Research & Knowledge

The study focuses on long-term local currency issuer credit ratings on international LRGs, using both public and confidential ratings. It does not include any issue ratings. Issuers are not adjusted for size, meaning they are not dollar-weighted.

Local currency ratings reflect Standard & Poor's opinion of an obligor's willingness and ability to service all financial obligations on a timely basis, regardless of currency, and absent of restrictions on access to foreign exchange. This study does not contain statistics on LRG foreign currency ratings. In most cases, LRG local currency ratings are not superior to the sovereign transfer and convertibility assessment of the country in which they are located, meaning that local and foreign currency ratings on LRGs are typically the same. For LRGs with national scale ratings only, mainly those in Mexico and Russia, we use the equivalent local currency rating in Standard & Poor's global scale.

We discern default and transition trends through static pools, as in previous studies. To form a static pool, we group issuers by rating category on January 1 of each year the study covers. We then monitor each static pool from its inception. All LRGs in the study are assigned to one or more static pools, and the results for each static pool are issuer weighted to calculate statistics over specific time horizons. Since static pools are issuer weighted, static pools from earlier years, which have fewer issuer observations, count less than the static pools in later years, which have more issuer observations.

Standard & Poor's annually updates its default and transition study on international LRGs, in existence since 2001. Our analysis of LRG rating transitions applies the same methodology for calculating default rates and transitions as Standard & Poor's Global Fixed Income Research team's "2008 Annual Global Corporate Default Study And Rating Transitions" report published Feb. 25, 2009, on RatingsDirect. All default rates and transitions are calculated using Standard & Poor's Risk Solutions CreditPro®7.2. Because of ongoing, retroactive data revisions, some statistics may differ slightly from one study to another. Each annual default and transition study is self-contained and effectively supersedes all previous versions.

In Appendix 1, charts 15 and 16 display LRG pre- and post-default rating transitions. Appendix 2 defines the terms default and transition.

Standard & Poor's had local currency ratings on 319 LRGs at year-end 2008, a relatively stable figure since 2004. This follows one decade of steady growth, during which the number of rated LRGs increased six-fold (see chart 1).

The mounting number of LRG ratings has come chiefly on the back of newly assigned ratings in Russia, Mexico, and other developing countries, in tandem with the addition of first-time ratings on Japanese LRGs during the past couple of years. However, rating withdrawals in developed countries where LRGs have repaid rated debt or where some LRGs have ceased to act as guarantors of banks, such as in Austria and Germany, have offset ratings growth more recently.

 Chart 1

The fluctuating number of LRG ratings across different regions changes LRG rating distribution by category and region (see charts 2 and 3).

In particular, the rapidly expanding number of LRG ratings in Russia, Central and Eastern Europe, and Mexico since 2000 has pushed up the proportion of local currency ratings in the speculative-grade category to 33% at the end of 2008, versus 21% at year-end 2000 and less than 2% at year-end 1994. This trend in our view underscores speculative-grade issuers' greater access to international markets, rather than any deterioration in credit quality for existing investment-grade issuers.

LRG ratings by rating category were stable in 2008 compared with the past couple of years, as chart 2 illustrates. There is still a significant share of LRGs with very high ratings in the 'AAA' and 'AA' categories, representing, respectively 10% and 29% of total rated LRGs in 2008.

 Chart 2

 Chart 3

For complete lists of Standard & Poor's LRG ratings, see "Ratings History List: Europe," published Jan. 8, 2009.

"Ratings History List: Asia-Pacific," published Feb. 19, 2009.

"Ratings History List: Canada And Latin America," published Jan. 27, 2009.

Tables 1 to 5 display the transition matrices for LRG ratings in the 1975-2008 period over one-, three-, five-, and seven-year horizons. They show the weighted average of rating movements from January 1 of each year to the end of the horizon. The figures appearing diagonally from the top-left corner toward the bottom right would be 100% if ratings never changed. Table 1, for instance, shows the weighted average one-year transition matrix for LRG local currency ratings by rating category during the 34-year period beginning in 1975. Reading vertically, the columns show the rating at the beginning of each year, while reading horizontally, the rows show the rating at the end of the year.

In general, higher rating categories correlate with a greater degree of rating stability. In table 1, rating stability for the most part declines according to rating category, with 'AAA' being very stable and 'CCC/CC' being very unstable. Of the LRGs that began the year in the 'AAA' category, 94.4% finished the year with the same rating. Credit quality became slightly less stable at lower rating levels, with 92.5% of 'A' rated entities beginning and ending the year at that level, versus 88% of 'BBB' rated entities, 77% of 'B' rated entities; and 43.3% of 'CCC' or 'CC' rated LRGs.

Tables 2, 3, 4, and 5 display the weighted average rating transitions for LRG local currency ratings over three-, five-, seven, and 10-year horizons, respectively. To be included in a given matrix, the issuer must be in at least one static pool; in other words, it must have been rated by the start of the last period for the time horizon covered. In the three-year matrix, the LRG must have been rated by Jan. 1, 2006, and in the 10-year matrix by Jan. 1, 1999. There are consequently progressively fewer counts (or observations) the longer the transition period, considering the growth of LRG ratings and given that there will be one less static pool for each additional year in the matrix. Like table 1, tables 2-5 also show generally greater rating stability in higher rating categories, which appears to hold true even over longer time periods.

Recent trends have, however, caused the 'BB' category to become slightly more stable than the 'BBB' category, with 67.3% of 'BBB' rated entities staying in the same category after three years compared with 78.3% for 'BB' rated LRGs. The lower stability in the 'BBB' category can in our view be explained by the low number of number of 'BBB' rated entities--27 in 2008--compared with 'BB' rated entities--76 in 2008. Less 'BBB' rated entities and more 'BB' rated entities increase the relative effect of each 'BBB' rating transition compared with each 'BB' transition.

