Higher-for-longer interest rates are increasingly impacting credit markets. Over the past 12 months, as most major central banks aggressively tightened monetary policy, the par value of investment-grade debt outstanding continued to grow, supported by rising bond issuance. With their stronger credit quality, investment-grade issuers appear less impacted by the initial interest-rate shocks, so far. By contrast, speculative-grade debt further contracted over the past year.

The level of global rated corporate debt reached $23.2 trillion as of July 1, 2023. That is up 2.7% ($610 billion) from July 1, 2022, most of which was added in the first half of this year. The growth was entirely among investment-grade debt, which increased by 4.5% and offset a 3.1% decline in speculative-grade debt.

As a result, investment-grade grew as a share of total global corporate debt rated by S&P Global Ratings to 78%, up two percentage points from a year earlier. By region, the debt level increased at a greater pace in Europe than in the U.S., but more of this increase resulted from a weakening dollar over this period.

Chart 1

Investment-grade bond issuance was resilient in the first half of 2023--up from last year's volume to date. Investment-grade issuers tend to have more fixed-rate debt, lower leverage, and stronger interest coverage measures, so they have been less impacted by higher rates, so far. Rising issuance volume supported the increase in total investment-grade debt outstanding.

Chart 2

Meanwhile, financing conditions remain considerably more challenging for speculative-grade borrowers as they adjust to higher-for-longer interest rates. Leveraged loan volumes have further contracted year-to-date, following a steep plunge in 2022. By contrast, speculative-grade bond issuance have started to rebound from 2022's lows, with a 50% increase in the first half of 2023. However, most of the new issuance is for refinancing, so there's been relatively little new net speculative-grade debt over the past year.

Chart 3

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Chart 5

Among rated corporates, investment grade represents 49% of issuers but accounts for 78% of rated debt. Speculative-grade issuers are generally smaller, with lower revenue and lower debt outstanding, despite higher leverage.

Most of the decline within speculative-grade debt was in the higher rating categories. The level of debt rated 'BB' and 'B' declined by 4.2% and 5.7% respectively, while that of debt rated 'CCC' and below increased by 17% ($75 billion).

Part of these declines reflect upgrades from the 'BB' category to investment-grade, as well as downgrades of 'B' category issuers into the 'CCC' category--both of which have increased over the past year as rating trends have diverged between higher- and lower-rated issuers.

Furthermore, during this period, the number of issuers in the 'CCC' rating category also increased, in part due to issuers receiving new initial ratings following prior defaults. While the 'CCC' category contains the smallest share of rated debt (at 2.2% globally), this debt belongs to the most vulnerable issuers.

Among investment-grade debt, 'BBB' accounts for the highest share (38%), and the amount of 'BBB' category debt is little changed over the past year. By debt amount, the second largest rating category is 'A', which grew 11% over the past 12 months, reaching $6.8 trillion. While the majority of 'A' category debt globally is from financial services issuers, most 'BBB' category debt is from nonfinancial corporates.

Table 1

By region, U.S.-based issuers (including Bermuda and the Cayman Islands) account for the largest share (51%) of rated debt globally, with $11.8 trillion. Compared to the other regions, nonfinancial companies account for a significantly higher share of corporate debt in the U.S., which at 75% is much higher than in the rest of the world (at near 50%). This in part reflects the highly developed capital markets and the high degree of banking disintermediation in the U.S., which also has a higher share of speculative-grade issuers.

In Europe, a considerably higher share of the $8.05 trillion in total debt is from financial services (near 49%) and investment-grade (at 82%).

Table 2

By country, the U.S. (excluding Bermuda and the Cayman Islands) accounts for the largest share of rated corporate debt globally with 49% ($11.5 trillion). Meanwhile, the U.K., France, Germany, and Canada each have over $1 trillion of associated debt, and together account for 21% of rated global corporate debt.

Table 3

Among nonfinancial sectors, the larger and more capital-intensive sectors have the most debt outstanding, led by utilities and telecommunications. The media and entertainment sector has the highest share of speculative-grade debt (63%) and accounts for 7% of total nonfinancial debt. Among financial services issuers, about 92% of total debt outstanding is investment-grade, and most is from financial institutions, such as banks and brokerages.

Table 4

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

Rated corporate debt in the U.S. increased by 1.5% over the 12 months to July 2023, to $11.8 trillion. Investment-grade debt drove overall growth, while the level of speculative-grade debt declined.

• Speculative-grade rated debt decreased by 2.4% (to $3.2 trillion), in part as these borrowers facing higher-for-longer interest rates have largely focused on refinancing existing debt.
• Furthermore, part of the decline has been from companies such as Las Vegas Sands Corp., Pilot Travel Centers LLC, and Ingersoll Rand Inc. that were upgraded from the 'BB' category to investment-grade in the first half of 2023.
• Meanwhile the amount of debt rated 'CCC' and below increased by $64.9 billion (to $343 billion), with downgrades of issuers from the 'B' category and above contributing to the increase in 'CCC' category debt.
• The amount of investment-grade rated debt increased by 3% to $8.6 trillion, supported by strong growth of 'A' category debt (up 10% over the last year to $31.6 trillion). This increase was driven by a surge in 'A' rated nonfinancial issuance, which nearly doubled year over year in the first half of 2023.
• With the renewed growth in investment-grade debt and the contraction in speculative-grade, speculative-grade declined as a share of total debt to 27% (from 28%).

