High-yield downgrades point to higher default rate, Moody's says

By Jennifer Chiou

New York, Oct. 12 - Moody's Investors Service said the distribution of high-yield credit rating revisions has been unfavorable, on balance, in 2005 after improvements in the previous two years.

For the year, the agency noted a 2% increase in the number of U.S. high-yield company downgrades, while high-yield upgrades dipped by 6%.

Previously, the number of high-yield credit rating reductions had declined in each of the three years ended 2004 by an average of 15% per year.

After a 21% drop in 2002, U.S. company high-yield upgrades rose by 71% annually in 2003 and 64% in 2004, Moody's said.

During the year ended in the third quarter, speculative-grade downgrades rose by 9.6% year over year - the first such increase since the 7.3% of the year ended in the second quarter of 2002, the agency noted.

The annual decline of the moving year-long sum of the number of high-yield downgrades bottomed with the 21.9% contraction of 2003's fourth quarter.

Moody's added that past records show the high-yield default rate tends to move in the direction taken by the annual change of the year-long sum of high-yield credit rating downgrades.

Thus, the latest return of yearly growth to the number of high-yield downgrades is consistent with forecasts of a rising speculative-grade default rate into 2006, the agency said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.