美股-信貸策略-有多少BBB級債券將降級為HY我們從歷史、市場定價和分析師那里尋找答案

1、How much BBB debt will fall to HY?We look to history, market pricing and our analysts for answersBBB-rated Non-Financial bonds have grown to $2.3tr outstanding, $883bn in 2011, a 164% increase over 7 yearsThe market is now 4.8x larger than the market. was 2.9x 10 years agoIf there is a significant a

2、mount rating migration from to it will have a meaningful impact on both HG and HY bondmarketsIn this note, discuss downgrade risk from three perspectives: what history tells us, what the market is pricing, and the JPM sector analystsIn and 2018 just $11bn and $18bn Non-Financial index debt from to H

3、Y. This represents 0.3% and 0.5% the Non-Financial market, respectively, well below the historical average of 2.7% perUsing historical downgrade rates rating bucket and applying these to the current market size and rating profile results in $108bn/year of expected HG to HYdowngradesMarket pricing su

4、ggests that $137bn debt (5.8%) is priced downgrade toBBOur analysts believe that downgrade risk is lower than figures. many of the largest 50 BBB issuers we believe the risk downgrade to BB is overpricedWhile many large bond issuers chose to go from an A to rating through and a shareholder in recent

5、 years, believe most have both the interest and ability to avoid a HY rating goingforwardWe introduce a forecast of fallen angels of $40bn in 2019 and in 2020.$17bn PCG debt has already been downgraded this yearOur forecast is that $40bn will fall from HG to HY in 2019 and $60bn in 2020$bn7.8%$bn7.8

6、% of HG index debt downgraded to HY8.5%4.2%3.7%Non Financials Financials1.6%1001.0%812.1%2.4% 351.6% 544 1.3%1.1%4701.5%72.9%1.7% 11330.8%0.8% 5 0.6%1.1%0.7%6040191825202628 24614 1419315 360.4%0.2% 516111810080604020-North America Credit Research21 February 2019US High Grade Strategy & Credit Deriv

7、atives ResearchEric Beinstein AC(1-212)834-4211 HYPERLINK mailto:eric.beinstein eric.beinstein Matthew Anavy, CFA (1-212)834-3568 HYPERLINK mailto:matthew.a.anavy matthew.a.anavyClaire Barbour(1-212)270-6861 HYPERLINK mailto:claire.barbour claire.barbour Virginia Chambless, (1-212)834-5481 HYPERLINK

8、 mailto:virginia.chambless vi HYPERLINK mailto:rginia.chambless rginia.chamblessBrett G. Gibson(1-212) 270-7484 HYPERLINK mailto:brett.g.gibson brett.g.gibsonPaul Glezer(1-212) 270-8185 HYPERLINK mailto:paul.x.glezer paul.x.glezerJonathan Rau, CFA(1-212) 834-5237 HYPERLINK mailto:jonathan.d.rau jona

9、than.d.rauMark Streeter, CFA(1-212) 834-5086 HYPERLINK mailto:mark.streeter mark.streeterPavan D Talreja(1-212) 834-2051 HYPERLINK mailto:pavan.talreja pavan.talrejaDominique Toublan(1-212) 834-2370 HYPERLINK mailto:dominique.d.toublan dominique.d.toublanBrian Turner(1-212) 834-4035 HYPERLINK mailto

10、:brian.m.turner brian.m.turnerSheila Xie(1-212) 834-3036 HYPERLINK mailto:sheila.xie sheila.xieJ.P. Morgan Securities LLCSource: J.P. MorganSee page 25 for analyst certification and important disclosures. seekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatm

11、ay a of the of as only a HYPERLINK / Table of Contents HYPERLINK l _bookmark0 The BBB market has grown rapidly, more so than theBBmarket4 HYPERLINK l _bookmark1 The drivers of rating deterioration within High Grade credit include low borrowing HYPERLINK l _bookmark1 costs andsignificantM&A HYPERLINK

12、 l _bookmark2 Downgrades from HG to HY over the past two years been the lowest two years since HYPERLINK l _bookmark2 2000 HYPERLINK l _bookmark3 Approach 1: The historical downgrade pattern predicts about $108bn/4.6% of BBB HYPERLINK l _bookmark3 debt could fall to HYeachyear HYPERLINK l _bookmark4