Furthermore, 'BB' rated entities are at the end of the rating spectrum during a period when the default environment has been benign. Only 27 LRGs rated in the 'B' category at the end of 2008 and two rated 'CCC' or below illustrate the limited downgrades in this rating category. This is juxtaposed against the 'BBB' rating category, now in the middle of LRG ratings distribution and the fulcrum of rating transition activity, where rising stars and fallen angels meet on their way to new credit profiles. A look at Standard & Poor's universe of corporate credit ratings shows that some sectors have relatively unstable because of the middle position of 'BBB' rated entities in the ratings distribution.

Over a longer time frame, however, we believe that higher ratings are generally synonymous with greater stability. In table 5, the 10-year matrix shows that ratings in the 'BBB' category were the most stable, with 47.2% of 'BBB' ratings at the same levels after 10 years, versus only 12.5% of ratings in the 'BB' category remaining unchanged.

Tables 1 to 5 also show the increased probability of rating transitions over time. For instance, 93.8% of 'AA' ratings remain stable within their category after one year, versus only 76.9% after five years, and 67.3% after 10 years.

Table 1

Local And Regional Government Local Currency Average One-Year Transition Rates 1975-2008*
		Rating at end of first year (%)
Rating at start of year	No. of counts	AAA	AA	A	BBB	BB	B	CCC/CC	SD	NR
AAA	360	94.4	3.1	0.0	0.0	0.0	0.0	0.0	0.0	2.5
AA	1242	1.6	93.8	2.2	0.0	0.0	0.0	0.0	0.0	2.4
A	610	0.0	3.3	92.5	1.5	0.0	0.0	0.0	0.0	2.8
BBB	259	0.0	0.0	3.1	88.0	2.7	0.4	0.0	0.0	5.8
BB	490	0.0	0.0	0.0	2.4	89.8	1.0	1.2	0.6	4.9
B	161	0.0	0.0	0.0	0.0	14.9	77.0	0.6	0.0	7.5
CCC/CC	30	0.0	0.0	0.0	0.0	0.0	30.0	43.3	16.7	10.0
SD	11	0.0	0.0	0.0	0.0	0.0	0.0	36.4	36.4	27.3
*Covers ratings assigned by Jan. 1, 2008. SD--Selective default. NR--No rating (withdrawn). Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 2

Local And Regional Government Local Currency Average Three-Year Transition Rates 1975-2008*
		Rating at end of third year (%)
Rating at start of year	No. of counts	AAA	AA	A	BBB	BB	B	CCC/CC	SD	NR
AAA	302	83.6	10.1	0.0	0.0	0.0	0.0	0.0	0.0	6.3
AA	1058	4.5	82.7	6.7	0.0	0.0	0.0	0.0	0.0	6.0
A	482	0.0	10.0	77.6	5.2	0.0	0.0	0.0	0.0	7.3
BBB	205	0.0	0.0	9.8	67.3	7.3	1.0	0.0	0.0	14.6
BB	323	0.0	0.0	0.0	5.9	78.3	1.9	0.9	1.5	11.5
B	109	0.0	0.0	0.0	0.0	43.1	37.6	0.9	0.0	18.3
CCC/CC	30	0.0	0.0	0.0	0.0	6.9	58.6	13.8	3.4	17.2
SD	11	0.0	0.0	0.0	0.0	0.0	45.5	18.2	0.0	36.4
*Covers ratings assigned by Jan. 1, 2006. SD--Selective default. NR--No rating (withdrawn). Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 3

Local And Regional Government Local Currency Average Five-Year Transition Rates 1975-2008*
		Rating at end of fifth year (%)
Rating at start of year	No. of counts	AAA	AA	A	BBB	BB	B	CCC/CC	SD	NR
AAA	246	72.4	17.1	0.0	0.0	0.0	0.0	0.0	0.0	10.6
AA	840	7.4	76.9	8.6	0.0	0.0	0.0	0.0	0.0	7.1
A	369	0.0	15.2	67.5	6.8	0.0	0.0	0.0	0.0	10.6
BBB	150	0.0	0.0	16.0	50.7	10.7	0.7	0.0	0.0	22.0
BB	186	0.0	0.0	0.0	9.1	67.2	2.7	1.6	2.2	17.2
B	58	0.0	0.0	0.0	5.2	53.4	13.8	1.7	1.7	24.1
CCC/CC	26	0.0	0.0	0.0		40.7	40.7	0.0	0.0	18.5
SD	10	0.0	0.0	0.0	0.0	0.0	80.0	0.0	0.0	20.0
*Covers ratings assigned by Jan. 1, 2004. SD--Selective default. NR--No rating (withdrawn). Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 4

Local And Regional Government Local Currency Average Seven-Year Transition Rates 1975-2008*
		Rating at end of seventh year (%)
Rating at start of year	No. of counts	AAA	AA	A	BBB	BB	B	CCC/CC	SD	NR
AAA	193	61.7	23.8	0.0	0.0	0.0	0.0	0.0	0.0	14.5
AA	635	10.1	72.4	10.1	0.0	0.0	0.0	0.0	0.0	7.4
A	257	0.0	17.9	61.5	7.8	0.0	0.0	0.0	0.0	12.8
BBB	93	0.0	0.0	22.6	40.9	8.6	0.0	0.0	0.0	28.0
BB	80	0.0	0.0	0.0	7.5	56.3	11.3	2.5	0.0	22.5
B	24	0.0	0.0	0.0	16.7	45.8	0.0	0.0	0.0	37.5
CCC/CC	23	0.0	0.0	0.0	13.0	47.8	26.1	0.0	0.0	13.0
SD	5	0.0	0.0	0.0	0.0	60.0	40.0	0.0	0.0	0
*Covers ratings assigned by Jan. 1, 2002. SD--Selective default. NR--No rating (withdrawn). Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 5

