MIRA INFORM REPORT

 

 

Report No. :

335532

Report Date :

11.08.2015

           

IDENTIFICATION DETAILS

 

Name :

CHURCH & DWIGHT CO. INC.

 

 

Registered Office :

500 Charles Ewing Blvd, Ewing, NJ 08628

 

 

Country :

United States

 

 

Financials (as on) :

30.06.2015

 

 

Date of Incorporation :

14.12.1925

 

 

Legal Form :

Public Company

 

 

Line of Business :

Subject is develops, manufactures, and markets household, personal care, and specialty products

 

 

No. of Employee :

4,145

 

 

RATING & COMMENTS

 

MIRA’s Rating :

Ba

 

RATING

STATUS

PROPOSED CREDIT LINE

41-55

Ba

Overall operation is considered normal. Capable to meet normal commitments.

Satisfactory

 

Status :

Satisfactory

 

 

Payment Behaviour :

Slow but correct

 

 

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 – March 31, 2015

 

Country Name

Previous Rating

(31.12.2014)

Current Rating

(31.03.2015)

United States

A1

A1

 

Risk Category

ECGC Classification

Insignificant

 

A1

Low

 

A2

Moderate

 

B1

High

 

B2

Very High

 

C1

Restricted

 

C2

Off-credit

 

D

 


 

UNITED STATES - ECONOMIC OVERVIEW

 

The US has the most technologically powerful economy in the world, with a per capita GDP of $54,800. In 2014, however, US GDP ran second to China’s, when compared on a Purchasing Power Parity basis; the US lost the top spot, where it had stood for more than a century. In the US, 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 has been a driving factor in 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. But the globalization of trade, and especially the rise of low-wage producers, has put additional downward pressure on wages and upward pressure on the returns to capital. 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. Crude 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 climbed another 50% between 2006 and 2008, and bank foreclosures more than doubled in the same period. Besides dampening the housing market, soaring oil prices caused a drop in the value of the dollar and a deterioration in the US merchandise trade deficit, which peaked at $840 billion in 2008. The sub-prime mortgage crisis, falling home prices, investment bank failures, tight credit, and the global economic downturn 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. In 2012, the federal government reduced the growth of spending and the deficit shrank to 7.6% of GDP. Wars in Iraq and Afghanistan required major shifts in national resources from civilian to military purposes and contributed to the growth of the budget deficit and public debt. Through 2014, the direct costs of the wars totaled more than $1.5 trillion, according to US Government figures. US revenues from taxes and other sources are lower, as a percentage of GDP, than those of most other countries. In March 2010, President OBAMA signed into law the Patient Protection and Affordable Care Act, a health insurance reform that was designed to 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. In December 2012, the Federal Reserve Board (Fed) announced plans to purchase $85 billion per month of mortgage-backed and Treasury securities in an effort to hold down long-term interest rates, and to keep short term rates near zero until unemployment dropped below 6.5% or inflation rose above 2.5%. In late 2013, the Fed announced that it would begin scaling back long-term bond purchases to $75 billion per month in January 2014 and reduce them further as conditions warranted; the Fed ended the purchases during the summer of 2014. Long-term problems include stagnation of wages for lower-income families, inadequate investment in deteriorating infrastructure, rapidly rising medical and pension costs of an aging population, energy shortages, and sizable current account and budget deficits.

 

Source : CIA

 

Company name

 

CHURCH & DWIGHT CO. INC.

 

 

Address

 

500 Charles Ewing Blvd, Ewing, NJ 08628 - USA

 

Telephone:                    +1 609-806-1200

 

Fax:                              +1 609-497-7269

 

Website:                       www.churchdwight.com

 

Corporate ID#:              0193615

 

State:                           Delaware

 

Judicial form:                Public Company (NYSE = CHD)

 

Date incorporated:        12-14-1925

 

Stock:                          130,948,538 shares issued and outstanding as if 07-31-2015

 

Value:                           USD 1= par value

 

Name of manager:         James R. CRAIGIE

 

 

ACTIVITIES & OPERATIONS

 

IST

 

Business:

 

Church & Dwight Co., Inc. develops, manufactures, and markets household, personal care, and specialty products in the United States.

