Canadian defaults declining, but outlook is mixed, S&P says

By E. Janene Geiss

Philadelphia, Oct. 12 - Canadian corporate defaults continued on a declining trend in 2004 but the outlook now is not so rosy, according to commentary published Wednesday by Standard & Poor's Ratings Service.

After enduring five years of elevated default activity, Canadian investment portfolios have begun to benefit from easing credit stresses, said S&P fixed income analyst Robert Palombi in the report.

"Canadian Ratings Performance 2004: Default Risk Still Rising" cites an improving macroeconomic environment and supportive financial conditions as the main drivers of the receding default.

But even with the ease in credit stresses, Palombi said the outlook for credit quality is mixed and credit trends in Canada are possibly nearing a turning point.

"Disturbingly, an elevated number of Canadian companies have recently lost their investment-grade ratings, as various company-specific factors... have caused credit stresses among these companies," Palombi said in the report.

Those stresses include weak governance practices, aggressive financial policies and limited success in achieving cost efficiencies, Palombi said.

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