TEXT-S&P: potential downgrades count jumps to a 30-month high

Mon Dec 17, 2012 4:04pm EST

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Dec 17 - The number of potential downgrades jumped to 613 as of Nov. 30 from
599 as of Oct. 31, said an article published today by Standard & Poor's Global
Fixed Income Research, titled "Bond Downgrade Potential In Emerging And
Developed Markets, Including The U.S. And Europe: The Potential Downgrades Count
Jumps To A 30-Month High." Potential downgrades are entities rated 'AAA' to 'B-'
that have either negative rating outlooks or ratings on CreditWatch with
negative implications.

"The number of potential bond downgrades has been steadily increasing during 
the past two years and is now at a level not seen since June 2010," said Diane 
Vazza, head of Standard & Poor's Global Fixed Income Research. In addition, 
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 has widened since 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," said Ms. Vazza. The gap 
increased further this month and is now the widest since May 2010.

Of the 613 issuers, 113 are banks (18%), with Europe-based institutions 
accounting for more than half. There are 14 Italian, nine French, and eight 
Spanish banks at risk of downgrades. Off the 113 banks, 17 are based in the 
U.S. region (which includes Bermuda and the Cayman Islands). The utility and 
media and entertainment sectors account for about 9% each of the potential 
bond downgrades. 

Since our last report, we removed 40 entities from the potential downgrades 
list and added 54. Europe and the U.S. region (which includes Bermuda and the 
Cayman Islands) contributed the most new potential bond downgrades, with 20 
and 19 additions, respectively. Standard & Poor's downgraded 45 entities that 
were on the potential downgrades list last month. Of these, 16 are from the 
U.S. and 15 from Europe. 

The spreads on the CDX North American High Yield composite narrowed by 6 basis 
points (bps) between Nov. 1 and Nov 30. However, the credit default swap (CDS) 
spreads on some of the issuers that we added to our list of potential bond 
downgrades have widened during that time.

We currently have 30 sovereign entities on our list of potential downgrades. 
We removed Hungary from our list last month after Standard & Poor's downgraded 
the sovereign to 'BB' from 'BB+' and revised the rating outlook to stable from 
negative. By rating, 'B' rated issuers make up the largest proportion of 
entities with negative rating outlooks or ratings on CreditWatch negative, at 
12%, followed by 'B+' rated issuers, at 10%. Globally, Standard & Poor's rates 
52% of the 613 issuers at risk of downgrades as speculative grade ('BB+' and 
lower). Of the 613 potential downgrades, 163 are constituents of Standard & 
Poor's equity-based indices.

The sovereign, bank, insurance, metals, mining and steel, transportation, and 
integrated oil and gas sectors show the greatest downgrade risk relative to 
their average negative biases. 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.



Temporary contact numbers: Diane Vazza (646) 752-5369; Mimi Barker (646) 
784-1061
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 research_request@standardandpoors.com. 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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