Credit trend worsened in fourth quarter, S&P says

New York, Jan. 13 - The trend in corporate credit quality worsened to its low point of the year in the fourth quarter of 2002, according to Standard & Poor's.

The downgrade to upgrade ratio for global corporations reached 5.9 in the final quarter of 2002, up from 3.3 in the third quarter, 3.2 in the second quarter and 5.4 in the first quarter.

The year as a whole saw a ratio of 4.2, "only moderately better" than 5.1 in 2001.

The 2002 ratio was made up of 1,123 downgrade and 266 upgrades. Of these, 315 downgrades and 53 upgrades were recorded in the fourth quarter compared to 236 downgrades and 75 upgrades in the third quarter.

"This year, credit quality is expected to improve, though gains will be gradual and fall far short of spectacular," said Diane Vazza, head of Standard & Poor's global fixed income research, in a news release announcing the figures. "Downgrades will still outpace upgrades, though by a smaller margin."

By region, the U.S., Japan and emerging markets saw an improving trend in the year while the European Union and Canada saw a deterioration.

The downgrade to upgrade ratio for the U.S. fell to 4.5 in 2002 from 5.5 in 2001. Japan's ratio improved to 4.7 from 7.8 and emerging markets gained to 2.1 from 5.0 despite continued deterioration in Latin America, notably Brazil.

The year saw 194 defaults around the world on $177.1 billion of debt.

Most were companies based in the U.S. and its tax havens, making up 106 and $142.8 billion of the total.

The European Union had 22 defaults on $14.6 billion of debt.

The speculative-grade default rate at the end of December was 9.20%, down from 10.74% three months earlier.

In the U.S., the rate declined to 7.32% from 9.72% in 2001 but Europe saw an increased to 13.48% from 6.92%.

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