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Commercial paper issuers are busy bouncing back

Short-term rating downgrades to upgrades by commercial paper (CP) issuers have improved to 11 to one in 2003 from the historic peak reached in 2002 of 15 to one, the first year of improvement in the downgrade to upgrade ratio seen since 1999. What's more, the improving trend has continued through 2004 with only three downgrades for every upgrade registered from January to August in 2004. CP is popular with large corporates with high credit ratings to finance daily working capital management requirements with a typical maturity range from two to 270 days. Money market funds, banks, institutional investors and corporates are typical buyers of CP

?The downgrade-to-upgrade statistics show just how severe the deterioration in short-term credit quality was,? notes Sharon Ou, analyst and lead author on the report. ?The US short-term ratio increased from less than 1:1 in 1995 to 15:1 in 2002. The historical average downgrade-to-upgrade ratio is about 2:1, so the last credit cycle was severe indeed.?

The report, entitled ?Short-term rating performance and commercial paper defaults, 1972-2004? also notes a significant increase in fallen angels ? an investment grade name that has fallen to junk status ? and a parallel increase in concern over CP issuance, citing this as the main reason why CP issuance has fallen from a high of $986 billion in November 2000 to an outstanding level of $571 billion.

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