13、 Approach 2: Market pricing suggests $137bn/5.8% of BBB debt is priced in the HYPERLINK l _bookmark4 range ofBBdebt HYPERLINK l _bookmark5 Approach 3: Our analysts believe the risk of downgrade to HY for the largest issuers HYPERLINK l _bookmark5 is below that implied by either the historical approa

14、ch or the market-based approach HYPERLINK l _bookmark5 11 HYPERLINK l _bookmark6 Our forecast is that $40bn will fall from HG to HY in 2019, $60bnin2020.11 HYPERLINK l _bookmark7 A sector by sector review of the top 50BBBcredits12 HYPERLINK l _bookmark8 Other credits not in the top 50 BBB issuer lis

15、t with significant fallenangelrisk23The 50 largest BBB rated non-Financial bond issuersThe table below, sorted from most to least amount of index debt, shows each issuers current rating profile, the amount of index debt, the probability of downgrade over the next 2 and 3 years assuming the historica

16、l downgrade rates prevail, and the probability of downgrade to HY implied by bond spreads. The methodology for these calculations is described in thisnote.IssuerSector4-6yr Bond spreadMoodys/ S&P/ FitchIndex RatingIndex Debt ($bn)Historical downgrade probabilitySpread implied downgrade probability2Y

17、avg3Yavg2Yavg+1stddev3Yavg+1stddevAT&T IncTelecoms117Baa2/BBB/A-BBB955%8%10%14%15%Anheuser-Busch Cos LLCConsumer95Baa1/A-/BBBBBB+803%5%7%10%15%Verizon Communications IncTelecoms77Baa1/BBB+/A-BBB+723%5%7%10%15%CVS Health CorpHealth & Pharma118Baa2/BBB/-BBB665%8%10%14%15%GE Capital International Fundi

18、ng CoCap Goods179Baa1/BBB+/BBB+BBB+463%5%7%10%15%General Motors Financial Co IncAutomotive198Baa3/BBB/BBBBBB415%8%10%14%45-60%Charter Communications OperatingMedia Ent193Ba1/BBB-/BBB-BBB-3824%34%38%49%30-45%United Technologies CorpCap Goods90Baa1/BBB+/WDBBB+343%5%8%11%15%AbbVie IncHealth & Pharma118

19、Baa2/A-/-BBB335%8%10%14%90%Cigna CorpHealth & Pharma113Baa2/A-/BBB-BBB335%8%10%14%15%Energy Transfer Operating LPEnergy158Baa3/BBB-/BBB-BBB-3024%34%38%49%15%BAT Capital CorpConsumer155Baa2/BBB+/BBBBBB295%8%10%14%15%Kinder Morgan IncEnergy123Baa2/BBB/BBB-BBB285%8%10%14%15%Amgen IncHealth & Pharma87Ba

20、a1/A/BBBBBB+253%5%7%10%15%Dow Chemical CoBasic Industries105Baa2/BBB/NRBBB244%6%9%12%15%MPLX LPEnergy139Baa3/BBB/BBB-BBB-2318%26%29%38%15%Kraft Heinz Foods CoConsumer128Baa3/BBB/BBB-BBB-2224%34%38%49%15%Enterprise Products OperatingEnergy92Baa1/BBB+/BBB+BBB+213%5%7%10%15%Fox CorpMedia Ent99Baa2/BBB/

21、-BBB214%6%8%11%15%Williams Cos Inc/TheEnergy130Baa3/BBB/BBB-BBB-2121%30%33%44%15%Bayer US Finance II LLCHealth & Pharma146Baa1/BBB/A-BBB+203%5%7%10%15%Celgene CorpHealth & Pharma104Baa2/BBB+/-BBB205%8%10%14%15%Dell International LLC / EMCTechnology180Baa3/BBB-/BBB-BBB-1924%34%38%49%15-30%Union Pacif

22、ic CorpTransport73Baa1/A-/-BBB+193%5%7%10%15%Vodafone Group PLCTelecoms134Baa1/BBB+/BBB+BBB+183%5%7%10%15%McDonalds CorpRetail77Baa1/BBB+/BBBBBB+183%5%7%10%15%Shire Acquisitions InvestmentsHealth & Pharma120Baa2/BBB+/-BBB175%8%10%14%15%Anthem IncHealth & Pharma92Baa2/A/BBBBBB165%8%10%14%15%Abbott La

