Fitch: Corporate Downgrades Trailed Upgrades in 2014

Fitch Ratings' global corporate finance ratings exhibited moderate rating activity despite uneven economic growth. Downgrades trailed upgrades for the first time since 2010, albeit at a narrow margin of 0.9 to 1.

The share of issuers downgraded - 7% - fell from 8.9% a year earlier, while upgrades - 7.6% - were in line with the 7.8% recorded in 2013. The year-over-year stability rate of 76.3% was progressively higher than 2013's 74.4% and 2012's 72.7%.

A challenged European economic environment alongside geopolitical risks (Ukraine) pressured credit conditions, while the U.S. economy found its footing after a protracted recovery. The share of European corporate downgrades, 9.4%, topped upgrades of 5.9%. The reverse was true for North American rating activity with a downgrade rate of 5.6% lagging an upgrade rate of 9.6%.

Sovereign and M&A activity contributed to actions both up and down the rating scale across both financial and industrial issuers in 2014. Financial institutions rating activity improved with downgrades trailing upgrades by a margin of 0.7 to 1, from parity in 2013. Industrials approached balanced activity in 2014 with downgrades edging passed upgrades by a ratio of 1.1 to 1, contracting from 1.3 to 1 the prior year.

Emerging market issuer downgrades surpassed upgrades by a ratio of 1.6 to 1, for the first time since 2009. Meanwhile, advanced economy counterparts realized more benign conditions as the share of downgrades fell below upgrades by a margin of 0.7 to 1 in 2014, thus reversing the negative rating drift which began with the global financial crisis in 2008.

Fitch recorded a long term corporate issuer-based default rate of 0.49% in 2014, on par with 2013 and below the historical average 0.71% over the period 1990 - 2014. All 2014 defaults were rated speculative-grade at the beginning of the year, resulting in an annual default rate across speculative-grade issuers of1.58%.
This new study provides data and analysis on the performance of Fitch's corporate finance ratings in 2014 and over the long term, capturing the period 1990-2014. The report provides summary statistics on the year's key corporate finance rating trends.