Fitch Bond Market Activity

8/8/2019 Fitch Bond Market Activity

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ww w.fitchra tings.com

Credit Market Research U.S. Corporate Bond Market: AReview of Second-Quarter 2009Rating and Issuance Activity

SummaryU.S. corporate bond downgrades continued to dominate in the second quarter of 2009but had less bite than in the previous three quarters. The par value of corporate bondaffected by downgrades totaled $192.2 billion for the three months ending in June, stilhigh but down significantly from the first quarters record tally of $522.4 billion, andbelow levels registered in the second half of 2008. The $192.2 billion affected 5.5% ofmarket volume, below the 14.5% hit associated with first-quarter downgrades, anddowngrade rates of 7.8% and 10.6% recorded in the third and last quarters of 2008respectively.

On a par basis, downgrades fell across the investment grade and speculative gradeareas and across financials and industrials. The biggest decline, however, occurred withinvestment grade financials, which saw downgrades contract from a huge$382.1 billion in the first quarter to $104.7 billion in the second quarter. Amonginvestment grade industrials firms, downgrades dropped from $44.3 billion in the firsquarter (3.2% of investment grade industrial volume) to $29.6 billion in the second(2.0%). At the speculative grade level, downgrades contracted from $96.0 billion (14.8%of speculative grade bonds) to $57.8 billion (8.7%) quarter over quarter.

The depth of the economic downturn, recently confirmed as the most severe since the1930s, is evident in the large share of the U.S. bond market that has been affected bynegative rating migration over the past year. In the first half of 2009 alone, downgradeaffected 20% of outstanding U.S. corporate bonds.

Upgrades remained extremely limited in the second quarter, totaling just $11.8 billionor affecting a small fraction, 0.3%, of market volume. For the first half of the year, theupgrade tally was $31.8 billion.

Second-Quarter Highlights Overall, downgrades affected 4.7% ($134.4 billion) of investment grade U.S. bond

market volume in the second quarter, while upgrades affected just 0.3%

($7.7 billion). On the speculative grade front, the effects of negative and positivechanges were 8.7% ($57.8 billion) and 0.6% ($4.2 billion), respectively.

On a par basis, downgrades associated with financial issuers moved from the AAAand AA categories to the lower tier of investment grade in the second quarter. Aand BBB rated bonds saw $71.7 billion and $54.9 billion, respectively, in negativerating activity, 77% of which consisted of financial-related bonds. Of the quartersspeculative grade downgrades, 47% consisted of defaults ($27.3 billion), withGeneral Motors Corp. the most notable. According to Fitchs U.S. High Yield PaDefault Index, the year-to-date default rate surged to 9.5% in June.

Analysts

Eric Rosenthal1 212 [email protected]

Mariarosa Verde1 212 908-0791

[email protected]

Exhibits Index

ating Activity by Rating Category.............. 4ating Activity by Industry ....................... 4early Rating Trends.............................. 5

Quarterly Rating Trends .......................... 5ating Activity by Broad Market Sector ........ 6nvestment-Grade Rating Trends................ 6ew Issuance by Sector........................... 7early Issuance by Broad Market Sector ....... 8

Quarterly Issuance by Broad Market Sector ... 8Monthly New Issuance.............................9ndustrial Vs. Financial New Issuance .......... 9early Issuance by Asset Class..................10

Quarterly Issuance by Asset Class..............10Median Fixed Coupon Rating Mix...............10

.S. Corporate Bonds Yields by Rating Mix ...11istorical Treasury Yield Curve.................11early Fixed Vs. Floating New Issuance.......12

Quarterly Fixed Vs. Floating New Issuance ...12early Industrial New Issuance by Tenor......13

Quarterly Industrial New Issuance by Tenor.. 13early Financial New Issuance by Tenor ......13

Quarterly Financial New Issuance by Tenor ..13O/S Market Volume by Rating Mix......... 1415nvestment-Grade Mix by Industry .............16O/S Volume by Vintage.......................... 16Maturity Schedule by Rating Mix ...............17ector Maturity Schedules.......................17


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2U.S. Corporate Bond Market: A Review of Second-Quarter 2009 Rating and Issuance Activity August 4, 2009

Second-quarter downgrades were concentrated in the following sectors: bankingand finance ($92.5 billion, 7.4% of sector volume); automotive ($27.3 billion57.1%); insurance ($21.5 billion, 11.8%); and gaming, lodging and restaurant($7.9 billion, 14.6%). Adjusting for industry size, downgrades were most pronouncedin automotive (57.1%); leisure and entertainment (28.7%, $2.2 billion indowngrades); gaming, lodging and restaurants (14.6%); and building and materials

(13.3%, $5.4 billion). Twenty-one of the 25 industries tracked by Fitch experiencedsome downgrade activity in the second quarter, just slightly below the prioquarters 24.

