Nearly $1 trillion of debt at risk of downgrade to junk in 2012: S&P

NEW YORK Thu Jan 17, 2013 5:46am IST

Rajalakshmi (C), 28, smiles after winning the Miss Wheelchair India beauty pageant in Mumbai November 26, 2014. REUTERS/Danish Siddiqui

Miss Wheelchair India

Seven women from across India participated in the country's second wheelchair beauty pageant, which aims to open doors for the wheelchair-bound in modelling, film and television, according to organisers  Slideshow 

NEW YORK (Reuters) - The amount of sovereign and corporate credit on the cusp of being downgraded to junk status more than quadrupled in 2012, due primarily to an erosion in the credit quality of the world's banking sector, Standard & Poor's data showed on Wednesday.

At the end of last year, S&P rated $984.8 billion worth of debt, from 52 separate issuers, one step away from speculative grade, also referred to as junk. At the end of 2011, the number of credits that were one downgrade away from junk status was 38, representing $227.4 billion.

"Most of the downward pressure that affected potential 'fallen angels' was because of the European credit crisis," Diane Vazza, credit analyst at S&P, told Reuters, referring to issuers whose ratings are close to being cut to junk.

Twenty-five issuers, or nearly half of the potential junk credits, were in the banking sector and of that group, eight were banks located in India.

S&P describes this group as issuers who are rated BBB-minus with either negative outlooks or ratings on its so-called CreditWatch with negative implications. The latter classification signifies that a decision on whether or not to downgrade is more imminent.

The United States and Europe had the most entities in danger, each with 15 issuers. The Asia-Pacific region was next with eleven issuers.

The consumer products sector had six potential fallen angels, four of which were based in the United States, S&P's report said.

However, the actual number of fallen angels last year was 43. These credits represented $302.4 billion in par value. That was a slight improvement over 2011's 45 credits, worth $363.4 billion, that were cut to junk.

On the flip side, the number of credits on the cusp of being lifted into investment grade status, referred to as potential rising stars, grew to 25 in 2012 from 22 in 2011.

Potential rising stars at the end of last year represented $229.1 billion in rated debt versus $78.7 billion at the end of 2011, Vazza said.

At year's end, 15 of the potential rising stars were located in the United States, with four from Europe representing the second-biggest concentration.

"The transportation and media and entertainment sectors have the most potential rising stars, with three issuers each," S&P said.

Rising stars are defined as issuers currently rated BB-plus with either a positive rating outlook or on CreditWatch positive.

Credits upgraded to investment grade territory totaled 29 last year, representing $63.6 billion in rated debt. That was a decline from 2011, when 38 so-called rising stars, accounting for $143.4 billion in credit, were raised to investment grade, Vazza said.

"The fallen angels count exceeded the rising stars' in 14 out of the past 25 years (1987-2011)," according to S&P.

Credit spreads over benchmark five-year U.S. Treasuries for issuers in the BBB category were 175 basis points to 254 basis points in 2012. Spreads widened to a range between 326 basis points and 493 basis points for credits in the BB category.

(Reporting by Daniel Bases; Editing by Dan Grebler)

REUTERS SHOWCASE

WTO Trade Deal

WTO Trade Deal

WTO clinches first global trade deal in its history  Full Article 

Kashmir Attack

Kashmir Attack

Ten dead in Kashmir's worst militant attack in more than a year  Read 

OPEC Meeting

OPEC Meeting

Saudis block OPEC output cut, oil price sinks further.  Full Article 

E-Commerce Boom

E-Commerce Boom

Online grocers come up trumps in India's e-commerce boom   Full Article 

GDP, RBI Preview

GDP, RBI Preview

GDP growth set to weaken, business wants reforms more than rate cut  Full Article | Related Story 

Jaitley to Rajan

Jaitley to Rajan

Jaitley likely to meet Rajan on Monday to urge rate cut  Full Article 

Banking Sector

Banking Sector

India moves to allow more businesses to offer basic financial services.  Full Article 

Jamini Roy

Jamini Roy

Photo Gallery – Bengali household name Jamini Roy’s paintings  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage