Fewer downgrades may be in prospect, Moody's says

New York, Jan. 24 - The high number of downgrades seen over the past year should ease slightly based on an examination of the total number of companies under ratings review, according to Moody's Investors Service.

At the end of 2002, one in 17 issuers rated by Moody's was on review for downgrade compared to one in 13 three months earlier.

Moody's noted roughly two-thirds of all reviews are ultimately resolved in the direction in which they are initiated.

"While most sectors are likely to experience at least some pressure in a still tough economic environment, there are still really just a handful driving what may be perceived as a broad-based credit deterioration," says Richard Cantor, managing director of Moody's Ratings Research & Analysis, in a news release.

He cited telecommunications and utilities as an example, noting they make up over a third of companies (36%) now on negative review after accounting for over a quarter (25.9%) of all downgrades in 2002.

Airlines currently face the highest rate of negative rating actions, with one in five on the Watchlist for downgrade. During 2002, about 40% of industry was downgraded.

The insurance industry, in contrast, may be looking at a more stable 2003, Moody's said. One in four life insurance companies was downgraded during 2002 as were 40% of the rated providers of other types of insurance (property and casualty, etc.). At year-end, however, less than 4% of life insurers and 6.8% of the non-life insurance providers remained on review.

Moody's also said there are indications that the global downturn is finally exerting pressure on the higher-rated investment grade issuers.

At the end of 2002 Moody's had 43 of its 902 Aa rated issuers on review for downgrade and none on review for upgrade. During the fourth quarter 79 of these issuers were downgraded and 16 upgraded.

Separately, Moody's said Friday that the upgrade-to-downgrade ratio has improved sharply in January from a record low in the fourth quarter of 2002.

So far this month, upgrades have made up 42% of rating actions compared to 12% for the final quarter of last year.

The number of upgrades per day is 75% higher than the average for all of 2002 while the number of downgrades per day is 52% lower, Moody's added.

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