Local And Regional Government Local Currency Average 10-Year Transition Rates 1975-2008*
		Rating at end of 10th year (%)
Rating at start of year	No. of counts	AAA	AA	A	BBB	BB	B	CCC/CC	SD	NR
AAA	132	47.0	36.4	0.0	0.0	0.0	0.0	0.0	0.0	16.7
AA	398	12.6	67.3	12.8	0.3	0.0	0.0	0.0	0.0	7.0
A	155	0.0	21.3	58.1	5.2	0.0	0.0	0.0	0.0	15.5
BBB	36	0.0	0.0	27.8	47.2	5.6	0.0	0.0	0.0	19.4
BB	16	0.0	0.0	0.0	12.5	12.5	43.8	0.0	0.0	31.3
B	6	0.0	0.0	0.0	0.0	16.7	0.0	0.0	0.0	83.3
CCC/CC	8	0.0	0.0	0.0	25.0	62.5	12.5	0.0	0.0	0.0
SD	0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
*Covers ratings assigned by Jan. 1, 1999. SD--Selective default. NR--No rating (withdrawn). Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Standard & Poor's has also updated its weighted average one- and three-year rating matrices for LRG local currency ratings with rating modifiers (that is, pluses and minuses; see tables 6 and 7). Here again, higher ratings are in our view consistent with greater stability, but the trend is less linear than for transition rates without rating modifiers because of the data's higher granularity.

Table 6

Local And Regional Government Local Currency Average One-Year Transition Rates With Rating Modifiers 1975-2008
		Rating at end of first year (%)
Rating as of January 1	No. of counts	AAA	AA+	AA	AA-	A+	A	A-	BBB+	BBB	BBB-	BB+	BB	BB-	B+	B	B-	CCC/CC	SD	NR
AAA	360	94.4	2.5	0.6	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.5
AA+	346	5.2	88.4	4.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.0
AA	486	0.4	6.4	84.8	5.6	0.0	0.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.7
AA-	410	0.0	0.0	6.8	84.4	6.1	0.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.4
A+	310	0.0	0.0	0.0	5.8	87.1	3.5	0.6	0.0	0.0	0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.6
A	163	0.0	0.0	0.6	0.6	11.7	77.3	5.5	0.0	0.6	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	3.7
A-	137	0.0	0.0	0.0	0.0	0.0	8.8	83.9	4.4	0.7	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.2
BBB+	62	0.0	0.0	0.0	0.0	0.0	0.0	11.3	79.0	4.8	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	4.8
BBB	72	0.0	0.0	0.0	0.0	0.0	0.0	0.0	6.9	76.4	8.3	0.0	0.0	0.0	1.4	0.0	0.0	0.0	0.0	6.9
BBB-	125	0.0	0.0	0.0	0.0	0.0	0.0	0.8	1.6	6.4	80.0	4.8	0.0	0.8	0.0	0.0	0.0	0.0	0.0	5.6
BB+	134	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	1.5	7.5	80.6	6.0	0.7	0.0	0.0	0.0	0.0	0.0	3.7
BB	207	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	13.0	80.7	3.4	0.0	0.0	0.0	0.5	0.5	1.9
BB-	149	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	1.3	11.4	69.1	2.7	0.7	0.0	3.4	1.3	10.1
B+	75	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.7	25.3	49.3	9.3	5.3	0.0	0.0	8.0
B	58	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	5.2	24.1	62.1	1.7	0.0	0.0	6.9
B-	28	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	21.4	25.0	42.9	3.6	0.0	7.1
CCC/CC	30	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	30.0	43.3	16.7	10.0
SD	11	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	36.4	36.4	27.3
SD--Selective default. NR--No rating (withdrawn). Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.20.

Table 7

Local And Regional Government Local Currency Average Three-Year Transition Rates With Rating Modifiers 1975-2008
		Rating at end of third year (%)
Rating as of January 1	No. of counts	AAA	AA+	AA	AA-	A+	A	A-	BBB+	BBB	BBB-	BB+	BB	BB-	B+	B	B-	CCC+	SD	NR
AAA	302	82.8	7.6	2.6	0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
AA+	281	13.5	69.8	10.3	2.1	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
AA	418	2.4	15.1	61.0	12.2	2.4	0.5	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
AA-	359	0.0	1.1	17.8	57.7	14.2	1.1	1.1	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
A+	231	0.0	0.0	0.9	16.9	63.6	7.8	2.2	0.4	0.4	0.4	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
A	134	0.0	0.0	2.2	1.5	26.9	46.3	11.9	0.0	2.2	0.7	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
A-	117	0.0	0.0	0.0	1.7	1.7	20.5	54.7	14.5	0.9	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
BBB+	41	0.0	0.0	0.0	0.0	0.0	7.3	26.8	51.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
BBB	59	0.0	0.0	0.0	0.0	0.0	0.0	3.4	10.2	52.5	13.6	0.0	0.0	0.0	1.7	1.7	0.0	0.0	0.0	0.0
BBB-	105	0.0	0.0	0.0	0.0	0.0	1.0	2.9	4.8	8.6	55.2	11.4	0.0	2.9	0.0	0.0	0.0	0.0	0.0	0.0
BB+	86	0.0	0.0	0.0	0.0	0.0	0.0	0.0	1.2	2.3	12.8	60.5	16.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0
BB	143	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.7	0.7	1.4	21.7	59.4	7.0	0.7	0.0	0.0	0.7	0.7	0.0
BB-	94	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	1.1	5.3	18.1	41.5	3.2	0.0	2.1	2.1	5.3	0.0
B+	40	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	7.5	17.5	27.5	12.5	10.0	0.0	0.0	0.0	0.0
B	44	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	2.3	6.8	29.5	27.3	15.9	0.0	0.0	0.0	0.0
B-	25	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	12.0	24.0	12.0	28.0	12.0	4.0	0.0	0.0
CCC/CC	30	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	6.7	0.0	26.7	16.7	13.3	16.7	3.3	0.0
SD	11	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	9.1	0.0	36.4	18.2	0.0	0.0
SD--Selective default. NR--No rating (withdrawn). Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Standard & Poor's Ratings Services upgraded 10.1% of international LRGs in 2008, while lowering the ratings on 6.7%. These percentages show a reduction in the number of LRGs upgraded compared with the 2007 figure, and at the same time, an increase in the number of downgrades (see chart 4). We expect this trend to be more pronounced in 2009, when the number of downgrades will likely outpace upgrades, in our view.

