The uneven economic recovery has the number of companies that are in danger of slipping from investment grade to junk territory at record highs, according to new data from Moody’s Investors Service.
The rating agency said that, at the end of the third quarter, a record 104 non-financial companies were in the so-called crossover zone, meaning they were on the threshold between speculative and investment-grade territory.
Of these, 89 companies were investment-grade companies at risk of falling to junk ratings, while 15 were on the verge of climbing out of speculative rating status.
The potential “fallen angels” held a combined US$512 billion in debt at the end of the third quarter, up from US$509 billion in the previous quarter, Moody’s reported.
This was well above the average of about US$272 billion in at-risk debt between 2016 and 2019.
Conversely, the 15 companies on the cusp of exiting speculative status held $97 billion in debt in the quarter, down from $144 billion in the second quarter.
In the third quarter, three companies were downgraded from investment grade to junk, Moody’s said, adding that “more are likely to follow,” given the large number of companies in the crossover zone.