S&P: Share of corporate issuers rated B- or lower increases to 9.3%

By Angela McDaniels

Tacoma, Wash., March 5 - Standard & Poor's said that although the share of speculative-grade entities globally has declined for two consecutive years, the large volume of downgrades in this segment in the past two years has generally resulted in an increase in the number of entities in the lowest rating categories.

In 2009, 1,309 issuers either defaulted or had lower ratings at the end of the year than they did at the beginning, according to an S&P report. Only 278 entities had higher ratings at the end of 2009 than at the beginning.

"It is not surprising that many of the downgrades in 2009 were at the lowest end of the ratings spectrum," Diane Vazza, head of S&P's global fixed-income research group, said in the report. "This increased the share of entities rated B- and lower to 523, or 9.3% of the total, at the end of 2009 from 494, or 8.4%, at the end of 2008 and only 342, which was 5.8% of the total, at the end of 2007."

Along with this, the recent wave of defaults dropped many speculative-grade issuers out of the pool. S&P said this is typical at this stage in the credit cycle and is the primary cause of the decline in the share of speculative-grade issuers in prior cycles.

In the agency's opinion, the sharp rise in speculative-grade issuance prior to 2007 was a result of investors' willingness to take on more risk in search of better yields, combined with companies' generally higher tolerance for leverage amid increased domestic and global competition.

When the credit markets began to deteriorate in 2008, many speculative-grade entities, particularly the lower-rated issuers that were more vulnerable to the tight liquidity and high leverage conditions, defaulted on their obligations or renegotiated the terms of their debt with lenders, S&P noted.

© 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.