THE European crisis is sending the ratings of the region's borrowers tumbling at the fastest pace ever relative to the United States as concern governments won't be able to pay their debt affects companies and banks.

Standard & Poor's lifted the ratings of 118 European issuers in the first half and cut 205, for an upgrade-downgrade ratio of 0.58, according to Bloomberg analysis. In the US, the New York-based company upgraded 380 borrowers and lowered the ratings of 165, a ratio of 2.3. That's the biggest contrast ever between the two regions for a first half.

Concern that Greece's debt woes would translate into the euro region's first national default spread contagion through its neighbors, while in the US, the second round of quantitative easing - which came to an end last week - buoyed credit quality. The difference between the two regions has also been affected by S&P, Moody's Investors Service and Fitch Ratings changing the way they assess European borrowers in particular, including lowering their assumptions for the state support lenders can expect.

"The underperformance in Europe is sovereign and banking-related," said Ben Bennett, who helps oversee about US$500 billion as a strategist at Legal & General Investment Management in London. "To a large extent what you're seeing also reflects government downgrades and structural shifts in the ratings themselves."

Moody's ratings data show a similar trend to those of S&P, with 306 downgrades and 94 upgrades in Europe in the first six months of this year, compared with 161 downgrades and 231 upgrades in the US, according to Bloomberg analysis. Francesco Meucci, a Moody's spokesman in London, had no immediate comment.

Junk-rated companies poised for upgrades to investment-grade status are dominated by US entities, said Diane Vazza, managing director and head of global fixed income at S&P in New York. The US accounts for eight out of 20 so-called rising stars, compared with three in Europe, she said.

Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of benchmark government debt narrowed last week amid optimism Greece will get its second bailout.

Relative yields in Europe declined to 168 basis points from 175 at the end of the previous week, according to Bank of America Merrill Lynch's EMU Corporate Index. In the US, spreads declined to 161 basis points from 170, the bank's US Corporate Master Index shows.

Bond sales

Greek law makers' approval of spending cuts on June 29 paved the way for the debt-ridden nation to get the next installment of its international bailout. Greece may now receive as much as 85 billion euros (US$123.5 billion) in new financing, on top of the 110 billion euros pledged last year, under its second rescue package, according to an Austrian Finance Ministry official.

The cost of insuring corporate bonds from default tumbled last week, with the Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses or speculate on credit worthiness, dropping 11.5 basis points to 89.5, according to Markit Group Ltd. That's the biggest weekly decline in almost a year.

In London, the Markit iTraxx Europe Index of contracts on 125 companies fell 12 basis points last week to 103, the most since May 2010. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 10.5 basis points last week to 109.1 basis points, its biggest weekly drop since November, according to CMA prices.

The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals US$1,000 annually on a contract protecting US$10 million of debt.

Company bond sales picked up last week after the Greek austerity vote. Issuance worldwide rose 3.6 percent to US$35.6 billion, led by Amgen Inc. The Thousand Oaks, California-based biotechnology company raised US$1.25 billion from 5.65 percent bonds due 2042, the largest portion of a US$3 billion sale.

European borrowers including Schneider Electric SA, a French maker of industrial components, and cigarette manufacturer Imperial Tobacco Group Plc issued a total 2.3 billion euros of bonds, up from 1.2 billion euros the week before, according to data compiled by Bloomberg News.

Still, Societe Generale SA analysts cut their forecast for issuance from Europe this year by 25 percent, citing companies' cash holdings and treasurers' unwillingness to increase debt.

Sales may slide to 90 billion euros from a previous forecast of 120 billion euros, London-based credit strategists Suki Mann and Juan Esteban Valencia wrote in a July 1 report.

Greece was cut by S&P three times this year to CCC, eight steps below investment grade, as the country skirted a default that threatened to bankrupt its financial system and infect economies in Europe and beyond. The sovereign crisis has affected the region's banks, which hold about US$52.3 billion of Greek government bonds, more than their US peers, which have US$1.5 billion, according to the Bank for International Settlements.

Governments worldwide have pumped more than US$1.6 trillion into lenders since 2007, Bloomberg data show. The likelihood they'll be unable or unwilling to do so again has forced ratings firms to adjust criteria to account for a lower level of state support.

Bank downgrades

Cuts to sovereign ratings, as occurred with Greece, Ireland and Portugal, are typically followed by reductions in the grades of banks such as Anglo Irish Bank Corp and state-owned companies including CP-Comboios de Portugal, the national railroad operator.

Financial companies accounted for 105 out of the 205 downgrades by S&P in Europe, led by lenders in Greece and Ireland as well as Credit Agricole SA and its units. France's third largest bank has "significant sensitivity" to Greece, S&P said.

By contrast, US financial companies suffered just 24 out of 165 downgrades by S&P, Bloomberg data show.

"Banks in the US have been awash with liquidity and companies have been able to improve their margins basically by cutting jobs and investment," said David Watts, a strategist at CreditSights Inc in London. "While I don't think Greece has had much effect on the economies of France and Germany, the extent of government support for banks looks certain to be reduced."

US corporate chiefs are bullish on the outlook for their businesses, with 298 - close to a decade low - saying they expect to report earnings below analysts' estimates for the most recent quarter, strategists Pierre Lapointe and Alex Bellefleur at Brockhouse & Cooper Inc in Montreal wrote in a July 1 note.

Default rates have been tumbling around the world as central bank liquidity and interest rates at or near record lows help banks and companies fund themselves.