The company operates through three segments: Consumer Domestic, Consumer International, and Specialty Products Division (SPD).

The Consumer Domestic segment offers household products, such as baking soda, carpet and cat litter deodorizers, clumping cat litters, washing soda, fabric softeners, daily shower cleaners, cleaning products, dishwashing detergents and boosters, laundry and cleaning solutions, and bathroom cleaners, as well as powder, liquid, and unit dose laundry detergents; and personal care products comprising toothpastes and oral rinses, home pregnancy and ovulation test kits, deodorants and antiperspirants, toothbrushes, shampoos, dietary supplements, depilatories, lotions, creams, waxes, oral analgesics, nasal saline moisturizers, and feminine hygiene products, as well as condoms, lubricants, and vibrating products.

 

The Consumer International segment sells personal care, household, and over-the-counter products in international markets, such as Canada, France, Australia, China, the United Kingdom, Mexico, and Brazil.

The SPD segment offers specialty chemicals, such as performance grade sodium bicarbonate, and potassium carbonate and bicarbonate; animal nutrition products, including feed grade sodium bicarbonate, rumen fermentation enhancers, feed grade potassium carbonate, rumen bypass fat and lysine, omega 3 and 6 essential fatty acids, natural sodium sesquicarbonate, and refined functional carbohydrate. This segment also provides specialty cleaners, such as aqueous cleaners and deodorizers for commercial and industrial applications.

The company sells its products through supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar and pet stores, and other specialty stores, as well as through Websites.

The company was founded in 1846 and is headquartered in Ewing, New Jersey.

 

Office of the Foreign Assets Control (OFAC):

 

The company is not listed on the OFAC list.

The Specially Designated Nationals (SDN) List is a publication of OFAC which lists individuals and organizations with whom United States citizens and permanent residents are prohibited from doing business.

 

No name of foreign suppliers available.

 

EIN:                  13-4996950

 

Staff:                4,145

 

Operations & branches:

 

At the headquarters, we find the corporate office.

 

The Company maintains several branches in the U.S.

 

 

Shareholders

 

The Company is listed with the NYSE under symbol CHD.

 

As of 06-30-2015, 83% of the stock was held by institutional and mutual fund owners, including:

 

Vanguard Group, Inc. (The)

7.25%

Neuberger Berman Group, LLC

4.29%

State Street Corporation

3.72%

BlackRock Fund Advisors

3.50%

BlackRock Institutional Trust Company, N.A.

3.21%

 

 

 

Management

 

James R. CRAIGIE, also known as Jim, has been the Chief Executive Officer of Church & Dwight Co. Inc. since May 2007. Mr. Craigie served as an Interim President of Domestic Personal Care Division at Church & Dwight Co. Inc. since March 18, 2005. He served as the Chief Executive Officer of Callaway Golf Ball Operations, Inc and served as its President. He served as the President of Church & Dwight Co. Inc. from July 6, 2004 to May 2007. He served as Chief Executive Officer and President of The Top-Flite Golf Company.

Mr. Craigie served as the President and Chief Executive Officer of Spalding Sports Worldwide from December 1998 to September 2003. He joined Church & Dwight Co. Inc in 2004. He served 15 years with Kraft Foods/General Foods Inc. and served President and Executive Vice President of Beverage and Desserts Division of Kraft Foods, Rye Brook, NY (food services) from October 1997 to December 1998, and as an Executive Vice President and General Manager of Beverages Division, he also headed General Kraft Foods from November 1994 to September 1997. He served as an Executive Vice President and General Manager of Dinners and Enhancers Division, Kraft Foods, from February 1994 to October 1994. He served as the Vice President and General Manager of Pollio Dairy Products, Mineola, NY from March 1993 to January 1994. He served six years as a Commissioned officer with the U.S. Navy and Department of Energy.

