New York, October 23, 2002 — A new report by Moody’s Investors Service examining recent and historic trends in rating actions and rating reviews reveals that nearly one out of 13 rated corporate issuers globally is currently under review for downgrade, but that three very large, pressured sectors account for nearly 65% of all such reviews.
Utilities and telecommunications companies alone account for 40% of all issuers currently under review for downgrade, while financial institutions — including banks, thrifts, finance and securities firms, real estate investment trusts, and insurance companies — account for another nearly 25%.
The report corroborates similar findings released by the rating agency’s economics team last week that energy-related industries, telecom and hi-tech, and insurance in particular have all factored significantly into recent credit deterioration, although the overall pace of downgrades slowed in the third quarter from that registered earlier this year.
“The current trend of credit deterioration is likely to continue for the foreseeable future as indicated by our Watchlist statistics,” says Richard Cantor, Managing Director of Moody’s Ratings Research & Analysis, “although they also clearly reveal that some industries are under far more strain than others.”
According to Moody’s Cantor, the new report, “Moody’s Rating Actions and Reviews” is designed to provide a “forward-looking and transparent indicator of potential shifts in global credit quality” and will be updated on a quarterly basis.
The study presents a detailed breakdown on an issuer basis of all rating upgrades, downgrades, and reviews by sector, by region, and by rating. It includes all rated corporations, banks, and sovereigns around the world, but excludes US public finance issuers and structured finance ratings.
According to the report, one out of every nine utilities has been downgraded over the past three months and one in five is currently under review for downgrade. Nearly one out of every three telecoms is likewise under consideration for downgrade
Historically, approximately two-thirds of all reviews are ultimately resolved in the direction in which they are initiated.
Airlines have also been under tremendous credit pressure, with most carriers downgraded since last September 11 – many more than once – and a one in five still under review for possible further downgrade.
Undergoing a reversal of fortune is the banking industry, Moody’s study reveals. For the full period from September 2001 to September 2002, upgrades outnumbered downgrades in the banking sector 2 to 1. But over the past three months, downgrades have exceeded upgrades in the sector by that same ratio, and downgrade reviews now exceed wathchlists for upgrade 6 to 1.
“It is important to note, however, that all recent downgrades involve non-US banks, as do all but a few of the current negative reviews,” Moody’s Cantor explains.
The Moody’s report also shows that the historic pattern of increasing rating volatility at the lower end of the rating scale has become even more pronounced over the past year as a difficult economic environment and volatile capital markets have placed added pressure on already weak credits.
Current reviews appear to indicate greater stress on investment-grade than below-investment-grade going forward., but below-investment-grade credits are less likely than their investment-grade counterparts to be proceeded by a review, Moody’s says.
Copies of the report are available to clients of Moody’s Credit Market Trends Service at www.moodys.com/credittrends under the heading, “Credit Quality Trends – Research.”