23、boratoriesHealth & Pharma65Baa1/BBB/WDBBB165%8%10%14%15%Allergan Funding SCSHealth & Pharma139Baa3/BBB/BBB-BBB-1624%34%38%49%15%Enel Finance International NVUtilities185Baa2/BBB+/A-BBB+153%5%7%10%15-30%Southern Co/TheUtilities103Baa2/BBB+/BBB+BBB+143%5%7%10%15%CSX CorpTransport90Baa1/BBB+/-BBB+143%5

24、%7%10%15%Enbridge IncEnergy114Baa2/BBB+/BBB+BBB+143%5%7%10%15%Discovery CommunicationsMedia Ent149Baa3/BBB-/BBB-BBB-1324%34%38%49%15%Northrop Grumman CorpCap Goods82Baa2/BBB/BBBBBB135%8%10%14%15%FedEx CorpTransport95Baa2/BBB/-BBB135%8%10%14%15%Becton Dickinson and CoHealth & Pharma117Ba1/BBB/BBB-BBB

25、-1324%34%38%49%15%Telefonica Emisiones SATelecoms139Baa3/BBB/BBBBBB135%8%10%14%15%Sabine Pass Liquefaction LLCEnergy165Baa3/BBB-/BBB-BBB-1324%34%38%49%15%AstraZeneca PLCHealth & Pharma93A3/BBB+/BBB+BBB+133%5%7%10%15%Lockheed Martin CorpCap Goods60Baa1/BBB+/BBB+BBB+133%5%7%10%15%Lowes Cos IncRetail98

26、Baa1/BBB+/-BBB+123%5%7%10%15%American Tower CorpTelecoms116Baa3/BBB-/BBBBBB-1124%34%38%49%15%Duke Energy CorpUtilities88Baa1/BBB+/BBB+BBB+113%5%7%10%15%FirstEnergy CorpUtilities122Baa3/BBB-/BBB-BBB-1115%22%25%33%15%Crown Castle InternationalTelecoms123Baa3/BBB-/BBBBBB-1122%32%35%46%15%Exelon CorpUti

27、lities120Baa3/BBB-/BBB-BBB-118%12%14%20%15%Keurig Dr Pepper IncConsumer134Baa2/BBB/-BBB115%8%10%14% = A+A A-BBB+ BBB BBB-Source: J.P. MorganExhibit 3: The share of BBB debt has been rising steadily for Non-Financial issuers61%49%61%49%17%24%13%11%13%14%13%13%16%15%25%21%10%11%8%10%19%20%14%12%9%10%1

28、9%19%17%11%9%13%19%22%13%13%9%11%21%18%14%16%6%10%22%18%16%15%7%10%17%13%8%10%19%17%17%16%8%10%90%80%70%60%50%40%30%20%10%0%2011201220132014201520162017Source: J.P. Morgan = A+A A-BBB+ BBB BBB-The drivers of rating deterioration within High Grade credit include low borrowing costs and significant M&

29、ACorporate leverage in HG credit markets has risen significantly over the past few years. This has been driven by low borrowing costs for companies, and until the past couple of years, relative weak corporate earnings and EBITDA growth. Companies took advantage of low funding rates to return more ca

30、sh to shareholders and to undertake transformative M&A deals. They generally locked in a low cost funding, and they borrowed long term in many cases. Therefore, leverage increased, but interest coverage deteriorated less, and rollover risk remains low. Still, the rating agencies reacted to the highe

31、r leverage and higher business risk associated with this leverage with rating downgrades. M&A was a key part of the growth in leverage, with M&A funding accounting for 18% of non-Financial bond issuance over the past four years, on average. See our HYPERLINK /research/content/GPS-2853587-0 3Q18 HG C

32、redit Fundamentals report and HYPERLINK /research/content/GPS-2781527-0.pdf The M&A HYPERLINK /research/content/GPS-2781527-0.pdf Wave: Risk & Reward report for more details.Exhibit 4: Leverage grew rapidly post the Financial Crisis, as High Grade companies took advantage of low borrowing costs Gros

