Moody's Bottom Rung: Companies at Risk for Default

Heavily criticized for its ineffectiveness in missing the subprime debacle and the commercial mortgage-backed securities mess, the world’s most utilized firm for credit ratings, research and risk analysis - Moody’s Investors Service (MCO), published on Tuesday a list called the ‘Bottom Rung’, detailing the companies that Moody’s says are most likely to default on their debts.

Wall Street Journal: With 283 companies, the list holds nearly every sector of the economy. The dominant industries on this at-risk list include much of the U.S. auto industry, the casino sector, and many retail chains, newspapers and broadcast-TV and radio-station networks. Energy firms, airlines and restaurant chains appear often.

The Bottom Rung, which Moody’s began compiling a few months ago and will update monthly, represents roughly the riskiest 20% of all companies it tracks, ranked by those with the lowest credit ratings.

Moody’s list consists of companies with B3 rating or lower. That rating is the 16th lowest on Moody’s 21-step ratings system.

Moody’s estimates about 45% of the Bottom Rung companies will default in the next year. Combined these firms have more than $260 billion in bond and bank debt.

Trying to predict or warn about coming defaults means singling out some firms ; a fact that has already put Moody’s in direct confrontation with several companies that say they’re in decent fiscal health. The Spanish-language media company Univision Inc. and Eastman Kodak (EK) expressed on Monday dissatisfaction for their inclusion on the list saying it wasn’t warranted. Some of the names on the list however, aren’t so surprising, such as GM Corp (GM) and Chrysler. But some less-obvious names, notes the Journal, like IT giant Unisys CP (UIS) are also included. One name not on the Bottom Rung, but likely to be added when it is first updated next month, is Clear Channel Comm. (CCO), which has already been downgraded by Moody’s.

According to Moody’s, 73 new companies were added to the list in January and February and the numbers are rapidly growing. Moody’s senior vice president of corporate finance David Keisman, said “there is more bad news to come.”

Comments

[Woofer:]

CLWR is Clearwire, not Clear Channel. Which do you mean?

Mar 11 01:25 PM

[asher:]

I believe the symbol you gave Clear Channel is for Clearwire.

Mar 11 01:27 PM

[whidbey:]

If Moody's work is no better than its ratings have been historically this may be.... pure slander of credit. Ratings are important, but not when the rating agency itself is suspect. No black swans in this pool.

Mar 11 01:34 PM

[Tom Armistead:]

This is an ill-conceived marketing ploy, from the people whose immortal claim to fame is the triple A ratings they applied to toxic waste.

Moody's is trying to be cool, like those hip short-sellers, demonstrate an attitude.

It's like they are trying to become the leader of the pack. "We'll tell you what to short next."

Mar 11 02:44 PM

[Heaven, Hel...:]

this is basically Newton's Third Law of Motion in action, "for every action, there is an equal and opposite reaction".Moody's put up such an airball on subprime ratings that it wants to try and "get out in front of the curve" in terms of the next wave of defaults. But if you look at the list of companies and their current ratings (all in the B3 to Caa range), none of them are exactly a stretch at this juncture, so while their goal may be to erase the airball with a deep three-pointer, this seems more like an eight-foot jumper to me, or even closer.

Mar 11 05:35 PM

[futuresfair...:]

Woofer thanks for pointing that out. Meant Clear Channel. My mistake and already corrected ticker n my blog. Appreciate it.

Ron

Mar 12 02:41 AM

[Misleading:]

Ron, you mention that your CLWR mistake is corrected - why is there not a "Corrected" article with link. Folks that have CLWR on their watch lists will see this headline and think CLWR is on the bottom rung list. Please double check your articles before releasing whether they are positive or negative.

Mar 12 08:25 AM