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Global Credit Research - 22 Jun 2010
New York, June 22, 2010 -- Trends remain positive for Moody's B3 Negative and Lower Corporate
Ratings List and most of Moody's other proprietary indicators of
speculative-grade credit quality in the U.S.,
despite recent weakness in the bond market, said Moody's Investors
Service in a new report.
Although European sovereign debt concerns have led to sharply wider spreads
and a decline of high-yield debt issuance in the U.S.,
Moody's B3 Negative and Lower list has continued to show the improvement
that began in the second half of 2009, the report said.
As of June 1, the list was down to 209 companies, compared
with 288 a year earlier. During the past three months, just
11 companies were added to the list, compared with 14 in the previous
quarter and a peak of 161 in the fourth quarter of 2008. Companies
are added to the list when their Probability of Default Rating (PDR) is
downgraded to Caa1 or lower, or when a B3-rated company receives
a negative outlook or has its rating placed under review for a possible
Despite the positive trend, in the absence of a meaningful upturn
in business conditions some companies on the B3 Negative and Lower list
could find themselves challenged to refinance upcoming maturities,
said David Keisman, senior vice president at Moody's.
"A modest economic recovery would provide revenue and cash flow
sufficient to service existing borrowings, but some issuers would
be pressed to repay maturing debt and would need to remain highly leveraged
in a slow-growth economy," he said.
Another Moody's indicator with a positive trend is the ratio of
upgrades to downgrades for rated companies in the Americas. Overall,
there have been an increasing number of rating upgrades since last fall,
the report said. The ratio -- which includes investment-grade
and speculative-grade issuers --hit 245% in May,
just short of a cyclical peak it reached in January 2010.
Moody's forecast model for the U.S. speculative-grade
default rate also remains positive. The default rate fell to 7.9%
in May from 9.5% in the prior month and 14.5%
at its peak in November 2009. Moody's forecasts that the
default rate will fall to 2.7% by the end of 2010 and 2.1%
a year from now.
One Moody's indicator had a recent pause in its more than year-long
string of improvements. Moody's Liquidity-Stress Index
stayed flat at 4.8% in May. This measure of the percentage
of companies that carry Moody's lowest Speculative-Grade
Liquidity (SGL) rating is down from 20.9% in March 2009,
and has improved in the past 13 consecutive months as a robust credit
market has enabled companies to refinance debt and amend credit agreements,
the report said. The index is signaling the best liquidity for
SGL-rated companies in five years.
The report, "Moody's B3 Negative and Lower Corporate
Ratings List: Trends Still Positive For Spec-Grade Credit,"
is available on Moody's web site, www.moodys.com.
* * * * *
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Moody's Investors Service
Moody's Indicators Remain Positive for Spec-Grade Corporate Credit Quality
No Related Data.
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