TEXT-S&P: Euro banks largest contributor to potential bond downgrade
Nov 15 - SThe number of potential downgrades jumped to 599 as of October 31 from 589 as of October 6, according to Standard & Poor's Ratings Services report published today titled Bond Downgrade Potential In Emerging And Developed Markets, Including The U.S. And Europe: European Banking Sector Accounts For The Largest Proportion Of Potential Downgrades. The number of potential bond downgrades has been steadily increasing in the past two years and is now at a level not seen since June 2010. "Of the 599 issuers, 106 are banks, with Europe-based institutions accounting for more than half," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "There are 14 Italian, nine French, and eight Spanish banks at risk of downgrades." Potential downgrades are entities rated 'AAA' to 'B-' that have either negative rating outlooks or ratings on CreditWatch with negative implications. By rating, 'B' rated issuers make up the largest proportion of entities with negative rating outlooks or ratings on CreditWatch negative, at 14%, followed by 'B+' rated issuers, at 11%. Globally, Standard & Poor's rates 52% of the 599 issuers at risk of downgrades as speculative grade ('BB+' and lower). Since our last report, we removed 12 entities from the potential downgrades list and added 22. Europe and the U.S. contributed the most new potential bond downgrades, with 11 and six additions, respectively. The gap between the potential bond downgrades and the potential bond upgrades began to narrow in late 2009 when the U.S. economic recession ended and economic recovery began. However, the gap widened in early 2012 due to the sovereign crisis in Europe, which led to more companies having ratings with negative outlooks or on CreditWatch negative and fewer having positive outlooks or ratings on CreditWatch positive. The gap increased further this month and is now the widest since June 2010. In our view, six of the 21 sectors on the potential downgrades list show higher or same downgrade risk than they have historically. When we measured the gap between the current negative bias and the historical averages, we found that each of these sectors' negative bias is higher than their historical average. Negative bias is the proportion of issuers with negative outlooks or ratings on CreditWatch negative, and it is a good gauge of the adverse credit conditions in the sector. The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to firstname.lastname@example.org. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com.
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