Rapidly rising interest rates and growing uncertainty have reshuffled global capital flows this year, leading to a surge in the value of the U.S. dollar. This has been coupled with diminished issuance amid tightening credit conditions and volatility in risk assets. The combined effect has already affected global debt levels.

The level of global rated corporate debt fell 1% ($218 billion) to $22.6 trillion as of July 1, 2022, from $22.8 trillion at the beginning of the year. The decline was led by speculative-grade debt, as both restrictive primary markets and upgrades of issuers to investment grade from speculative grade led to a 5% contraction ($265 billion). Meanwhile, the level of investment-grade debt was essentially flat, rising just $47 billion since the year began.

Chart 1

The surge in the value of the U.S. dollar and currency translation effects account for most of the decline in global rated corporate debt in 2022 (see chart 2). As the Federal Reserve aggressively raises the federal funds rate to combat 40-year-high inflation, the U.S. dollar has broadly strengthened against major currencies. With 375 basis points of policy tightening priced into U.S. intermediate-term yields, further appreciation in the U.S. dollar would most likely come amid divergence in either economic growth or inflation expectations between currencies, or from safe-haven demand. Holding exchange rates as of Jan. 1 constant, the total global debt level would have increased 2%, not declined.

Chart 2

To a lesser extent, a drop-off in leveraged finance issuance also contributed to the decline in global rated corporate debt this year (see charts 3 and 4). Rising borrowing costs and weakening macroeconomic conditions stalled global rated corporate debt issuance broadly in the second quarter. Primary market conditions will likely restrict issuance in the second half of the year.

Chart 3

Chart 4

With the slowdown in leveraged finance issuance, global speculative-grade corporate debt fell to $5.4 trillion as of July 1, 2022, the first contraction since the second half of 2018. Each rating category within speculative grade recorded a decline, led by the 'BB' category, which fell 8% (down $224 billion).

In part, the reduction of 'BB' category debt reflects the number of issuers upgraded to investment grade (from speculative grade) during the first half of 2022. The number of rising stars increased to 20 in the first half of 2022 (up from 17 in the first half of 2021). Debt associated with these rising stars neared $169 billion in the first half of 2022 (up from $67 billion in the first half of 2021), as we upgraded issuers including The Kraft Heinz Co. and HCA Healthcare Inc.

The only rating categories that saw an increase during the first half of 2022 were 'AA' and 'A', and both were up 3% ($49 billion and $196 billion, respectively).

The figures in this report consist of corporate debt instruments (including bonds, notes, loans, revolving credit facilities, and preferred securities from financial and nonfinancial corporate issuers) that S&P Global Ratings rates.

More Than Three-Fourths Of Global Corporate Debt Is Investment Grade

Over the past six years, the proportion of global corporate debt rated investment grade has held relatively stable between 75% and 78%. Speculative-grade issuers are generally smaller, with lower revenue and lower debt outstanding but higher leverage than investment-grade issuers. Speculative grade accounts for 50% of global corporate issuers but just 24% of global corporate debt (see chart 5).

Chart 5

While the proportions of global corporate debt in the broadest rating categories have held relatively stable since 2016, there was a buildup of lower-rated debt over the past six years. The share of rated global corporate debt in the 'BBB' category, the lowest investment-grade rating category, had grown to 40% in the first half of 2021 before falling slightly to 39% as of July 1, 2022 (up from 33% as of July 1, 2016; see table 1). We have also seen the share of 'B' rated debt rise to 11% as of July 1, 2022 (up from 9% as of July 1, 2016). This shift occurred as investors' search for yield took them down the credit rating spectrum. We have seen some of this reverse this year amid increased risk aversion.

Table 1

By region, U.S.-based issuers (including tax havens Bermuda and Cayman Islands) account for the largest share of rated debt globally, at $11.6 trillion. Compared to other regions, the U.S. has the highest share of debt from nonfinancial companies (75%) and the highest share of speculative-grade debt (28%). The large proportion of global debt from U.S.-based issuers, and the higher proportions of debt from nonfinancial companies and issuers rated speculative grade within the U.S., in part reflect the U.S.'s highly developed capital markets and the high degree of banking disintermediation.