He selected as representative in contract administration and negotiation issues involving design and construction contracts for nuclear powered ships and submarines. Mr. Craigie has been an Executive Chairman of Church & Dwight Co. Inc., since May 3, 2007 and has been its Executive Director since July 6, 2004. Mr. Craigie has decades of consumer product experience, particularly in the food, household and personal care markets. He has been a Director at Solazyme, Inc. since September 05, 2013. He has been a Director of Bloomin' Brands, Inc. since November 15, 2013 and serves as its Lead Independent Director. He has been a Director of WKI Holding Company, Inc. since January 2003. He serves as a Director of Acosta Sales and Marketing Company.

Mr. Craigie serves on the boards of Church and Dwight; and the Gettysburg Foundation, a non-profit foundation involved with restoring the Gettysburg battlefields. He served as a Director at Meredith Corp. since 2006 until May 7, 2014. He served as a Director of World Kitchen Inc. He served as a Director of Nielsen Media Research Inc. since 1998. He served as a Director of Spalding Sports Worldwide.

Mr. Craigie holds an Undergraduate Degree from the University of Rochester, and an MBA from Harvard University, where he was a Baker Scholar.

 

Matthew FARRELL is the COO and CFO.

 

On August 4, 2015, Church & Dwight Co. Inc. has announced that effective January 1, 2016, Richard A. Dierker will succeed Matthew Farrell as Executive Vice President Finance and Chief Financial Officer. As previously announced, Mr. Farrell, currently Chief Operating Officer and Chief Financial Officer, will become Chief Executive Officer at that time. Mr. Dierker joined Church & Dwight in 2009 and is currently Vice President, Corporate Finance, with day-to-day responsibility for most operations of the global finance function.

 

Subsidiaries And partnership:

 

Armkel Holding (Netherlands) B.V.

 

Netherlands

Armkel Canada (Netherlands) B.V.

 

Netherlands

Church & Dwight Canada Corp.

 

Canada

Church & Dwight (Beijing) Trading Company Limited

 

China

Church & Dwight (Australia) Pty Ltd

 

Australia

Quimica Geral do Nordeste S.A.

 

Brazil

Armkel Brasil Cosmeticos Ltda.

 

Brazil

Church & Dwight do Brasil Ltda

 

Brazil

Church & Dwight Distribuidora HPC Ltda

 

Brazil

Armkel Company (France) S.A.S.

 

France

Sofibel S.A.S.

 

France

Church & Dwight (U.K.) Limited

 

United Kingdom

Church & Dwight Servicios de R.L. de C.V.

 

Mexico

Church & Dwight S. de R.L. de C.V.

 

Mexico

Carter Products (N.Z.) Inc.

 

New Zealand

Church & Dwight (Hong Kong) Limited

 

Hong Kong

 

 

FINANCIALS

 

On August 4, 2015, Church & Dwight Co. Inc. reported unaudited consolidated earnings results for the second quarter and six months ended June 30, 2015.

 

For the 2nd quarter, the company has reported net income of $73.7 million, or $0.55 per diluted share, compared to $88.8 million, or $0.65 per diluted share a year ago.

Net sales were $847.1 million, compared to $808.3 million a year ago. Income from operations was $142.3 million against $138.2 a year ago.

Income before income taxes was $119.5 million against $135.0 million a year ago.

 

For the six months, the company's net income was $180.9 million, or $1.35 per diluted share, compared to $191.4 million, or $1.38 per diluted share a year ago. Net sales were $1,659.4 million, compared to $1,590.3 million a year ago. Income from operations was $314.4 million against $300.2 a year ago.

Income before income taxes was $284.8 million against $291.7 million a year ago. Net cash from operating activities was $248.4 million against $206.8 a year ago, a $41.6 million increase from the prior year primarily due to a smaller increase in working capital and higher cash earnings.

