Negative Watch

Remember the movie Meet the Parents? Remember how Jack always told Greg that he was watching him, and gave him that stern expression with accompanying hand gesture? Okay, well, in the financial world, being put on “negative watch” is basically the equivalent of Jack telling a company he’s watching its every move. And possibly even giving it the hand gesture.

A “negative watch” means that at least one of the major industrial credit ratings agencies—Fitch’s, Moody’s, Standard & Poor’s—is keeping an eye on a company in order to determine whether or not its credit rating should go down. And 50% of the time, that is exactly what ends up happening.

So what leads an organization to be put on negative watch? Well, maybe they’ve got solvency issues. Maybe they’re underperforming compared to their industry peers. Maybe they’re facing some legal problems that could seriously damage their ability to fulfill their long-term financial debts. Whatever the reason, if a company (or country—they do this to countries too) is placed on negative watch, it means there’s a pretty decent chance their credit rating is going to drop within the next three months.