Credit Lens Focus on S&P's Bond Ratings of S&P 500.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

Oct. 28, 2002--Over the past year, a negative bias in credit quality-as defined by bond ratings, outlooks, and CreditWatch listings-in U.S. financial and non-financial companies has been reflected in the S&P 500, a microcosm of the total universe.

Of the rated companies in the S&P 500, 84% are non-financial and 16% are financial. Quarter-to-quarter, the credit ratio (downgrades to upgrades) of all U.S. non-financial stalled at 3.8, while all U.S. financials deteriorated to 4.0 from 0.8.

Standard & Poor's CreditWatch indicates the potential direction of a credit rating change, dependent on identifiable events and short-term trends, and is typically resolved within 90 days. A rating outlook indicates the potential direction of a credit rating change within six months to two years.

Specific to the rated S&P 500, there has been an overall increase since the third quarter of 2001 of 10.1%, to 86.2%, in CreditWatch Negative listings and an increase of 14.7%, to 28.1%, in Negative outlooks. Since the July 12, 2002 commentary on the S&P Bond Ratings of the S&P 500 Index, CreditWatch Negative listings increased 7.8% and Negative outlooks rose 5.6%. All the increases were driven primarily by the speculative-grade rated companies in the index. Currently, of the rating outlooks by sector, 40% of telecommunication services, 36% of industrials, and 35% of both information technology and utilities are negative. These negative CreditWatch/Outlooks indicate the potential for downward pressure.

Following the rise in negative CreditWatch/Outlooks, there have been 167 downgrades and 27 upgrades, a 6.2:1 credit ratio, on rated S&P 500 companies since the third quarter of 2001 to date.

"The three months since July 12, 2002 contributed intensely to the deteriorating credit quality with 66 downgrades and six upgrades, a credit ratio of 11:1," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "After a year of numerous downgrades to few upgrades, the bond ratings distribution of the S&P 500 Index has shifted down the credit scale."

Currently, there are 434 companies within the S&P 500 Index that also have Standard & Poor's bond ratings: 75.0% investment-grade; 11.8% speculative-grade; and 13.2% either unrated or non-publicly rated companies. The greatest concentration of companies, 15.2%, is in the single-'A' rating designation. The rebalancing of the index since the last commentary on July 19, 2002 involved one investment-grade, two speculative-grade, and two unrated companies being replaced with five investment-grade companies.

Of the 29 companies on CreditWatch, 86.2% have negative implications compared to 10.3% with positive implications. One company is on CreditWatch developing. Of the rated companies with an Outlook 67.2% are stable, 28.1% have a negative Outlook, and only 4.0% have a positive Outlook.

Copyright 2002, Standard & Poor's Ratings Services