European corporate credit to remain fragile, says S&P

S&P said that the economic and business environment in Europe at present provides limited scope for rating upgrades in many sectors, with concern remaining focused on the utility and the insurance sectors. These witnessed a sharp decline in credit quality in 2003.

“Without any real growth in consumption and investment, we see little reason to expect a dramatic upturn in credit quality among European issuers in 2004,” said Barbara Ridpath, S&P’s chief credit officer for Europe.

The rating agency added that against the backdrop of slowly improving but still weak credit quality, there has been a “remarkable” rebound in bond issuance by European companies.

“Strong demand from yield-hungry investors has led to a general fall in credit spreads and an increase in issuance, despite the fact that the underlying credit fundamentals in Europe remain fragile,” Ridpath said. “Issuance should remain reasonably healthy in 2004.”

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