NEW YORK (MktNews) - Industrial sector credit deterioration, erbated by troubles among Western Europe's telecommunications anies, caused second-quarter credit rating downgrades to outnumber ades by a factor of more than three to one, according to a Moody's stors Service statement Tuesday.
Through the first six months of 2001, telecoms issuers accounted nearly a third of all downgrades in Western Europe. "The decline in credit worth, a trend which has run for four ight quarters, is expected to persist throughout the second half of , albeit at a slower pace," said Kerryn Fowlie, Moody's London-based omist in the statement.
She added that while weaker revenue growth, high operating costs elevated levels of leveraging continue to constrain the debt icing capabilities of Europe's industrial sector, less M&A activity ld contribute to fewer and more gradual credit rating changes ted to event risk.
Moody's downgraded 35 issuers in Western Europe during the 2001 nd quarter relative to just 11 upgrades. Industrial sector issuers unted for 22 of the downgrades and just three upgrades. Financial or issuers fared somewhat better during the quarter with just ten grades relative to eight upgrades.
Troubles look likely to persist this year given the difficult ating environment still facing western European firms. The number of ers placed on review for downgrade during the last quarter umbered those placed on review for possible upgrade at a rate of ly two to one," said Fowlie.
"The debt-financed expansion of the past two years has taken its on credit ratings within western Europe through the first half of ," she added.
Rising operating costs, largely related to higher prices for fuel other imported goods, as well as higher debt servicing requirements reduced the debt protection of several issuers downgraded this year.
Furthermore, the economic slowdown has come at an inopportune time some issuers with the ability to service debt acquired to fund ious capital spending plans dependent on high returns from the osal of non-core assets and solid growth in earnings.
The credit worthiness of Europe's banking sector has, however, held easonably well to the abrupt slowdown in global economic activity ecting the positive impact of greater consolidation on the amentals of the finance industry.
Ten banks have had their Bank Financial Strength Ratings (BFSR) aded during the first half of 2001 relative to just four downgrades. the banking sector still one of the main sources of external ncing for Europe's non-financial sector, the health of Europe's ing sector should quell any lingering concerns of an imminent credit ght.