Companies In Peril of Credit Crunch Spikes in May

The number of companies around the world at risk of getting a credit downgrade climbed to a record in May amid the global credit squeeze, ratings agency Standard & Poor's said on Friday.

The number of entities at risk of downgrade rose to 738 in May, 25 more than in April, S&P said.

"A material slowdown in housing and consumer-related activity and protracted tightening of lending conditions have continued to dampen credit fundamentals," S&P said.

The credit crisis sparkled from the collapse of the U.S. sub-prime credit market, which led to multi-billion dollar losses among financial institutions, is spreading to the rest of the economy.

Credit defaults are expected to rise to almost 10 percent from record lows of about 1 percent through the coming months as companies struggle to meet interest payments.

The number of potential downgrades -- entities with either a negative outlook or which are on S&P's CreditWatch list -- is 118 higher than at the same time last year, the ratings agency said.

"The upsurge in the count of entities at risk of downgrades began in mid-summer 2007 with the onset of a material erosion of the residential real estate sector and large writedowns by financial institutions," S&P said.

The U.S. is home of two thirds of the potential downgrades, while Europe represents 17 percent of the list, the report said.

Sectors linked to the falling housing markets, such as mortgage lenders, forest products and building materials companies, are among the most susceptible to a downgrade, the agency said.

Consumer-driven sectors, such as media and entertainment and consumer products, are also likely to worsen amid economic woes and record fuel prices.