NEW YORK ( TheStreet) -- In this world of the "new normal" where the U.S. could be facing a downgrade -- and U.S. Treasuries are no longer considered the gold standard -- we've compiled a list of the top ten triple-A rated corporate and sovereign bond issuers to take the place of the T-bill in your portfolio. Our list comprises ten entities that have the triple-A rating of both Standard & Poor's and Moody's that also have a stable outlook. The list includes three U.S.-based companies and seven countries that, for various reasons ranging from population size to currency strength, offer the best triple-A-rated debt. We did consider including a number of U.S. financials, mainly insurance companies, which also have triple-A ratings. However, given the fact that all of them have significant holdings of U.S. Treasuries and agency securities they would be directly affected in the event of a downgrade of U.S. government debt, as would the stability of their ratings. Our picks of the triple-A -rated sovereigns are listed here in alphabetical order. Some pessimists will (perhaps rightly) point out that the volume of U.S. government available debt dwarfs that of any other triple-A rated sovereign issuer. In terms of volume, the next best choices are Japan with a 200% debt-to-GDP ratio and Italy - enough said. But unless you're Warren Buffet reading this, there should be some options available to you and your modestly-sized portfolio.
Exxon Mobil Corp.
Irving, Texas-based petroleum and petrochemicals business Exxon ( XOM) is a top pick of the corporates because of the company's "excellent risk profile" and "because of an outstanding competitive position in all facets of the oil and gas industry," according to Standard and Poor's. Moody's writes that Exxon is its only Aaa-rated company among a group of highly-rated peers, reflecting Exxon's "differential position in reserves, production, financial flexibility, and free cash generation." With nuclear energy facing strong head winds in the wake of the Fukushima plant disaster in Japan, and the lack of any other real alternative to oil and gas to date, Exxon is certainly in the right business. The fundamentals of the sector aside, though, we're most impressed by Exxon's numbers. Here are some of the key ones: Exxon has a very low leverage, with a debt-to-equity ratio of just 10.22%. Total debt is just $15.01 billion while total capital is at $167.7 billion. With sales growth of 23.96% and EBITDA (Earnings Before Interest and Taxes, adding back Depreciation and Amortization - used as a proxy for cash flow by many analysts) of $54.9 billion, there's much to like about Exxon.
Automatic Data Processing
Roseland, N. J.- based ADP ( ADP), familiar to many for its labor market data, is the dominant provider of payroll services in the U.S. Moody's likes this company's cash flows in particular because of their predictability. S&P also likes the company because of its "consistent revenue and earnings growth, strong market position and low technology and economic cycle risks." The fact that ADP has low capital expenditures might in part explain the company's stunningly-low debt-to-equity ratio of just 0.57%. Total debt is just $34.2 million, while total capital stands at over $6 billion. ADP has had sales growth of 10.66% and the company expects that to continue through 2011. EBITDA for 2010 exceeded $2 billion, which, S&P expects will continue to translate into free cash flow of $1.5 billion into the future.
Redmond, Wash.-based Microsoft ( MSFT), the computer software giant, wins triple-A approval from S&P for "its excellent operating performance and financial profile." While the agency usually regards high-tech industries as having a higher-than-average business risk, software companies come out better because of the "recurring nature of the business, significant barriers to entry, and strong cash flow generation." And of the software companies, Microsoft is king. Of the three corporates rated triple-A, Microsoft has the least favorable debt-to-equity ratio of 20.9%. Total debt is just shy of $12 billion while total capital stands at $69 billion. Microsoft saw sales growth of 11% last year, despite a few product launch failures, largely based on the continuing success of Windows. With EBITDA of almost $30 billion, however, it's hard to find fault with Bill Gates's brain child. Moody's also praises Microsoft's "very strong free cash flow" that has built up $52 billion in cash and cash equivalents on the company's balance sheet.
This star of the southern hemisphere may only have a population of 20 million, but the Australian economy has shown remarkable resilience to the significant challenges faced by the global economy in recent years and, according to Moody's, has a "strong budgetary and public debt situation." Indeed, with a projected debt-to-GDP ratio of just 22.6% for 2011 and 24.1% for 2012, Australia has positioned itself well. GDP is expected to grow by 3.5% by year end. The recent performance of the Australian dollar has also been impressive. It hit several highs against the US dollar this year, appreciating by over 35% since the end of 2009 to trade at close to 1.30 USD Tuesday.