Over the entire 1975-2008 period, the percentage of downgrades and upgrades in our portfolio of rated LRGs is generally balanced, but LRG upgrades have generally outpaced downgrades since 1995, except during the Russian crisis (see chart 4).

Thirty-two percent of 2008 LRG upgrades occurred in Russia and 26% in Mexico, continuing the trend observed in 2007 in those countries. Upgrades in these countries derived generally from the improved predictability and supportiveness of institutional frameworks for LRGs, which in our view has frequently helped to strengthen LRG credit quality. For details on the positive development of public finance systems in these countries and the ensuing boost to ratings, see "Stronger Systems Lift Local And Regional Government Ratings," published Oct. 3, 2007. Most LRG downgrades occurred in Argentina (19%) and Ukraine (27%), in conjunction with the downgrades of their respective sovereigns.

In 2009, international LRGs will confront a tougher economic environment in most of the major countries such as Spain, the U.K., Germany, Mexico, Canada, Japan, and Russia. In general, we believe that international LRG ratings are set to retain their traditional stability through increased local and regional budgetary discipline, favorable institutional developments, and the absence of any expected near-term sovereign default in countries where Standard & Poor's rates some LRGs. Illustrating this trend, 79% of rated international LRGs carried stable outlooks at year-end 2008.

However, the number of negative outlooks and CreditWatch placements with negative implications increased to 12.5% at year-end 2008 from a 3% low a year earlier, and now far exceeds the number of positive outlooks and CreditWatch placements with positive implications, which declined to 8.5% from 14% in the same period. This suggests that the number of LRG downgrades might exceed the number of upgrades in 2009. This trend we believe is the consequence of the expected prolonged economic downturn in many countries, which is likely to negatively affect LRGs' tax revenues, while accentuating pressure on social costs. Additionally, scarce liquidity and higher refinancing costs might lead to more negative rating actions in regions such as Central and Eastern Europe.

 Chart 4

 Chart 5

Chart 6 illustrates LRG rating transition severity after one year over the 1975-2008 period. Eighty-eight percent of rating changes were limited to one-notch upgrades or downgrades in a one-year transition, representing narrower bands of rating movement than for corporate credit ratings, where 62% of rating transitions were limited to one-notch changes. There are a few cases of five- to seven-notch downgrades of LRGs in one year, concentrated in Russia and Argentina, and leading in some instances to LRG defaults.

 Chart 6

Table 8 shows the correlation between two subsequent identical rating actions over a two year horizon. Between 1975 and 2006, there were 224 rating upgrades. Of this set, 34% were raised again over the course of the next two complete calendar years, 63% remained unchanged, and 3% were downgraded. Similarly, during these 32 years, there were 197 rating downgrades. Of this set, 36% were lowered again within two years, 54% remained the same, and 10% were upgraded. The correlation between two subsequent identical rating actions is a number between '1', which means a perfect positive correlation (every rating action is followed by the same rating action), and '-1', which means a perfect negative correlation (every rating action is followed by the opposite rating action). A correlation of zero would mean perfectly random rating behavior. As can be seen, there is a moderate correlation between an upgrade and a subsequent upgrade of 0.30, and there is a moderate correlation between a downgrade and a subsequent downgrade of 0.27.

Table 8

Local And Regional Government Rating Action Correlation During A Two-Year Horizon
1975-2008
(% unless otherwise indicated)	Total (No.)	Followed by another upgrade after two years	Stayed the same after two years	Followed by a downgrade after two years
Upgrades*	224	34¶	63	3
Downgrades§	197	36**	54	10
*Excludes upgrades from SD. ¶Correlation between an upgarde and a subsequent upgrade: 0.30. §Including downgrades to SD.**Correlation between a downgrade and a subsequent downgrade: 0.27.

Tables 9 and 10 show the cumulative local currency default rates for rated LRGs between 1975 and 2008, over a 10-year horizon, with and without rating modifiers. Cumulative default rates average the experience of all static pools in a select period of time by calculating marginal default rates conditional on survival (survivors being non-defaulters) for each possible time horizon and for each static pool, weight-averaging the conditional marginal default rates and accumulating the average conditional marginal default rates. We calculate conditional default rates by dividing the number of issuers in a static pool that default at a specific time horizon by the number of issuers that survived (did not default) to that point in time. In the context of LRG ratings, we treat governments that selectively default as complete defaults. When the LRG emerges from selective default, we then treat it as a new entity all together. Weights are based on the number of issuers in each static pool. The cumulative default rate is one minus the product of the proportion of survivors (non-defaulters). At some point the cumulative default rate will not increase as the horizon is expanded because no additional defaults are captured by the lengthened horizon.

