Global corporate bond issuance surged to a record high in the first three quarters of 2020, exceeding full-year issuance volumes of the past two years. This new issuance fueled an expansion of corporate debt globally--it grew by over $1.2 trillion in 2020, reaching $21.8 trillion by Oct. 1. This figure consists of corporate debt instruments (including bonds, notes, loans, revolving credit facilities, and preferred securities from financial and nonfinancial corporate issuers) that are rated by S&P Global Ratings.

The debt level increased by 6% in the first three quarters of 2020, in line with the growth rate for full-year 2019.

Investment- and speculative-grade debt rose as companies built up cash reserves and raised the amount of available debt funding to cover unexpected revenue declines amid the COVID-19 pandemic. In 2020 (through Oct. 1), the amount of global investment-grade (rated 'BBB-' and above) debt increased by 5% to $16.8 trillion, while speculative-grade (rated 'BB+' and below) debt increased by 9% to $5.03 trillion. During this period, investor demand for corporate credit has been strong as investors search for yield in a lower-for-longer interest rate environment.

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In addition to recent issuance, the rising level of speculative-grade debt also reflects the number of companies that were downgraded to speculative grade from investment grade. The fallen angels include several large issuers, each with more than $10 billion in rated debt. These large fallen angels through September this year included Ford Motor Co., Occidental Petroleum Corp., The Kraft Heinz Co., Renault S.A., Atlantia SpA, and Apache Corp.

77% Of Global Corporate Debt Is Rated Investment Grade

By dollar amount of rated debt, 77% of global corporate debt is rated investment grade, even though only about 50.3% of issuers are rated investment grade. By contrast, 49.7% of global corporate issuers are rated speculative grade, and just 23% of corporate debt globally is rated speculative grade. Speculative-grade issuers tend to be smaller, with lower revenue and lower debt outstanding, even as they have higher leverage than investment-grade issuers.

Within investment grade, the 'BBB' rating category is the largest, accounting for $8.43 trillion in debt. Within speculative grade, the 'BB' category has the highest amount of speculative-grade debt, with $2.49 trillion (see chart 3).

Debt rated in the 'CCC'/'C' category showed the largest growth within speculative grade in 2020 as containment measures for the COVID-19 pandemic led to a sudden and sharp economic shutdown that contributed to a wave of downgrades. As a result, the number of 'CCC'/'C' category issuers rose by 96% from the end of 2019 to 463 as of Sept. 30, 2020, and the amount of debt rated in the 'CCC'/'C' category increased by 37% to $541.1 billion.

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Table 1

By region, U.S.-based issuers (including from the tax havens of Bermuda and the Cayman Islands) account for the largest share of rated debt globally, with $10.63 trillion. Compared with other regions, the U.S. has the higher proportion of debt from nonfinancial companies (76% of U.S. corporate debt is from nonfinancials) as well as speculative-grade debt (nearly 29% of U.S. corporate debt is speculative grade). In part, this reflects the highly developed capital markets in the U.S. and its high degree of banking disintermediation.

Emerging market corporate debt totals $1.32 trillion, only 6% of rated debt globally. Although, a considerable share of the region's overall outstanding debt is unrated. (This study excludes debt instruments that do not have global scale ratings.) We expect this share of rated emerging market debt to continue to grow as capital markets in the region grow and develop.

Table 2

By country, the U.S., the U.K., France, and Germany each has over $1 trillion in rated corporate debt. Together, these countries account for two-thirds of the world's rated corporate debt. Among these, the U.S.-based companies account for the largest share, with nearly $10.3 trillion (excluding debt from tax havens). The U.K. follows with $1.59 trillion, France with $1.41 trillion, and Germany with $1.22 trillion (see table 3).

Table 3

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 $1.92 trillion, $1.49 trillion, and $1.39 trillion, respectively.

Table 4

The sectors with the most investment-grade nonfinancial debt are utilities ($1.67 trillion), telecommunications ($1.03 trillion), and consumer products ($957.2 billion). The nonfinancial corporate sectors with the largest amounts of speculative-grade debt are media and entertainment ($685.2 billion), telecommunications ($460 billion), and health care ($453 billion).

Among financial services issuers, $7.09 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 Crosses The $3 Trillion Mark

U.S. rated corporate debt has risen by nearly 7% since the beginning of 2020 to $10.63 trillion as of Oct. 1. This credit expansion followed the Fed's extraordinary intervention in the credit market, which spurred a resurgence of liquidity that supported record bond issuance volumes.

• U.S. investment-grade-rated corporate debt rose by 5% to $7.58 trillion between Jan. 1 and Oct. 1, 2020.
• Speculative-grade-rated debt rose at a higher rate of 12% and reached $3.05 trillion--surpassing the $3 trillion mark for the first time on record.
• In the U.S., speculative-grade debt represented 29% of all rated corporate debt as of Oct. 1, 2020, up from 27.5% at the beginning of the year (see chart 3).
• Fallen angels such as Ford Motor Co., Occidental Petroleum Corp., and The Kraft Heinz Co. that were downgraded to speculative grade in the first half of 2020 contributed to the increase in speculative-grade debt.
• In the U.S., the auto sector had the largest increase in speculative-grade debt in 2020--it more than doubled in the year through Oct. 1, to nearly $150 billion. Ford's downgrade to speculative grade accounted for much of this increase.
• Investors show less of an appetite for floating-rate debt while the interest rate remains lower for longer. Bonds and notes now account for the majority of speculative-grade nonfinancial debt, having grown to 51% (from 45% at the beginning of the year) as companies are increasingly turning to the bond market for funding.

