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Fitch: U.S. corporate bond downgrade rate 3% in second half 2009 vs 20% first half

Friday, February 19, 2010
Opalesque Industry Update - According to a new Fitch Ratings report, U.S. Corporate Bond Market: A Review of Fourth-Quarter and 2009 Ratings and Issuance Activity, the par value of U.S. corporate bonds affected by downgrades decreased for the third consecutive quarter in the last three months of 2009 to $42.9 billion or 1.2% of market volume, the lowest tally since the second quarter of 2007.

'With upgrades affecting $40.7 billion in bonds, the ratio of downgrades to upgrades was nearly even at year-end, a strong departure from rating activity in the first half of the year when downgrades towered over minimal upgrades' said Eric Rosenthal, Senior Director of Fitch Credit Market Research.

Downgrades continued to slow across the investment grade and speculative grade segments of the market at year-end.

The par downgrade rate (as a share of U.S. corporate bonds outstanding) was 23% in 2009, slightly below 2008's 24%. The vast majority, close to 90%, of the year's negative rating activity occurred in the first half of the year. For perspective, the par downgrade rate was 15.3% in 2001 and 23.4% in 2002.

The investment grade portion of the market experienced a downgrade rate of 20.1% in 2009 and the speculative grade segment, 34.7%. The share of bonds upgraded over the course of the year was 1.8% and 11.2%, respectively, across the two areas.

'The par downgrade rate associated with financial firms in 2009 was 36.5%, substantially higher than the downgrade rate of 12.7% recorded across industrials' said Mariarosa Verde, Managing Director of Fitch Credit Market Research.

Downgrades across financials had a particularly deep impact on the 'AAA' and 'AA' rating categories. At the end of the year, 'AAA' and 'AA' bonds had contracted to just 16.3% of market volume, down from 23.1% at the end of 2008 and 31.4% at the end of 2007.

The speculative grade portion of the market grew to 20.8% at the end of 2009, from 17.5% at the end of 2008 and 2007.

New issuance totaled $626.6 billion in 2009, up 3% year over year. Industrial issuance however grew 65% over the course of the year while financial issuance tumbled 55%.

The market's par rating composition at year-end consisted of the following: 'AAA', 0.7%; 'AA', 15.6%; 'A', 35.9%; 'BBB', 27.0%; 'BB', 8.2%; 'B', 6.8%; and 'CCC'-'C', 5.8%.-KM- To view full 20-page report, click Source

- KM -

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