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TEXT-S&P: Euro banks largest contributor to potential bond downgrade
November 15, 2012 / 9:06 PM / 5 years ago

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 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 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

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