After a year mostly characterised by downgrades within Europe’s non-financial corporate sector – with 14 credits slipping into speculative grade and 26 credits defaulting – 2003 may see further negative rating actions, says Moody’s Investors Service in a new Special Comment. ‘The creditworthiness of Europe’s non-financial corporate sector continued its decline in 2002, with downgraded debt considerably exceeding upgraded debt, particularly in the telecoms and media sectors,’ said Richard Stephan, Moody’s Chief Credit Officer. While Moody’s rationale for the downgrades varied, the majority was attributed either to acquisitions made in 2002, or to a combination of weak operating performance along with a debt overhang from previous acquisitions. ‘The rise in so-called ‘fallen angels’ raises a number of new issues for the European market as a whole, not least the availability of sufficient liquidity to absorb the increase in non-investment-grade paper, the uncertainty of investor appetite in the expanded speculative-grade universe and the potential refunding risk arising over the coming few years,’ added Michael West, a Moody’s Senior Vice President.
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