In emerging markets, a considerable share of corporate debt outstanding is not rated, and this study excludes debt instruments that do not have global scale ratings. We expect the emerging markets' share of rated global corporate debt to grow as capital markets in those countries develop.

Table 2

Interest rates are swiftly rising as central banks confront nagging inflation. Close to 24% of global debt is floating rate, and speculative-grade debt is more highly concentrated in floating rate. Issuers of this debt face rising funding costs as a result of rising benchmark yields. However, most corporate debt (about 76%) is fixed rate, and issuers of this debt have time before it matures or is refinanced at higher yields.

Chart 6

By country, the U.S. (excluding tax havens Bermuda and Cayman Islands) accounts for the most rated corporate debt globally with $11.3 trillion, while the U.K., France, Germany, and Canada each have more than $1 trillion (see table 3). Combined, these countries account for 73% of rated global corporate debt.

Table 3

Among nonfinancial sectors, the larger and more capital-intensive sectors have the highest amounts of debt outstanding, led by utilities and telecommunications (see table 4).

Table 4

The sectors with the most investment-grade nonfinancial debt are utilities ($1.7 trillion), telecommunications ($1.1 trillion), and consumer products ($936 billion). On the other hand, the media and entertainment sector has the most speculative-grade debt ($717 billion), followed by telecommunications ($506 billion), consumer products ($487 billion), and health care ($485 billion).

Among financial services issuers, about 91% of total debt outstanding is investment grade, and most debt from financial services issuers is from financial institutions, such as banks and brokerages.

Rated U.S. Corporate Debt Rises On Investment-Grade Growth

Increasingly challenging financing conditions slowed but did not halt debt growth in the U.S. Rated corporate debt in the U.S. grew 2% since year-end 2021 to $11.6 trillion (up $275 billion; see chart 6). Investment-grade corporate debt accounted for all of this growth as debt outstanding fell in all speculative-grade rating categories.

• Investment-grade corporate debt increased 6% in the first half of the year to $8.3 trillion (up $442 billion).
• All investment-grade rating categories saw debt growth, led by the 'A' and 'BBB' rating categories, which grew 11% (up $276 billion) and 2% (up $96 billion), respectively.
• Speculative-grade corporate debt declined 5% in the first half of the year to $3.3 trillion (down $166 billion).
• In the first half of 2022, rising stars were largely concentrated among U.S.-based companies (14 of 20 rising star upgrades), and these included consumer-focused and health care companies that have rebounded from pandemic lows.
• All speculative-grade rating categories saw debt outstanding contract, led by the 'BB' category, which fell 7% (down $106 billion).
• The share of U.S. rated corporate debt that is speculative grade fell to 28% (down from 30% when the year began). It has remained within the 28%-30% range over the past six years.

Chart 7

• The 'BBB' category accounts for the most rated U.S. corporate debt, at $4.7 trillion or 41% (see chart 8).
• Within speculative grade, the 'B' category accounts for the most debt, at $1.5 trillion.

Chart 8

• Nonfinancial companies account for 75% of U.S. corporate debt, including 69% of investment-grade debt (with $5.8 trillion) and 90% of speculative-grade debt (with $2.9 trillion).

Table 5

• Since the year began, financials added $145 billion of rated corporate debt, led by $94 billion from financial institutions. Nonfinancials added $131 billion, led by $54 billion from high technology.
• High technology reported the largest increase in speculative-grade debt in absolute terms, adding $18 billion. Most nonfinancial sectors reported a decline in speculative-grade debt since the year began.
• The media and entertainment sector again accounted for the most speculative-grade debt with $547 billion.

