S&P: Companies Adopt Aggressive Financial Policies, Harming Credit Quality

The universe of industrial companies that Standard & Poor's rates have displayed a steady decline in average credit quality over the past decade, according to a report published by Standard & Poor's Ratings Services. The median credit rating for U.S. nonfinancial corporations is now 'BB-', compared with 'BBB-' in 1997 and 'A' in 1980.

"Several factors have fueled this trend: an influx of mostly speculative-grade first-time issuers, the LBOs of some companies, and a move toward more aggressive financial policy," says the report, titled "Corporate Financial Policies Evolve Toward The More Aggressive." (The article is part of an ongoing series of reports called "The Leveraging of America.")

The credit squeeze that suddenly overtook the debt markets in July 2007 has highlighted the risks of relying on ready access to low-cost liquidity as a given. Still, it didn't take long after the last credit market problems in 1997-1998 and the economic downturn of 2000-2002 for companies to return to higher risk financial strategies. Those strategies have contributed to the changing mix of ratings on industrial companies -- only 30% of which are now investment grade.

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at http://www.ratingsdirect.com/.

Standard & Poor's, a division of The McGraw-Hill Companies, is a provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data.