Updated Study Confirms Predictive Value of Sovereign Ratings Outlooks

NEW YORK Jan. 6, 2005--Standard & Poor’s Ratings Services today issued a study that concludes that there is high predictive value in outlooks and CreditWatch monikers on sovereign ratings. According to the study, entitled "Outlooks: The Sovereign Credit Weathervane; 2004 Update":

- No sovereign rating with a positive outlook has been lowered and three quarters of sovereign ratings with positive outlooks have been raised as the next rating action since Standard & Poor’s began affixing outlooks to its ratings in 1989;

- No sovereign rating with a negative outlook has been raised and three out of five sovereign ratings were subsequently lowered as the next rating action;

- Three-quarters of the ratings on CreditWatch with negative implications are eventually lowered; and

- Lowering a rating with negative outlooks or on CreditWatch takes place more quickly than raising a rating with a positive outlook. On average, both take place within the normal time horizon covered by an outlook (six to twenty four months) or by CreditWatch (up to six months).

These findings have been confirmed in Standard & Poor’s fifth annual update of the data published on RatingsDirect on Jan. 6, 2005, covering 107 sovereigns during the 15-year period since outlooks were first assigned in June 1989.

"That there is strong predictive value in outlooks is not surprising, given that the same committee that assigns the ratings assigns the outlooks and thus would tend to weight various criteria factors similarly," said Standard & Poor’s Ratings Services Managing Director John B. Chambers, lead author of the report. "That not all negative or positive outlooks foretell a certain future rating action is also logical, since outlooks are second order indicators of creditworthiness at a specific rating point in a credit spectrum," he added.

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