Capital Markets

Moody’s: Credit Quality Falls Further in Sinkhole

Nearly 14% of global corporate, sovereign, and banking issuers have had downgrades so far this year.
Sarah JohnsonApril 9, 2009

The deterioration of the credit quality of debt issuers across the globe deepened during the first quarter of 2009, according to a paper released today by Moody’s Investors Service. And the bad news could continue: about 10% of 5,436 issuers of global corporate, sovereign, and banking debt are on Moody’s watch list for possible downgrade.

The credit rating agency says 13.8% of such issuers were downgraded during Q1. That average downgrade rate for credit across sectors and countries is higher than figures crunched before the current economic crisis hit. In 2006, for example, the downgrade rate as a whole was 10.2%. Moody’s calculates the average downgrade rate between 1983 and 2009 as 12.5%.

The United States and Europe have the largest percentage of issuers with negative outlooks for their ratings, Moody’s said. On the other hand, the United States and Canada also have the highest percentage of issuers with positive outlooks and watches for an upgrade in their ratings.

Among corporate issuers, the industries hardest hit by the downturn have had the highest number of downgrades in the past three months. Topping the pack of downgrades are companies in the finance, securities, and leasing category, followed by the automotive and hotels, gaming, and leisure sectors.

Moody’s downgrades for the past 12 months are more depressing when compared by industry and by the average downgrade rate. For example, consider that in the airline industry, 60.9% of 23 issuers have been downgraded, while their average rate over the past two decades has been 21.8%. In the auto industry, 47 percent of 160 issuers have received downgrades in the past year, compared to the average annual downgrades in that sector of 18.1%.

Perhaps more telling on the current state of credit quality are rating upgrades, a change much less likely to be seen than in previous years. In the first quarter of this year, only 0.5% of issuers’ credit was upgraded, compared to an average upgrade rate of 7.9% from 1983 to 2009.