RDP 2004-02: The Impact of Rating Changes in Australian Financial Markets Appendix A: Further Description of Events

Adam Creighton, Luke Gower and Anthony Richards

March 2004

Both bond and equity events can be classified according to their type and their source (Tables A1 and A2). The bond events apply to 19 different firms compared to 62 firms for equity events. Of the latter group, the raw materials, banking, food, and insurance sectors account for the largest proportion of firms, providing 14, 12, 5 and 5 firms respectively. The telecommunications, energy, real estate, and media sectors provide 4 firms each.

Table A1: Bond Events
  Downgrades   Upgrades Total
Unanticipated Anticipated Watch Unanticipated Anticipated Watch  
Moody's 1 3 1   3 1 3 12
S&P 3 10 3   1 2 2 21
Total 4 13 4   4 3 5 33
Table A2: Equity Events
  Downgrades   Upgrades Total
Unanticipated Anticipated Watch Unanticipated Anticipated Watch  
Moody's 12 9 4   9 3 4 41
S&P 24 30 16   15 6 9 100
Total 36 39 20   24 9 13 141

The average and median initial and final ratings for both bonds and equities demonstrate that, apart from their sample size, the distributions of ratings in the two groups of events are quite similar (Table A3).

Table A3: Average (Median) Initial and Final Ratings
  Bond events   Equity events
Upgrades Downgrades Upgrades Downgrades
Initial A−/A3 A−/A3   BBB/Baa2 BBB+/Baa1
  (A−/A3) (A/A2)   (BBB+/Baa1) (A−/A3)
Final A/A2 BBB+/Baa1   BBB+/Baa1 BBB/Baa2
  (A/A2) (A−/A3)   (A−/A3) (BBB+/Baa1)

Note: Medians (in parentheses) and averages have been rounded to the nearest rating notch; watches are counted as half a notch.