Elan, Terayon, CNET in S&P list of B- credits near high default risk

By Ronda Fears

Nashville, Tenn., Oct. 2 - Standard and Poor's said 3.4% of the global rated universe are currently rated B- on negative watch or with a negative outlook, perilously close to the CCC category that signals a very high default risk.

Of the total, representing $17.4 billion in bonds of 52 issuers, 75% are U.S. issuers. Three are convertible names, Elan Corp. plc, Terayon Communications Systems Inc. and CNET Networks Inc., all at B- with negative outlooks.

A negative watch indicates the potential downgrade of a credit rating and is typically resolved within 90 days. A negative outlook indicates the potential lowering of a credit rating within 6 months to 2 years.

"A downgrade into the CCC category can be significant,' said Diane Vazza, managing director, and David Cantor, associate director, in the report Wednesday.

"For example, investors in collateralized bond obligations view the percentage of underlying collateral in their transactions coming from CCC rated issuers as an important measure of deal performance and a potential indicator of future asset defaults.

"As a result of investors' concerns, some more recent CBOs incorporate a 'CCC haircut,' which discounts the amount of par credit given for assets from CCC issuers to the extent these assets exceed a preset percentage of the collateral pool, typically 5-10%."

A concentration of issuer weakness exists in the capital goods and consumer products sectors, together representing 34.6% of what S&P refers to as the "waiting to exhale" list.

Beyond those two, 7.7% were in transportation and 5.8% in each of banks, high tech, media and entertainment, oil and gas exploration and production, sovereign and telecom groups.

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