Credit trend improves slightly but still heading down, Moody's says

New York, April 14 - The credit trend improved slightly in the first quarter compared to the last three months of 2002 but is still headed downwards, according to Moody's Investors Service.

During the first quarter the ratio of downgrades to upgrades declined to 3.8:1 from 4.3:1 in the previous period. Upgrades were disproportionately concentrated among junk-rated issuers.

Both upgrades and downgrades declined during the three months. Moody's upgraded 1.3% of all issuers during the first quarter compared to 1.8% in the last quarter of 2002 and downgraded 5.1% of issuers compared to 7.9%.

Moody's said the number of issuers on review suggests no further easing in the decline in credit quality. One in 17 corporate issuers are on review for downgrade, the same as three months earlier. The ratio of reviews for downgrade to reviews for upgrade is 4.5:1, slightly worse than 4.4:1 three months earlier.

"Most of the positive ratings movement we saw last quarter was confined to the non-investment grade sector, and a dramatic drop in downgrades among financial issuers during the quarter accounts for about half of the decline in downgrades overall," said Richard Cantor, managing director of Moody's Rating Research & Analysis, in a news release.

During the quarter, junk-rated companies were nearly six times more likely to be upgraded than investment-grade issuers.

Airlines continue to face the most likely prospect of credit decline, with, as of March 31, one in five issuers on review for downgrade, after a fifth of them were downgraded during the previous three months, Moody's added.

Downward pressure on telecoms and utilities continued, as those sectors together constituted a third of all rating downgrades last quarter.

By region, Europe has the highest percentage of its issuers on review for downgrade at 7% compared to 6.4% for the U.S. and Canada.

Latin America has only 3.5% of its issuers on review for downgrade but 24.5% of issuers were downgrade over the past 12 months.

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