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• The 'BBB' category accounts for the largest share of rated U.S. corporate debt, with $4.34 trillion, or 41% of U.S. corporate debt (see chart 6).
• This 'BBB' category debt includes nearly $3.16 trillion in debt from nonfinancial companies and $1.18 trillion in financial services debt.
• Within speculative grade, the 'BB' category accounts for the largest amount of debt, at $1.39 trillion, while the 'B' category accounts for a smaller $1.29 trillion and a larger proportion of issuers.
• Within speculative grade, the 'BB' category grew the most in absolute terms (up $178.7 billion year to date to $1.39 trillion), while the 'CCC'/'C' category grew the most in relative terms (up 26% to $363.6 billion).

Chart 6

Table 5

Among nonfinancial companies, U.S. sectors with the most debt are:

• Rated corporate debt: utilities ($1.02 trillion), high technology ($935.3 billion), and telecommunications ($825.5 billion) (see table 6);
• Investment-grade-rated corporate debt: utilities ($847 billion), high technology ($674.4 billion), and telecommunications ($624.6 billion); and
• Speculative-grade-rated corporate debt: media and entertainment ($528.4 billion), consumer products ($281 billion), health care ($262.2 billion), and high technology ($260.9 billion).

Table 6

By debt type, bonds and notes account for the majority of U.S. corporate debt, and this share has grown during the year:

• Most rated financial sector corporate debt in the U.S. (96%) was in the form of bonds, notes, or preferred securities (see table 7).
• 22% of rated nonfinancial sector corporate debt in the U.S. was in the form of loans and revolving credit facilities.
• Bonds and notes now account for 53% of speculative-grade debt, with loans now a smaller share as investor demand for floating-rate debt has receded. The stock of rated loans has further declined as companies issued more than $50 billion in new bonds to take out existing loans in the second and third quarters.
• As of Oct. 1, U.S. nonfinancial companies had $421.8 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 $300 billion from revolvers since March 5, as companies sought to bolster liquidity and working capital as the COVID-19 pandemic spread.

Table 7

European Corporate Debt Expanded By 7% Through The Third Quarter

European corporate debt has risen by 7% since the beginning of 2020 to $7.9 trillion as of Oct. 1, 2020. Part of this growth reflects the depreciating dollar, as European corporate debt shows a more modest 2% growth over the same period in euro terms (see the euro-denominated tables in the Appendix).

• Between Jan. 1 and Oct. 1, 2020, European investment-grade-rated corporate debt increased by 6% to near $6.6 trillion, while speculative-grade-rated debt rose by 9% to $1.3 trillion (see chart 7).
• Downgrades of European fallen angels this year through third quarter have contributed to this increase in speculative-grade debt, including Renault S.A., Atlantia SpA, and IHO Verwaltungs GmbH.
• Speculative-grade debt represents 17% of European rated corporate debt as of Oct. 1, 2020, up from 16% at the beginning of the year.
• The majority (60%) of European speculative-grade debt is in the form of bonds and notes, while loans and revolvers account for 40% of the debt.

Chart 7

Chart 8

• The largest share of rated European corporate debt was rated in the 'BBB' category (with 37%, or $2.92 trillion) (see chart 9).
• This 'BBB' category debt includes $1.9 trillion from nonfinancial companies and $1 trillion from financial services issuers.
• European financial services companies have $860 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' rating category accounts for the largest amount of debt, at $656 billion, followed closely by the 'B' category with $542 billion (even as the 'B' category includes twice as many issuers as the 'BB' category).

Chart 9

Table 8

By nonfinancial corporate sector, European sectors with the most debt are:

• Rated corporate debt: consumer products ($573.5 billion), utilities ($567.1 billion), and telecommunications ($508.4 billion) (see table 9);
• Investment-grade-rated corporate debt: utilities ($531.5 billion), consumer products ($460.2 billion), and health care ($305 billion); and
• Speculative-grade-rated corporate debt: telecommunications ($221.7 billion), media and entertainment ($117.1 billion), and consumer products ($113.3 billion).

Table 9

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

• Bonds and notes remain the predominant funding source for speculative-grade nonfinancials in Europe, at 51% of rated debt (unchanged from the beginning of the year) (see table 10).
• Close to one-fifth of rated nonfinancial sector corporate debt in Europe was in the form of loans and revolvers.
• As of Oct. 1, 2020, European nonfinancial companies had $119.9 billion in revolving credit facilities that were rated (including both drawn and undrawn facilities), and $49.9 billion of this is speculative grade.
• Speculative-grade-rated nonfinancial sector corporate debt had a larger proportion of loans and revolvers (49%) than investment grade (8%).

Table 10

Appendix

Euro-denominated tables

Table 11

Table 12

Table 13

Rating distribution by issuer count

Chart 10

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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 Oct. 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

• Global Financing Conditions: Bond Issuance Is Expected To Finish 2020 Up 16% And Decline In 2021, Oct. 26, 2020
• 'BBB' Pulse: Potential Fallen Angels Remain Stable In August, With Five Outlook Revisions To Stable And Just One Downgrade, Sept. 29, 2020
• Global Refinancing--Rated Corporate Debt Due Through 2025 Nears $12 Trillion, July 27, 2020