Fitch: U.S. Corp Bond Market Poised for Record Despite Turning Speculative Grade Rating Tide
"The tides began to turn for the speculative grade universe in the third quarter as energy and metals/mining companies struggled to keep up issuance volumes," said Eric Rosenthal, Senior Director of Leveraged Finance. "Nevertheless, investor appetite, especially in the investment grade segment, hasn't waned yet despite higher spreads."
Retail, Leisure and Consumer Products companies issued $323 billion in debt through end-September, up 65% from a year prior. Healthcare/pharmaceuticals ($118 billion) and computers/electronics ($91 billion) were the key RLCP subgroups.
Energy and metals/mining companies raised only $8 billion during the third quarter, a fraction of their new issuance the quarter prior, and led the majority of U.S. non-financial corporate downgrades. Industrials and Energy, Utilities and Infrastructure companies composed 69% of the downgrades in third quarter 2015 (3Q15). This slide helped stymie speculative grade issuance to only 20%, its lowest volume since 2Q12.
U.S. speculative grade nonfinancial corporates generated the most downgrades since second quarter 2009, as 4.4% of bonds in this segment was affected in the third quarter. Investment grade included minimal rating changes during the third quarter (downgrades were at 0.5% while upgrades were at 0.1%), but for the year on a volume basis there has been nearly six times more downgrades than upgrades. Overall, downgrades affected 5.7% of the market while upgrades reached 2.9%.
The corporate bond market outstandings reached $4 trillion at the end of the third quarter, up 13% over the past year. With just $220 billion scheduled to mature in the next 15 months, the universe may continue to make outsized gains in 2016.
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