This year might start off with a host of corporate debt downgradings to continue the negative trend of 1994, according to Carol Levenson, who has her own Chicago-based corporate credit analysis firm.
Despite an improving economy and increasing corporate synergies and cost-cutting moves, chances were slim last year for an upgrading in a corporate issuer's credit rating, she said in a report to clients, known as Gimme Credit.
Of 18 industrial companies upgraded in 1994, only 13 were upgraded because of improving fundamentals, and only six of these were significant issuers with more than $500 million in publicly traded debt outstanding. The six were Chrysler Corp., Capital Cities/ABC Inc., Motorola Inc., FMC Corp., Gillette Co. and Dresser Industries Inc.
"Even more worrisome, there were only two electric utilities upgraded due to improving fundamentals last year" - Georgia Power Co. and Dayton Power & Light Co., she noted. The majority of utility downgrades had to do with increasing business risk from competition.
The beginning of this year started bleak as well, with 15 industrial companies and five electric utilities on the "watch list" for downgrade - and the vast majority of them are significant debt issuers.