US (corporate) credit quality in 25-year retreat toward junk-S&P

[UpInArms]

http://today.reuters.com/misc/PrinterFriendlyPopup.aspx?type=bondsNews&storyID=2006-11-02T220857Z_01_N02197166_RTRIDST_0_ECONOMY-DOWNGRADES-SANDP.XML

NEW YORK, Nov 2 (Reuters) - U.S. corporate credit quality has been on a 25-year decline toward junk status, with almost half of all companies now rated below investment grade, Standard & Poor's said on Thursday.

Liquid financial markets, downgrades in the auto and airline sectors, a spate of takeovers and global competition have contributed to the credit quality erosion, the rating agency said in two reports.

"An aggressive financial posture is necessary for survival in a stiff globally competitive environment," S&P said. "The same dynamics are unfolding in Europe, albeit at a slower pace."

As of September, junk, or speculative-rated issuers, defined as those rated "BB-plus" or below, stood at a record high of 49 percent, up from 48 percent at the end of 2005 and a low of 28 percent in 1992, S&P said.

<snip>

Given the present ratings mix, the default rate could exceed 15 percent, the highest since the Great Depression, if the economy goes into a recession, according to Martin Fridson, publisher of independent research service Leverage World.

...more...

[TexasLawyer]

1. "could end badly..."

Yikes!

Some strategists have cautioned that the slump in credit quality could end badly.

Given the present ratings mix, the default rate could exceed 15 percent, the highest since the Great Depression, if the economy goes into a recession, according to Martin Fridson, publisher of independent research service Leverage World.

[anotherdrew]

2. what causes low bond ratings?

doesn't S&P and one or two others just issue their opinion and that's it? So maybe EVERYONE - companies and S&P type raters are all lowering the bond ratings in order to make that investment option generally less attractive, thus herding peoples money into the stock market?

[Wilms]

3. Reagonomics n/t