Moody's: credit downgrades likely to exceed upgrades in 2007.

Expect downgrades in global credit quality to exceed upgrades in 2007 following the downward trend begun during the fourth quarter of 2006, according to a report by New York-based Moody's Investors Service.

The Moody's report, Moody's Rating Actions, Reviews and Outlooks: Quarterly Update--Fourth Quarter 2006, noted that the general improvement in global credit quality seen in the first three quarters of 2006 slowed during the fourth quarter, as the number of credit-rating downgrades were roughly equal to the number of upgrades.

Moody's also said that the current distribution of ratings on review and rating outlooks suggest that rating downgrades are likely to exceed upgrades in 2007.

At year-end 2006, Moody's said that 3.8 percent of all issuers were on review for downgrade, compared to 1.8 percent on review for upgrade. Moreover, 9.1 percent of all issuers had negative outlooks, compared to 7.7 percent of issuers with positive outlooks, suggesting a slight negative movement in ratings in the coming year.

Moody's reported that global credit quality improved overall in 2006, with the ratio of rating upgrades to downgrades for the year at 1.4.

Looking ahead to 2007, the credit outlook for investment-grade issuers appears slightly more positive than it does for speculative-grade issuers, according to Moody's associate analyst Jennifer Tennant.

"While both sectors currently have almost twice as many credits on review for downgrade as for upgrade, investment-grade issuers have considerably more issuers with positive outlooks than with negative outlooks," said Tennant. "On the other side, the speculative-grade sector has more issuers with negative outlooks than with positive outlooks."

By region, credit quality in the United States, Canada and Europe generally followed global trends in 2006, while Latin America and Asia Pacific continued to show superior credit performance with higher upgrade-to-downgrade ratios and higher positive-to-negative watch-list and credit-outlook ratios, noted the Moody's report.

The hotel, gaming and leisure industry saw more upgrades than downgrades, continuing its positive credit trend, said Moody's.