Monday, 9 March 2009

Fitch Says Corporate Downgrades, Defaults Surged in 2008. No Surprises But .. What Will Come Next?

Fitch Ratings downgraded 20 percent of its rated corporate finance issuers last year, up from 8.6 percent in 2007. Contrary to the expectations of the ratings company -- which in April said it didn't expect much downgrading activity despite the downturn in global economic activity, -- actions turned increasingly negative as the credit crisis unfolded and the economic environment worsened.

The trend is worsening quickly and badly.
The speed of credit deterioration was more pronounced than any previously recorded by Fitch. ''The ratio of downgrades to upgrades, which was in negative territory early in the year, moved from 2-to-1 in the first quarter to 13-to-1 in the last quarter,´´ Fitch said in a report. Investment-grade companies saw downgrades jump year-over-year to 19.2 percent from 8.7 percent in 2007. Upgrades dropped to 4.7 percent from 10.5 percent in th
e same period. Speculative-grade issuers (junk rated companies) saw downgrades increasing to 22 percent from 8.2 percent in 2007; upgrades plummeted to 12 percent from 22 percent a year earlier.

Fitch recorded a global corporate issuer default rate of 1.3 percent in 2008, up from 0.11 percent in 2007. In another sign of the times, fallen angels (or those companies that lose their investment-grade ratings) topped rising stars by a margin of nearly 2-to-1.
One thing I remember from that old Fitch study in April was that they expect global defaults to rise to 2 percent or so at some point in 2009 -- we could expect a higher ratio given the quick deterioration in cash reserves, global exports, the plunge in most currencies against the dollar and the very restricted availability of credit. Add to all these the little appetite by banks and investors to refinance existing bonds and loans.

No comments:

Post a Comment