Speculative-grade Canadian companies held up well during pandemic

By James Langton | March 19, 2021 | Last updated on March 19, 2021
1 min read
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Speculative-grade Canadian companies outperformed their U.S. counterparts in 2020, and they’re expected to hold up again this year, according to Moody’s Investors Service.

In a new report, the rating agency said that Canadian firms overall enjoyed better liquidity heading into the Covid-19 pandemic, which enabled their credit ratings to hold up better, too.

The default rate for speculative Canadian companies peaked at 5.5% in late 2020, compared with roughly 9% for U.S. firms, Moody’s reported.

In 2021, the Canadian default rate is seen declining to 4% by the end of the year, with U.S. companies forecast to finish the year at 4.6%.

Along with stronger liquidity, Canadian firms also had better credit quality overall, with fewer companies rated at the lower end, Moody’s said.

This year, Moody’s said that it expects “Canadian companies will take advantage of low interest rates to refinance more expensive debt and begin to address a 2023 maturity wall.”

Additionally, with investors seeking higher yields in the ultra-low rate environment, Moody’s said that the market’s appetite for more risky transactions, “such as leveraged buyouts, dividend recapitalizations and M&A,” will remain robust.

The rating agency forecasts that Canadian high-yield debt issuance will rise by about 6% this year, to around $45 billion and compared with $43 billion in 2020.

“This year, downgrades will remain concentrated in sectors experiencing more challenging post-pandemic recoveries, such as travel and entertainment, although we expect the pace of upgrades to increase across sectors as business conditions improve overall,” said Whitney Leavens, analyst with Moody’s, in a release.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.