Are the credit rating agencies ruling the markets?
Yesterday's announcement that Reed Elsevier raised £824 million by placing a tenth of the company's share capital with institutions has caused anger in the market place. The move was quickly put into operation when the company learned that credit rating agencies were monitoring the company's finances with a potential downgrade on the way. As the company has in excess of £5 billion of borrowings at the moment there were concerns that a reduction in its credit rating would see finance costs balloon.
Reed is the latest in a line of companies which have been forced to shore up their balance sheets, when they may well have been given more time in the past, to safeguard credit ratings and maintain finance costs. More and more investors believe that the credit rating companies have too great an influence on a company's balance sheet and ultimately the cost of running the business - in many cases existing shareholders are losing out in some shape or form.
While this is a very difficult situation for companies quoted on the stock market to consider, there is a feeling that the credit rating agencies are acting a little quicker on the downside than they have in the past and ultimately forcing companies into moves they would not normally have considered. This should start to level out as and when the UK economy, and the worldwide economy, starts to grow again, until then many investors may well continue to feel aggrieved.
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