Standard & Poor's is unlikely to upgrade its ratings on nonbank commercial lenders over the next two years because increased competition for both secured and asset-based credit facilities has led to looser underwriting standards.

Many of the U.S. nonbank commercial lenders rated by S&P have moderately loosened their credit standards over the last year, which allows “for higher borrower leverage, and lowers the yields on new originations,” the ratings agency stated in a report published Thursday.

If the trend persists, many lenders are at risk of being downgraded. “We could even lower ratings on companies that further loosen their underwriting or significantly increase their own leverage in order to foster loan growth,” the report stated.

In January, the ratings agency lowered its rating on Jefferies Finance (a competitor in the leveraged loan space) to 'B+' from 'BB-' after the company issued $425 million in unsecured debt. The funds will be used to facilitate “a substantial expansion in its balance sheet amid very competitive lending conditions,” according to S&P.

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