Leading second-quarter upgrades were banking and finance ($6.3 billion, 0.5% osector volume); utilities ($1.5 billion, 0.5%); industrial/manufacturing ($1.1 billion1.8%); and food, beverage and tobacco ($0.7 billion, 0.6%). Again, adjusting foindustry size, upgrades had the biggest impact on leisure and entertainment (5.9%$0.5 billion in upgrades); industrial/manufacturing (1.8%); food, beverage andtobacco (0.6%); and utilities (0.5%). Twelve sectors experienced some upgradesversus nine in the previous quarter, but the impact of the upgrades was limited.

Speculative grade issuance made a strong comeback in the second quarter, climbingto $48.7 billion from $12.1 billion in the prior three months. The rebound in

issuance was fairly broad with gaming, lodging and restaurants ($9.2 billion); energy($5.2 billion); health care and pharmaceuticals ($5.1 billion); andtelecommunication ($4.5 billion) showing the most meaningful activity. Issuancewas particularly robust in May. The last time speculative grade issuance reachedthis quarterly total was early 2007 and, in fact, more issuers participated in thirecent issuance rally. Through the first half of this year, speculative grade issuancehas nearly matched the $63.3 billion recorded for all of 2008. Of note, howeverCCC issuance has been light at just $6.1 billion, or 10% of newly originated bondsAlso, according to data from Merrill Lynch, the vast majority (over 70%) of highyield issuance this year has been used to refinance existing debt.

In contrast to high yield, investment grade issuance volume at $129.9 billion felrelative to the first quarters $172.8 billion. Industrial volume in particularetreated to $79.3 billion from $157.8 billion in the first quarter, while investmentgrade financial issuance at $52.6 billion reached the highest mark in severaquarters. Of note, some high profile merger and acquisition deals in the firstquarter boosted investment grade industrial issuance by roughly $30 billion.

Quarter over quarter, issuance expanded among: banking and finance ($40.4 billionin the second quarter versus $12.5 billion in the first quarter), computers andelectronics ($13.8 billion versus $3.6 billion), insurance ($12.2 billion versu$2.4 billion), and gaming, lodging and restaurants ($9.7 billion versus $1.0 billion)Issuance declines occurred for health care and pharmaceutical ($13.9 billion versu$44.4 billion in the first quarter); energy ($16.6 billion versus $28.5 billion); food

Param eters of the Fitch Ratings U.S. Corpor ate Bond Index

Based on outstanding U.S. dollar-denominated, nonconvertible bonds issued by companiesdomiciled in the United States.

Includes rated-only public bonds and private placements with 144A registration rights. Includes issues with a minimum of $25 mill ion and medium-term notes with maturity dates of one

year or greater. For the purpose of this study, Fitch uses composite ratings. All rating movements equal the upgrade or downgrade of any issue from one whole rating

category to another.

Source: Bloomberg, Fitch Ratings.


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U.S. Corporate Bond Market: A Review of Second-Quarter 2009 Rating and Issuance Activity August 4, 20093

beverage and tobacco ($7.8 billion versus $17.5 billion); and utilities ($8.9 billionversus $17.4 billion). These defensive sectors, however, had very strong activityearly in the year.

Similar to the revival on the bond side, leveraged loan issuance also rebounded inthe second quarter. According to LPC/Reuters, high yield loan volume rose 117% to$68.4 billion in the second quarter. However, the $100.0 billion for the first half othe year was still off the $155.6 billion recorded in the first half of 2008 andremained well below 2007 levels. Overall, syndicated loan issuance totaled$269.3 billion in the first six months of 2009, a pace lower than 2008 and thesmallest amount in at least a decade.

