(The following statement was released by the rating agency)
Aug 7 - A new study by Standard & Poor’s Ratings Services confirms earlier findings that CreditWatch and rating outlooks provide powerful signals of future rating changes. The report, titled “CreditWatch And Rating Outlooks Provide Powerful Warning Signals,” published earlier today on RatingsDirect, includes the first published analysis of CreditWatch performance for Structured Finance ratings.
In recent years, ratings in this sector have experienced increased volatility, and market participants are more sensitive to potential rating changes. In this more volatile environment, CreditWatch placements have increased significantly, providing credit signals on the near-future movements of Structured Finance ratings.
“Investors and other market participants who try to anticipate rating actions can use these indicators as valuable predictors of ratings behavior,” said Standard & Poor’s managing director Gail Hessol. CreditWatch listings and rating outlooks add meaningful incremental information to the analysis of credit migrations.
One key finding in the report was that CreditWatch placements and, to a lesser degree, rating outlooks strongly signal future rating changes. Sixty-six percent of CreditWatch listings with positive implications resulted in an upgrade; 59% of CreditWatch listings with negative implications resulted in a downgrade.
Another key finding was that CreditWatch negative listings outnumbered positive listings 3.2 to 1. The study covered global Corporates (including utilities), Financial Services, Structured Finance, Sovereigns, and International Public Finance.
The study period was 2000 through early 2007 for Structured Finance, and 1990 through 2006 for the remaining sectors.