|
|
Get Four
|  | APRIL 27, 2005
 S&P RATINGS NEWS Legal Woes Are a Debit to VisaS&P has cut the credit-card organization's credit rating, citing concerns about rising litigation risk and changing industry dynamicsOn April 26, 2005, Standard & Poor's Ratings Services lowered its long-term counterparty credit and senior unsecured debt ratings on Visa International Service Assn. (Visa) to A, from A+. The downgrade reflects what S&P sees as a heightened vulnerability to legal risk, as evidenced by numerous past and ongoing litigations globally. The ratings outlook is negative. S&P believes Visa's risk profile has significantly changed in the past decade, with its ongoing legal challenges having emerged as a major risk component. The speed, number, and potential severity of events in aggregate elevate business risk to new levels. Concerns about legal risk and, to a lesser extent, changing industry dynamics, reduce the ratings on Visa by one notch. The negative outlook highlights further potential ratings pressure due to the negative effect of current litigations. DEFENSE, NOT OFFENSE. In an effort to establish, maintain, and expand its strong, globally recognized brand, Visa has defined a set of rules for its members worldwide. Competitors, issuers, merchants, and regulators are increasingly challenging these membership rules globally, but mainly in the U.S., and have taken their complaints to court. The potential risks from these actions are manifold: Financial damage as a result of negative outcomes or settlements; reputation damage, or a decline of its brand value; and a disproportionate appropriation of resources for legal defense, distracting from offensive and business-driven activities. The ratings on Visa are based on its strong global market-share position and credit-protection mechanisms, which minimize the threat of loss arising from a member's inability to honor his or her settlement obligations to Visa. The ratings are constrained by the rapidly changing industry environment marked by rising legal risk, the consolidation of its member base, and intense competition. Outlook: The negative outlook reflects a changing business environment in which the payments industry will face greater uncertainty, including heightened litigation risk. Ratings could potentially come under further pressure if the pending litigations fundamentally affect the financial and business profile of the company or its members. At this stage, predictions of litigation outcomes are highly speculative.  From Standard & Poor's Ratings Services All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2005, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
