TEXT-S&P: potential downgrades count jumps to a 30-month high
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 email@example.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.