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Sept 26 - Credit degradation among financials has shifted massive amounts of debt to lower rating categories, said an article published today by Standard & Poor's. The article, which is titled "U.S. Credit Comment: Financial Sector Strain Shifting Massive Debt Down The Ratings Spectrum (Premium)," says that this is not a surprise given the current strain that the financial sector is experiencing. This strain has already led to the well-documented downgrades of some of the largest financial institutions in corporate America, including the recent downgrades of American International Group Inc. to 'A-' from 'AA-' and Lehman Brothers Inc. to 'D' from 'A' upon its Chapter 11 bankruptcy filing.
"Although credit-quality erosion can be expected during cyclical downturns, the enormity of debt amounts affected is disconcerting," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. Historical evidence suggests that ratings volatility increases as entities migrate to lower rating categories. Moreover, the descent of entities down the ratings spectrum contrasts sharply with the flight of investor capital in the opposite direction, from riskier assets in search for competitive yields in the go-go years to more secure securities in the now risk-averse environment following the dislocation of the credit markets.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided. tf.TFN-Europe_newsdesk@thomsonreuters.com cmr
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