No. of Recommendations: 1
Charlie - "For an equivalent reward and risk, can I find a better deal elsewhere?"

U.S. corporate credit quality has been on a 25-year decline toward junk status, with almost half of all companies now rated below investment grade, Standard & Poor's said on Thursday.

Liquid financial markets, downgrades in the auto and airline sectors, a spate of takeovers and global competition have contributed to the credit quality erosion, the rating agency said in two reports.


As of September, junk, or speculative-rated issuers, defined as those rated "BB-plus" or below, stood at a record high of 49 percent, up from 48 percent at the end of 2005 and a low of 28 percent in 1992, S&P said.

Downgrades and mergers have taken an even higher toll on U.S. nonfinancial, or industrial companies, with 61 percent carrying junk ratings.

In Europe, where investors are less receptive to high-yield issuers, just 17 percent of all borrowers are rated junk.

While U.S. junk ratings have climbed, the number of top "AAA" ratings has dropped to 18 from a peak of 24 in 1998, S&P said.

In the industrial sector, only six parent companies have "AAA" ratings: Automatic Data Processing Inc. (ADP.N: Quote, Profile, Research), Pfizer Inc. (PFE.N: Quote, Profile, Research), Johnson & Johnson (JNJ.N: Quote, Profile, Research), United Parcel Service Inc. (UPS.N: Quote, Profile, Research), Exxon Mobil Corp. (XOM.N: Quote, Profile, Research) and General Electric Co. (GE.N: Quote, Profile, Research).

"Maintaining an 'AAA' status does not yield the payoff it once did," S&P said. Borrowing costs are only about 5 basis points lower for an "AAA" 10-year bond than for an "AA" bond of that maturity, the rating agency said.

Seems like a large pool to choose from, for a junkman. Although treasuries and agencies credit quality may be over-rated, with a looming recession implied by the yield curve...for the more risk averse they look more attractive at least for the intermediate term.


(no FI expertise here but somewhat appalled at corporate credit quality report)

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