Author: Gordon Platt


Corporate credit-rating upgrades in the first quarter of 2014 outnumbered downgrades in Europe, the Middle East and Africa for the first time since 2008, according to Moody’s Investors Service. The rating agency says positive credit trends in the EMEA region are likely to continue through 2014, despite potential negative events in Russia and Ukraine.

William Coley, group credit officer for EMEA nonfinancial corporates at Moody’s, says: “In general, issuers are better positioned to withstand a credit shock. In many cases, metrics have already strengthened, and our overall expectation is that the broad trend will continue to be positive. However, it is too soon to call a step-change improvement for all issuers, and broadly positive macro indicators can sometimes be offset by unique pressures affecting a particular sector.”

Moody’s cautions that there are still almost twice as many issuers in the EMEA region with negative rating outlooks as with positive outlooks. Downgrades in the first quarter were mainly the result of intrinsic factors, such as competition in parts of the telecoms sector and regional events in Russia and Ukraine.


Corporate debt from issuers in Russia totaled $6.2 billion in the first quarter of this year, down 70% from the same period a year earlier, according to Thomson Reuters. New corporate debt from all emerging markets issuers was also down, although not on the same scale: It equalled $68.2 billion in the first quarter of 2014, a 29% decrease from the first quarter of 2013. More than half of all emerging markets corporate debt during this year’s first quarter came from issues in Brazil, Mexico and India.

Global debt capital markets activity fell 4% to $1.6 trillion in the first three months of this year, marking the slowest first quarter since 2008. At the same time, high-grade corporate issues in the US rose 12% from a year earlier, for the strongest start to a year since records began in 1980, according to Thomson Reuters.

Global high-yield debt volume in the first quarter declined 15.3% from last year’s record opening quarter. Issuers in the US accounted for 51% of activity, compared with 60% a year earlier, as European issuance increased.




In the US high-yield market, Canada’s Bombardier, which makes airplanes and trains, sold $1.8 billion of senior unsecured notes in a two-part placement on March 31. The proceeds were to be used to repay existing debt and to increase the company’s cash position by about $500 million, according to Moody’s. “Bombardier’s pro-forma cash will increase to $3.9 billion and its debt-maturity schedule will improve,” Moody’s says.

In the public market, HCA, which operates hospitals in the US and Britain, issued $3.5 billion in a two-part secured offering to refinance outstanding notes.

Overall, high-yield issuance in March rose to $32.4 billion  in the US from $13.9 billion in February, according to KDP Investment Advisors.

Companies are rushing to issue debt while rates are still low. The Federal Open Market Committee (FOMC) at its March meeting shifted forward the pace of expected rate increases and turned away from thresholds toward qualitative guidance. The median forecast of the federal funds rate rose by 25 basis points to 1% at the end of 2015, and by 50 basis points, to 2.25%, at the end of 2016.