Fixed rate issuance once again dominated in the second quarter at 96% of new bondsales, unchanged from the prior quarter.

Spreads across the various rating categories contracted again in the second quarterand bond yields fell well below their dramatic peak levels at the end of 2008.

As of June 30, 2009, the U.S. corporate bond market stood at $3.6 trillion in pavalue, according to Fitchs U.S. Corporate Bond Index. The rating mix was split 80%investment grade and 20% speculative grade, and consisted of the following: AAA0.7%; AA, 16.7%; A, 36.4%; BBB, 26.1%; BB, 7.9%; B, 5.7%; and CCC-C6.5%. Among financials, AAA and AA rated bonds comprised 32.2% of outstandingvolume, down from 55.3% a year ago.

At the end of June, the par value of bonds slated to mature thorough year-endtotaled $217.7 billion, split $202.0 billion investment grade and $15.8 billionspeculative grade.

With $166.7 billion coming due, financials comprise the majority of maturing bondsin the second half. The $51.0 billion in industrial bonds maturing include retai($6.3 billion, 6.0% of sector volume); consumer products ($5.3 billion, 11.9%)telecommunications ($4.9 billion, 2.3%); and utilities ($4.5 billion, 1.5%), as sector

with the biggest dollar refinancing needs.


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U.S. Corporate Bond Market Upgrade/Downgrade Activity by Rating Category($ Bil., Second-Quarter 2009)

Upgrade DowngradeRating Bucket Volume ($) (%) Volume ($) (%)

AAA 0.00 0.0 0.85 4.5AA 0.03 0.0 6.98 1.2A 0.03 0.0 71.70 5.4BBB 7.60 0.8 54.85 6.1BB 0.19 0.1 9.57 4.3B 2.13 1.1 20.91 10.7CCCC 1.84 0.8 27.32 11.1Total 11.82 0.3 192.17 5.5

Investment Grade 7.65 0.3 134.38 4.7Speculative Grade 4.16 0.6 57.79 8.7


U.S. Corporate Bond Market Upgrade/Downgrade Activity by Industry($ Bil., Second-Quarter 2009)

Upgrade Downgrade

Fitch Industry Volume ($) (%) Volume ($) (%)

Automotive 0.00 0.0 27.31 57.1Banking and Finance 6.33 0.5 92.54 7.4Broadcasting and Media 0.00 0.0 7.84 8.4Building and Materials 0.00 0.0 5.36 13.3Cable 0.33 0.5 0.00 0.0Chemical 0.00 0.0 2.56 6.7Computers and Electronics 0.00 0.0 1.00 1.0Consumer Products 0.15 0.3 0.00 0.0Energy 0.35 0.1 1.08 0.5Food, Beverage and Tobacco 0.70 0.6 0.00 0.0Gaming, Lodging and Restaurants 0.11 0.2 7.88 14.6Healthcare and Pharmaceutical 0.00 0.0 3.45 1.8Industrial/Manufacturing 1.10 1.8 1.02 1.7Insurance 0.00 0.0 21.49 11.8Leisure and Entertainment 0.46 5.9 2.21 28.7Metals and Mining 0.00 0.0 2.65 6.9Miscellaneous 0.30 0.4 0.63 0.9Paper and Containers 0.00 0.0 1.76 5.4Real Estate 0.00 0.0 1.40 1.7Retail 0.08 0.1 3.90 4.0Supermarkets and Drug Stores 0.00 0.0 0.00 0.0Telecommunication 0.40 0.2 0.80 0.4Textiles and Furniture 0.00 0.0 0.47 4.9Transportation 0.00 0.0 0.47 0.6Utilities 1.52 0.5 6.36 2.1Total 11.82 0.3 192.17 5.5



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U.S. Corporate Bond Market Yearly Rating Trends

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U.S. Corporate Bond Market Quarterly Rating Trends

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U.S. Corporate Bond Market Rating Activity by Broad Market Sector

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U.S. Corporate Bond Market Investment-Grade Rating Trends

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U.S. Corporate Bond Market New Issuance by Sector($ Bil.)

