit reached nearly 9% of GDP; total government revenues from taxes
and other sources are lower, as a percentage of GDP, than that of most other
developed countries. The wars in Iraq and Afghanistan required major shifts in
national resources from civilian to military purposes and contributed to the
growth of the US budget deficit and public debt - through 2011, the direct
costs of the wars totaled nearly $900 billion, according to US government
figures. In March 2010, President OBAMA signed into law the Patient Protection
and Affordable Care Act, a health insurance reform bill that will extend
coverage to an additional 32 million American citizens by 2016, through private
health insurance for the general population and Medicaid for the impoverished.
Total spending on health care - public plus private - rose from 9.0% of GDP in
1980 to 17.9% in 2010. In July 2010, the president signed the DODD-FRANK Wall
Street Reform and Consumer Protection Act, a law designed to promote financial
stability by protecting consumers from financial abuses, ending taxpayer
bailouts of financial firms, dealing with troubled banks that are "too big
to fail," and improving accountability and transparency in the financial
system - in particular, by requiring certain financial derivatives to be traded
in markets that are subject to government regulation and oversight. Long-term
problems include inadequate investment in deteriorating infrastructure, rapidly
rising medical and pension costs of an aging population, sizable current
account and budget deficits - including significant budget shortages for state
governments - energy shortages, and stagnation of wages for lower-income
families.
Source : CIA
Company name: THE MEN’S WEARHOUSE, INC.
Headquarters: 6580 Rogerdale Road, Houston, TX
77072 - USA
Telephone: +1
281-776-7000
Fax: +1 281-776-7038
Website: www.menswearhouse.com
Corporate ID#: 34209900
State: Texas
Judicial form: Public Company (NYSE = MW)
Date incorporated: May 3,
1974
Stock:
Value:
Name of manager: Douglas
S. EWERT
Business:
The Men’s Wearhouse, Inc. operates as a specialty apparel retailer. As
of January 28, 2012, the company operated 1,166 retail stores, with 1,049
stores in the United States and 117 stores in Canada.
The company operates in two segments, Retail and Corporate Apparel.
The Retail segment offers its products and services through its four
retail merchandising brands, including The Men’s Wearhouse, Men’s Wearhouse and
Tux, K&G, and Moores Clothing for Men, as well as on the Internet at
www.menswearhouse.com and www.kgstores.com.
The company’s stores are located throughout the United States and Canada
and carry a selection of brand name and private label merchandise.
MW Cleaners, a retail dry cleaning and laundry operation in the Houston,
Texas area, is also aggregated in the Retail segment.
Men’s Wearhouse/Men’s Wearhouse and Tux The company, under the Men’s
Wearhouse brand, primarily targets middle and upper-middle income men by
providing a level of customer service and offering merchandise, including a
selection of designer, brand name, and private label merchandise.
The company also offers a selection of ‘Big and Tall’ product and
‘Modern Fit’, a selection of slimmer fitting clothing. Its merchandise includes
suits, suit separates, sport coats, slacks, formalwear, business casual,
sportswear, outerwear, dress shirts, shoes, and accessories.
As of January 28, 2012, the company operated 607 Men’s Wearhouse apparel
stores in 49 states and the District of Columbia. These stores are referred to
as ‘Men’s Wearhouse stores’ or ‘traditional stores’ and also offer a selection
of tuxedo rental product. Men’s Wearhouse stores are primarily located in
regional strip and specialty retail shopping centers.
As of January 28, 2012, the company also operated another 343 stores in
37 states branded as Men’s Wearhouse and Tux that offer a selection of tuxedo
rental product and a limited selection of retail merchandise, including dress
and casual apparel targeted towards a younger customer.
These stores are located primarily in regional malls and lifestyle
centers. K&G The company, under the K&G brand, targets the price
sensitive customer. As of January 28, 2012, the company operated 99 K&G
stores in 28 states, 91 of which also offered ladies’ career apparel,
sportswear, and accessories, including shoes and children’s apparel. K&G’s
merchandising focuses on assortments across various major categories of both
men’s and ladies apparel, including tailored clothing, casual sportswear, dress
furnishings, children’s clothing, footwear, and accessories.
