NEW YORK Nov. 6, 2006

Two articles published today by Standard & Poor's Ratings Services look at the 25-year decline in the average creditworthiness of U.S. companies. The articles, which are titled "U.S. Ratings Distribution: A 25-Year March To Junk" and "U.S. Rating Trends: The Decline Of The 'AAA's And The Rise Of The Killer 'B's," say that since the early 1990s, two rating themes stand out for U.S. companies: the declining prominence of 'AAA' rated firms (a phenomenon also seen in Europe) and the simultaneous rise of the 'B' rated firm.

"The universe of U.S. high-yield bond issuing entities continues to expand," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "This has been spurred by strong risk appetite and ample liquidity." The result is a steady inching of the U.S. ratings mix toward a 50/50 split of investment-grade and speculative-grade issuers.

The nonfinancial issuer universe is already 61% speculative grade, a feature that stands in stark contrast with Europe, where firms are predominantly investment grade. However, both regions have seen aggregate credit quality slip during the past decade, as the low interest rate environment and elevated investor risk tolerance have increasingly encouraged speculative grade firms to directly tap into extremely liquid financial markets, eschewing the more onerous bank-lending route.

"The high-yield investor base has also continued to broaden and deepen," Ms. Vazza added. "Low long-term interest rates and a receptive market for long-term debt have allowed firms to judiciously lengthen the maturity of their debt and lock in low interest rates, giving them more flexibility over their balance sheets than before." Strong shareholder focus, coupled with stiff global competition, requires a far more aggressive financial strategy on the part of firms, suggesting that managing to a lower credit quality rating might be a better strategy.