European ratings actions improve but negatives persist, Moody's says

New York, Dec. 5 - Credit ratings actions affecting European issuers showed signs of improvement in November but there are still negative signs in the overall picture, Moody's Investors Service said Friday.

For November, Moody's downgraded eight issuers and upgraded five.

That was fewer downgrades and more upgrades than the monthly average since the start of 2002 - but 2002 was "a particularly bad year for European credit quality," Moody's said.

All five upgrades were to banks, two due to merger and acquisition activity. Seven of the eight downgrades were to non-financial issuers, largely because of poor operating performance, weak credit metrics and the current challenging trading environment.

Moody's is anticipating 2003 will look much better for European credit actions than the last two years. So far this year the downgrade-to-upgrade ratio for non-financial companies is 5.2:1, Moody's said.

But the rating agency said the ratio is still well below the 1.7:1 recorded in 1999.

Despite "growing signs of a turnaround in the economic cycle," Moody's said that most issuers on its watchlist at the end of November are facing a possible downgrade.

The list includes 24 European issuers on review for downgrade and 16 on review for upgrade with seven on review with uncertain direction.

Moody's attributed the predominance of downgrade reviews to "a harsh business environment where the low level of demand is impacting cash flow generation."

But the rating agency said there are signs that the credit cycle likely troughed in the first quarter of 2003.

The ratio of downgrade reviews to upgrade reviews at 1.7:1 is better than October when it was 3.3:1 but still lags 1.5:1 in July and September.

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