Standard & Poor’s Ratings Services is aiming to help investors focus on the short-term, by introducing an expanded short-term speculative-grade ratings scale.

The new scale is initially being applied to 73 U.S. and Canadian industrial and utility companies. S&P says these short-term ratings represent its opinion of the relative creditworthiness of a firm within a 12-month horizon. “The expanded rating scale provides greater differentiation of short-term credit risk, greater transparency with respect to near-term risk, and more flexibility in the correlation between short- and long-term ratings,” it explains.

“While Standard & Poor’s credit ratings have traditionally considered a medium- to long-term horizon – typically three to five years – many investors are also uniquely focused on the short term,” said Edward Emmer, Standard & Poor’s executive managing director, corporate and government ratings. “As capital markets become increasingly specialized, we believe this short-term rating scale, together with other recent initiatives like enhanced liquidity analysis for investment-grade issuers and bank loan recovery ratings, offer investors tools and analysis that meet different information requirements and investment time horizons.”

The rating agency notes that it sought comments from the market on the proposed short-term criteria earlier this year and took many suggestions under consideration. “Respondents were very supportive in general,” said Cliff Griep, executive managing director and chief credit officer. “Many saw the benefits of greater transparency and rating deconstruction, including in-depth liquidity analysis and differentiation of companies with similar long-term ratings provided by the de-linked nature of the short-term versus the long-term ratings. While we were not able to incorporate all suggestions made at this time we will continue discussions with market participants.” Among the items most requested were for S&P to expand on other sources of liquidity, including securitization programs and assets available for sale, and to factor these into short-term rating assignments.

Based on total debt outstanding, the utilities industry has the largest amount of debt assigned short-term speculative-grade ratings, at US$69 billion, compared with the next-largest sector, telecom, at US$66 billion, S&P reports. Similarly, based on the number of issuers, the distribution by industry is skewed toward the utilities sector, with 15 issuers. The next-largest is telecom with eight issuers. The average debt per speculative-grade issuer is approximately US$3.8 billion.

S&P says it expects to increase its universe of short-term speculative-grade ratings over the next year, including assigning ratings to U.S. and non-U.S. industrials, utilities, sovereigns, and financial institutions.