S&P sees no spring thaw for Euro credtis

By Ronda Fears

Nashville, Tenn., April 12 - European Union corporate credit quality will not see a spring thaw, according to S&P credit analysts Diane Vazza and Devi Aurora, who noted in a report that EU credit quality worsened in the first quarter while a positive trend was visible in other regions of the world.

There were 41 downgrades and only two upgrades in Europe during the quarter, involving some $87.4 billion of debt. In the first quarter of 2001, there were 17 downgrades and 10 upgrades.

"Even though the actual number of downgrades declined in comparison with the fourth quarter of 2001, a sharper reduction in the number of upgrades prevented an improvement in the credit ratio," Vazza and Aurora said in the report.

"Meanwhile, the global credit ratio fell to 5.3 from 7.4 a quarter earlier."

The credit ratio is the number of downgrades per upgrade.

Globally, the S&P analysts said there were 303 downgrades to 57 upgrades in first quarter, involving $469.1 billion of debt.

Of the 41 downgrades in the EU during first quarter, 20 were in the speculative-grade category. The telecom sector accounted for six of the downgrades and the high-tech subsector had three.

The spike in high-yield rating actions reflect a spurt in issuance at the B- and lower categories as well as greater ratings penetration in that area, the analysts said.

"As the share of speculative-grade ratings in the rated universe has risen, the potential for credit-quality deterioration has increased," the analysts said.

Of the two upgrades, one was a sovereign and the other a utility.

There was one fallen angel, as well. Getronics NV, a Dutch information and technology service provider, was cut to BB+ from BBB- in January.

In a separate report on worldwide default rates, which hit a record in first quarter, Vazza was skeptical about the EU credit quality improving soon.

"Defaults in the European Union are likely to continue rising, peaking in the second quarter, reflecting the continued difficulties in the telecommunications sector."

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