Capital Markets

S&P Downgrades Swelled in Third Quarter

Credit deterioration, gradually worsening all year, worsened severely — with 227 issuers taking rating hits in the period.
Stephen TaubOctober 14, 2008

The global deterioration in credit in the third quarter exceeded the ugliest fears even of some market pessimists.

Standard & Poor’s downgraded a total of 227 issuers in the period, covering $1.8 trillion in rated debt. In the previous quarter, the ratings service had downgraded 183 issuers.

In addition, 758 issuers still are poised for downgrades.

The U.S. had the most third-quarter downgrades, with 155 issuers — all corporate — having their ratings cut. That compared with 137 in the prior quarter, 133 in the first quarter, and 114 in the final three months of last year, according to S&P. About half of all ratings are speculative grade in this country, and 122 of the speculative-grade ratings were downgraded in the latest quarter, compared to 33 investment-grade entities.

Since 2002, when U.S. downgrades hit a peak of 176 in the fourth quarter, the average of issuers downgraded quarterly has been 99. In Europe, there were 41 downgrades in the latest quarter, compared to a 25-per-quarter average since 2002.

Globally, housing and finance-related sectors were hit the hardest. Homebuilders and real estate companies, mortgage institutions, and savings and loans and thrifts held downgrade ratios of 100 percent — meaning there were zero upgrades in those sectors. Banks and insurance companies racked up downgraded ratios of 81 percent and 71 percent, respectively. Consumer discretionary sectors, including consumer products, media and entertainment, and retail and restaurants, recorded downgrade ratios of 86 percent, 89 percent, and 79 percent, respectively.

Just 80 issuers globally were upgraded in the third quarter, compared with 109 in the prior period.

In the U.S., 48 issuers were upgraded in the third quarter, compared with 61 in the prior period. However, the most recent tally was actually an increase compared with the 42 upgrades recorded in the first quarter, and also in the fourth quarter of 2007.