The ratio of ratings upgrades to downgrades for the first quarter reveals credit quality improvement is being bogged down by the corporate trend to boost equity returns, often at bondholders' expense. "Improvement in credit is lagging," said John Lonski, chief economist at Moody's Investors Service.
Overall, corporations' payments to shareholders contributed to 15 credit rating reductions in the first quarter, while 29 U.S. company credit downgrades were related to merger and acquisition activity. The global upgrade-to-downgrade ratio was 1.44 for the quarter, compared with 1.89 for the fourth quarter of last year. "It's premature to say with any sort of confidence the credit cycle has peaked," noted Lonski, adding, "but improvement appears to have stalled."
Sector-wise, 14% of first quarter Moody's downgrades were linked to companies with exposure to the auto industry. On the flip side, upgrades have been concentrated in electrical utilities.