(Updates with further details from the report.)
DOW JONES NEWSWIRES
The par value of U.S. corporate bonds affected by downgrades hit
a record $522.4 billion in the first quarter, resulting in a
downgrade rate of 14.5%, as the financial and economic crisis
continued to take a toll on corporate credit quality, said Fitch
Ratings.
All industries, with the exception of supermarkets and drug
stores, experienced downgrades in the first quarter, a sign of how
widespread the impact of the recession has become. By sector
volume, the gaming, lodging and restaurant, insurance and banking
and finance sectors led first-quarter downgrades.
In contrast, upgrades affected only 0.3% of investment-grade
bond market volume in the quarter. On the speculative-grade front,
the effects of negative and positive changes were 14.8% and 1.7%,
respectively. Companies driving the negative rating drift in the
speculative grade sector included MGM Mirage (MGM) and iStar
Financial (SFI).
High-yield sectors under stress including automotive,
broadcasting and media, gaming, lodging and restaurants, retail and
textiles and furniture continued to experience credit erosion in
the first quarter. About 30% of first-quarter speculative-grade
downgrades consisted of defaults, according to Fitch.
The 12-month trailing default rate, which ended 2008 at 8.5%,
was up to 13.3% in the first quarter. A year ago, the rate was just
1%. Fitch expects the rate to set a new record in 2009, topping the
previous high of 16.4% established in 2002.
In the first quarter, the share of U.S. corporate bonds rated
AAA fell below 1% of market volume while the share of highly
speculative issues moved up to a new high of 6.8%.
In total, the AAA-rated category saw $176.2 billion in
downgrades while the AA-rated category featured an additional
$142.1 billion. General Electric Co. (GE) and Berkshire Hathaway
Inc. (BRKA) represented the most notable first-quarter downgrades
and the most recent source of the shrinking AAA pool, Fitch
said.
On Wednesday, Fitch also reported there was a strong rebound in
bond issuance, tallying $184.9 billion following poor activity in
the second half of 2008. But the turnaround mostly came from highly
rated defensive industrial companies, as financial and
speculative-grade issuance remained very low.
-By John Kell, Dow Jones Newswires; 201-938-5285;
john.kell@dowjones.com