Bangkok--11 Feb--Standard & Poor's The U.S. rating universe closed 2007 with 51.14% of firms rated speculative grade, 1.9% higher than at the end of 2006 and 10% higher than at the end of 2000, according to an article published today by Standard & Poor's. The report, titled "U.S. Ratings Distribution: Tighter Credit Conditions Restrain New Issuer Growth (Premium)," says that while the first half of 2007 was marked by heavy liquidity, tight spreads, and easy financing conditions, credit conditions made a U-turn in the summer. "We expect that credit quality will continue to deteriorate among existing firms, as slower profit growth and a weaker economic environment will lead to more downgrades than upgrades among this rated population," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "However, the effects on the aggregate ratings distribution may be muted, as tighter credit conditions stymied the flow of risky new issuers." Slower corporate profit growth and economic activity (real GDP forecasted to grow at 1.1%), should put corporate credit quality at risk. However, we expect a reduction in LBO- and M&A-related credit risk, which could partially mitigate the downward slide in credit quality in the aggregate. A weak dollar, though, should help large multinationals offset any U.S. growth decline and may create a bi-modal corporate earnings distribution (i.e., firms that benefit from global demand growth on the positive end and U.S.-reliant firms posting disappointing numbers). On the other hand, financial credit quality has improved over the past two years, but write downs have prompted changes in outlook. The main risk is that write downs will continue into the upcoming quarters. And for high-yield firms, slowing economic conditions, increasing financing costs in leverage finance, and a seasoning effect of the heavy speculative-grade issuance of the past four years have raised overall default risk in the market. Ms. Vazza added, "New issuer growth slowed in the fourth quarter of 2007. Between January 2006 and the third quarter of 2007, speculative-grade new issuers entered the ratings' universe at a rate of 32 per month, before slowing to 18 per month during the fourth quarter of 2007. The slowdown reflects increased risk aversion and higher financing costs for speculative-grade firms. The tightening of lending standards in both the bond and bank lending markets may put firms that need capital the most at risk." The report is available to RatingsDirect subscribers who have upgraded their package to include the Global Fixed Income Research add-on. RatingsDirect is 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 with the Global Fixed Income Research add-on, please contact your local Standard & Poor's representative or [email protected] for further information. 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