The trend in credit downgrades has slowed, according Fitch Ratings, but warned not to expect much more than that. Downgrades have outnumbered stable ratings for the first four months of 2009, and is the first such occurrence seen by Fitch’s corporate portfolio. The Financial Times reported downgrades peaked at twenty-eight in March, then six in may, and zero in June. However, there were no upgrades in that time either.
Downgrades are expected to outnumber upgrades for the rest of the year. The downgrades for the first half of 2009 were underscored by “double-dippers”, companies that are downgraded twice and by more than a single credit level. Companies suffering such downgrades were Peugeot, Tata Steel, and ITV.
Fitch also warned against expecting a recovery this year or even next year. Weak corporate cash flows are expected to persist until mid-2011. Despite record activity in the European bond market at $345 billion of issuance, driven by investor demand for yield and banks not lending, Fitch warned it has the traits of a bubble. Reliance on bonds is not expected to become the new norm.