March 21 (IFR) - The number of US companies at the lower end
of the ratings scale has continued to decline, as investors
willing to lend to riskier companies in pursuit of yield has
helped improve credit quality, according to Moody's.
The number of non-financial US companies on Moody's B3
negative and lower corporate ratings list continued to decline
in the early months of 2013, the rating agency said in a report.
After hitting a 2012 low of 152 in December, the number fell
to 146 as of March 1. At the same time a year ago, the list
comprised 176 companies and nearly 300 at its peak during the
"Strong market access and slow but steady economic growth
have continued to reduce the number of companies in the lower
ranks of credit quality," said David Keisman, senior vice
president and the lead analyst of the report.
The Federal Reserve has played its part by holding to its
policy of large-scale bond purchases. That has allowed companies
at the lowest end of the credit scale to fund at record low
yields, although investors are now bracing for the inevitable
moment when the Fed withdraws its stimulus.
Credit investors have become more cautious when it comes to
duration, according to a recent Barclays survey, with some 30%
of respondents intentionally reducing duration in their
portfolios to limit interest rate risk.
In its policy statement this week, the Fed addressed the
growing concerns among Fed officials about the negative
consequences of the buyback programs, including the worry that
they are inflating asset prices.
"The Committee will continue to take appropriate account of
the likely efficacy and costs of such purchases as well as the
extent of progress toward its economic objectives," said the
"We want to be sure that we are not unnecessarily
encouraging excessive risk taking or other problems in the
financial markets," Fed Chairman Ben Bernanke said during a
Strong investor demand, in turn, has allowed many companies
to market bonds with weak covenant protections, according to
Moody's. Covenant quality has been declining steadily since last
July and hit it lowest-ever level in February, said the rating
Such weak credit protection could become a significant issue
for high-yield investors if the speculative-grade default rate
begins to rise from its current historically low level.
However, continued access to credit markets for low-rated
corporates should keep the trailing 12-month US
speculative-grade default rate low.
The rate stood at 3.3% in February, below its average of
4.53% since 1993. Moody's baseline forecast calls for the
default rate to end 2013 at 2.5%.