Chart 6

• The 'BBB' category is the largest by dollar amount of U.S. corporate debt, with $4.7 trillion or 40% of the total, followed by the 'A' category with 27%.
• In terms of issuers, the 'B' category accounts for the largest share of U.S. issuers (with one-third), yet only 12.5% of rated debt.

Chart 7

Table 5

• The utilities sector has the most debt among nonfinancial corporates, with $1.17 trillion, followed by high technology (with $1.01 trillion), and telecommunications (with $950 billion).
• While the metals, mining, and steel sector has the highest share of speculative-grade debt with 75% (or $53.7 billion), this sector accounts for a relatively small portion of total debt.
• Meanwhile, the media and entertainment sector has the largest amount of speculative-grade debt (at $530 billion).

Table 6

• Bonds, notes, and preferred securities account for most U.S. rated corporate debt at 83%, slightly up over the past 12 months (see table 7).
• Among financial services, rated debt in the U.S. predominately consists of bonds, notes, or preferred securities (at 95.3%), and loans and revolvers make up less than 5% of the total.
• Among nonfinancial corporates in the U.S., a higher share of debt consists of loans and revolving credit facilities (at 21.3%), which tend to be floating rate.
• Speculative-grade debt is more evenly split between bonds/notes and loans/revolvers, and issuers of floating-rate loans and revolvers will face the squeeze from higher interest rates sooner than issuers of fixed-rate debt. Loans and revolving credit facilities account for 51% of U.S. speculative-grade debt, roughly stable from 12 months ago.

Table 7

European Rated Corporate Debt Increased By More Than 5% Over The Past 12 Months

European rated corporate debt increased by 5.4% over the 12 months to July 2023, due to an increase in investment-grade rated debt. The debt level is increasing this year amid improving economic conditions, with receding inflation and slim economic growth this year. And while recession remains a risk for the end of the year, the economic outlook is improving for 2025-2026, with monetary policy eventually weighing less on demand.

Since the European Central Bank (ECB) began raising interest rates last October, the euro has appreciated against the U.S. dollar, after the latter had reached a 20-year high last year. This appreciation of the euro has contributed to more than half of the increase (in dollar terms) in the level of European debt over the past 12 months.

Chart 8

Chart 9

• European corporate debt stood at $8.05 trillion as of July 1, 2023. Investment-grade debt accounts for 82% ($6.63 trillion), speculative-grade for 18% ($1.42 trillion).
• Investment-grade debt increased by 7.8% (in dollar terms), with nearly two-thirds of this increase due to the exchange rate effect.
• New investment-grade bond issuance further supported the rising debt level, with issuance up 20.7% in the first half of 2023 compared to the first half of 2022.
• Speculative-grade debt decreased by 4.4% (in dollar terms), and this decline would have been steeper without the appreciation of the euro.
• The steep fall in leveraged loan volume (down nearly 30% to $22 billion in first-half 2023) contributed to the decline in the debt level, even though this was offset by a 43% increase in speculative-grade bond issuance.
• Speculative-grade debt contracted across all rating categories, with the most pronounced decline for debt rated 'CCC' and below (down 15% to $87 billion).
• Among investment-grade debt, the 'A' category saw the largest increase, up 17% to $2.45 trillion, with new 'A' category nonfinancial bond issuance up nearly 75% this year through June.
• By rating, the 'BBB' category is the largest, representing 36% ($2.9 trillion) of European rated corporate debt, followed by the 'A' category (with 30%, or $2.4 trillion).
• By contrast, the 'B' rating category accounts for the largest share of rated European corporate issuers (at 30%), followed by the 'BBB' category (with 26%).

Chart 10

• Nonfinancial companies account for 51% of European corporate debt, and over a fourth of this ($1.1 trillion) is speculative-grade debt.
• The $3.9 trillion in European financial services debt is largely investment-grade. This includes $655 billion rated 'AAA', which includes secured debt, such as covered bonds, that may be rated higher than the corresponding issuer.

Table 8

• The utilities sector has the most debt outstanding, $595 billion, and 93% of this is rated investment-grade.
• The media and entertainment and retail and restaurants sectors each have the highest share of debt rated speculative-grade (at 66% each), and both sectors have been challenged by changing consumer preferences and spending patterns.
• With $232 billion, the telecommunications sector still has the largest amount of speculative-grade debt, followed by the consumer products sector (with $153 billion).

Table 9

• Bonds, notes, and preferred securities account for most European rated corporate debt at 91% (see table 10).
• Nearly all financial sector rated debt in Europe is in the form of bonds, notes, or preferred securities.
• European nonfinancial corporates have 17% of debt in the form of loans and revolving credit facilities.
• Loans and revolving credit facilities now account for 41% of speculative-grade debt (up from 39% 12 months ago). The share of nonfinancial speculative-grade debt that is in the form of loans and revolving credit facilities rose to 50% from 48%.

Table 10

Appendix

Table 11

Table 12

Table 13

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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 exchange rates on July 1, 2023.

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 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, the Philippines, Poland, Saudi Arabia, South Africa, Taiwan, Thailand, Turkiye, and Vietnam

Related Research

• This Month In Credit: At A Crossroads, Aug. 30, 2023
• Global Refinancing--Progress Made As Pressure Remains, July 25, 2023
• Global Credit Conditions Q3 2023: Higher For Longer Will Fuel Ratings Divergence, June 29, 2023
• Credit Conditions North America Q3 2023: Risks vs. Resilience, June 27, 2023
• Credit Conditions Europe Q3 2023: The Slow Burn of Rising (Real) Rates, June 27, 2023