(S&P Global Ratings, 19.Aug.2024) — The absolute cost of falling to speculative-grade (to ‘BB+’ from ‘BBB-‘) for U.S. corporates has shrunk considerably to 24 basis points (bps) as of 31 Jul. 2024, from 54 bps the year prior, S&P Global Ratings said in “The Cost Of A Notch: Fallen Angels Remain Costly Despite Tightening Spreads,” published today.
However, the percentage cost of falling to, or close to, speculative-grade remains very high from a historical standpoint. Among all rating levels, the percentage differential in spreads peaks a step above the downgrade to speculative-grade.
“The absolute differential in credit spreads currently peaks between ‘CCC+’ and ‘B-‘. At this time last year, it occurred between ‘B-‘ and ‘B’. This may suggest a greater focus on likely defaults,” said Brenden Kugle of S&P Global Ratings Credit Research & Insights.
Spreads on debt from issuers with negative rating outlooks are wider than those on debt from similarly rated issuers with stable or positive rating outlooks. This could reflect the value of our rating outlooks as reliable indicators of relative downgrade potential.
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