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, 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. (CCMO), 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.”