Key Takeaways
- The number of 'CCC' category ratings on U.S. and Canadian companies continued to decline to 135 in January 2022--matching its pre-pandemic count of 135 in February 2020--while 'CCC' rated debt by volume has fallen to a four-year low.
- Inflation surprises and the outlook for rate hikes are sending investors on the hunt for better returns, with the U.S. 'B' and 'CCC' spreads widening in January to 397 basis points (bps) and 626 bps, respectively.
- Cost pressures remain a concern for many 'CCC' rated companies, although vulnerabilities may be more idiosyncratic.
- The consumer products sector has the most debt exposure on negative bias, with roughly $30.3 billion in 'CCC+' and below rated debt--over 86% of which has a negative bias.
On This Month's Front Burner:
North America's 'CCC' population falls to February 2020 levels. While the North American speculative-grade population remains near a record high of 1,662, the number of issuers rated 'CCC+' and below fell to 135 as of Jan. 31, 2022, from 139 as of Dec. 31, 2021, matching February 2020's total. Financing conditions are tightening, with the U.S. 'B' and 'CCC' composite spreads widening in January by 7% and 4%, respectively. However, U.S. 'B' and 'CCC' composite spreads are still tighter than in February 2020.
North American speculative-grade nonfinancial corporate bond issuance fell in January by 55% compared to the previous year. Rate hike expectations and market volatility are weighing on investors' minds, bringing down bond issuance across the speculative-grade rating categories. 'CCC' rated issuance totaled $3.97 billion in January, down from $5.2 billion last January. Conversely, leveraged loan issuance remained strong in January with the anticipation of higher interest rates making floating rate instruments more attractive.
Inflationary pressures continue to weigh on the U.S. and Canada 'CCC' rating category. As the U.S. Consumer Price Index for January highlighted, prices are rising at the fastest pace in 40 years. 'CCC+' and below rated companies most vulnerable to inflationary shocks may struggle to pass on their costs, leading to margin pressure. Currently, the consumer products sector has the most debt exposure on negative bias, with roughly $30.3 billion in 'CCC+' and below rated debt--over 86% of which has a negative bias.
Rating actions remain largely positive. To date in 2022, there have been four upgrades from the 'CCC' rating category compared to just one downgrade into the 'CCC' rating category. Only three companies defaulted in January in the U.S. and the estimated default rate is expected to remain at 1.5% as of Jan. 31.
Overall, collateralized loan obligation (CLO) corporate credit metrics are stable, although company specific risks have emerged. Virginia-based sports media company Diamond Sports Group LLC saw its rating lowered to 'CC' from 'CCC' on Jan. 14, 2022. Since loans from this issuer are held across U.S. CLOs from over 70 managers, this action will impact 'CCC' and default exposures across several CLOs. Additionally, overcollateralization cushions may dip slightly due to the haircuts associated with exposure to this issuer now that it is rated 'CC'.
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Table 1
| Downgrades Into The 'CCC' Category In 2022 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating date | Issuer | Country | Sector | Rating to | Rating from | Debt amount (mil. US$) | ||||||||
| 1/31/2022 |
Halo Buyer Inc. |
United States | Consumer products | CCC+ | B- | 440 | ||||||||
| Data as of Jan. 31, 2022. Source: S&P Global Ratings. | ||||||||||||||
Table 2
| Upgrades From The 'CCC' Category In 2022 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating date | Issuer | Country | Sector | Rating to | Rating from | Debt amount (mil. US$) | ||||||||
| 1/18/2022 |
Syniverse Holdings Inc. (Syniverse Technologies Corp.) |
United States | Telecommunications | B- | CCC+ | 2,922 | ||||||||
| 1/12/2022 |
National CineMedia Inc. |
United States | Media and entertainment | B- | CCC+ | 1,220 | ||||||||
| 1/20/2022 |
Electronics for Imaging Inc. |
United States | High technology | B- | CCC+ | 1,100 | ||||||||
| 1/13/2022 |
JW Aluminum Continuous Cast Co. |
United States | Metals, mining, and steel | B- | CCC+ | 300 | ||||||||
| Data as of Jan. 31, 2022. Source: S&P Global Ratings. | ||||||||||||||
Related Research:
- The U.S. Distress Ratio Remains Low But May Rise As Financing Costs Increase, Feb. 7, 2022
- Fusion Connect Pushes The 2022 Corporate Default Tally To Three, Jan. 31, 2022
- Global Financing Conditions: Bond Issuance Looks Set To Contract 2% This Year As Monetary Policy Tightens, Jan. 31, 2022
- Risky Credits: Bright Outlook For North American 'CCC' Issuers After Falling Over 40% In 2021, Jan. 19, 2022
This report does not constitute a rating action.
| Credit Markets Research: | Nicole Serino, New York + 1 (212) 438 1396; nicole.serino@spglobal.com |
| Patrick Drury Byrne, Dublin (00353) 1 568 0605; patrick.drurybyrne@spglobal.com | |
| Leveraged Finance: | Ramki Muthukrishnan, New York + 1 (212) 438 1384; ramki.muthukrishnan@spglobal.com |
| Minesh Patel, CFA, New York + 1 (212) 438 6410; minesh.patel@spglobal.com | |
| Secondary Contact: | Daniel Hu, FRM, New York + 1 (212) 438 2206; daniel.hu@spglobal.com |
| Research Contributor: | Shripati Pranshu, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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