As of the end of first quarter 2020, S&P Global Ratings rates $20.6 trillion in corporate debt instruments outstanding, (including bonds, notes, loans, revolving credit facilities, and preferred securities from financial and nonfinancial corporate issuers). Amid unprecedented challenges faced globally in response to the COVID-19 pandemic, global corporate debt issuance surged to new highs after central banks announced extraordinary monetary policy actions that followed a temporary slowdown in issuance volume. As the surge in issuance volume escalated after March, some investors and policymakers are questioning the amount of leverage that's coming into the system, and what this means for future corporate credit quality. Credit markets have shown renewed demand for corporate credit as monetary policy is expected to remain easy for the foreseeable future while countries deal with the fallout from the pandemic.

In first-quarter 2020, the amount of global investment grade (rated 'BBB-' and above) debt declined by 2% to $15.7 trillion, even as speculative-grade (rated 'BB+' and below) debt increased by 6% to $4.9 trillion.

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Much of this shift reflects the downgrades of large fallen angels (issuers lowered to speculative grade from investment grade). Some of the largest issuers of speculative-grade debt at the end of the first quarter of 2020 have just been downgraded to speculative grade. These first-quarter fallen angels included Ford Motor Co., Occidental Petroleum Corp., The Kraft Heinz Co., and Atlantia Spa.

Global Corporate Debt Is 76% Investment Grade

By dollar amount of rated debt, 76% of global corporate debt is rated investment grade (rated 'BBB-' and higher), even though only about 50.1% of issuers are rated investment grade. By contrast, even though 49.9% of global corporate issuers are rated speculative grade, the proportion of corporate debt globally that is rated speculative grade is just 24%. Speculative-grade issuers tend to be smaller, with lower revenue and lower debt outstanding, even as they have higher leverage than investment-grade issuers.

With central banks broadly adopting accommodative monetary policies over the past decade and investors reaching for yield, debt has increasingly pooled within the lowest category of investment grade and the highest category within speculative grade. Within investment grade, the 'BBB' rating category is the largest, accounting for $7.56 trillion in debt. Within speculative-grade, the 'BB' category, which is the highest rating category within speculative grade, is the largest, with $2.38 trillion (see chart 3).

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Table 1

By region, U.S.-based issuers (including issuers from the tax havens of Bermuda and the Cayman Islands) account for the largest share of rated debt globally, with $10.2 trillion. The U.S. has the highest proportion of speculative-grade rated debt (nearly 30%) and the lowest proportion of financial services debt (at 24%). In part, this reflects the highly developed capital markets in the U.S. and its high degree of banking disintermediation.

Table 2

By country, the U.S., U.K., France, and Germany each have rated corporate debt that surpasses the $1 trillion mark. Together, these countries account for 66% of the total rated debt. Among these, the U.S.-based companies account for the largest share of corporate rated debt, with $9.9 trillion in rated debt (excluding debt from tax havens). The U.K. follows, with $1.5 trillion, France, with $1.28 trillion, and Germany, with $1.07 trillion (see table 3).

Table 3

Emerging market corporate debt accounts for only 6.2% of rated debt globally, with $1.28 trillion. However, a considerable share of the region's overall outstanding debt is unrated, and we only reviewed debt with global-scale ratings from S&P Global Ratings. We expect this share of rated emerging market debt to continue to grow as capital markets in the region grow and develop.

Among nonfinancial companies, the largest and most capital-intensive sectors often have the highest amounts of debt outstanding in the market. The utilities, telecommunications, and consumer products sectors lead with the highest debt amounts, at $1.9 trillion, $1.4 trillion, and $1.3 trillion, respectively.

Table 4

The sectors with the most investment-grade nonfinancial debt are utilities ($1.6 trillion), telecommunications ($931.9 billion), and consumer products ($853.3 billion). The nonfinancial corporate sectors with the largest amounts of speculative-grade debt are media and entertainment ($625.9 billion), telecommunications ($480.4 billion), and health care ($451.1 billion).

Among financial services issuers, $6.8 trillion (92% of total debt) is in investment grade, and most of this debt is from financial institutions, such as banks and brokerages.

U.S. Speculative-Grade Debt Nears $3 Trillion

U.S. rated corporate debt has risen by nearly 10% since the beginning of 2019 to $10.2 trillion as of April 1, 2020. This credit expansion resulted from an increase in bond issuance volumes in 2019 after the Fed eased monetary policy and recommenced asset purchases.