1Q09 2Q09

Fitch Industry Volume ($) % of Volume Volume ($) % of Volume

Banking and Finance 12.5 83.7 40.4 76.9nsurance 2.4 16.3 12.2 23.1Total Financials 15.0 100 .0 52.6 100.0

Automotive 0.8 0.4 1.0 0.8Broadcasting and Media 4.4 2.6 2.6 2.0Building and Materials 0.0 0.0 1.4 1.1Cable 5.6 3.3 3.0 2.4Chemical 1.4 0.8 8.7 6.9Computers and Electronics 3.6 2.1 13.8 11.0Consumer Products 3.2 1.9 2.1 1.6Energy 28.5 16.8 16.6 13.2Food, Beverage and Tobacco 17.5 10.3 7.8 6.2Gaming, Lodging and Restaurants 1.0 0.6 9.7 7.7Healthcare and Pharmaceutical 44.4 26.1 13.9 11.1ndustrial/Manufacturing 5.0 2.9 2.8 2.2Leisure and Entertainment 0.6 0.4 2.5 2.0Metals and Mining 0.4 0.2 0.5 0.4Miscellaneous 5.5 3.2 3.5 2.8Paper and Containers 0.0 0.0 3.9 3.1Real Estate 0.7 0.4 2.2 1.7Retail 3.0 1.8 3.3 2.6Supermarkets and Drug Stores 2.0 1.2 2.0 1.6Telecommunication 18.2 10.7 11.0 8.7Textiles and Furniture 0.0 0.0 0.7 0.5Transportation 6.9 4.1 4.3 3.4Utilities 17.4 10.2 8.9 7.0Total Industrials 169.9 100.0 126.0 100.0Total Market 184.9 178.6



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U.S. Corporate Bond Market Yearly New Issuance by Broad Market Sector

(%)

12

173

130

6371

242

170153

195206196

172150

182174

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January February March April May June

2008 2009


($ Bil.)

U.S. Corporate Bond Market Monthly New Issuance

6245 41 47

5268

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92

28

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158

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32 2617

37 3245

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Industrial Investment Grade Industrial Speculative Grade Financial All


($ Bil.)

U.S. Corporate Bond Market Quarterly Industrial Versus Financial New Issuance


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U.S. Corporate Bond Market Yearly New Issuance by Asset Class($ Bil.)

Market 2004 2005 2006 2007 2008 1H09U.S. Corporate Bond MarketAll Issuance 713.7 662.2 804.6 876.9 610.2 363.5Investment Grade 569.2 543.1 677.9 751.2 546.9 302.7Speculative Grade 144.5 119.1 126.7 125.7 63.3 60.8

U.S. Syndicated Loan MarketSyndicated Loans 1,347.7 1,494.6 1,672.5 1,686.8 764.0 269.3Leveraged Loans 480.4 500.8 612.0 688.5 294.5 100.0

U.S. Commercial Paper Market Outstandinga 1,395.0 1,640.1 1,957.5 1,788.1 1,599.3 1,278.8

aIncludes financial and non-financial corporate and asset-backed commercial paper.Source: Federal Reserve, LPC/Reuters, Bloomberg, Fitch Ratings.

U.S. Corporate Bond Market Quarterly New Issuance by Asset Class($ Bil.)

Market 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

U.S. Corporate Bond MarketAll Issuance 206.7 214.5 169.8 213.6 230.5 256.1 204.4 185.9 179.5 275.5 80.8 74.4 184.9 178.6Investment Grade 174.3 181.9 149.7 172.0 196.3 206.4 195.2 153.2 170.0 242.1 71.5 63.2 172.8 129.9Speculative Grade 32.4 32.7 20.1 41.6 34.2 49.7 9.2 32.7 9.5 33.3 9.3 11.1 12.1 48.7

U.S. Syndicated Loan MarketSyndicated Loans 362.0 532.3 376.8 401.5 372.8 581.8 407.4 324.8 179.1 248.2 224.9 111.8 113.5 155.8Leveraged Loans 131.3 168.2 121.9 190.6 208.8 219.0 129.8 130.9 64.0 91.6 100.9 38.0 31.6 68.4

U.S. Commercial Paper Market Outstandinga 1,697.6 1,764.2 1,864.6 1,957.5 2,003.4 2,109.4 1,857.3 1,788.1 1,784.2 1,748.0 1,554.8 1,599.3 1,423.9 1,278.8

aIncludes financial and non-financial corporate and asset-backed commercial paper.Source: Federal Reserve, LPC/Reuters, Bloomberg, Fitch Ratings.

