Moody’s Investors Service reported its final tally of corporate rating revisions for 2001, revealing the worst credit quality scenario since 1991.

The credit quality of U.S. corporations declined sharply this year, as downgrades outnumbered upgrades by a margin of 2.9 to 1. That marked the steepest decline in corporate credit worth since 1991, when downgrades also exceeded upgrades by a margin of 2.9 to 1.

The ratings of 645 corporations were downgraded in 2001, affecting US$936 billion of debt; ratings of 219 corporations were upgraded, affecting US$420 billion of debt. Review and outlook changes indicate that credit deterioration will continue, reflecting the above average risk environment at present. According to Moody’s economist, John Puchalla, “shareholders and fund managers are likely to place greater emphasis on boosting financial stability in 2002.” Puchalla notes that investors might grow weary of extending additional debt to firms whose returns on investment have not met expectations.

Hardest hit in 2001 were ratings in the industrial and utility sectors. On a positive note, Moody’s said that credit worth among financial institutions was moderately healthy in 2001, 56 upgrades outnumbered 43 downgrades. Moody’s reported 409 speculative-grade rating downgrades outnumbered 115 speculative-grade rating upgrades.

Moody’s cites rapid increases in corporate debt growth, and overly optimistic profit forecasts in the late 1990s coupled with a sharp decline in corporate earnings this year, as well as special events such as the attacks of September 11.