Syndicated loan trend "clearly negative" - Moody's
NEW YORK, Oct 5 (Reuters) - The outlook for about $800 billion of syndicated bank loans is "clearly negative" as the U.S. economic downturn accelerates and default rates surge, a credit rating agency said on Friday.
The ailing economy has caused business to cut back capital spending and reduced the need to take out loans. The Federal Reserve has cut interest rates nine times this year, in part to perk up capital spending, but to no avail.
Meanwhile, slumping demand for products and services has weakened the balance sheets of thousands of publicly traded companies and left hundreds, many of which raised cash in the free money era of the late 1990s, struggling for survival.
"New transactions closed in the period of relatively lax credit standards in the late 1990s have reached the age associated with peak rates of default," said Daniel Gates, a Moody's senior vice president, in a press statement. "Heightened credit concerns have made it increasingly difficult for struggling borrowers to obtain needed financing."
In the third quarter, Moody's, which has 2,300 ratings for nearly $800 billion of loans, downgraded five times as many loans as it upgraded. That was the 17th straight quarter when downgrades outpaced upgrades.
Moody's said the global junk bond default rate, which began the year at 5.71 percent, has risen to 8.77 percent and will likely peak near 11 percent by the middle of 2002.
Not coincidentally, banks are cutting back their lending. In the third quarter, U.S. syndicated loan underwriting totaled $272.9 billion, down 15 percent from $322.1 billion a year ago, according to Thomson Financial Securities Data of Newark, New Jersey.
"The decline in U.S. lending reflects general credit concerns as well as reduced borrowing needs by borrowers who have cut capital spending, and who have fewer financing needs for merger and acquisition transactions," said Mike Rowan, a Moody's managing director.
Moody's said 80 percent of its new loan ratings are for U.S. companies, the lowest percentage ever.
On top of this, banks are also cutting back in their lending to lower-rated companies. That's a big problem for companies who may now no longer be able to rely on the junk
bond market to raise cash.
While junk bond issuance in the year's first half exceeded the total for all of 2000, only two companies have in the last four weeks been able to complete U.S. junk bond sales. |
