Moody's Downgrades U.S. Corporate Bond Credit Rating Outlook to 'Negative'

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Credit rating agency Moody's has downgraded the credit rating outlook for U.S. corporate bonds from 'stable' to 'negative' in consideration of the impact of the spread of the novel coronavirus infection (COVID-19), CNBC reported on the 30th (local time).

According to the report, Moody's lowered the credit rating outlook for U.S. corporate bonds on the day, anticipating an increase in defaults due to COVID-19. Moody's forecasted severe damage in certain sectors such as airlines, lodging, cruises, and automobiles. It also predicted that the oil and natural gas industries would face significant risks due to the plunge in international oil prices, and banks would struggle due to low interest rates and deteriorating credit conditions.

Edmund DeForest, a credit specialist at Moody's, stated, "COVID-19 will deliver an unprecedented shock to the global economy," adding that policy responses to mitigate the economic costs and economic slowdown caused by the COVID-19 shock are becoming clearer, and thus Moody's has decided to lower the economic growth forecast for 2020.

DeForest assessed that the U.S. Federal Reserve's decision to support corporate bond purchases only includes bonds from companies with good credit status among investment-grade bonds, making it difficult to completely prevent corporate bond defaults. He said, "While it will alleviate the impact on some companies, it does not seem likely to prevent difficulties for companies whose long-term survival ability is uncertain."

As of the end of last year, the size of U.S. non-financial corporate bonds was $6.6 trillion (approximately 8,072 trillion won), a 78% increase compared to when the global financial crisis ended in 2009. The prolonged low interest rates have also had a significant effect.

The problem is that many companies with junk bonds, which are speculative grade, are also a concern. Goldman Sachs analyzed that corporate bonds with downgraded credit ratings have already reached $765 billion this year. DeForest warned that $169 billion and $300 billion worth of corporate bonds will mature this year and next year, respectively, and companies may face difficulties in refinancing.

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