Bangkok--22 May--Standard & Poor's
The gap between investment-grade firms and speculative-grade continues to close. As of March 31, 2007, the speculative-grade share of parent- and subsidiary-level issuers stood at 49.8%, up from the previous record high of 49.3% on Dec. 31, 2006, according to a report published by Standard & Poor's. The report, titled "U.S. Ratings Distribution: M&A/LBOs Alter Ratings Landscape," states that more aggressive balance-sheet management, shareholder versus creditor focus, M&A, and LBOs continue to drive firms downward in the speculative-grade spectrum.
"M&A has contributed to the deterioration in credit quality, and recent LBOs have caused firms to slip multiple notches on the ratings scale," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "By mid-May, there had been 19 M&A related downgrades of parent-level firms in the U.S., outpacing the 11 during the same period in 2006. Aggressive financial policies have also led to recent downgrades and unfavorable changes in outlook."
The median issuer rating is currently 'BBB-', compared with 'BBB+' at the end of 1996, and 'A-' 15 years ago. The median rating for nonfinancial issuers is currently 'BB-', while financial firm median ratings is 'A.' Conversely, credit quality in Europe is still strong, with the median rating at 'A-' (though it was 'A+' 10 years ago, and 'AA-' 15 years ago), 'BBB+' for nonfinancial firms, and 'A' for financial firms. However, median credit quality in both the U.S. and Europe continues to slide. Only the financial, utility, and real estate sectors remain predominately investment grade, with 87%, 80%, and 71% share, respectively. The media and entertainment sector has the highest percentage of firms in speculative-grade territory with 83%. With the exception of utilities and real estate, the share of speculative-grade firms grew in all other sectors.
Ms. Vazza added that "we highlight two sectors, transportation and telecommunications, that have undergone significant change in credit quality over the last 10 to 20 years. Changes in market structure, government regulation, competition, financial strategy, and costs have shifted these industries from solid investment-grade sectors to speculative-grade dominated industries."
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected] . Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com ; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. 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 Contact:
Diane Vazza, New York (1) 212-438-2760
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