Capital Markets

Debt Downgrades Keep Climbing

Second quarter S&P global tally counts 183, compared with 170 in the prior quarter.
Roy HarrisJuly 10, 2008

The pace of credit-rating downgrades around the world picked up in the second quarter, as Standard & Poor’s calculated that that 183 actions knocked ratings down a peg, compared to only 108 upgrades.

The debt volume affected by downgrades was $1.15 trillion, S&P reported, with $285 billion of debt upgraded. In the prior quarter, downgrades outnumbered upgrades by 170 to 72.

“Following a rocky first quarter, the credit markets saw a continuation of the violent shakes that have almost become routine since this time last year,” the ratings agency said in its “Global Corporate and Sovereign Rating Actions” report. It said that while the trend of more downgrades than upgrades was found in the U.S., Europe, and Asia-Pacific regions, the U.S. “was especially hit hard in the housing-related sectors,” including homebuilding and real estate, finance, and makers of forest products and building materials. For them, all the rating actions were downgrades.

In the area of “fallen angels” globally — companies with debt downgraded to a speculative grad of BB+ or lower, from investment grade of BBB- and higher — three additional entities moved to speculative grade in June, raising the number of such issues to 19. Affected debt totaled $67.85 billion, more than 50 percent of the total debt affected for all of last year, S&P said in a separate report on “Global Potential Fallen Angels.”

Companies achieve the “potential” to become fallen angels if their debt is rated BBB- with either a negative outlook or with the rating on CreditWatch with negative implications, according to S&P. It calculated that the current pool of potential fallen angels — 43 issuers — shrank in June by two.

Sectors “poised to led fallen-angel incidence,” according to the ratings service, were utilities (seven), forest products and building materials (six), and consumer products (five.)