Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

66% of all corporate issuers speculative grade!! - S&P

The credit quality of corporate debt issuers has been steadily decreasing for many years. However, Toomre Capital Markets did not fully appreciate the magnitude of the change as outlined in the article entitled “Favorite Finance Flavor: Plain Vanilla.” The article states “S&P managing director [qgs:John Bilardello] told the crowd that [gs:speculative-grade companies] represent 66 percent of all the issuers his agency rates, compared with 32 percent in 1980. What's more, only 12 percent of issuers currently hold an A, AA, or AAA rating; in 1980, fully 50 percent held one of those high ratings.”

That is right – only one in eight issuers is considered high-grade!! Wow!! This will have a significant impact on those pension plans seeking to immunize their future defined-benefit obligations using high-grade fixed-income portfolios (which generally avoid callable mortgage-backed or asset-backed security structures).