The credit cycle is on the cusp of a decisive turn, Diane Vazza, managing director of Standard & Poor's global fixed-income research group, said at the ratings agency's economic and credit outlook presentation in New York last week. Analysts expect credit metrics to slowly deteriorate as economic growth slows and some companies that have been propped up by excessive liquidity start to falter going into 2007.
Issuers rated CCC or lower with negative outlooks reached their highest level in 20 months in September, signaling that credit quality is indeed deteriorating. As of Sept. 13, 25 CCC-rated companies remained vulnerable to default on combined rated debt worth $10.2 billion. This is five greater than reported in August and equivalent to the number reported in January 2005, when the default rate was high. The exact default rate for that month could not be determined, but the average for the year was 1.96%. New names added to the CCC rated list of companies in September include: Merisant Worldwide, National Coal Corp., Progressive Gaming International Corp. and Schefenacker.
While the number of CCC-rated companies has risen, the default rate remains low. The global corporate speculative-grade default rate fell to a record low of 1% in August from 1.03% in July, according to an S&P report.