No corporate defaults were recorded in Canada in 2006, said a report published today by Standard & Poor’s Ratings Services.

The commentary “Canadian Ratings Performance 2006: A Third Year Of Stabilizing Credit Quality” notes that the Canadian economy lost some of its forward momentum in the second half of the year and companies reported slower profits growth. The profits slowdown was experienced by both financial and nonfinancial companies, yet this did not have a significantly negative effect on their creditworthiness. For a third consecutive year, an absence of severe credit stresses prevailed and the credit quality of most borrowers included in the universe of Canadian companies Standard & Poor’s rates continued to stabilize in 2006.

Following two years of double-digit increases, corporate profits growth slowed to 5.7% in 2006, down from an annual average of 9.8% since the start of the decade.

“The strong operating performance of companies before 2006 has contributed to a build-up of internal sources of funding, giving borrowers the flexibility for more opportunistic financing,” said Standard & Poor’s fixed income analyst Robert Palombi. “Therefore, despite the profits slowdown in 2006, some companies chose to stay out of the public bond market, opting instead to use internal funds to finance their capital spending plans,” he added.

As a consequence, Canadian corporate bond issuance — domestic and foreign currency borrowings net of redemptions and excluding securitizations –totaled only $5.5 billion in 2006, the smallest amount since 1994 and significantly below the annual average of $30 billion recorded within the last decade. The deleveraging of company balance sheets, along with various other factors, contributed to the benign credit trends that have been characterized by a scarcity of default activity.