Markets turn against complex debt issues: CRISIL

16 December 2008

CRISIL's analysis of debt issuances in November 2008 reveals an 80 per cent decline in the issuance of 'Complex' and 'Highly Complex' instruments, in the course of just a month.

This can largely be attributed to uncertain financial market conditions, with a meltdown in the equity market, tight liquidity in the debt market, and a cautious approach to credit by lenders given the expectation of an economic slowdown.

The trend to downgrade is a continued one where one has seen a number of blue chip corporates facing downgrades and a negative watch.

Globally, nearly a quarter of the entities that currently have rated debt are in danger of having that debt downgraded, according to the latest calculations by ratings service Standard & Poor's.

S&P's latest Global Fixed Income Research report, titled Downgrade Potential Across Credit Grades And Sectors, shows that 747 debt issues were facing possible downgrade in August - 18 per cent higher than the total count a year ago - and double the count of issues poised for potential upgrades.

Levels of complexity
The categorisation of these instruments is according to CRISIL Complexity Levels, a pro-bono service by CRISIL that categorises financial products by the ease of identifying and understanding their risks. The service classifies financial products into three categories: 'Simple', 'Complex', and 'Highly Complex'.