See the full list of which companies Moody’s thinks are most likely to default here.
New York, March 10, 2009 — Moody’s Investors Service has launched the “Bottom Rung,” a list of the lowest-rated U.S. non-financial speculative-grade companies, as a tool to help investors discern which companies are under the most stress at a time of tight credit markets and global economic weakness.
The inaugural Bottom Rung list includes the 283 companies that carry either a Probability of Default Rating of Caa1 or lower, a B3 with a negative rating outlook or a B3 with a rating under review for downgrade. These companies have not defaulted, but their current ratings indicate elevated risk of default relative to other rated corporate issuers.
“The number of companies in this low-rated tier has increased substantially, which coincides with Moody’s forecasts of a sharply higher speculative-grade default rate this year,” said David Keisman, senior vice president at Moody’s Investors Service. “There are now nearly twice as many companies on the Bottom Rung list as there would have been a year ago.”
An increasing percentage of U.S. speculative-grade companies are appearing on the Bottom Rung. More than 23% of that universe currently meets the Bottom Rung rating criteria. In contrast, 12% met the criteria in the first quarter of 2008 and just over 9% did so in the first quarter of 2007.
“Even as the overall number of speculative-grade companies increases, the percentage in the Bottom Rung continues to rise sharply as well,” Keisman said. “The expansion of this low-rated tier reflects wide-ranging stress in corporate credit markets and the pronounced effects of the global economic slowdown.”
Moody’s currently forecasts that the trailing 12-month default rate for all U.S. speculative-grade issuers will reach 14.5% in November 2009, compared with an actual default rate of 4.4% at the end of 2008. For the already low rated Bottom Rung population as a whole, the estimated default rate over the next 12 months is just over 45%.
The probability of default varies significantly from issuer to issuer, with the companies in the lowest rating categories (C,Ca,Caa3) at a substantially higher risk of default than the companies on the list with relatively higher ratings. Moody’s defines default as a bankruptcy, a missed payment of principal or interest, or a distressed exchange.
The Bottom Rung list, which will be updated monthly, is available at www.moodys.com/BottomRung, along with an accompanying quarterly research report to help investors identify trends and changes in the composition of the list.
The Bottom Rung is one of many tools and research products that Moody’s provides to help investors identify companies most at risk as the default cycle begins to accelerate. These include Probability of Default Ratings, Loss Given Default assessments, Speculative Grade Liquidity ratings, and, later this year, SGL component scores. These data points, which are increasingly used in leveraged finance practice, aim to improve ratings transparency; the Bottom Rung publication will now aggregate them for each company on the list.
The Bottom Rung list does not reflect any change in Moody’s analytical approach, but aggregates for investors companies with already-low ratings to help highlight the scope of stress in speculative-grade credit.