Moores Moores is a specialty retailer of men’s suits in Canada with 117
retail apparel stores in 10 Canadian provinces as of January 28, 2012. Moores’
merchandise consists of suits, sport coats, slacks, business casual,
sportswear, outerwear, dress shirts, shoes, and accessories.
The company also offers tuxedo rentals at all of its Moores stores.
The Corporate Apparel segment provides corporate clothing uniforms and
workwear to workforces with operations conducted by Twin Hill in the United
States; and by its U.K. holding company operating under the Dimensions and
Alexandra brands primarily in the U.K. The company offers its corporate apparel
clothing products through multiple channels including managed corporate
accounts, catalogs and on the Internet at www.dimensions.co.uk,
www.alexandra.co.uk, and www.twinhill.com.
The company offers various customer branded apparel, such as shirts,
blouses, trousers, skirts, and suits as well as a range of other products from
aprons to safety vests to high visibility police outerwear.
With respect to its managed contracts, the company provides management
of its customers’ corporate clothing programs from design, fabric buying and
manufacture to measuring, product roll-outs, and ongoing stock replacement and
replenishment.
The Men’s Wearhouse, Inc. was founded in 1974.
EIN: 74-1790172
Staff: 12,200
Operations & branches:
At the headquarters, we find
a large warehouse, store and office, owned.
Shareholders:
As of June 30, 2012, 99.99% of the stock was held by institutional and
mutual fund owners, including:
|
ADVISORY
RESEARCH, INC. |
5.72% |
|
VANGUARD GROUP, INC.
(THE) |
5.37% |
|
BLACKROCK FUND
ADVISORS |
4.31% |
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PRICE (T.ROWE)
ASSOCIATES INC |
4.06% |
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LORD ABBETT
& CO |
4.00% |
Management:
Douglas S. EWERT, President, Director and CEO.
Mr. Douglas S. Ewert, Doug has been the Chief Executive Officer and President
of The Men's Wearhouse, Inc. since June 15, 2011 and January 2008 respectively.
Mr. Ewert served as the Chief Operating Officer of The Men's Wearhouse, Inc.
from February 1, 2005 to June 15, 2011.
Mr. Ewert served as an Executive Vice President of The Men's Wearhouse,
Inc., since February 1, 2005. He joined The Men's Wearhouse, Inc. in 1995 and
served as General Merchandise Manager from 1996 to 1999 and served as its
Executive Vice President and General Merchandise Manager from March 2002 to December
1, 2005. He served as an Executive Vice President of K&G Mens Company Inc.,
from March 2001 to March 2002 and its Chief Operating Officer since March 2001.
From 1999 to 2000, he served as Vice President of Merchandising and General
Merchandise Manager for K&G Mens Company.
Since April 2000, Mr. Ewert served as Senior Vice
President,Merchandising, and Chief Operating Officer of K&G Men's Company.
and its General Merchandise Manager from 1996 to 1999.
He has been a Director of The Men's Wearhouse, Inc. since June 15, 2011.
George ZIMMER is the Chairman.
Mr. George A. Zimmer has been an Executive Chairman of the Board of The
Men's Wearhouse, Inc. since June 15, 2011. Mr. Zimmer serves as the President
of Value Priced Clothing, Inc. Mr. Zimmer serves as the Chief Executive Officer
of Moores The Suit People, Inc.
Mr. Zimmer founded Moores The Suit People, Inc. since 1980. Mr. Zimmer
co-founded Men's Wearhouse as a partnership in 1973 and served as its President
from 1974 until February 1997. Mr. Zimmer served as the Chief Executive Officer
of Men's Wearhouse Inc., a holding company of K&G Men's Company Inc. and
Moores Retail Group Inc., from 1991 to June 15, 2011. He served as the Chairman
of the Board of The Men's Wearhouse, Inc. from 1974 to June 15, 2011. He has
been an Independent Director of Apollo Group Inc. since October 25, 2006. He
has been a Director of The Men's Wearhouse, Inc. since 1974.
