S&P report points to US credit rating drop The average credit rating of US companies, already languishing at its lowest level in modern times, could fall further as corporate managers take advantage of rock-bottom interest rates to pile more debt on to their balance sheets. A new report by Standard & Poor's, which has rated the creditworthiness of American companies since the 1920s, says more and more large borrowers are increasingly deciding to do without the A grade credit rating that used to be expected by lenders. Instead, the median credit rating on non-financial companies has fallen to double-B-, S&P says, from an average A rating in 1980. Whereas 50 per cent of the largest companies rated by S&P then had a rating of A- or higher, only 8 per cent do today. The trend is accelerating, said Allyn Arden, the S&P analyst who wrote the report. The trend of declining credit quality is nothing new, spanning more than three decades, although the migration down the ratings scale has accelerated over the past 12 years. In all, 101 companies have dropped out of the A-rated category since 2000, some ravaged by two recessions, others because of structural changes to their industries. Harley-Davidson, the motorcycle maker, lost its A rating in 2009, as consumers stopped buying. The New York Times Company was similarly downgraded in 2006 as the newspaper's print readership went into decline. The most common reason for declining credit quality, though, is an explicit decision by management to sacrifice the rating for the sake of shareholder returns. This might be either to satisfy new owners from private equity, or to make a bet on a big acquisition, or simply to lever up the balance sheet to pay for share buybacks. Mondelez International, previously Kraft Foods, dropped out of the A-rated category when it paid $19.5bn for Cadbury of the UK in 2010. Alcoa, the aluminium producer, was downgraded in 2007 when it hiked its dividend by 13 per cent and promised a 10 per cent share buyback, something S&P warned would mean it had less financial flexibility to weather falling aluminium prices. The years 2010 and 2011 were the first since 1997 when S&P upgraded more companies than it downgraded, but Mr Arden expects that trend to reverse again. "The low cost of debt, especially for investment grade issuers, the tax advantages of issuing debt, and the pressure to return money to shareholders suggest that other considerations can outweigh the benefits of having an A category rating," he wrote. The decline in the median rating for US industrial companies to double-B- represents seven notches on S&P's ratings scale and means the average borrower is no longer considered investment grade. The agency's scale runs from the platinum-plated triple-A grade, through double-A, A and triple-B, while corporate bonds rated double-B+ and lower are known as junk bonds. Only four companies - Microsoft, Johnson & Johnson, Automatic Data Processing and ExxonMobil - have a triple A rating.