Global credit quality worsens in Q1, says Moody’s

Overall credit quality for corporate, sovereign and banking debt issuers on a global basis worsened as downgrade-to-upgrade ratio rose to about 3:1 from about 2:1 in the first quarter, Moody’s Investors Service said in a report.

The pace of deterioration has been rapid since as recently as the second quarter of 2007, the number of upgrades and the number of downgrades were approximately equal.

“The environment continues to be cautious, with a greater percentage of issuers on review for downgrade than upgrade, as well as more issuers holding negative outlooks than positive ones,” Moody’s analyst Jennifer Tennant said in the report entitled “Moody’s Rating Actions, Reviews and Outlooks: Quarterly Update — First Quarter 2008.”

Specifically, Moody’s reports that the end of the first quarter of 2008, 3.8 percent of rated issuers were on review for downgrade, compared with 1.8 percent on review for upgrade. Similarly, 13.1 percent of rated issuers were given negative outlooks, compared with 6.1 percent with positive outlooks.

The rating actions, reviews and outlooks also show investment-grade issuers facing a slightly more positive credit outlook than do the speculative-grade issuers, continuing a trend from the previous quarter. While both categories had more issuers on review for downgrade than for upgrade, investment-grade issuers show more stability, and speculative-grade issuers were more likely than investment-grade issuers to experience downgrades and upgrades in the first quarter of 2008. Speculative-grade issuers were also much more likely than investment-grade issuers to hold negative outlooks.

The Middle East, Africa and Latin American regions have more issuers on review for upgrade than on review for downgrade. For Asia Pacific (excluding Japan), negative outlooks outnumbered positive outlooks whereas for Japan, there were still more positive outlooks than negative outlooks though the gap has narrowed.

Additionally, more European issuers are on review for downgrade than review for upgrade, and three times as many issuers in the United States and Canada have negative outlooks as opposed to positive outlooks.

Among industries, real estate, construction, finance, securities and leasing had the largest proportion of downgrades in the first quarter of 2008. The building materials, real estate and construction industries have substantially more issuers with negative outlooks than positive ones.