He served as a Director of University Of Phoenix since June 26, 2006.
Mr. Zimmer is currently co-chair of the board of the Institute of Noetic
Sciences, and serves on several advisory boards including The Boys & Girls
Club of Oakland, Calif., and the World Business Academy of Ojai, Calif.
Mr. Zimmer received a Bachelor of Arts in Economics from Washington University.
Dr. Charles BRESLER, Ph.D. has been an Executive Vice President of The
Men's Wearhouse Inc., since March 2011.
Dr. Bresler served as an Executive Vice President of Marketing &
Human Resources at The Men's Wearhouse Inc. since January 26, 2008.
Dr. Bresler served as President of The Mens Wearhouse Inc. a holding
company of K&G Men's Company Inc. since February 1, 2005.
He joined Mens Wearhouse Inc. in 1993 and served as its Senior Vice
President of Human Development from 1993 to 1998 and its Executive Vice
President since February 1998 and also then served as its Executive Vice
President of Stores, Marketing and Human Development from March 2003 to January
30, 2005.
Diana WILSON is the Executive Vice President and interim CFO.
Subsidiaries &
Partnership:
Domestic Subsidiaries:
TMW Marketing Company, Inc., a California
corporation
TMW Merchants LLC, a Delaware limited liability company
TMW Purchasing LLC, a Delaware limited liability company
Renwick Technologies, Inc., a Texas corporation
K&G Men’s Company Inc., a Delaware corporation
Twin Hill Acquisition Company, Inc., a California corporation
MWDC Holding Inc., a Delaware corporation
MWDC Texas Inc., a Delaware corporation
TMW Europe LLC, a Delaware limited liability company
Foreign Subsidiaries:
Moores Retail Group Inc., a New Brunswick
corporation
Moores The Suit People Inc., a New Brunswick corporation
Golden Brand Clothing (Canada) Ltd., a New Brunswick corporation
MWUK Holding Company Limited, a limited company incorporated in England and
Wales
MWUK Acquisition Company Limited, a limited company incorporated in England and
Wales
Alexandra Vêtements Professionels SAS, a French société par actions simplifiée
Alexandra Corporate Fashion BV, a limited company incorporated under the laws
of the Netherlands
Ensco 648 Limited, a limited company incorporated in England and Wales
Ensco 645 Limited, a limited company incorporated in England and Wales
MWUK Limited (formerly known as, Dimensions Clothing Limited), a limited
company incorporated in England and Wales
On attachment:
- 10K 2011-2012
- 2nd 10Q 2012
On September 5, 2012, The Men's Wearhouse, Inc. announced unaudited
consolidated earnings results for the second quarter and six months ended July
28, 2012. For the quarter, the company reported total net sales of $662,302,000
against $655,529,000 a year ago. Operating income was $91,590,000 against
$89,018,000 a year ago. Earnings before income taxes were $91,225,000 against
$88,789,000 a year ago. Net earnings attributable to common shareholders were
$59,393,000 or $1.15 diluted per share against $57,078,000 or $1.09 diluted per
share a year ago. Diluted earnings per share were better than the guidance
given on June 6, 2012 mainly as a result of a higher than planned retail segment
gross margin for second quarter 2012 and a slightly lower than expected tax
rate. For the six months, the company reported total net sales of
$1,248,876,000 against $1,235,913,000 a year ago. Operating income was
$132,537,000 against $132,655,000 a year ago. Earnings before income taxes were
$131,867,000 against $132,158,000 a year ago. Net earnings attributable to
common shareholders were $86,277,000 or $1.67 diluted per share against
$84,503,000 or $1.61 diluted per share a year ago. Net cash provided by
operating activities was $108,432,000 against $122,016,000 a year ago. Capital
expenditures were $68,846,000 against $38,258,000 a year ago. The company
provides earnings guidance for the third quarter, fourth quarter and fiscal
year of 2012. For the third quarter, GAAP diluted earnings per share is
expected to be in a range of $0.95 to $0.98, a 20% to 24% increase over the
prior year adjusted diluted earnings per share. Total sales increase was
expected to be 8.8% to 9.3%. Effective tax rate was expected to be 34.4%. For
the fourth quarter, GAAP diluted earnings per share is expected to be in a
range of $0.12 to $0.15, a significant increase over the prior year adjusted
loss per share of $0.05. Total sales increase was expected to be 11.3% to 11.8%.