• As U.S. investment-grade rated corporate debt rose by 8% to $7.2 trillion between Jan. 1, 2019, and April 1, 2020, speculative-grade rated debt rose by 14% to $2.99 trillion, with fallen angels contributing to the increase in speculative-grade debt in first-quarter 2020 (see charts 4 and 5).
• U.S. speculative-grade debt represented 29% of all rated corporate debt as of April 1, 2020, up from 28% as of year-end 2019 (see chart 5).
• This speculative-grade debt is nearly evenly split between bonds/notes and loans/revolvers.

Chart 4

Chart 5

• The largest share of rated U.S. corporate debt was rated in the 'BBB' category (39%) at $3.98 trillion (see chart 6).
• This 'BBB' category debt includes nearly $2.98 trillion in debt from nonfinancial companies and $1.01 trillion in financial services debt.
• Within speculative-grade, the 'BB' and 'B' rating categories each account for a comparable amount of debt (with $1.37 trillion and $1.29 trillion, respectively), even as the 'B' category accounts for the largest proportion of rated U.S. issuers (with nearly 36% of rated U.S. issuers).

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Table 5

Among nonfinancial companies, U.S. sectors with the most debt are as follows (see table 6):

• Rated corporate debt: utilities ($1 trillion), high technology ($882.5 billion), and telecommunications ($781.6 billion)
• Investment-grade rated corporate debt: utilities ($845.1 billion), high technology ($614.5 billion), and telecommunications ($574.9 billion)
• Speculative-grade rated corporate debt: media and entertainment ($484.6 billion), high technology ($268 billion), and health care ($267.6 billion), with consumer products nearly tied for third most ($267.5 billion)

Table 6

By debt type, bonds and notes account for the majority of U.S. corporate debt, while loans and revolving credit facilities are more concentrated among speculative-grade and nonfinancial companies:

• Most rated financial-sector corporate debt in the U.S. (96%) was in the form of bonds, notes, or preferred securities (see table 7).
• One-quarter of rated nonfinancial sector corporate debt in the U.S. was in the form of loans or revolving credit facilities.
• As of the April 1, 2020, U.S. nonfinancial companies had $464.6 billion in revolving credit facilities that were rated (including both drawn and undrawn facilities).
• According to data from LCD, an offering of S&P Global Market Intelligence, U.S. companies drew down more than $200 billion revolvers in March 2020, as companies sought to bolster liquidity and working capital as the COVID-19 pandemic spread.
• These drawdowns included $108 billion from investment-grade issuers and $72.6 billion from speculative-grade companies.

Table 7

European Corporate Debt Contracted In First-Quarter 2020

European corporate debt has risen by 2% since the beginning of 2019 to $7.2 trillion as of April 1, 2020, (see chart 7). This includes a contraction in corporate debt that occurred in first-quarter 2020 as the coronavirus pandemic hit Europe, and its debt markets, before it became widespread in the U.S.

• Between Jan. 1, 2019 and April 1, 2020, European investment-grade rated corporate debt fell by 1% to near $6 trillion while speculative-grade rated debt rose by 19% to $1.2 trillion (see charts 7 and 8).
• Downgrades of European fallen angels in first quarter 2020, including Atlantia SpA and Marks & Spencer Group PLC, have contributed to this shift in debt to speculative-grade from investment grade.
• Speculative-grade debt represents 17% of European rated corporate debt as of April 1, 2020, up from 15% at the beginning of 2019.
• The majority (at 59%) of European speculative-grade debt is in the form of bonds and notes, while loans and revolvers account for 41% of the debt.
• Please refer to appendix 1 for European debt figures reported in euro.

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• The largest share of rated European corporate debt was rated in the 'BBB' category (with 34%, or $2.47 trillion) (see chart 9).
• This 'BBB' category debt includes $1.5 trillion from nonfinancial companies and $955 billion from financial services issuers.
• European financial services companies have $828.9 billion in debt that is rated 'AAA', and this includes secured debt, such as covered bonds, that may be rated higher than the corresponding issuer.
• Within speculative-grade, the 'BB' and 'B' rating categories each account for a comparable amount of debt (with $578 billion and $566 billion, respectively), even as the 'B' category accounts for the largest proportion of rated European issuers (with nearly 28% of rated European issuers).

