Bangkok--9 Feb--Standard & Poor's
Although the U.S. economy remains in a sluggish recovery mode, investors' appetite for risk in the credit markets has rebounded much more forcefully over the past year and a half. This has been positive for corporate credit quality because it has allowed many companies, including those at the lower end of the credit rating spectrum, to obtain much-needed capital to bolster liquidity or refinance upcoming maturities.
However, according to a report published by Standard & Poor's Ratings Services earlier today, the strong credit markets also bring a potential downside for credit quality, along with improved corporate liquidity.
"In any period of positive market sentiment, higher risk tolerance by investors can go hand in hand with more aggressive financial policies by companies," says the report, titled "Gauging The Credit Impact Of The Latest Boom In Dividend Recaps." "In the recent "seller's market" for credit, we have seen a return toward aggressive financial policies, primarily by speculative-grade issuers--most notably in the form of dividend recapitalizations."
The article is the latest in a series of reports titled "Reshuffling The Debt," which Standard & Poor's launched at the beginning of this year. The series rekindles the "Leveraging Of America" series of articles that the rating agency published in 2007, which commented on the large increases in nonfinancial corporate issuers' debt leverage shortly before the Great Recession began. "Reshuffling The Debt" investigates the leveraging trends of these entities now that we are in the wake of the recession. The latest article in the series discusses the spike in dividend recaps last year among U.S. nonfinancial corporations, and Standard & Poor's view that dividend recaps add to credit risk, despite the fact that the impact on credit ratings was minimal.
The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected] Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Mimi Barker, New York (1) 212.438.5054,
[email protected]
Analyst Contacts:
Gregg Lemos-Stein, CFA, New York (1) 212-438-1730