Fitch: 1Q Downgrades Surpass Upgrades; US Issuance Still Strong

NEW YORK--(BUSINESS WIRE)-- The share of corporates affected by downgrades in the first quarter of this year was 2.8% which is very close to the 3.2% mark for all of 2014, according to Fitch Ratings. Upgrades affected just 0.8% of the market in the first quarter, with nearly all occurring in high yield.

Downgrades in the investment-grade segment were at a 2.6% rate, with the downgrade of AT&T Inc. contributing to the bulk of the total. The speculative-grade downgrade rate was 3.5%, led by Caesars Entertainment Operating Co. filing for bankruptcy in January, with the 'CCC' downgrade rate at 8.1%.

Upgrades have not surpassed 2% in a quarter since the start of 2013. Eleven industries were affected by upgrades -- the same number involving downgrades.

Favorable borrowing conditions for U.S. companies in the bond market, despite a slight rise in both coupons and spreads for riskier credits, continue to support strong issuance. Corporate bonds outstanding total $3.8 trillion, with $200 billion in new bond issuance recorded in the first quarter.

U.S. non-financial corporate bond issuance tallied a record $274 billion through April, a 33% increase from one-year prior and a 48% gain versus 2012 when the most volume was amassed in a year. New issuance registered $96 billion in February 2015, the largest monthly total since September 2013, while March and April combined to generate $142 billion.

An attractive borrowing backdrop resulted in an outstanding par weighted average coupon of 5.18% at the end of April, down from 5.45% one year earlier.

Borrowing continues to be heavy in the energy sector underscored by $43 billion of first quarter new issuance, more than double 1Q14 volumes. Speculative grade energy companies comprised 31% of the total, up from 16% in the prior quarter. At $200 billion, 1Q15 volume was concentrated in energy, healthcare and pharmaceuticals, computers and electronics, and telecommunications. These four sectors provided 63% of the issuance compared to 42% during 1Q14.

The 'AAA' rating class generated $19.5 billion of new issuance due to sizable transactions for Microsoft Corp. and Exxon Mobil Corp. These two deals doubled the amount of 'AAA' issuance for all of 2014. The previous high quarterly mark for this rating category volume was $7.3 billion in 4Q13. Overall, investment grade accounted for 71% of the first-quarter volume at $143 billion.

For more information on this topic, please see our special report titled, "U.S. Corporate Bond Market Monitor," which is available on our website at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: U.S. Corporate Bond Market Monitor (Record New Issuance; Downgrades Surpass Upgrades)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865302

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Fitch Ratings
Eric Rosenthal, +1-212-908-0286
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Fitch Ratings
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Source: Fitch Ratings

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