And Then There Were Three: ADP Loses Triple-A Rating

Only three U.S. companies still retain the highest rating: Johnson & Johnson (NYSE: JNJ), Exxon Mobil Corp. (NYSE: XOM) and Microsoft Corp. (NASDAQ: MSFT). Moody’s and S&P both rate these as AAA or the equivalent. Fitch Ratings maintains its triple-A rating only on J&J.

ADP expects to realize a $700 million cash infusion from the spin-off and has said that it will use the cash to repurchase outstanding shares. That’s a nice one-off deal for investors, but it does little to enhance the company’s long-term value.

In making its decision, Moody’s said that ADP won’t be able to make up the lost revenue for at least two years. S&P said the downgrade narrows ADP’s business profile entirely to the highly competitive human capital management sector.

The difference between a triple-A rating and a double-A rating is probably not terribly meaningful to investors. For the companies, it is costly to maintain because it limits the amount of debt a firm can take on and, therefore, limits the company’s ability to make acquisitions or repurchase stock.

ADP stock closed Friday at $73.73, down $1.41 or 1.98%, in a 52-week range of $63.98 to $83.82.