S&P sees U.S. keeping AA+ rating if it avoids default

NEW YORK (Reuters) - Standard & Poor’s said on Tuesday the United States would maintain its AA+ credit rating, its second highest, as long as the federal government avoids a default even if it does not increase the debt ceiling in a timely manner.

A view shows the Standard & Poor's building in New York's financial district February 5, 2013. REUTERS/Brendan McDermid

S&P is the only one of the three major U.S. bond agencies that do not currently assign the top-notch AAA-rating to the world’s biggest economy.

In August 2011, S&P stripped the United States of its coveted top rating over a debt ceiling showdown in Washington, citing “political brinkmanship” during the debate over raising the government’s legal borrowing limit.

Six years later, S&P is taking a narrower scope to judge its rating for the United States.

“If the debt ceiling is not raised in a timely way, we expect, at a AA+ level of confidence, that the government will take necessary measures to avoid default on the debt which our ratings address,” Robert Sifon-Arevalo, a managing director in S&P’s sovereign ratings group, said in a statement.

Last week the other rating firms, Moody’s Investors Service and Fitch Ratings, staked out their views on the looming deadline in late September when Uncle Sam would run out of cash if it cannot borrow more to pay all its obligations.

Similar to S&P, Moody’s said it would not downgrade the U.S. as long as it does not default. It would not remove its AAA-rating even if the government were to skip or delay payments on its non-debt obligations.

Fitch, however, took a tougher stance that if the debt ceiling is not raised, prioritizing debt service payments over other government obligations “may not be compatible with ‘AAA’ status.”

U.S. lawmakers are scheduled to return to work on Sept. 5 after their summer recess. They are expected to hammer out a deal to raise the debt ceiling, currently at $19.9 trillion, and to pass a budget in an effort to avoid a default and to keep the government operating.

U.S. President Donald Trump threatened last week to shut down the government if Congress did not agree to fund his proposed wall between U.S. and Mexico.

“We expect Congress to ultimately raise or suspend the debt ceiling, potentially with heated discussion,” S&P’s Sifon-Arevalo said. “It remains our view that the debate about raising or suspending the ceiling weighs on the economy.”

Reporting by Richard Leong; Editing by Chizu Nomiyama