Travel and Leisure: Top List of Ever-Changing Corporate Credit Ratings During the Pandemic

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The COVID-19 pandemic has not only been disrupting lives and businesses around the world for more than a year, but also the credit ratings of large corporations. Corporate credit scores serve as a key measure of creditworthiness, but they can also determine loan costs. They range from AAA for top tier companies like Johnson & Johnson JNJ, -0.39% and Microsoft Corp. MSFT, + 1.34% to D for companies in default.

Increasingly, credit ratings may also indicate a potential path to recovery for industries hit hard by the protracted public health crisis. Take for example travel and leisure, an industry in which half of all investment-grade companies globally fell to high-yield or “junk” status during the pandemic, according to a new report from Credit Benchmark. Even as parts of Europe remain locked in to contain the coronavirus, travel and leisure have seen the highest proportion of ‘fallen angels’ (at 11.1%) returning to investment grade status during the crisis (see chart below).

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Fallen angels, rising stars Credit Benchmark

The report identified 1,051 fallen angels out of the 6,895 companies it sampled globally, or about 15% of the total. It found that about 5% returned to investment grade. The retail, oil and gas, and auto and parts sectors were also volatile on the credit ratings front last year, according to the report, and migrations between the two main groups are now a key focus for investors. . Read: The Next Rising Stars Of The Debt World? Probably Corporate Fallen Angels Upgrades and downgrades can make a big difference to a business in terms of its borrowing costs. The average yield on bonds issued by US investment grade companies now sits in the 2.21% range, while it is nearly double for those in speculative grade territory at around 4.21%. Those rates are important, particularly in the last year, as cruise companies including Carnival Corp CCL, -1.52%, Royal Caribbean Group RCL, -1.37% and Norwegian Cruise Line Holdings Ltd NCLH, -2.20%, have borrowed. billions as their ships have largely done so. idle state. See: The White House rejects the cruise industry’s efforts to restart in July, as Florida sues the Biden administration. But along with other “recovery” deals, Carnival’s shares were up 31.9% year-to-date on Thursday, while those of Royal Caribbean and Norwegian rose. about 20%, according to FactSet data. That compares with the DJIA of the Dow Jones Industrial Average, + 0.17% gain of 9.5% for the same period, while the S&P 500 SPX Index, + 0.42% has advanced 9.1%.