Effective tax rate was expected to be 30.8%. For the fiscal year, the company
expects GAAP diluted earnings per share in a range of $2.74 to $2.80, an
increase of 15% to 18% over the prior year adjusted diluted earnings per share.
Fiscal 2012 is a 53-week year with an extra week included in the fourth
quarter. Diluted earnings per share from the extra week are estimated at $0.02.
Total sales increase was expected to be 4.8% to 5.6%. Effective tax rate was
expected to be 34.4%.
On September 25, 2012, The Men's Wearhouse, Inc. announced that its
Board of Directors declared a quarterly cash dividend of $0.18 per share on the
Company's common stock, payable on December 21, 2012 to shareholders of record
at the close of business on December 11, 2012.
Banks: JPMorgan Chase Bank
Legal filings & complaints:
As of today, there is no legal filing pending with the Courts.
Secured debts summary (UCC):
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Trade references:
Date reported: September 2012
High credit: USD 150,000
Now owing: 0
Past due: 0
Last purchase: August 2012
Line of business: Office supply
Paying status: On terms
Date reported: September 2012
High credit: USD 25,000,000+
Now owing: 0
Past due: 0
Last purchase: August 2012
Line of business: Payroll
Paying status: As agreed
Date reported: September 2012
High credit: USD 100,000+
Now owing: 0
Past due: 0
Last purchase: August 2012
Line of business: Telecommunications
Paying status: On terms
Domestic credit history:
Domestic credit history
appears as follow:
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Monthly Payment Trends - Recent Activity |
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National Credit Bureaus
gave a medium credit rating.
According to our credit analysts, during the last 6 months, 68% of trade
experience indicates a regular payment.
Payments are made with an average of 30+ days beyond terms.
International credit history:
Payments of imports are currently made with an average of 5 to 15 days
beyond terms.
Other comments:
The Company is developing a
regular business.
The banks and financial
institutions confirmed late payments but remains confident.
The Company is in good
standing.
This means that all local
and federal taxes were paid on due date.
The risk remains low.
Our opinion:
A business connection may
be conducted.
Standard & Poor’s
|
United
States of America Long-Term Rating Lowered To 'AA+' Due To Political Risks,
Rising Debt Burden; Outlook Negative |
|
Publication
date: 05-Aug-2011 20:13:14 EST |
·
We have also removed both the short- and long-term ratings
from CreditWatch negative.
·
The downgrade reflects our opinion that the fiscal consolidation
plan that Congress and the Administration recently agreed to falls short of
what, in our view, would be necessary to stabilize the government's medium-term
debt dynamics.
·
More broadly, the downgrade reflects our view that the
effectiveness, stability, and predictability of American policymaking and
political institutions have weakened at a time of ongoing fiscal and economic
challenges to a degree more than we envisioned when we assigned a negative
outlook to the rating on April 18, 2011.
·
Since then, we have changed our view of the difficulties in
bridging the gulf between the political parties over fiscal policy, which makes
us pessimistic about the capacity of Congress and the Administration to be able
to leverage their agreement this week into a broader fiscal consolidation plan
that stabilizes the government's debt dynamics any time soon.
·
The outlook on the long-term rating is negative. We could
lower the long-term rating to 'AA' within the next two years if we see that
less reduction in spending than agreed to, higher interest rates, or new fiscal
pressures during the period result in a higher general government debt
trajectory than we currently assume in our base case.
