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S&P: Downgrade Ratio To Decline

The ratio of downgraded companies as part of total credit rating activity will continue to decline in coming months, potentially dropping below 50%, anticipates Diane Vazza, managing director of global fixed-income research at Standard & Poor's.

The ratio of downgraded companies as part of total credit rating activity will continue to decline in coming months, potentially dropping below 50%, anticipates Diane Vazza, managing director of global fixed-income research at Standard & Poor's. The year-to-date downgrade ratio as of the end of February stands at 51%, from 61% for all of last year, 74% for 2003, 82% for 2002 and below the long-term average of 62.3%.

Potential bond rating upgrades are continuing their uptrend, according to a recent S&P report which showed 321 entities are on positive outlook or CreditWatch with positive implications, marking a 5% rise over the 305 reported last September. Vazza highlighted the healthcare, telecom and high technology sectors as ones that appear poised to benefit most from future rating upgrades.

S&P also anticipates the default rate will continue to decline over the next several months before creeping upward in the last quarter of the year. Vazza expects the year-long average to hit 2.3% and the default rate to drift upward to 2.6% by the end of the year. But, a 2.6% default rate would still indicate a benign credit environment, she added.

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