Cumulative default rates differ from transition to default rates in that defaults are only counted once, as opposed to averaging default observations, which is done in multi-year horizon transition rates. In addition, all annual static pools in the time period are used, rather than not counting static pools in multi-year horizon transition rates that do not have enough years to complete the horizon.

There are only nine defaults on rated international LRGs recorded through the entire period: five in Argentina in 2001 and 2002 (City of Buenos Aires, Province of Buenos Aires, Province of Mendoza, and two confidential issuers) and three in Russia in 1998-1999 (Republic of Tatarstan, Sverdlovsk Oblast, and Oblast of Nizhniy Novgorod) and the most recent one in Russia again with the Moscow Oblast defaulting in 2008. Apart from the province of Buenos Aires, all ratings on the other LRGs mentioned above went to 'SD' or selective default and not to 'D', because these LRGs defaulted on some of their financial obligations and remained current on others.

We lowered the issuer credit rating on the Moscow Oblast to 'SD' from 'B-' in December 2008, because it failed to honor a put option on the bond placed by Moscow Regional Mortgage Agency (MRMA, not rated), which the oblast fully owns. The default was triggered by a court decision to freeze all payments on the bond, as part of an investigation procedure against a third party. This default was thus in our view not the consequence of a lack of willingness or financial ability of the oblast to honor its obligations. We expect that Moscow Oblast will remain at 'SD' until the ban on transactions with MRMA's bonds is lifted and the oblast is able to honor its obligations. Meanwhile, the oblast continues to service its other rated bonds, which remain rated 'B-'.

Table 9

Local And Regional Government Cumulative Average Default Rate Without Rating Modifiers 1975-2008 (%)
	Time horizon (years)
Rating	1	2	3	4	5	6	7	8	9	10
AAA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
A	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
BBB	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
BB	0.61	2.35	3.59	5.19	6.29	7.12	7.12	7.12	7.12	7.12
B	0.00	0.00	0.00	0.00	1.72	4.45	4.45	4.45	4.45	4.45
CCC/CC	20.00	23.33	23.33	23.33	23.33	23.33	23.33	23.33	23.33	23.33
Investment grade	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Speculative grade	1.32	2.74	3.61	4.72	5.86	6.98	6.98	6.98	6.98	6.98
All rated	0.29	0.57	0.73	0.91	1.07	1.20	1.20	1.20	1.20	1.20
N.A.--Not available. Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 10

Local And Regional Government Cumulative Average Default Rate With Rating Modifiers 1975-2008 (%)
	Time horizon (years)
Rating	1	2	3	4	5	6	7	8	9	10
AAA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA+	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA-	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
A+	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
A	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
A-	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
BBB+	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
BBB	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
BBB-	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
BB+	0.00	0.00	0.00	0.00	1.96	4.84	4.84	4.84	4.84	4.84
BB	0.48	2.15	2.84	3.75	3.75	3.75	3.75	3.75	N/A	N/A
BB-	1.34	4.72	7.96	12.15	14.19	14.19	14.19	14.19	14.19	14.19
B+	0.00	0.00	0.00	0.00	5.56	5.56	5.56	5.56	5.56	5.56
B	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
B-	0.00	0.00	0.00	0.00	0.00	9.09	9.09	9.09	N/A	N/A
CCC/CC	20.00	23.33	23.33	23.33	23.33	23.33	23.33	23.33	23.33	23.33
Investment grade	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Speculative grade	1.32	2.74	3.61	4.72	5.86	6.98	6.98	6.98	6.98	6.98
All rated	0.29	0.57	0.73	0.91	1.07	1.20	1.20	1.20	1.20	1.20
N/A--Not applicable. Sources: Standard & Poor's international Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 11

Local And Regional Government Selective Defaults
	SD date	Emergence date	Months in SD	Rating one year before SD	Rating at emergence from SD
Buenos Aires (Province of)	Dec. 3, 2001	(NR as of Oct. 12, 2002)	N/A	BB	NR
LRG 1*	May 4, 2002	(NR as of Jan. 1, 2003)		B+
Tatarstan (Republic of)	Jan. 27, 1999	Oct. 9, 2001	32.0	B+	CCC+
Mendoza (Province of)	Dec. 3, 2001	Sept. 7, 2004	33.0	BB-	CCC+
LRG 2*	Dec. 15, 2002	(NR as of Nov. 22, 2005)		B-
LRG 3*	Oct. 15, 1998	(NR as of March 9, 1999)		BB-
Sverdlovsk Oblast	Feb. 22, 1999	Jan. 12, 2000	10.5	BB-	CCC-
Buenos Aires (City of)	April 11, 2002	March 21, 2003	11.0	B+	CCC+
Moscow Oblast	Dec. 18, 2008	N/A	N/A	BB	N/A

Given the small number of defaults for international LRGs, our conclusions can only be tentative. Only nine international LRG defaults have occurred since 1975. No international LRG initially rated in the investment-grade category has ever defaulted. For speculative-grade LRGs, the cumulative default rate was 5.86% over a five-year horizon and 6.98% over a 10-year horizon. For LRGs rated in the 'CCC/CC' category, all defaults have occurred within two years from when the ratings reached this category and the absence of an increase in the cumulative default rate after the two-year horizon shows this (see table 9 above). The 'CCC/CC' category has the highest cumulative default rate over all horizons. The cumulative default rate for the 'CCC/CC' category was 20% on a one year horizon and 23.33% on all subsequent horizons. There were a total of six defaults in the 'CCC/CC' category on a one-year horizon. So far there have been no defaults on the one-year through four-year horizons for the 'B' category. This in our view is mainly due to the limited default experience in international LRGs. Compared with the 2007 study that showed no default in the 'B' category for any horizon, the difference derives from the default of the Moscow Oblast in 2008, which was rated in the 'B' category between 2002 and 2004. As more defaults occur in the future, Standard & Poor's expects default observations to occur in this category on shorter time horizons. For the 'BB' category there have been only three defaults on a one-year horizon, translating into a 0.61% cumulative default rate for that horizon. The cumulative default rate for the 'BB' category increases on subsequent horizons because four of the six defaults that occurred on the one-year horizon for the 'CCC/CC' category were rated 'BB' at some point in their history prior to being rated in the 'CCC/CC' category.

