Fitch: U.S. Corporate Bond Market Finds Relative Calm Following Volatile Year, Issuance Broadens

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The par value of U.S. corporate bonds affected by downgrades declined sharply in the third quarter 2009 (3Q;09) to $61.5 billion, down from $192.2 billion in the second quarter, according to Fitch Ratings.

Third-quarter downgrades affected 1.8% of market volume, a significant improvement from the first quarter's peak downgrade rate of 14.5% (on a record $522.4 billion in downgrades) and also below the second quarter's 5.5% rate. The investment grade sector was particularly calm, with downgrades and upgrades each affecting less than 1% of high grade volume.

Issuance remained firm in 3Q relative to the depressed levels recorded in the second half of 2008, but fell to $129.3 billion from $178.6 billion in the prior three months.

Despite the drop, the relative rebound in corporate issuance in 2009 (nearly all associated with industrials) has spread to more corners of the market as the year has unfolded.

"In the first quarter, 6.5% of total issuance was rated speculative grade, but that share rose to 30.1% in the most recent quarter" said Eric Rosenthal, Senior Director of Fitch Credit Market Research.

Issuance was also heavily concentrated in defensive sectors early in the year. More recently, cyclical industries have also participated.

For the year, investment grade issuance reached $393.2 billion in September and speculative grade $99.7 billion, with the latter already topping the $63.3 billion issued in all of 2008. The strong demand for investment-grade paper has helped keep borrowing costs relatively low for investment grade-rated companies refinancing in 2009. At the same time, signs of recovery on the economic front have helped reignite issuance opportunities for non-investment-grade companies, although for the most highly levered, issuers rated 'CCC' or lower, issuance has been limited.

Fitch finds that $325 billion in U.S. corporate bonds are scheduled to mature in 2010, split $297.5 investment grade/$27.5 billion speculative grade.

Looking further out, the par value of investment grade bonds scheduled to mature in 2011 at $251 billion is lower than the 2010 amount. In contrast, at the speculative grade level, bonds coming due nearly double in 2011 to $50.6 billion from $27.5 billion in 2010.

"The resiliency of the debt markets is as critical in the next several years as ever," said Mariarosa Verde, Managing Director of Fitch Credit Market Research. "Bond maturities at the bottom of the rating scale ramp up significantly as bonds sold in the pre-credit-crisis boom years begin to come due."

The new report, titled "U.S. Bond Market: A Review of Third Quarter 2009 Rating and Issuance Activity," offers additional details on issuance patterns, rating activity by broad market sector and industry, and bonds coming due and is available on Fitch's web site under Credit Market Research.

Additional information is available at ' www.fitchratings.com'.

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