Some investors are avoiding European utilities, fearing there may be more downgrades in the works as companies are forced to add debt to their balance sheets to finance acquisitions. Nicole Jackman, head of European corporate bond management at State Street Global Advisors in London, says she's underweight utilities, especially highly rated ones, because she is worried about downgrades. For example, last week Electricidade de Portugal (Aa3/AA-) was put on a negative outlook by Standard & Poor's in response to fears its financial profile will erode.
Adrien Fourcade, analyst at BNP Paribas in London, says there is potential for more downgrades within the utility sector next year, but says it should not be nearly as bad as this year. Fourcade estimates there were roughly six downgrades per month this year. Downgrades should be fewer, because companies have been informing ratings agencies in advance about their financing plans are and that news has already been figured into ratings. "If there are downgrades that would mean the ratings agencies had made a mistake. That could happen. I'm sure," he adds.