S&P to focus on near-term risks for junk ratings

NEW YORK, May 13 (Reuters) - Standard & Poor's is changing the way it rates speculative-grade companies to emphasize near-term risks such as looming repayment of debt rather than longer-term economic cycles, the rating agency said on Tuesday.

The shift is a major departure from the rating agency's emphasis on long-term analysis and its aim of keeping ratings relatively stable over time.

A two-year horizon now will be used to judge the creditworthiness of companies rated junk, or below "BBB-minus," S&P said. This compares to a three-to-five year range used for investment grade firms, the rating agency said in a new report.

The change -- part of a broad revision to evaluating speculative grade credits -- will give investors more timely information and should lead to "overall higher ratings in good times, but lower ones in troubled times," said S&P, a division of the McGraw-Hill Companies (MHP.N: Quote, Profile, Research, Stock Buzz).

While the overall rating distribution is unlikely to change materially, individual company ratings could be revised as the new approach is rolled out, it added.

Rating agencies have been criticized for years for being slow to warn of credit troubles and giving high grades to companies close to default. In the most notable example, energy trader Enron was rated investment-grade just days before it filed for bankruptcy in 2001.

More recently, rating agencies have come under fire for their role in the mortgage crisis, with critics claiming they were slow to cut ratings on securitized products backed by subprime mortgages.

The new approach to corporate junk ratings is designed to better reflect the higher level of credit risk in the current environment, with 72 percent of all industrial companies now rated junk, up from about 32 percent in 1980, S&P said.

About 46 percent of all industrials are in the "B" category, the middle tier of junk credits.