S&P Global
S&P Global is one of three dominant credit rating agencies (with Moody's and Fitch), whose ratings determine borrowing costs for $100+ trillion in global debt. S&P also operates S&P Dow Jones Indices (including S&P 500) and Platts commodity benchmarks.
Rating agencies occupy a unique position: their opinions have regulatory force (Basel capital requirements, investment mandates, money market fund rules), making them de facto financial regulators despite being paid by the entities they rate.
S&P's structured products ratings revenue dropped 70%+ after 2008, yet structured products are back to pre-crisis levels with same issuer-pays model. CLO ratings now ~30% of structured finance revenue. S&P downgraded US sovereign debt (2011)—US complained but nothing changed because there's no alternative. S&P paid $1.5B to settle DOJ claims over pre-crisis ratings (2015), admitted no wrongdoing, continued same business model.
Key Facts
Power Dynamics
Private company providing opinions protected by First Amendment; ratings embedded in $100T+ of regulations and contracts
Regulatory dependence creates quasi-governmental status. SEC designation as NRSRO (Nationally Recognized Statistical Rating Organization) gives ratings legal force. Can move borrowing costs instantly; sovereigns fear downgrades
- Issuer-pays model creates conflict
- First Amendment protects ratings as opinions
- Regulatory dependence means removing S&P would require rewriting financial regulations globally
- Issuers (pay for ratings)
- Regulators (embed ratings in rules)
- Investors (rely on ratings for due diligence)
- Governments (subject to sovereign ratings)
Revenue Structure
S&P Global Revenue Sources
- Rating fees (issuer-pays) 45% ↻
- Index licensing 30% ↑
- Market intelligence/data 20% →
- Platts benchmarks 5%
Depends on debt issuance volume
Passive investing growth = growing revenue
Issuer-pays model unchanged since 2008; conflicts remain. Index revenue depends on passive investing trend continuing. Sovereign downgrades invite retaliation (EU threatened regulation after eurozone downgrades)
Unlike Moody's (pure ratings), S&P diversified into indices and data, reducing rating dependency
Decision Dynamics at S&P Global
Sovereign crisis downgrades: hours from committee to announcement (Greece 2010, US 2011)
Rating methodology changes: years of consultation; structured product reforms took 5+ years post-2008
Rating committees must approve; methodology changes require SEC notification; sovereign ratings involve geopolitical considerations
Failure Modes of S&P Global
- 2008: AAA-rated CDOs collapsed to junk; S&P rated $2.8T in MBS pre-crisis
- Enron: maintained investment grade 4 days before bankruptcy
- Sovereign: downgraded Japan 11 times since 1998, yet Japan borrows at near-zero
- Issuer-pays conflict: can't bite hand that feeds
- Ratings lag reality (reactive not predictive)
- Herd behavior with other agencies
- Regulatory embedding makes ratings systemic
If major asset class collapses after AAA rating (CLO crisis), political pressure could finally break issuer-pays model. If passive investing reverses, index revenue collapses
Biological Parallel
Rating agencies designed to signal creditworthiness (immune recognition). But issuer-pays = pathogen paying for its own diagnosis. Agencies herd—if S&P downgrades, Moody's and Fitch follow within days. This amplifies signals rather than providing independent assessment. Like immune system that either ignores threats (pre-2008 AAA ratings) or overreacts (eurozone downgrades creating panic). Regulatory embedding makes the flawed signal mandatory.
Key Agencies
$5B revenue; rates $70T+ debt securities
S&P 500, DJIA; $17T+ indexed assets
Commodity price benchmarks; determines oil, gas prices for $5T+ trades