Corporate debt sin is on the rise.
The number of fallen-angels — investment grade corporates downgraded to junk status — is rising, according to a report just out from S&P. The rating agency notes that 17 companies have been junked in the past month alone, triple the historical average of six per month. In fact, it’s the worst month for fallen angels globally since December 1996, when the Asian financial crisis saw 19 companies downgraded to speculative-grade.
So far in 2009, 34 companies have been junked, with — and this is the rather alarming part — $114bn of rated bonds between them in issue.
In other words, it’s a bonfire of the ratings on a scale equal to that of the structured-finance rating downgrade deluges we saw this time last year. The junk threshold is also critically important because many of the traditional long-only investors in corporate bonds, who might otherwise be a force for stability in the market, may become forced sellers: specific requirements on the percentage of high-yield assets they own may mean freshly junked bonds have to be sold.
As for the coming months, S&P says 69 issuers (with $250.11bn of debt) are wavering in their angelic status.
Roll on the actual defaults.