Table 11 above and charts 11 and 12 shed further light on defaults by detailing the rating transition of each default recorded.

No general conclusion can be derived from these statistics because they represent a small number of defaults concentrated in Russia and Argentina. In addition, although a sovereign default is one factor that can lead to the default of an LRG, not all LRGs located in a country that defaults have defaulted. For instance, in Russia, only three of the eight LRGs rated at the time of the Russian crisis defaulted. In contrast, LRGs under a highly rated sovereign have defaulted. There are a number of examples in France, Italy, Switzerland, Spain, and the U.K., although Standard & Poor's rated none of these LRGs at the time of default.

Tables 12 to 14 show the components of the LRG local-currency default rates broken down by rating category and by year. As there has been no default in the investment grade categories, the tables show only the lower categories from 'BB' to 'CCC/CC'. The data fields contain the transition-to-default data, which are also weight-averaged in the 'SD' column of Tables 1-5. The cumulative default rate is presented at the bottom. The tables start to display statistics starting from the year when we first rated international LRGs in the relevant rating category. For instance, while table 12 shows one LRG rated in the 'BB' category in 1996, table 14 starts from 1999, as there was no international LRG rated in the 'CCC/CC' category before that date. Given the very small number of defaults experienced by rated international LRGs, the numerator in each yearly calculation comprises only one to maximum four defaults. We also note that the default rate in a single year can vary a great deal. For instance, in table 14, the five-year cumulative default rate of 6.3% for the 'BB' category includes variations from 55.56% in 1998 to 15.38% in 2001 and '0' between 2005 and 2007. In table 13, the default experience shown is related to the Moscow Oblast, which was rated in the 'B' category on Jan. 1, 2003, and 2004.

Table 12

Local-Currency 'BB' Static Pools And Default Rates By Rating (1996-2008)
Transition to default rates (%)*		Time Horizon (years)
Date)¶	No. of issuers	1 Year	2 Year	3 Year	4 Year	5 Year	6 Year	7 Year	8 Year	9 Year	10 Year
1996	1	0.0	0.0	0.0	0.0	0.0	100.0	100.0	100.0	100.0	100.0
1997	1	0.0	0.0	0.0	0.0	100.0	100.0	100.0	100.0	100.0	100.0
1998	9	0.0	22.2	22.2	44.4	55.6	55.6	55.6	55.6	55.6	55.6
1999	5	0.0	0.0	40.0	60.0	60.0	60.0	60.0	60.0	60.0	60.0
2000	4	0.0	50.0	75.0	75.0	75.0	75.0	75.0	75.0	75.0
2001	26	7.7	15.4	15.4	15.4	15.4	15.4	15.4	15.4
2002	34	0.0	0.0	0.0	0.0	0.0	0.0	0.0
2003	49	0.0	0.0	0.0	0.0	0.0	0.0
2004	57	0.0	0.0	0.0	0.0	0.0
2005	67	0.0	0.0	0.0	1.5
2006	70	0.0	0.0	1.4
2007	79	0.0	1.3
2008	88	1.1
Marginal default rate (%)§	--	0.6	2.4	3.6	5.2	6.3	7.1	7.1	7.1	7.1	7.1
Cumulative default rate (%)**	--	1.3	2.7	3.6	4.7	5.9	7.0	7.0	7.0	7.0	7.0
*Rate from the D column in the transition matrix. ¶First year in the cohort beginning January 1. §Using conditional on survival methodology where defaults of the previous horizon are subtracted out of the numerator and denominator of the default rate for subsequent horizons. **Calculated by multiplying non-default marginal rates which is then subtracted from 1 to get the cumulative default rate. Source: Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 13

Local-Currency 'B' Static Pools And Default Rates By Rating (1995-2008)
Transition to default rates (%)*		Time Horizon (years)
Date¶	No. of issuers	1 Year	2 Year	3 Year	4 Year	5 Year	6 Year	7 Year	8 Year	9 Year	10 Year
1995	1	0	0	0	0	0	0	0	0	0	0
1996	1	0	0	0	0	0	0	0	0	0	0
1997	1	0	0	0	0	0	0	0	0	0	0
1998	2	0	0	0	0	0	0	0	0	0	0
1999	1	0	0	0	0	0	0	0	0	0	0
2000	2	0	0	0	0	0	0	0	0	0
2001	8	0	0	0	0	0	0	0	0
2002	8	0	0	0	0	0	0	0
2003	12	0	0	0	0	0	8.3
2004	22	0	0	0	0	4.5
2005	25	0	0	0	0
2006	26	0	0	0
2007	25	0	0
2008	27	0
Marginal default rate (%)§	--	0	0	0	0	1.7	2.8	0	0	0	0
Cumulative default rate (%)**	--	0	0	0	0	1.7	4.5	4.5	4.5	4.5	4.5
*Rate from the D column in the transition matrix. ¶First year in the cohort beginning January 1. §Using conditional on survival methodology where defaults of the previous horizon are subtracted out of the numerator and denominator of the default rate for subsequent horizons. **Calculated by multiplying non-default marginal rates which is then subtracted from 1 to get the cumulative default rate. Source: Standard & Poor's Risk Solutions CreditPro® 7.2.
** Using conditional on survival methodology where defaults of the previous horizon are subtracted out of the numerator and denominator of the default rate for subsequent horizons

