Credit Lens Focus on S&P Bond Rtgs of S&P 500 Index.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 7, 2003

The distribution of outlook and CreditWatch listings indicates that the negative bias in the credit quality of the S&P 500 decreased slightly to 30% as of July 31, compared with 32% recorded on March 27, the last time this report was published by Standard & Poor's Ratings Services. Still, downgrades predominated, representing 79.6% of rating actions in the period since March 27, implying that the constituents of the index have not been spared from the credit deterioration that characterized the broader rated population. At 79.6%, the credit ratio-ratio of downgrades to total rating actions-was more negative for the index compared with the 75.3% recorded in the broader U.S. rated population during the same period. (Note: Ratios subject to revision.) In terms of absolute count, downgrade volume was especially heavy in the consumer discretionary, industrials, and utilities sectors.

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.

"The decreased negative bias in the outlook and CreditWatch listings implies that the propensity for downgrade activity among the index should decelerate slightly in the coming months, mirroring the credit-quality improvements in the broader rated population," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research group.

In the year to date, the ratio of downgrades to total rating actions for all U.S. nonfinancials fell to 77.8% from 82.3% during full-year 2002. Meanwhile, the credit ratio for all U.S. financials fell to 73.3% from 76.1% over the same period. As of July 31, sectors most likely to benefit from potential upgrades include healthcare and materials. On the flip side, sectors that appear vulnerable to potential further downgrades include utilities, industrials, and consumer discretionary-in each case, more than 30% of entities within the sector either had negative outlooks or were on CreditWatch with negative implications.

Since the last report on March 27, 2003, the negative bias in credit quality-as defined by bond outlooks and CreditWatch listings-declined to 30% from 32% as reflected in the S&P 500, a microcosm of the total universe. Of the rated companies in the S&P 500, 83% are nonfinancial and 17% are financial.

Since the last commentary, the proportion of negative CreditWatch/outlooks on rated companies in the S&P 500 has declined. Specific to the rated issuers of the S&P 500, there has been a decrease of two CreditWatch Negative listings to 21 compared to 23 in March 2003. Similarly, the number of issuers with negative outlooks fell to 109 from the recorded 117 in March. The decrease in negative outlooks was driven exclusively by the investment-grade rated companies in the index. Overall, 29.7% of the outlooks and CreditWatch implications are negative compared to 32.2% ended March 2003. Currently, of the rating outlooks by sector, 42% of utilities, 31% of industrials, and 30% of consumer discretionary are negative. These negative CreditWatch/outlooks indicate the potential for downward pressure. Meanwhile, the proportion of entities with stable outlooks increased to 69.2% compared with 66% in March. The proportion listed with a positive bias fell to 3.9% vs. 5% in the March report.

There have been 43 rating downgrades and 11 upgrades on the constituents of the S&P 500, a 3.9:1 credit ratio. With downgrades continuing to outpace upgrades, the bond ratings distribution of the S&P 500 Index continued a shift down the credit scale.

Currently, there are 438 companies within the S&P 500 Index that also have Standard & Poor's bond ratings: 73.8% investment-grade; 13.8% speculative-grade; and 12.4% either unrated or non-publicly rated companies.

Among the 500 companies, the greatest rating concentration (14.8%) is in the 'BBB' rating designation, followed closely by the 'A' rating designation with 14.4%. Since the last commentary on March 27, 2003, the index has been rebalanced. One investment-grade, one speculative-grade, and one unrated company were replaced with one investment-grade, one speculative-grade, and one unrated company.

Of the 25 companies on CreditWatch, 84% have negative implications compared to 16% with positive implications. Of the rated companies with outlooks, 65.3% have stable outlooks, 24.9% negative, and only 3.7% positive.

To obtain a full copy of the report, "Credit Lens Focus on S&P Bond Ratings of the S&P 500 Index," members of the media can contact Christopher Mortell at 212-438-2756 or alternatively at [e-mail].