TEXT-Fitch: 'BBB' pool swells, corporate borrowing costs shrink in 2012

Tue Feb 12, 2013 3:13pm EST

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Link to Fitch Ratings' Report: U.S. Corporate Bond Market: 2012 Rating and
Issuance ActivityFeb 12 - The share of U.S. corporate bonds affected by downgrades was 6.2%
in 2012, down from 8.1% in 2011, but above the year's 4.4% upgrade rate (versus
5.8% in 2011). The market's profile continued to evolve with the modest but
persistently negative rating drift, according to Fitch Ratings.
The top tier -- the slice of U.S. corporate bonds rated 'AAA' or 'AA' --
remained stuck at just over 9% of market volume.
The middle tier of 'A' to 'BBB' held steady at close to 69% of outstanding
issues. However, rating and issuance momentum continued to boost the 'BBB' pool
which reached a new high of 32.1% ($1.4 trillion versus $1.0 trillion in 2009,
up 44.3% compared with a market growth rate of 21.4% over the same period).
Issuance activity totaled a considerable $905.6 billion in 2012, an increase of
32% year over year (and exceeding the year's scheduled maturities by a
three-to-one margin). Not surprisingly, the vast majority (95%) involved
fixed-rate bonds.
Across the pool of industrial bonds -- the engine of the market's growth since
2009 and a universe now $3.1 trillion in size -- the par weighted average coupon
of outstanding issues fell to 5.89% from 6.38% at the end of 2011 and 6.84% in
Financial issuance in 2012 was also heavily fixed rate. The par-weighted average
coupon of outstanding fixed rate financial bonds fell to 5.27%, down from 5.72%
at the end of 2011.
The lower market downgrade rate in 2012 was due to less volatility in the
financial sector. The share of high-grade financial volume that was downgraded
fell to 5.3% in 2012 from 18.2% in 2011. However, financial upgrades remained
Among industrials downgrades actually rose year over year across both the
investment, and speculative-grade components of the market. Downgrades moved
4.1% of high-grade industrial volume in 2012 and upgrades, 2.8% - compared with
2.1% and 3.6%, respectively in 2011.
For a full view of U.S. corporate bond market rating and issuance trends please
see 'Fitch U.S. Corporate Bond Market: 2012 Rating and Issuance Activity'
available at 'www.fitchratings.com'.
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