Table 14

Local-Currency 'CCC/CC' Static Pools And Default Rates By Rating (1999-2008)
Transition to default rates (%)*		Time Horizon (years)
Date¶	No. of issuers	1 Year	2 Year	3 Year	4 Year	5 Year	6 Year	7 Year	8 Year	9 Year	10 Year
1999	8	37.5	37.5	37.5	37.5	37.5	37.5	37.5	37.5	37.5	37.5
2000	5	0	0	0	0	0	0	0	0	0
2001	3	0	0	0	0	0	0	0	0
2002	7	28.6	42.9	42.9	42.9	42.9	42.9	42.9
2003	3	33.3	33.3	33.3	33.3	33.3	33.3
2004	1	0	0	0	0	0
2005	2	0	0	0	0
2006	1	0	0	0
2007	0	N/A	N/A
2008	0	N/A
Marginal default rate (%)§	--	20.0	4.2	0	0	0	0	0	0	0	0
Cumulative default rate (%)**	--	20.0	23.3	23.3	23.3	23.3	23.3	23.3	23.3	23.3	23.3
*Rate from the D column in the transition matrix. ¶First year in the cohort beginning January 1. §Using conditional on survival methodology where defaults of the previous horizon are subtracted out of the numerator and denominator of the default rate for subsequent horizons. **Calculated by multiplying non-default marginal rates which is then subtracted from 1 to get the cumulative default rate. N/A--Not applicable. Source: Standard & Poor's Risk Solutions CreditPro® 7.2.

Our universe of LRG ratings is considerably smaller than the over 10,000 rated entities examined in our corporate default and transition study. But over time, as the number of LRG ratings grows, particularly in the speculative-grade category, we expect LRG default rates to converge with Standard & Poor's corporate default experience.

In addition to examining the absolute performance of LRG ratings, Standard & Poor's also assesses their relative performance. One technique that we use to measure relative performance is the Gini coefficient. The Gini coefficient is derived by constructing a Lorenz curve that visually shows the accuracy of the rating distribution's rank ordering. The Lorenz curve is derived by plotting the cumulative proportion of issuers by rating category with the cumulative proportion of defaulters by rating category. To determine relative performance of the Lorenz curve, it is compared with an ideal curve and a random curve. The ideal curve is a curve where all issuers in the lowest rating category ('CCC/CC' in this case) default and all defaults are located in the lowest rating category. The random curve is a curve where all default occurs randomly throughout the rating distribution. The random curve lies along the diagonal of the chart. The Gini coefficient is a ratio of two areas: the area bound between the Lorenz curve and the random curve, divided by the area between the ideal curve and random curve. The result is a relative performance measure between one and zero, one being a Gini coefficient with perfect rank ordering (all defaults are in the lowest rating category and all issuers in the lowest rating category default) and zero being a random rank ordering. The Lorenz curve and Gini coefficients we believe are useful when compared with other Lorenz curves and Gini coefficients.

We have plotted the LRG local currency Lorenz curve over the 1975-2008 period, as well as Standard & Poor's private sector Lorenz curve over the 1981-2008 period (see charts 7, 8, and 9). The LRG local currency Lorenz curve dominates the private sector Lorenz curve on all horizons. We expect the LRG local currency Lorenz curve to converge as the very small universe of defaults for LRG ratings increases. Since both LRG analysts and private sector analysts use the same rating methodology, the future increase in granularity of the data will, we believe, show convergence in rank ordering. The Gini coefficients for LRG ratings for the one-, three-, and five-year horizons are 0.92, 0.89, and 0.90, respectively. The Gini coefficients for private sector ratings for the one-, three-, and five-year horizons are 0.83, 0.77, and 0.74, respectively.

 Chart 7

 Chart 8

 Chart 9

Table 15 summarizes data supporting the Gini coefficients. In the one-year transition matrix, 100% of cumulative defaults occurred at 'BB' or lower, while ratings falling at 'BB' or lower represented only 17% of the sample. Similarly, 63% of the cumulative one-year LRG local currency defaults occurred at 'B+' or lower, while 94% of the counts (or observations) of LRG ratings exceeded 'B+'. Looking at the seven-year transition matrix, 100% of cumulative defaults occurred at 'BB' or lower, while the counts falling at 'BB' or lower represented 15% of the sample. If the rank ordering of ratings had little correlation to defaults, the cumulative share of defaulting LRGs and the cumulative share of all LRG ratings would, we believe, be nearly the same.

