Weak economic growth, ignited by the U.S. housing downturn and worsened by tight credit and high energy costs, also affected industrial issuers, especially in North America which saw industrial downgrades increase 48% compared with the second half of 2007 and 34% year over year. Upgrades moved in the opposite direction, down 39% compared with the second half of 2007 and 50% relative to the first half of 2007. Overall, the ratio of downgrades to upgrades across the universe of Fitch rated North American industrial firms was 2.9 to 1 in the first half of 2008. On a global basis, the downgrade to upgrade ratio for industrials was 1.6 to 1.
"In an important and revealing change from the previous year, fallen angels surpassed rising stars by 2 to 1 in the first half, a reversal from the 0.6 to 1 ratio recorded in 2007" said Charlotte Needham, Senior Director of Fitch Credit Market Research, "The number of corporate issuers carrying speculative ratings is expanding in 2008."
In the first half, the share of Fitch global corporate ratings with a Negative Outlook or on Watch Negative rose to 17%, up from 12% at the end of 2007 and 11% a year earlier. The share of ratings with a Positive Outlook or on Watch Positive in contrast fell to 8% from 10% at the end of 2007 and 12% as of June 2007.
"The financial crisis and slowing global economic growth, not surprisingly, is putting downward pressure on corporate credit quality in 2008" said Mariarosa Verde, Managing Director of Fitch Credit Market Research, "The steady increase in Fitch's corporate Negative Outlook and Watch assignments points to more and likely deeper credit erosion over the coming year."
