Bangkok--8 Mar--Standard & Poor's
Although the share of speculative-grade entities has declined for two consecutive years, the large volume of downgrades in this segment in the past two years has generally resulted in an increase in the number of entities in the lowest rating categories, said an article published today by Standard & Poor's.
In 2009, 1,309 issuers either defaulted or had lower ratings at the end of the year than they did at the beginning. By contrast, only 278 entities had higher ratings at the end of 2009--a ratio of almost five to one, according to the article, titled "Global Ratings Distribution: A Flurry Of Downgrades In 2009 Put More Issuers In The Lowest Rating Categories (Premium)."
"It is not surprising that many of the downgrades in 2009 were at the lowest end of the ratings spectrum," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "This increased the share of entities rated 'B-' and lower to 523, or 9.3% of the total, at the end of 2009 from 494, or 8.4%, at the end of 2008 and only 342, which was 5.8% of the total, at the end of 2007."
Along with this, the recent wave of defaults dropped many speculative-grade-rated issuers out of the pool. In our view, this is typical at this stage in the credit cycle and is the primary cause of the decline in the share of speculative-grade issuers in prior cycles.
In our opinion, the sharp rise in speculative-grade issuance prior to 2007 was a result of investors' willingness to take on more risk in search of better yields, combined with companies' generally higher tolerance for leverage amid increased domestic and global competition. When the credit markets began to deteriorate in 2008, many speculative-grade entities, particularly the lower-rated issuers that were more vulnerable to the tight liquidity and high leverage conditions, defaulted on their obligations or renegotiated the terms of their debt with lenders.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect on the Global Credit Portal at www.globalcreditportal.com and to RatingsDirect at www.ratingsdirect.com. 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.
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