Worst-Rated Borrower List Cut to Half of ’09 Level, Moody’s Says

The number of companies with the lowest ratings declined 15 percent this year as slow economic growth has “failed to dent corporate credit quality,” according to Moody’s Investors Service.

Borrowers with a corporate credit rating of B3 or below and a negative outlook dropped to 152 from 179 at the start of the year, Moody’s said in a report. That’s about half the number of companies with that designation in the first quarter of 2009, during the peak of the worst financial crisis since the Great Depression, according to David Keisman, a senior vice president at Moody’s. B3 is six steps below investment grade.

Book distributor Baker & Taylor Acquisitions Corp. and retailer Sports Authority Inc. were among the 26 companies removed from the worst-rated list, analysts led by Keisman wrote in the report. The decrease came as the number of removals due to a ratings boost or outlook change reached the highest in more than two years, Moody’s said.

“Despite the concerns swirling through the markets, the backdrop for corporate credit looks stable,” Keisman wrote. “Continued slow economic growth in the U.S., combined with good corporate liquidity and stable business conditions in many industries, suggest little likelihood of rating activity significant enough to produce either a spike or sharp decline in the size of the B3 Negative and Lower List.”

About 2 percent of corporate ratings are on review for a cut, the authors wrote.

The shrinking list is consistent with Moody’s forecast for the U.S. speculative-grade default rate to drop to 2.5 percent in June from 3.1 percent currently, the New York-based ratings company said.

Bagel Chain

Avaya Inc., the communications-gear maker whose roots go back to AT&T’s Western Electric unit, and bagel-restaurant chain Einstein Noah Restaurant Group Inc. are among companies added to the most recent list, according to the report. Those taken off include apparel retailer BCBG Max Azria Group Inc. and Gray Television Inc.

During the past three months, “positive rating actions” were the most common reason for a company’s removal from the list, Moody’s said. BCBG was taken off because its ratings were withdrawn and Gray because its probability of default was raised to B3 with a stable outlook.

Loans rated B or CCC have returned 17.97 percent this year, according to the JPMorgan Leveraged Institutional Loan Index.

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