Chart 9

Table 8

By nonfinancial corporate sector, European sectors with the most debt are as follows (see table 9):

• Rated corporate debt: utilities ($531.2 billion), consumer products ($517.1 billion), and telecommunications ($479.2 billion)
• Investment-grade rated corporate debt: utilities ($500.7 billion), consumer products ($411.2 billion), and health care ($281.8 billion)
• Speculative-grade rated corporate debt: telecommunications ($230.9 billion), media and entertainment ($110 billion), and consumer products ($105.9 billion), with health care close behind ($101.5 billion)

Table 9

By debt type, bonds and notes account for the majority of European corporate debt, while loans and revolving credit facilities are most highly concentrated among speculative-grade and nonfinancial companies:

• Nearly all rated financial-sector corporate debt in Europe was in the form of bonds, notes or preferred securities (see table 10).
• One-fifth of rated nonfinancial sector corporate debt in Europe was in the form of loans or revolvers (see table 10).
• As of April 1, 2020, European nonfinancial companies had $136.6 billion in revolving credit facilities that were rated (including both drawn and undrawn facilities), and $47.4 billion of this is speculative grade.
• Based on our estimates from LCD's reports, European companies drew down close to $10 billion from revolvers in March 2020, and this was almost entirely from speculative-grade and unrated issuers.
• Speculative-grade rated nonfinancial sector corporate debt had a larger proportion of loans or revolvers (50%) than investment grade (8%) (see table 10).

Table 10

Appendix: Euro-Denominated Tables

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Table 12

Table 13

Appendix: Rating Distribution By Issuer Count

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Data Methodology

For this report, we analyzed the amount of financial and nonfinancial corporate debt rated by S&P Global Ratings.

We included the rated debt of all parent companies and their foreign subsidiaries in each region. We counted the debt of all of these companies regardless of the currency or market in which the debt was issued. We converted any non-U.S.-dollar-denominated debt to U.S. dollars based on the end-of-day exchange rates on April. 1, 2020.

The issue types covered are loans, revolving credit facilities, bank notes, bonds, debentures, convertible bonds, covered bonds, intermediate notes, medium-term notes, index-linked notes, equipment pass-through certificates, and preferred stock. In the case of revolving credit facilities, the amount usually represents the original facility limit, not necessarily the amount that has been drawn. Debt amounts are tallied as the face value of outstanding rated debt instruments. We exclude individual issues that are not currently rated at the instrument level, as well as instruments from issuers that are currently rated 'D' (default) or 'SD' (selective default).

We aggregated the data by issue-level credit rating. We also aggregated sector-specific data according to the subsector of the issuer. The financial services sector is defined as all banks, brokers, insurance companies, asset managers, mortgage companies, and other financial institutions. We aggregated debt issued by financial arms of nonfinancial companies with the sector of the corporate parent.

For this study, we aggregated the amount of rated corporate debt among four regions:

• U.S. and tax havens: U.S., Bermuda, and the Cayman Islands

• Other developed: Australia, Canada, Japan, and New Zealand

• Europe: Austria, Belgium, British Virgin Islands, Bulgaria, Channel Islands, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the U.K.

• Emerging markets: Argentina, Armenia, Aruba, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Belize, Bolivia, Bosnia-Herzegovina, Brazil, Brunei Darussalam, Cambodia, Chile, China, Colombia, Costa Rica, Curacao, Dominican Republic, Egypt, El Salvador, Fiji, Gabon, Georgia, Ghana, Grenada, Guatemala, Honduras, Hong Kong, India, Indonesia, Israel, Jamaica, Jordan, Kazakhstan, Korea (Republic of), Kuwait, Lebanon, Liberia, Macao, Malaysia, Marshall Islands, Mauritius, Mexico, Mongolia, Morocco, Namibia, Netherlands Antilles, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Singapore, South Africa, Sri Lanka, Syrian Arab Republic, Taiwan, Thailand, Togo, Trinidad and Tobago, Tunisia, Turkey, Turks and Caicos Islands, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, and Vietnam

Related Research

• Potential Fallen Angels Hit A Record-High 111, May 14, 2020
• Global Financing Conditions: Bond Issuance Will Likely Contract 9% In 2020, April 27, 2020
• Global Refinancing--Rated Corporate Debt Due Through 2024 Nears $11 Trillion, Feb. 3, 2020