Moody's downgraded $1.76 trln U.S. corp debt in Q1

NEW YORK, April 1 (Reuters) - Corporate America's credit
quality collapsed in the first quarter, with Moody's Investors
Service downgrading an estimated $1.76 trillion of debt, a
record high, the rating agency said on Wednesday.
The downgrades included a record number to the lowest
rating categories, signaling the approach of the worst defaults
since at least World War Two, Moody's chief economist John
Lonski said in an interview.
"These are numbers that just underscore how risky both the
financial and economic environment remain," Lonski said.
The downgrades reflect how badly corporate balance sheets
have been hurt by the slump in consumer spending amid the
deepest economic contraction since 1982.
"Business sales and profits fell off the table in general
during the final quarter of last year and have continued to
deteriorate in the first quarter in 2009," Lonski said.
U.S. corporate profits plunged a record $120.1 billion in
the fourth quarter, depressed by tumbling consumer spending and
exports.
Downgrades of investment-grade companies shot up by 153
percent from the year-ago quarter to a record 96, while
downgrades of junk-rated companies surged by 147 percent to
287.
The rating downgrades were led by industries with exposure
to the ailing housing industry, including homebuilders,
mortgage insurers and major money center banks. Some 70 of the
quarter's downgrades were housing related.
"The most prominent new driving force behind credit rating
reductions would be deterioration of commercial real estate,"
Lonski said. That is taking a toll on regional banks and
companies that manufacture equipment and material used in
construction, he said.
The downgrades included one of the largest on record, $326
billion of bonds and preferred shares of General Electric Co
and its units. Other major borrowers downgraded included
Ford Motor Co , Citigroup and Bank of America
.
In addition to housing, sectors under rating pressure
included automakers and auto parts suppliers, media companies,
casinos and retailers.
Among the downgrades were 22 fallen angels, or companies
cut to junk status. In addition, 82 ratings were downgraded to
the lowest categories, Caa3 or lower. That means that the U.S.
high-yield default rate, which stood at 5.7 percent in
February, is destined to climb sharply in short order, Lonski
said.
Moody's has forecast that the U.S. default rate will peak
around 14.5 percent in November.
(Reporting by Dena Aubin; Editing by Leslie Adler)
(dena.aubin@thomsonreuters.com; +1-646-223-6325; Reuters
Messaging: dena.aubin.reuters.com@reuters.net))

Keywords: DOWNGRADES CORP/MOODYS

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