Table 6

• Bonds, notes, and preferred securities account for most U.S. rated corporate debt at 82%, up slightly since the start of the year (see table 7).
• Most rated financial sector corporate debt in the U.S. is in the form of bonds, notes, or preferred securities at 95%.
• U.S. nonfinancials have a higher share of debt in the form of loans and revolving credit facilities, at 23%.
• Loans and revolving credit facilities account for 52% of speculative-grade debt (up from 50% at the start of the year). The share of nonfinancial speculative-grade debt in the form of loans and revolving credit facilities rose to 54% (up from 52%).

Table 7

Rated European Corporate Debt Contracts

Financial markets faced extreme uncertainty in Europe in the first half of 2022 that prompted a brief halt in leveraged finance issuance as the Russia-Ukraine military conflict spurred volatile increases in energy prices. Rated corporate debt in Europe contracted 5% since year-end 2021 to $7.6 trillion (down $427 billion; see chart 9). Investment-grade corporate debt accounted for most of the contraction as it fell 6% (down $361 billion), while speculative-grade debt fell 4% (down $66 billion). Even with the slowdown in issuance, the contraction in European corporate debt largely resulted from exchange rate effects of the strengthening dollar as the debt level measured in euros increased 3% in the first half of the year (see Appendix 1 for tables in euros).

• Investment-grade corporate debt fell to $6.1 trillion. All rating categories saw a contraction, led by 'BBB', 'A', and 'AAA', which fell 6% (down $191 billion), 4% (down $79 billion), and 9% (down $66 billion), respectively.
• Speculative-grade corporate debt fell to $1.5 trillion. The 'BB' category fell 10% (down $77 billion), while the 'B' and 'CCC/C' categories rose slightly.
• The share of European rated corporate debt that is speculative grade stood at 19%. After having fallen to 14% in mid-2018 from 17% in 2016, it rose to 19% in mid-2021, where it has remained.

Chart 9

• The 'BBB' category accounts for the most rated European corporate debt, at $2.8 trillion or 37% (see chart 10).
• Within speculative grade, the 'BB' category accounts for the most debt, at $716 billion.

Chart 10

• Nonfinancial companies account for 52% of European corporate debt, including 46% of investment-grade debt ($2.8 trillion) and 80% of speculative-grade debt ($1.2 trillion).
• Of the $3.6 trillion of European financial services corporate debt, 18% is rated 'AAA', which includes secured debt, such as covered bonds, that may be rated higher than the corresponding issuer.

Table 8

• Since the year began, financial services rated corporate debt has fallen $195 billion, led by financial institutions (down $187 billion). Nonfinancial rated corporate debt has fallen $232 billion, led by utilities (down $40 billion).
• Consumer products was the only nonfinancial sector to report an increase in speculative-grade debt, adding $11 billion.
• The telecommunications sector still accounts for the most speculative-grade debt, at $268 billion.

Table 9

• Bonds, notes, and preferred securities account for most European rated corporate debt at 90% (see table 10).
• Nearly all financial sector corporate debt in Europe is in the form of bonds, notes, or preferred securities.
• European nonfinancials have 19% of debt in the form of loans and revolving credit facilities.
• Loans and revolving credit facilities account for 39% of speculative-grade debt (up from 37% at the start of the year). The share of nonfinancial speculative-grade debt in the form of loans and revolving credit facilities rose to 48% (up from 46%).

Table 10

Appendix

Chart 11

Table 11

Table 12

Table 13

Chart 12

Chart 13

Chart 14

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 exchange rates on July 1, 2022.

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 rated at the instrument level, as well as instruments from issuers that are 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 globally and among regions:

• U.S. and tax havens: U.S., Bermuda, and the Cayman Islands.
• 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, Moldova, Monaco, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the U.K.
• Emerging markets: Argentina, Brazil, Chile, China, Colombia, Hong Kong, India, Indonesia, Macau, Malaysia, Mexico, Peru, Philippines, Poland, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and Vietnam.

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