US corporates: Negative outlook to remain
By Venkatachari Jagannathan | 16 Apr 2002
Venkatachari Jagannathan
16 April 2002
Chennai:
Over 40 per cent of the negative corporate outlooks related
to US corporates are concentrated in speculative grade
ratings of automotive, transportation, capital goods,
metals, mining and steel sectors, says a Standard and
Poors (S&P) study.
Overall,
despite a recent improvement in corporate credit quality
in the first quarter of 2002, 31 per cent of US corporate
ratings (banking, financial institutions, insurance, industrial,
telecommunications and utilities) have a negative outlook.
In spite of a record four years of downgrades exceeding upgrades, the potential for additional downgrades remains, albeit at a slower pace. Notwithstanding credit qualitys slight improvement in the first quarter of 2002, US industrials and telecommunications have the highest percentage of negative outlooks and the lowest percentage of stable outlooks. However, the percentage of negative outlooks is not uniformly spread across all subsectors, the study notes.
At the sector level,
US utilities and banks have 71 and 69 per cent stable
outlooks, respectively. In contrast, utilities have a
greater portion of negative outlooks at 25 per cent compared
to 21 per cent for banks. The remaining outlooks are primarily
positive - at 3 and 9 per cent, respectively, for utilities
and banks.
Also at the sector level, industrial and telecommunications have 62 and 53 per cent stable outlooks, respectively. Moreover, these sectors have negative outlooks at 32 and 39 per cent, respectively. Positive outlooks capture 6 and 8 per cent of the industrial and telecommunications sectors, respectively. Notably, all of telecommunications positive outlooks are on speculative-grade issuers.
Importantly, the outlook distribution varies between the US industrial investment-grade and speculative-grade categories. Seventy per cent of investment-grade issuers have stable outlooks compared to 27 and 3 per cent for issuers with negative and positive outlooks, respectively. Only 58 per cent of speculative-grade issuers have stable outlooks, along with 35 and 7 per cent of issuers having negative and positive outlooks, respectively.
Of all the industrial subsectors, healthcare, oil and gas exploration and production are the only two with nearly equal measures of positive and negative outlooks, regardless of investment-grade or speculative-grade grouping. The speculative-grade category shows some positive outlooks in the automotive, capital goods, forest products and building materials, and high-technology industries, whereas the investment-grade category shows none.
According to the S&P study, the reverse is true for transportation, with some positive outlooks only on investment-grade issuers. Finance companies and metals, mining and steel, homebuilders and real estate and integrated oil and gas are the four industrial subsectors without any positive issuer outlooks.