Bangkok--3 Aug--Standard & Poor's The U.S. corporate bond market crossed the threshold to speculative grade in the second quarter of 2007, as speculative-grade entities are now the majority (50.72%) of our rated U.S. parent and subsidiary population, according to an article published Wednesday by Standard & Poor's. The report, titled "U.S. Ratings Distribution: A Speculative-Grade World," said the key force in the downward shift in the ratings distribution has been new entries into the bond market. Through the first two quarters of 2007, 70% of the 158 new entrants were rated 'B'. "Broad-based measures of credit market performance, such as downgrade ratios, potential bond downgrades, and default rates, are still in relatively benign territory, at least from a historical perspective," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Nevertheless, risks are skewed to the upside, given the ratings profile of the U.S. corporate bond market, the amount of leverage at the lowest rated firms, current market demand and supply conditions, and the maturity of the credit cycle. Indeed, the current ratings profile has heightened the risk in the U.S. corporate bond market." With 27% of 'CCC' and below rated firms and 11% of 'B-' firms transitioning to default within a year, based on the historical experience between 1981 and 2006, the glut of firms at the 'B' rating levels poses significant default risk. As the economy and corporate profit growth slows, firms rated 'B' and below will come under more pressure to meet their obligations. However, near term we forecast only a modest rise in the default rate to 1.4% by year end from 1.22% at the end of June 2007. Only the financial, utility, and real estate sectors remain predominantly investment grade, with 86%, 80%, and 71% of rated entities, respectively. The media and leisure sector has the highest percentage of firms in speculative-grade territory, with 85%, followed by the telecommunications (77%) and health care (75%) sectors. Ms. Vazza added, "Through the first two quarters of 2007, 70% of the 158 new entrants were rated 'B'. While the investors have lost some of their risk appetite, they still afford speculative-grade issuers relatively low financing terms, with yields around 8.5%. It would not be surprising to see even more new speculative-grade entrants this year, though firms may have to curtail leverage to clear the market." 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. Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 21 countries. Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. Media Contact: Mimi Barker, New York (1) 212-438-5054, [email protected] Analyst Contact: Diane Vazza, New York (1) 212-438-2760 Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]