Global bond downgrades inch up

The number of entities at risk of downgrades globally has inched up in the last couple of months, though it remains lower than the 2006 average, according to an article published by Standard & Poor’s. The report, titled “Downgrade Potential Across Credit Grades And Sectors,” states that the count increased to 631 in mid-August, 10 more than the number reported in July but eight fewer than the average reported in the past 12 months.
“The U.S. tops the list of potential bond downgrades, in part because of a greater vulnerability and greater maturity of credit cycle but also in part due to a larger rated population,” said Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “Of the total number of entities, 68% are based in the U.S., and 16% are in Europe.”
The highest ratios of issuers with a negative bias relative to their total rated universe are concentrated in the media and entertainment, automotive, and consumer products sectors, indicating that these sectors are potentially most vulnerable to credit-quality deterioration. ‘B’ rated companies are most at risk of potential downgrades, with 130 companies (21% of the total). Of the 631 companies at risk for downgrades globally, 63% have ratings of ‘BB+’ or lower.
Ms. Vazza added, “Automotive, consumer products, and media and entertainment have consistently appeared in our monthly potential downgrade reports since the beginning of the year. Weakness in the consumer discretionary domain is not surprising, owing to the negative impact of a consumer slowdown, the housing decline, and high energy prices.”