Canada bucks credit trend, sees improvement in third quarter, S&P says

New York, Nov. 5 - The trend in credit quality improved in Canada in the third quarter, contrary to the pattern in most other developed countries and reversing the previous quarter's decline, Standard & Poor's said.

The downgrade-to-upgrade ratio improved to 2.3:1 in the third quarter from 4.0:1 in the second quarter, S&P said.

The three-month period saw nine downgrades on C$48.5 billion (US$31.0 billion) of debt compared to four upgrades on C$1.8 billion (US$1.2 billion).

Year-to-date credit quality is deteriorating more quickly than a year ago, however, with a downgrade-to-upgrade ratio of 2.83:1 in the first three quarters compared to 2.55:1 in the same period a year ago.

"The stabilization in Canadian credit quality is attributable to healthy corporate revenues amid a robust domestic expansion and fewer leverage problems," said Diane Vazza, head of S&P's global fixed income research, in a news release. "Even though corporate bond spreads are still the widest in a decade - due largely to falling government bond yields - there is little evidence of a widespread credit crunch, although there remain pockets of difficulty among media and telecommunications issuers."

But S&P cautioned that 143 Canadian issuers have negative outlooks or are on CreditWatch with negative implications, 21% of the total. Only 7% of Canadian issuers have a positive outlook or are on CreditWatch with positive implications.

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