Quality of Corporate, Municipal Bonds Eroded in ‘88, Firm Reports

The overall quality of both corporate and municipal bonds declined in 1988, a credit-monitoring firm has said.

Based on preliminary data, a record 386 corporate bond ratings were lowered last year, representing $171 billion of debt, according to Standard & Poor’s Corp. The previous record was the 364 downgrades in 1986.

Conversely, 261 corporate bond ratings were raised last year, representing $158 billion in debt, S&P; said in a report released Friday. The number of upgrades in 1988 far surpassed the old high of 188 in 1987, it said.

The number of ratings is greater than the number of companies issuing bonds because differing types of bonds issued by the same company receive separate ratings, S&P; said.

Several leveraged buyouts and recapitalizations, especially in the retail industry, accounted for some of the lowered ratings, S&P; said.

Notable upgrades included Texaco Inc., Mobil Corp. and Ford Motor Co., which together accounted for $42 billion of debt.

The company said a negative trend continued in the ratings of debt offerings of financial institutions.

In municipal bonds, S&P; said large declines in the quality of housing, utility and hospital issues more than offset positive trends in general obligation and airport, port and college revenue bonds.

The firm said it lowered the ratings on 266 issues representing about $23 billion of debt, while it raised the ratings on 112 issues equaling about $17 billion of debt.

In 1987, 269 municipal issues representing about $16.5 billion in debt were downgraded, while 153 ratings on $25 billion in debt were raised.

The number of municipal bond issues increased in 1988 as the market recovered from the federal tax reform act, S&P; said. A total of 2,094 issues were rated last year, of which 82 were taxable. In 1987, 1,817 issues were rated, including 70 taxables.