U.S. Corporate Bond Market Yearly New Issuance Median Fixed Coupon by Rating Category(%)

Rating Category 2004 2005 2006 2007 2008 1H09

AAA 4.50 4.85 5.40 5.40 5.10 4.25AA 4.95 5.00 5.40 5.63 5.23 5.15A 5.00 5.00 5.75 6.00 6.05 5.70BBB 5.10 5.25 6.05 6.15 6.50 7.50BB 6.38 6.38 7.13 7.13 7.98 9.00B 8.25 7.80 8.63 8.44 10.00 10.00CCCC 9.69 10.00 10.31 10.00 11.25 10.75



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Three-Month Six-Month Two-Year Five-Year 10-Year 30-Year

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Historical Treasury Yield Curve

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AAA AA A BBB BB B

9/30/08 12/31/08 3/31/09 6/30/09

Source: Merrill Lynch.

(%)

U.S. Corporate Bonds Yield to Maturity


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U.S. Corporate Bond Market Yearly Fixed- Versus Floating-Rate New Issuance Distribution(%)

Coupon Type 2004 2005 2006 2007 2008 1H09Total MarketFloating 42 42 48 37 20 4Fixed/Other 58 58 52 63 80 96

Investment Grade MarketFloating 51 50 54 42 22 4Fixed/Other 49 50 46 58 78 96

Speculative Grade MarketFloating 7 8 11 9 5 1Fixed/Other 93 92 89 91 95 99

IndustrialsFloating 10 9 12 10 4 3Fixed/Other 90 91 88 90 96 97

FinancialsFloating 62 62 69 55 37 5Fixed/Other 38 38 31 45 63 95


U.S. Corporate Bond Market Quarterly Fixed- Versus Floating-Rate New Issuance Distribution(%)

Coupon Type 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

Total MarketFloating 42 52 48 45 50 43 39 13 26 17 33 1 4 4Fixed/Other 58 48 52 55 50 57 61 87 74 83 67 99 96 96

Investment Grade MarketFloating 49 59 54 52 57 51 41 16 27 19 37 1 4 4Fixed/Other 51 41 46 48 43 49 59 84 73 81 63 99 96 96

Speculative Grade MarketFloating 5 17 5 12 9 13 0 1 0 3 0 3 0 1Fixed/Other 95 83 95 88 91 87 100 99 100 97 100 97 100 99

IndustrialsFloating 10 12 18 11 14 18 5 1 3 3 11 0 3 3Fixed/Other 90 88 82 89 86 82 95 99 97 97 89 100 97 97

FinancialsFloating 69 72 63 66 70 63 55 26 42 28 52 10 8 5Fixed/Other 31 28 37 34 30 37 45 74 58 72 48 90 92 95



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U.S. Corporate Bond Market Yearly Industrial New Issuance Distribution by Tenor(%)

Range (Years) 2004 2005 2006 2007 2008 1H09


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8.6 7.9 7.7 6.9 5.9

10.8 12.623.2 24.6

17.216.7

36.829.5 29.1

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U.S. Corporate Bond Market Outstanding Volume by Rating Category

Investment Grade (%)

Speculative Grade (%)

Size ($ Bil.)

82.5

17.5

3.1

80.2

19.8

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81.9

18.1

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82.5

17.5

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4.0 4.2 4.4 4.4 4.6 6.3

21.6 24.3 26.3 29.129.4

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Broad Sector Size ($ Bil.)

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31.0

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Broad Sector Size ($ Bil.)

