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Next up - $1 trillion debt downgrade
Fri, 18 Jan Pre-Open

The debt crisis around the world and especially in Europe continued to play havoc in both equity and bond markets in 2012. According to Standard and Poor (S&P) ratings agency, nearly USD $1 trillion of debt is at the risk of being downgraded to junk status in 2012. The amount of sovereign and corporate credit on the verge of being downgraded to junk status more than quadrupled in 2012, due primarily to erosion in the credit quality of the world's banking sector.

At the end of December 2012, S&P rated USD $984.8 bn worth of debt, from 52 separate issuers, one step away from speculative grade, also referred to as junk. At the end of 2011, the number of credits that were one downgrade away from junk status was 38, representing USD $227.4 bn. The major reason for the increase in the number of potential downgrade was due to the continuation of the European debt crisis. In January 2012, S&P had downgraded the long-term sovereign debt credit ratings of nine European countries. It also downgraded long-term ratings of the European Financial Stability Facility (EFSF) to AA+. The rationale was that 2 of the guarantors, France and Austria had lost their previous AAA ratings.

The rating agency has also said that twenty-five issuers, or nearly half of the potential junk credits, were in the banking sector and of that group, eight were banks located in India. The United States and Europe had the most entities in danger, each with 15 issuers. The Asia-Pacific region was next with eleven issuers. Credits upgraded to investment grade territory totaled 29 last year, representing USD $63.6 bn in rated debt. That was a decline from 2011, when 38 accounting for USD $143.4 bn in credit, were raised to investment grade. Out of the last 25 years, this was the 14th time that downgrade exceeded upgrade.

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