Another Topping Sign: Moody's Loan Upgrades Outpace Downgrades For First Time In Over Year
Unemployment may or may not be a lagging indicator (it sure won't be once BLS emails are "hacked" by enterprising Russians) but the Moody's loan upgrade/downgrade ratio is about the surest countertop indicator available anywhere. And now that Upgrades have surpassed Downgrades for the first time in ages, watch out below.
Here is the commentary from Thomson Reuters LPC:
Is the pace of credit quality deterioration not only slowing but perhaps even reversing? The global speculative-grade default rate reported by Moody's remained at 13.7% from October to November. In addition, this is the first time default rates have not increased from the previous month's level since December 2007. Going forward, Moody's expects default rates to reach 13.1% in December and then fall to 4.3% a year from now. But there is even better news. Looking at the period beginning October 2008, there was a continuous increase in Moody's bank loan rating downgrades, peaking in April when 43 bank loans saw their original ratings lowered. During the same period, the number of bank loan rating upgrades was limited or non-existent. Since April, the pace of downgrades slowed markedly. In fact, in November, bank loan rating upgrades outpaced downgrades. The gradual shift along with broader talk of a looming recovery and an active high yield bond market continue to provide borrowers with some immediate relief.
All those high quality loans... And yet the only way companies can refinance is with High Yielding Senior Secured Loans.
Coming soon on Zero Hedge: an analysis comparing Senior Sub and Senior Secured Issuance (and the dominance of the latter in today's market) as well as the resurgence of dividend recap deals: nothing like dividending to investors for 1-2x turns of extra leverage.