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92.8

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94.6

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94.7

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U.S. Corporate Bond Market - Investment Grade Concentration by Industrya(% of Industry Rated 'BBB-' or Higher)

June 30, 2008

10090 8980 7970 6960 5950 < 50Insurance Transportation Retail Cable Metals and Mining

Banking and Finance Food, Beverage and Tobacco Health Care andPharmaceutical

Broadcasting and Media Textiles and Furniture

Real Estate Chemical Paper and Containers

Utilities Industrial/Manufacturing Automotive

Consumer Products Telecommunication Gaming, Lodging andRestaurants

Computers and Electronics Building and Materials

Supermarkets andDrug Stores

Leisure and Entertainment

Energy

June 30, 2009

10090 8980 7970 6960 5950 < 50Insurance Banking and Finance Cable Retail Metals and Mining Paper and Containers

Transportation Consumer Products Health Care andPharmaceutical

Automotive

Food, Beverage and Tobacco Utilities Supermarkets andDrug Stores

Textiles and Furniture

Real Estate Gaming, Lodging andRestaurants

Chemical Building and Materials

Industrial/Manufacturing Leisure and Entertainment

Computers and Electronics

Telecommunication

Energy

Broadcasting and Media

aSorted by relative share of investment-grade bonds (highest to lowest).Source: Bloomberg, Fitch Ratings.

3.51.2

1.82.8

1.84.9

6.26.9

9.59.2

16.019.8

16.510.1

0 2 4 6 8 10 12 14 16 18 20


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U.S. Corporate Bond Market Maturity Schedule by Rating Category($ Bil., As of June 30, 2009)

2009 2010 2011

Rating ($)% of Total

Outstanding ($)% of Total


Outstanding

AAA 1.0 4.3 2.3 9.2 0.1 0.6AA 92.8 15.3 105.3 17.4 65.3 10.8A 79.9 6.0 134.3 10.1 109.3 8.3BBB 28.3 3.0 55.5 5.8 79.0 8.3BB 8.4 2.9 13.0 4.5 24.8 8.6B 1.4 0.7 2.8 1.3 9.5 4.6CCCC 6.0 2.5 12.7 5.4 21.9 9.3All Ratings 217.7 6.0 325.8 9 .0 310.0 8 .5

Investment Grade 202.0 7.0 297.3 10.2 253.8 8.7Speculative Grade 15.8 2.2 28.5 3.9 56.2 7.7


U.S. Corporate Bond Market Sector Maturity Schedules($ Bil., As of June 30, 2009)

2009 2010 2011

($)% of Total


Outstanding ($)% of Tota

Outstanding

IndustrialsAutomotive 3.8 11.5 2.0 6.0 6.1 18.3Broadcasting and Media 2.9 3.3 3.2 3.7 8.5 9.Building and Materials 0.2 0.6 2.4 5.8 3.2 7.Cable 1.8 2.5 3.2 4.4 4.4 6.Chemical 1.5 3.3 1.4 3.2 1.8 3.9Computers and Electronics 3.4 3.0 4.9 4.3 8.2 7.Consumer Products 5.3 11.9 2.3 5.2 2.8 6.Energy 3.2 1.3 8.5 3.4 11.5 4.Food, Beverage and Tobacco 2.3 1.7 5.8 4.3 13.2 9.

Gaming, Lodging and Restaurants 0.6 1.1 2.1 4.1 2.8 5.4Healthcare and Pharmaceutical 2.5 1.2 6.9 3.2 13.4 6.Industrial/Manufacturing 1.9 3.0 2.2 3.4 3.6 5.Leisure and Entertainment 0.0 0.0 0.0 0.0 0.6 6.Metals and Mining 0.1 0.4 1.1 2.8 1.1 2.9Miscellaneous 0.6 0.8 1.5 2.0 4.4 6.0Paper and Containers 0.4 1.2 0.4 1.2 1.5 4.Real Estate 1.9 2.3 4.8 6.1 7.9 10.0Retail 6.3 6.0 6.6 6.3 7.5 7.2Supermarkets and Drug Stores 1.3 3.8 4.0 11.9 2.1 6.Telecommunication 4.9 2.3 11.5 5.5 22.5 10.8Textiles and Furniture 0.0 0.3 0.2 2.3 1.4 14.Transportation 1.5 1.7 4.2 4.7 6.7 7.Utilities 4.5 1.5 16.5 5.3 18.1 5.8Subtotal 51.0 2.4 95.7 4.5 153.3 7.1

FinancialsBanking and Finance 153.8 11.9 207.9 16.0 143.1 11.0

Insurance 12.9 6.7 22.2 11.5 13.6 7.Subtotal 166.7 11.2 230.1 15.4 156.7 10.5Total 217.7 6.0 325.8 9.0 310.0 8.5



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