Few US, European firms hang at credit cliff

Our Corporate Bureau
16 May 2002

Chennai: Only 23 out of 1,000 US and European companies surveyed showed serious vulnerability to rating triggers or other contingent calls on liquidity that could turn a moderate decline in credit quality into a liquidity crisis.

Our survey and analysis show that about half of the 1,000 companies responding have exposure to some sort of contingent liability, says Edward Z Emmer, executive managing director of Standard & Poors (S&P) corporate and government ratings unit.

But only a small number of companies face the proximity to a so-called credit cliff, which means that credit deterioration could be compounded by provisions such as rating triggers or financial covenants that could put pressure on the companys liquidity or its business to a material extent.

He says none of the 23 companies identified face ratings downgrades, and none is being placed on CreditWatch solely as a result of this review. It should be stressed that the companies designated as having a credit cliff profile may not face an imminent threat of either a credit event or liquidity problem. Any current or imminent concerns surrounding liquidity have already been factored into each companys ratings.

A list of the companies where the proximity to rating triggers or other contingent calls on liquidity, and the materiality of the consequences of tripping the provisions, could present a serious concern appears at the end of this release.

Solomon Samson, chief quality officer for the industrials group, says S&P designed this survey and review to provide greater insight and value to investors. Our analysts reviewed each companys submissions and financial statements and exercised their judgment on the impact of any rating triggers.