Of Rating Downgrades and Outlooks

It is quite irritating to see newspaper headlines (the Philippine Star, I think) and also to hear over the radio (DZBB care of Mike Enriquez) that the credit rating of the Philippines has been downgraded. Fitch and Standard & Poor's have maintained their respective ratings for the Philippines and only the outlook has changed. Saying therefore that the rating has been downgraded is inaccurate.

A rating downgrade means that there has been a downward movement in the actual rating. The outlook, on the other hand, gives a clue as to what the future movement in the rating might be over a particular time horizon (e.g. one year, three years -- depending on the rating agency). The fact that the outlook has been changed from stable to negative means that it is more likely now that a rating downgrade may occur.

End of explanation.

[By Angelica Viloria | Tuesday, July 12, 2005]

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