Credit Crunch Not Hitting Corporate Bond Market

Though there are ongoing concerns about credit quality in the housing market, those issues have yet to spill over into corporate debt markets, according to a recent report from Moody’s Investor Service.

Moody’s reported that overall credit quality for corporate, sovereign, and banking debt issuers on a global basis declined only slightly despite the unusual market conditions in the structured finance market during the third quarter that just ended. Credit rating upgrades fell just short of downgrades at a 0.92 ratio (.92 upgrades for every downgrade) during the three months, a trend that’s been relatively stable for the last 1.5 years, according to Jennifer Tennant, an associate analyst.

Even when the ratio has been above 1 during that time frame, there have tended to be more negative outlooks than positive ones, added Tennant, who declined to speculate on reasons behind the conservative to pessimistic outlooks and upgrade-downgrade findings.

Specifically, Moody’s reports that at the end of the third quarter, 4 percent of rated issuers were on review for downgrade, compared with 1.8 percent on review for upgrade. Similarly, 8.7 percent of rated issuers had negative outlooks, compared with 6.9 percent with positive outlooks.

The rating actions, reviews and outlooks also show investment-grade issuers facing a slightly more positive credit outlook than do the speculative-grade issuers, continuing a trend from the previous quarter.

While both categories had more issuers on review for downgrade than upgrade, the investment grades showed more rating stability during the third quarter, as they saw less frequent downgrades, negative outlook changes, if also upgrades.

The Asia-Pacific and Latin American regions continued to show strong trends in credit quality, says Moody’s, demonstrating high upgrade-to-downgrade ratios, as well as the quarter ending with more issuers on review for upgrade than for downgrade.

Trends in rating actions by industry also continued to follow the patterns of the previous several quarters. Industries with the greatest rating activity during the third quarter were automotive, consumer products, and healthcare.