TORONTO (Standard &
Poor's) Aug. 5, 2011--Standard & Poor's Ratings Services said today that it
lowered its long-term sovereign credit rating on the United States of America
to 'AA+' from 'AAA'. Standard & Poor's also said that the outlook on the
long-term rating is negative. At the same time, Standard & Poor's affirmed
its 'A-1+' short-term rating on the U.S. In addition, Standard & Poor's
removed both ratings from CreditWatch, where they were placed on July 14, 2011,
with negative implications.
The
transfer and convertibility (T&C) assessment of the U.S.--our assessment of
the likelihood of official interference in the ability of U.S.-based public-
and private-sector issuers to secure foreign exchange for
debt service--remains
'AAA'.
We lowered our long-term
rating on the U.S. because we believe that the prolonged controversy over
raising the statutory debt ceiling and the related fiscal policy debate
indicate that further near-term progress containing the growth in public
spending, especially on entitlements, or on reaching an agreement on raising
revenues is less likely than we previously assumed and will remain a
contentious and fitful process. We also believe that the fiscal consolidation
plan that Congress and the Administration agreed to this week falls short of
the amount that we believe is necessary to stabilize the general government
debt burden by the middle of the decade.
Our lowering of the
rating was prompted by our view on the rising public debt burden and our
perception of greater policymaking uncertainty, consistent with our criteria
(see "Sovereign Government Rating Methodology and
Assumptions ," June 30, 2011, especially Paragraphs 36-41).
Nevertheless, we view the U.S. federal government's other economic, external,
and monetary credit attributes, which form the basis for the sovereign rating,
as broadly unchanged.
We have taken the ratings
off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment
of 2011 has removed any perceived immediate threat of payment default posed by
delays to raising the government's debt ceiling. In addition, we believe that
the act provides sufficient clarity to allow us to evaluate the likely course
of U.S. fiscal policy for the next few years.
The
political brinksmanship of recent months highlights what we see as America's
governance and policymaking becoming less stable, less effective, and less
predictable than what we previously believed. The statutory debt ceiling and
the threat of default have become political bargaining chips in the debate over
fiscal policy. Despite this year's wide-ranging debate, in our view, the
differences between political parties have proven to be extraordinarily
difficult to bridge, and, as we see it, the resulting agreement fell well short
of the comprehensive fiscal consolidation program that some proponents had
envisaged until quite recently. Republicans and Democrats have only been able
to agree to relatively modest savings on discretionary spending while
delegating to the Select Committee decisions on more comprehensive measures. It
appears that for now, new revenues have dropped down on the menu of policy
options. In addition, the plan envisions only minor policy changes on Medicare
and little change in other entitlements,
the containment of which
we and most other independent observers regard as key to long-term fiscal
sustainability.
Our opinion is that
elected officials remain wary of tackling the structural issues required to
effectively address the rising U.S. public debt burden in a manner consistent
with a 'AAA' rating and with 'AAA' rated sovereign peers (see Sovereign Government Rating Methodology and
Assumptions," June 30, 2011, especially Paragraphs 36-41). In
our view, the difficulty in framing a consensus on fiscal policy weakens the
government's ability to manage public finances and diverts attention from the
debate over how to achieve more balanced and dynamic economic growth in an era
of fiscal stringency and private-sector deleveraging (ibid). A new political
consensus might (or might not) emerge after the 2012 elections, but we believe
that by then, the government debt burden will likely be higher, the needed
medium-term fiscal adjustment potentially greater, and the inflection point on
the U.S. population's demographics and other age-related spending drivers
closer at hand (see "Global Aging 2011: In The U.S., Going Gray Will Likely
Cost Even More Green, Now," June 21, 2011).
Standard & Poor's
takes no position on the mix of spending and revenue measures that Congress and
the Administration might conclude is appropriate for putting the U.S.'s
finances on a sustainable footing.
