OREANDA-NEWS. Total outstanding U.S. financial debt continued to increase in 2015 with new issuance outpacing maturities in the sector by a large margin, according to a new Fitch Ratings report. New issuance in 2015 increased by 10% from 2014. Regulatory proposals will add to this trend, as globally significant banks (GSIBs) will need to issue debt to meet total loss absorbing capacity (TLAC) requirements.

Relative to 2010, the maturity profile in 2015 has become less laddered, with a greater concentration of bonds maturing in one to three years. Revisions to risk-based capital requirements adopted in October 2013 eliminated U.S. banks' ability to rely on hybrid debt securities as part of Tier 1 capital, shifting issuance from long-term, deeply subordinated debt to preferred equity. With continued expectations for rising interest rates, banks have favored shorter asset tenors. At the same time, developing regulatory liquidity requirements favor match funding.

Upgrades continued to modestly outpace downgrades in 2015, continuing the modest upward bias of the previous two years. The number of rating changes increased but remains relatively low, reflecting a generally stable rating environment. As 2015 closed, bank asset quality metrics displayed early signs of decline, reflecting energy market woes. Other high growth lending sectors such as auto and certain CRE may lead to increased provisions and hinder financial results, forestalling ratings upgrade potential.

Mid to low investment grade rated issues now comprise over 80% of outstanding debt. In 2015, 62% of issuances were rated 'A' and 25% rated 'BBB'. The change primarily reflects a sharp reduction in 'AA' rated issuances. The post-financial recession environment resulted in a notable downward shift, with ratings converging between 'A+' and 'BBB-'. The financial services sector retains greater ratings disparity due to the presence of lower rated sub-sectors, such as Business Development Companies and aircraft lessors.

The sector has been dominated by issuances from banks. Notably, the eight U.S. banks deemed globally significant (GSIBs) represented 44% of outstanding debt at year-end 2015. These banks will continue to represent an outsized share of funding not only due to their large comparative size, but also to meet recently proposed TLAC requirements, as noted above.