The outlook for ratings in 2014 is looking good, according to Fitch Ratings. This is a result of all the negative ratings actions that have happened since the financial crisis; i.e., now that everyone’s BBB, the ratings isn’t so bad anymore.
Fitch says the proportion of BBB ratings has doubled in the sovereign sector (to 27 percent) and rose by half in financials (to 36 percent), while for corporates, the amount of BBB ratings has held steady at around 40 percent. Meanwhile, ratings above BBB continue to fall.
The stability also owes to the investment environment, Fitch says, in which many companies have adjusted their mandates to accept BBB-rated assets. NeuGroup peer group members have also expressed this sentiment, with some saying there is likely more safety in, say, a BBB industrial than a double- or even triple-A financial.
One company in the Assistant Treasury Managers’ NeuGroup (AT30) recently lowered its allowed-credit rating to BBB as part of an “investment evolution” it had undertaken. The company also extended its duration to well beyond current liquidity and added security types such as foreign government and foreign corporate debt to their list of approved investments. While this may sound tame to some companies it represented a dramatic shift for a company that has been very conservative and whose average duration historically has been less than 90 days.
The stabilization, Fitch says, “illustrates a shift in the investable universe globally as issuers across sectors adjust and manage through an enduring period of relatively weak growth, the benefits and uncertainties of fiscal stimulus and implications on banking from increased regulation.”