The act calls for as much
as $2.4 trillion of reductions in expenditure growth over the 10 years through
2021. These cuts will be implemented in two steps: the $917 billion agreed to
initially, followed by an additional $1.5 trillion that the newly formed
Congressional Joint Select Committee on Deficit Reduction is supposed to
recommend by November 2011. The act contains no measures to raise taxes or otherwise
enhance revenues, though the committee could recommend them.
The act further provides
that if Congress does not enact the committee's recommendations, cuts of $1.2
trillion will be implemented over the same time period. The reductions would
mainly affect outlays for civilian discretionary spending, defense, and
Medicare. We understand that this fall-back mechanism is designed to encourage
Congress to embrace a more balanced mix of expenditure savings, as the
committee might recommend.
We note that in a letter
to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated
total budgetary savings under the act to be at least $2.1 trillion over the
next 10 years relative to its baseline assumptions. In updating our own fiscal
projections, with certain modifications outlined below, we have relied on the
CBO's latest "Alternate Fiscal Scenario" of June 2011, updated to
include the CBO assumptions contained in its Aug. 1 letter to Congress. In
general, the CBO's "Alternate Fiscal Scenario" assumes a continuation
of recent Congressional action overriding existing law.
We view the act's
measures as a step toward fiscal consolidation. However, this is within the
framework of a legislative mechanism that leaves open the details of what is
finally agreed to until the end of 2011, and Congress and the Administration
could modify any agreement in the future. Even assuming that at least $2.1
trillion of the spending reductions the act envisages are implemented, we
maintain our view that the U.S. net general government debt burden (all levels
of government combined, excluding liquid financial assets) will likely continue
to grow. Under our revised base case fiscal scenario--which we consider to be
consistent with a 'AA+' long-term rating and a negative outlook--we now project
that net general government debt would rise from an estimated 74% of GDP by the
end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of
sovereign indebtedness is high in relation to those of peer credits and, as
noted, would continue to rise under the act's revised policy settings.
Compared with previous
projections, our revised base case scenario now assumes that the 2001 and 2003
tax cuts, due to expire by the end of 2012, remain in place. We have changed our
assumption on this because the majority of Republicans in Congress continue to
resist any measure that would raise revenues, a position we believe Congress
reinforced by passing the act. Key macroeconomic assumptions in the base case
scenario include trend real GDP growth of 3% and consumer price inflation near
2% annually over the decade.
Our revised upside
scenario--which, other things being equal, we view as consistent with the
outlook on the 'AA+' long-term rating being revised to stable--retains these
same macroeconomic assumptions. In addition, it incorporates $950 billion of
new revenues on the assumption that the 2001 and 2003 tax cuts for high earners
lapse from 2013 onwards, as the Administration is advocating. In this scenario,
we project that the net general government debt would rise from an estimated
74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.
Our revised downside
scenario--which, other things being equal, we view as being consistent with a
possible further downgrade to a 'AA' long-term rating--features less-favorable
macroeconomic assumptions, as outlined below and also assumes that the second
round of spending cuts (at least $1.2 trillion) that the act calls for does not
occur. This scenario also assumes somewhat higher nominal interest rates for
U.S. Treasuries. We still believe that the role of the U.S. dollar as the key
reserve currency confers a government funding advantage, one that could change
only slowly over time, and that Fed policy might lean toward continued loose
monetary policy at a time of fiscal tightening. Nonetheless, it is possible
that interest rates could rise if investors re-price relative risks. As a
result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in
10-year bond yields relative to the base and upside cases from 2013 onwards. In
this scenario, we project the net public debt burden would rise from 74% of GDP
in 2011 to 90% in 2015 and to 101% by 2021.
Our revised scenarios
also take into account the significant negative revisions to historical GDP
data that the Bureau of Economic Analysis announced on July 29. From our
perspective, the effect of these revisions underscores two related points when
evaluating the likely debt trajectory of the U.S. government. First, the revisions
show that the recent recession was deeper than previously assumed, so the GDP
this year is lower than previously thought in both nominal and real terms.
