Credit rating agencies are upgrading hundreds of billions of dollars in US corporate debt, partially reversing the downgrade at the beginning of the pandemic, reflecting the strong rebound in profitability of most US companies.
According to data from Bank of America, approximately US$361 billion of high-rated investment-grade bonds have been upgraded in the past two months, of which it reached a record US$184 billion in June.
The brisk pace shows that credit rating agencies such as S&P Global, Moody’s and Fitch believe that the economic recovery driven by the introduction of the vaccine makes the accumulation of corporate debt easier to manage. It also reflects the ample liquidity and low borrowing costs available to many companies, thanks in part to the Federal Reserve’s monetary stimulus.
Christina Padgett, senior vice president of Moody’s Corporate Finance, said: “I don’t think you can expect a strong supply of vaccines, economic growth, and really low-rated debt.”
After the 2008 financial crisis, rating agencies were criticized for assigning original ratings to bonds that eventually defaulted. They acted quickly during the pandemic and lowered their assessment of large amounts of debt.
Nearly USD 1 trillion of U.S. investment-grade corporate bonds are rated as cut According to Bank of America data, in March and April 2020, the total outstanding payments were approximately US$7.6 trillion.
A Bloomberg survey of economists showed that the U.S. economy shrank by 3.5% last year and is expected to grow by 6.6% in 2022. S&P 500 Index Profit According to data compiled by Refinitiv analysts, the company is expected to grow by more than 60% in the second quarter over the same period last year, when economic activity stagnated.
As the outlook for investment-grade bonds is improving, so is the outlook for junk-grade bonds, which are riskier. Citigroup analysts predict that by the end of 2022, US$200 billion of corporate debt will rise to investment grade. The bank’s data shows that so far this year, junk debt worth $18 billion has been upgraded to investment grade.
“It’s like something I have never seen in my time [in the industry],” said Michael Anderson, credit strategist at Citigroup. “After the financial crisis, we did not allow large companies to return to investment grade so quickly. “
In recent months, junk rating companies have enjoyed Lowest lending rate in history, Even groups that are short of funds have the opportunity to obtain capital to withstand the impact of declining income.
The pace of the upgrade has caused some criticism from analysts and investors, who believe that Cut last year It was a disproportionate response to the pandemic.
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“The wave of downgrades may be too severe,” said Yuri Seliger, a credit strategist at Bank of America.
However, large rating agencies denied this view, pointing out that many countries suffered economic recession last year. Fitch Ratings senior director Emily Wadhwani (Emily Wadhwani) said they “take a proactive attitude in ratings” when it comes to the pandemic.
Moody’s strategists said that at the beginning of the health crisis, almost three-quarters of downgrades affected companies that were already in trouble, noting that liquidity concerns and fragile business models caused by the pandemic were also driving factors.
“None of us feels like in March, April, May [last year] Padgett said, “The market will pick up, and all these weaker companies will suddenly have all the debt they need, and then some more.”