Like Australia, our nearest continental neighbor fared better than most through the global financial crisis thanks to a conservative banking culture that side-stepped the worst of pre-crisis practices. Canada has projected debt-to-GDP of 85.5% for 2011 - substantially higher than Australia, but substantially lower than the U.S. at close to 100% of GDP by the end of this year. Among the things Canada's triple-A status has going for it are, according to Moody's, a "sound monetary policy and flexible exchange rate." Both S&P and Moody's also praise the cross-party political consensus on maintaining relatively low government debt levels. Both agencies are expecting GDP to grow by about 3% this year.
The eurozone's second largest economy, France may be at the heart of the sovereign debt crisis but it's worth pointing out that France is not Greece - or Ireland, or Portugal, or even Spain or Italy. In contrast to those so-called "peripheral" countries, France has "a large, wealthy and diversified economy," with "sound and innovative debt management" - Moody's. France should end this year with a debt-to-GDP ratio similar to that of Canada at 84.6% and that is expected to increase only modestly to 86% by the end of 2012. Of France S&P writes: "France's growth prospects are supported by the economy's openness and resilience, highly skilled and productive labor force, and solid and efficient financial sector." The agencies differ on their expectations for growth this year, with S&P expecting the French economy to grow by 1.7% while Moody's is slightly more optimistic at 2%. Given the prevailing global economic conditions, however, 2% would be a more than respectable performance.
Germans take pride of place in Europe. The German Bund is, despite Europe's current travails, still the virtual "risk free" benchmark against which all other European debt is measured. Germany's economy grew by almost 4% last year, while most of her eurozone counterparts limped along benignly. Growth for all of 2011 is projected to come in somewhere around 2.5% according to both Moody's and S&P - again, more than respectable when set against projected growth of 1.7% for the U.S. The agencies like Germany's "wealthy, modern, highly diversified and competitive economy," along with the German government's "track record of prudent economic and budgetary politics." Debt-to-GDP will actually decline, according to Moody's, from 83.2% last year to 82% by the end of 2011.
The Republic of Singapore grew its economy by a world-topping 14.5% last year. The government is expecting more modest growth of between 5% and 7% for all of 2011 - annualized growth for the first quarter came in at 8.3%. Moody's highlights Singapore's "attractive investment environment" with large inflows of foreign direct investment. Political stability and an advanced infrastructure also make the list of positives. S&P expects Singapore to have a debt-to-GDP ratio of 96.6% by the end of this year. That's relatively high compared with the other triple-A sovereigns on this list, but that's down from 110% at the end of 2009 and it's expected to drop even further, to 91%, by 2013. With a population of just over 5 million, Singapore is also the smallest of our featured sovereigns.
From the smallest, to the second smallest - with a population of almost 8 million, Switzerland has developed a unique global position in recent months as the Swiss franc looks increasingly like the safe haven currency of choice. Its value has soared 13% against the dollar since August 2010, peaking every time the sovereign debt crisis rattles currency investors. It was trading at $1.3 USD Tuesday. The other numbers: Moody's expects Switzerland to grow its economy by 2.4% this year and to finish out 2011 with an enviable debt-to-GDP ratio of 52.7%, dropping to 51% by the end of 2012. Despite the relative small size of the Swiss economy, it is praised for being "open, highly developed and diversified," with a history of fiscal prudence, political stability and a strong, net external creditor position."
The yield on the 10-year British gilt hit a half-century low of 2.76% Tuesday, in stark contrast to the high bond yields being demanded by investors in Spanish, Greek and Italian debt. The Brits declared this a vote of confidence in a series of austerity measures aimed at bringing the country's budget deficit under control, despite some contemporaneous negative data about the British economy. S&P projects growth of 1.6% for the British economy this year, roughly on par with what's expected in the U.S. Part of the agency's confidence in the stable triple-A rating bestowed on the U.K. rests on the expectation that the government "will implement most of its expenditure-led fiscal consolidation program." Debt-to-GDP is expected to finish out 2011 at 79.4%. Again, the U.K. is praised for its "wealthy and diversified economy, fiscal and monetary policy flexibility, and relatively adaptable product and labor markets." S&P adds that there is "strong demand for long-dated gilts" both among domestic and non-resident investors