Capital Markets

More Downgrades Coming

The number of companies at risk for downgrades is on the rise, says Standard & Poor's.
Stephen TaubMarch 24, 2006

Global corporate-credit quality is starting to show signs of cracking.

Standard & Poor’s says in a new report that the number of companies at risk for potential credit-rating downgrades jumped to a high of 659 in mid-March, compared with 636 in mid-February.

The number represents the highest level since the rating agency began preparing the report last September. Nearly 86 percent of those at risk of downgrades are located in either the United States or Europe, with the telecommunications and automotive sectors facing the greatest likelihood of downgrades.

The rating agency reports that many of the companies vulnerable to a downgrade are in the consumer-discretionary domain — telecommunications, automotive, retail/restaurants, and health care — where pressures have been building from growing consumer debt, uncertainty about the housing market, and high energy prices.

“Indeed, in many of these sectors at risk of potential downgrades, the proportion of issuers listed with a negative bias (that is, a negative outlook or ratings on CreditWatch with negative implications) are currently at more elevated levels than have historically been recorded, highlighting the risks to credit quality,” said Diane Vazza, managing director and head of S&P’s Global Fixed Income Research, in a press release.

One good sign, says S&P: borrowing costs remain low.