Bangkok--6 Nov--Standard & Poor's
The share of U.S. corporate speculative-grade ratings continues to decline as defaults from this segment mount, said an article published today by Standard & Poor's, titled "U.S. Ratings Distribution: Improving Market Conditions Enable Speculative-Grade Issuers To Come To Market (Premium)."
Of the 2,811 issuers that Standard & Poor's rates, 49.13% are rated speculative grade, down from 49.70% at the end of 2008 and 51.19% at the end of 2007. The 'B' rating category remains the largest, with 26.97% of issuers, followed by 'BBB' with 25.51% and 'A' with 18.96%.
The share of entities rated 'CCC' and lower rose to 6.12%, or 172 entities, during the third quarter of 2009 from 4.83% (or 145 issuers) at year-end 2008 and only 2.27% (or 71 issuers) at the end of 2007. The sharp increase in companies rated 'CCC' and lower is indicative of the magnitude of the credit erosion of the past few quarters. Historically, these entities have been more likely to default, and many of the defaulters in the current cycle were from the lower rating categories, as we would expect.
"New issuer growth is seeing some rejuvenation in the second half of 2009 as signs of increasing investor confidence emerge," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. Standard & Poor's had 53 newly rated entities in the third quarter, bringing the year-to-date total (as of Sept. 30, 2009) to 115.
"Even speculative-grade-rated issuers were able to come to market, finding an audience with investors who are willing to take on more risk," said Ms. Vazza. "This is in stark contrast to the first half of 2009, when hardly any new speculative-grade deals were completed."
Notwithstanding the reopening of financial channels that many highly leveraged issuers could benefit from, we believe these low-rated companies remain vulnerable to default.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect, at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Ratings in the left navigation bar, select Find a Rating. Members of the media may request a copy of this report by contacting the media representative provided.
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