Capital Markets

Credit Quality Lagging in North America

Things aren't looking any better in the coming months; the region has more issuers on review for downgrade than for upgrade.
Stephen TaubOctober 18, 2005

Global credit quality improved in the third quarter, according to Moody’s Investors Service, but the pace of improvement was not as strong in North America.

The credit-rating company reported 1.62 upgrades for every downgrade, worldwide, in the third quarter, an improvement on the 1.53 for the second quarter and 1.44 in the first.

By region, however, Moody’s reported just 1.09 upgrades for every downgrade in North America. By comparison, that figure stands at 1.97 in Europe, the Middle East, and Africa; 4.50 in the Asia-Pacific region, and 6.33 in Latin America.

Looking ahead, according to vice president Praveen Varma, Moody’s anticipates that the upward trend in credit quality should moderate. The reason? More issuers are on review for downgrade or have negative outlooks than are on review for upgrade or have positive outlooks.

This forecast, too, varies by region. North America has more issuers on review for downgrade than for upgrade, indicating that credit quality will most likely deteriorate, explained Moody’s. Asia-Pacific and Latin America, on the other hand, each have more issuers on review for upgrade than downgrade.

In the most recent quarter, Moody’s found that downgrades were concentrated in the airline, automotive, and chemical industries. Benefiting from a disproportionately large share of upgrades were the aerospace and defense, packaging, mining and metals, and telecom industries.