Capital Markets

Little Hope for Debt Upgrades

February showed the fewest companies with potential for upgrades in almost two and a half years, S&P says.
Stephen TaubMarch 10, 2008

Here’s yet more bad news from the crumbling credit markets: The number of global entities poised to benefit from debt-rating upgrades was only 330 in February, the lowest level in 29 months, according to a new Standard & Poor’s report.

That was 20 fewer than the number reported in January and 53 fewer than 12 months ago.

And the worst is yet to come, according to Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “The roster of issuers expected to benefit from potential upgrades will likely diminish further … in response to the credit environment’s decisive turn for the worse,” she said.

Vazza added that the decelerating upgrade potential is being seen in the United States and Western Europe, but that Latin America, Eastern Europe/Middle East/Africa, and Canada are relatively stable.

The telecommunications, automotive and metals, mining, and steel sectors seem most poised for upgrades, according to S&P “Issuers in these sectors display a positive bias that exceeds the historical average,” the report noted.

Banks, particularly in Europe, also show a high potential for upgrades following years of profitable growth, improving efficiency, and successful diversification, even though their performance in the near term will be exposed to exceptional volatility in the capital markets and a continuing deterioration in the credit environment, S&P also said.