Capital expenditures were $34 million against $17.1 million a year ago, a $16.9 million increase from the prior year period.

 

The company expects third quarter earnings per share of $0.87-$0.88.

The company expects approximately 2% organic sales growth and 5% EPS growth in the second half of the year. For the full year 2015, the company continues to expect organic sales growth of approximately 3% in 2015 behind new product introductions on core business. The company expects gross margin to expand by approximately 25 to 35 basis points. The company expects to achieve 7-9% adjusted EPS growth in 2015, despite the F/X headwinds.

 

The company’s full year outlook for capital expenditures remains at $70 million.

The company expects the full year effective tax rate to be approximately 34.5%, excluding the pension and impairment charges.

Cash from operations in excess of $570 million.

 

Banks:  Wells Fargo Bank

            Bank of New Mellon Trust

           

 

LEGAL FILINGS

 

Legal filings & complaints:

 

State: North Carolina

Case number: 3:15-cv-00214-FDW-DSC

Plaintiff: PGI Polymer, Inc.

Defendant: Church & Dwight Co., Inc. et al
Frank D. Whitney, presiding
David S. Cayer, referral
Date filed: 05/08/2015
Date of last filing: 08/03/2015

Cause: Trademark infringement

 

State: New York

Case number: 1:14-cv-02275-JGK-DCF

Plaintiff: Scantibodies Laboratory, Inc.

Defendant: Church & Dwight Co., Inc.
John G. Koeltl, presiding
Debra C. Freeman, referral
Date filed: 04/02/2014
Date of last filing: 07/30/2015

Cause: Account receivable

 

State: New York

Case number: 1:14-cv-00585-AJN

Plaintiff: Church & Dwight Co., Inc.

Defendant: SPD Swiss Precision Diagnostics GMBH
Alison J. Nathan, presiding
Date filed: 01/29/2014
Date of last filing: 08/06/2015

Cause: Trademark infringement

 

Secured debts summary (UCC):   3 UCC (in New Jersey)

 

 

COMPANY CREDIT HISTORY

 

Trade references:

 

Date reported:               July 2015

High credit:                   USD 50,000

Now owing:                   0

Past due:                      0

Last purchase:              June 2015

Line of business:           Office supply

Paying status:   7 days beyond terms

 

Date reported:               July 2015

High credit:                   USD 5,000,000

Now owing:                   0

Past due:                      0

Last purchase:              June 2015

Line of business:           Payroll

Paying status:               As agreed

 

Date reported:               July 2015

High credit:                   USD 3,000

Now owing:                   0

Past due:                      0

Last purchase:              June 2015

Line of business:           Telecommunications

Paying status:               6 days beyond terms

 

Domestic credit history:

Domestic credit history appears as follow:

 

Monthly Payment Trends - Recent Activity

 

Date

Balance

Current

Up to 30 DBT

31-60 DBT

61-90 DBT

>90 DBT

02/15

$5,852,700

78%

16%

4%

2%

0%

03/15

$5,848,400

74%

19%

4%

3%

0%

04/15

$6,666,700

76%

15%

8%

1%

0%

05/15

$7,648,900

75%

17%

4%

4%

0%

06/15

$7,709,200

75%

14%

7%

4%

0%

07/15

$7,363,900

76%

16%

3%

5%

0%

 

 

 

National Credit Bureaus gave a medium credit risk.

 

According to our credit analysts, during the last 6 months, domestic payments were made with an average of 5 to 10 days beyond terms.

 

Other comments:

 

The Company is developing a regular business.

The Company is in good standing.

This means that all local and federal taxes were paid on due date.

The risk is 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 lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

·         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.63.76

UK Pound

1

Rs.98.76

Euro

1

Rs.69.88

 

INFORMATION DETAILS

 

Analysis Done by :

KAS

 

 

Report Prepared by :

ASH

 

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

 

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%)

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions

This report is issued at your request without any risk and responsibility on the part of MIRA INFORM PRIVATE LIMITED (MIPL) or its officials.