Table 15

Local And Regional Government Lorenz Curve Data Points
(%)	One-year cumulative share		Three-year cumulative share		Five-year cumulative share		Seven-year cumulative share
Rating	Issuers	Defaulters	Issuers	Defaulters	Issuers	Defaulters	Issuers	Defaulters
AAA	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00
AA+	0.88	1.00	0.87	1.00	0.86	1.00	0.87	1.00
AA	0.77	1.00	0.76	1.00	0.74	1.00	0.76	1.00
AA-	0.62	1.00	0.60	1.00	0.56	1.00	0.60	1.00
A+	0.49	1.00	0.46	1.00	0.42	1.00	0.46	1.00
A	0.39	1.00	0.36	1.00	0.32	1.00	0.36	1.00
A-	0.34	1.00	0.31	1.00	0.27	1.00	0.31	1.00
BBB+	0.30	1.00	0.27	1.00	0.22	1.00	0.27	1.00
BBB	0.28	1.00	0.25	1.00	0.21	1.00	0.25	1.00
BBB-	0.26	1.00	0.23	1.00	0.18	1.00	0.23	1.00
BB+	0.22	1.00	0.18	1.00	0.14	1.00	0.18	1.00
BB	0.17	1.00	0.15	1.00	0.12	0.96	0.15	1.00
BB-	0.11	0.88	0.09	0.83	0.07	0.78	0.09	0.83
B+	0.06	0.63	0.06	0.33	0.05	0.30	0.06	0.33
B	0.04	0.63	0.04	0.33	0.04	0.26	0.04	0.33
B-	0.02	0.63	0.02	0.33	0.02	0.26	0.02	0.33
CCC/CC	0.01	0.63	0.01	0.33	0.02	0.26	0.01	0.33
Sources: Standard & Poor's International Public Finance Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Charts 10-14 compare the stability of LRG ratings with those of private sector ratings over one-, three-, five-, seven- and 10-year horizons. Although LRG ratings show somewhat greater stability than private sector ratings, the rating trends are similar: The lower the rating, the less stable it is and the higher the probability of default. Although the default experience we believe should be similar, there is no reason to expect performance of rating changes for LRGs and private sector ratings to be the same. Differences in rating performance could derive from the different factors that influence public versus private finance or the composition of the private sector sample--dominated by U.S. firms subject to the U.S. economic cycle--versus the international LRG sample, which is more evenly balanced between Europe (51%), the Americas (40% excluding the U.S.), and Asia (9%).

 Chart 10

 Chart 11

 Chart 12

 Chart 13

 Chart 14

Table 16 compares the one-, three-, five-, seven- and 10-year weighted-average cumulative default rates for ratings without modifiers for foreign currency sovereign debt with those of LRGs outside the U.S. Cumulative default rates are lower for LRG ratings than for sovereign ratings (see "Sovereign Defaults And Rating Transition Data, 2008 Update," published Feb. 12, 2009).

Table 16

Local And Regional Governments Versus Sovereign Foreign Currency Default Rates Without Rating Modifiers 1975-2008
(%)	One-year		Three-year		Five-year		Seven-year		Ten-year
Rating	LRG	Sovereign	LRG	Sovereign	LRG	Sovereign	LRG	Sovereign	LRG	Sovereign
AAA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
A	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
BBB	0.00	0.00	0.00	1.97	0.00	5.08	0.00	8.07	0.00	8.07
BB	0.61	0.99	3.59	5.02	6.29	8.69	7.12	14.25	7.12	19.30
B	0.00	1.95	0.00	8.50	1.72	16.76	4.45	24.72	4.45	42.51
CCC/CC	20.00	41.18	23.33	58.82	23.33	58.82	23.33	N/A	23.33	N/A
Investment grade	0.00	0.00	0.00	0.35	0.00	0.89	0.00	1.36	0.00	1.36
Speculative grade	1.32	3.22	3.61	8.73	5.86	13.96	6.98	20.07	6.98	28.02
All rated	0.29	0.90	0.73	2.61	1.07	4.25	1.20	5.86	1.20	7.11
LRG--Local and regional government. N/A--Not applicable. Sources: Standard & Poor's Sovereign Ratings, Standard & Poor's Risk Solutions CreditPro® 7.2.

Table 17 displays cumulative default rate (CDR) benchmarks for local currency LRG ratings, as set under the Basel II framework to govern capital adequacy for international banks. In a 2004 revision to the Basel Accord that G-10 countries signed in 1998 under the auspices of the Bank for International Settlements (BIS) in Basel, Switzerland, Basel II states that banks may choose between two broad methodologies for calculating their capital requirements for credit risk. One methodology created a suggested framework where banks use there own internal models to determine risk weightings for their assets. The other methodology determines credit risk using rating categories published by the major rating agencies, including Standard & Poor's. When applying the latter methodology, however, a sector or region could experience, temporarily, default risk that is higher than what would be expected based on the historical default experience of each of the rating categories. The BIS has developed two CDR benchmarks over three-year time horizons to warn banks when default rates are above historical norms for each rating category. The first three-year CDR benchmark is the monitoring level, which provides a default-rate threshold that signals when current observed default rates are higher than the historical norm, alerting banks of the need for tight surveillance. The second three-year CDR benchmark is the trigger level, which provides a default-rate threshold that, if breached two consecutive years, prompts banks to readjust the risk weights that were suggested in Basel II to compensate for the increase in default risk. Basel II also created a 10-year long-term reference benchmark. The 10-year average of the three-year CDR benchmark threshold provides banks with a general tool to gauge long-term default risk.

LRG ratings did not breach the three-year CDR benchmarks, or the 10-year average of the three-year benchmarks, in 2007 or 2008 (see table 17).

Table 17

Comparison Of Basel II Cumulative Default Rate Benchmarks With Local And Regional Government Default Rates
	LRG local currency			Basel II benchmarks
(%)	3-year CDR		10-year average of 3-year CDRs	3-year CDR		10-year average of 3-year CDRs
Rating	2007	2008	1999-2008	Monitoring Level	Trigger Level	Long Run Reference
AAA	0.0	0.0	0.0	0.8	1.2	0.1
AA	0.0	0.0	0.0	0.8	1.2	0.1
A	0.0	0.0	0.0	1.0	1.3	0.3
BBB	0.0	0.0	0.0	2.4	3.0	1.0
BB	0.0	1.4	3.7	11.0	12.4	7.5
B	0.0	0.0	0.0	28.6	35.0	20.0
LRG--Local and regional government. CDR--Cumulative default rate. Source: Standard & Poor's International Public Finance Ratings.

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