Consequently, the debt burden is slightly higher. Second, the revised data
highlight the sub-par path of the current economic recovery when compared with
rebounds following previous post-war recessions. We believe the sluggish pace
of the current economic recovery could be consistent with the experiences of
countries that have had financial crises in which the slow process of debt
deleveraging in the private sector leads to a persistent drag on demand. As a
result, our downside case scenario assumes relatively modest real trend GDP
growth of 2.5% and inflation of near 1.5% annually going forward.
When comparing the U.S.
to sovereigns with 'AAA' long-term ratings that we view as relevant
peers--Canada, France, Germany, and the U.K.--we also observe, based on our
base case scenarios for each, that the trajectory of the U.S.'s net public debt
is diverging from the others. Including the U.S., we estimate that these five
sovereigns will have net general government debt to GDP ratios this year
ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%.
By 2015, we project that their net public debt to GDP ratios will range between
30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at
79%. However, in contrast with the U.S., we project that the net public debt
burdens of these other sovereigns will begin to decline, either before or by
2015.
Standard & Poor's
transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment
reflects our view of the likelihood of the sovereign restricting other public
and private issuers' access to foreign exchange needed to meet debt service.
Although in our view the credit standing of the U.S. government has
deteriorated modestly, we see little indication that official interference of
this kind is entering onto the policy agenda of either Congress or the
Administration. Consequently, we continue to view this risk as being highly
remote.
The outlook on the
long-term rating is negative. As our downside alternate fiscal scenario
illustrates, a higher public debt trajectory than we currently assume could
lead us to lower the long-term rating again. On the other hand, as our upside
scenario highlights, if the recommendations of the Congressional Joint Select
Committee on Deficit Reduction--independently or coupled with other
initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high
earners--lead to fiscal consolidation measures beyond the minimum mandated, and
we believe they are likely to slow the deterioration of the government's debt
dynamics, the long-term rating could stabilize at 'AA+'.
FOREIGN EXCHANGE RATES
|
Currency |
Unit
|
Indian Rupees |
|
US Dollar |
1 |
Rs.52.97 |
|
|
1 |
Rs.85.45 |
|
Euro |
1 |
Rs.69.45 |
INFORMATION DETAILS
|
Report
Prepared by : |
PRL |
RATING EXPLANATIONS
|
RATING |
STATUS |
PROPOSED CREDIT LINE |
|
|
>86 |
Aaa |
Possesses an extremely sound financial base with the strongest
capability for timely payment of interest and principal sums |
Unlimited |
|
71-85 |
Aa |
Possesses adequate working capital. No caution needed for credit transaction.
It has above average (strong) capability for payment of interest and
principal sums |
Large |
|
56-70 |
A |
Financial & operational base are regarded healthy. General
unfavourable factors will not cause fatal effect. Satisfactory capability for
payment of interest and principal sums |
Fairly Large |
|
41-55 |
Ba |
Overall operation is considered normal. Capable to meet normal
commitments. |
Satisfactory |
|
26-40 |
B |
Capability to overcome financial difficulties seems comparatively below
average. |
Small |
|
11-25 |
Ca |
Adverse factors are apparent. Repayment of interest and principal sums
in default or expected to be in default upon maturity |
Limited with
full security |
|
<10 |
C |
Absolute credit risk exists. Caution needed to be exercised |
Credit not
recommended |
|
-- |
NB |
New Business |
-- |
This score serves as a reference to assess
SC’s credit risk and to set the amount of credit to be extended. It is
calculated from a composite of weighted scores obtained from each of the major
sections of this report. The assessed factors and their relative weights (as
indicated through %) are as follows:
Financial
condition (40%) Ownership
background (20%) Payment
record (10%)
Credit history
(10%) Market trend (10%) Operational size
(10%)
This report is issued at your request without any
risk and responsibility on the part of MIRA INFORM PRIVATE LIMITED (MIPL)
or its officials.