33、sLeverageGross Leverage ex Metals/Mining, Energy3.0 x2.8x2.6x2.4x2.2x2.0 x1.8x1Q101Q111Q121Q131Q141Q151Q161Q171Q18Source: J.P. MorganExhibit 5: M&A has been a significant driver of higher leverage and lower credit ratings over the past few years. On average leverage increased by 1.6x across 32 large

34、 M&A deals since 2015, and has declined only slowly after the deals closedGross Leverage4.0 x3.8xGross Leverage4.0 x3.8x+1.6x3.7x3.8x3.7x3.6x3.6x2.4x4.0 x3.0 x2.0 x1.0 x0.0 xPre- deal Post-deal+1Q+2Q+3Q+4Q+5Q+6QSource: J.P. MorganDowngrades from HG to HY over the past two years been the lowest two y

35、ears since 2000Over the past two years downgrades from HG to HY have averaged just$17bn/year (0.3% of HG bonds). This is the lowest two year trend in percentage terms since 2000 when our index data begins. Overall, the percentage rate of downgrades from HG to HY was higher almost every year from 200

36、0-2009 than it has been subsequently.The annual volatility in the data is quite high, understandably. In 2002-2003, there was a spike in downgrades to HY driven by an economic recession and stress in the Telecom and Utilities sectors, in particular. Then, in 2005, downgrades in the Auto sector resul

37、ted in $100bn of debt downgraded in a single year. This is a record that still stands. In 2006-2007, despite strong economic growth, there was still a high rate of downgrades as LBOs of HG companies flourished. In 2008-2009 the Financial crisis led to significant negative rating trends, but these we

38、re focused in Financials rather than non-Financials. The downgrades over that period were spread over two years, but combined, they came close to the 2002 and 2005 peaks.Exhibit 6: Fallen angels from the JULI index have varied significantly year by year$bnNon$bnNonFinancialsFinancials354410081415513

39、1719182520262824146143197031516536111810080604020-Source: J.P. Morgan12.9%13.0% of debt downgraded for Non Fins ex-EM4.5%3.2%2.1%2.7%3.3%12.9%13.0% of debt downgraded for Non Fins ex-EM4.5%3.2%2.1%2.7%3.3%2.8%3.4%2.1%1.0%0.9% 1.0%1.4%0.7%2.3%0.5%0.3%14%12%10%8%6%4%2%0%Source: J.P. MorganPost the Fin

40、ancial crisis, there was a sharp decline in downgrades from HG to HY, even as the overall size of the HG market and BBB debt has grown substantially. Some of this is because companies that were able to maintain HG ratings during the sharp recession in 2008-2009 were the stronger ones. Once the econo

41、my rebounded, the chances that they would subsequently get in trouble were lower. Also, the low funding costs that corporates enjoyed post-crisis helped reduce the risk of trouble meeting interest payments. The surge in M&A that began in 2014 led to weakening of credit metrics that remains a concern

42、, but post-crisis M&A was mostly strategic in nature, rather than driven by Financial sponsors as was the case pre-crisis. These M&A transactions have, so far, mostly been successful to some extent and have not contributed to more fallen angels. In our analysis of 32 large M&A transactions since 201

43、5, only one of them has subsequently been downgraded to HY. In 2015-2016, the selloff in Energy and Metals prices led to a jump in fallen angels, but the scale of the downgrades then was still well below the pre-crisis trend. There was a change in methodology by Moodys in regards to Energy company r

44、atings in 2016 which contributed to the increase in downgrades. If the rating agencies change their methodologies to be more conservative in the future, and if they do so across their broader coverage universe, there could be a jump in downgrades to HY. We have no reason to expect this, but it remai

45、ns a risk to the market.Exhibit 8: Largest fallen angels each year, and the amount of HG index debt impactedYearLargestdowngradeDebt downgraded($bn)2ndlargestdowngradeDebt downgraded($bn)2000Xerox Ltd1.6Crown Cork & Seal Finance1.32001Nokia of America Corp2.9Delta Air Lines Inc2.12002MCI Communicati

46、ons Corp21.1Qwest Capital Funding Inc13.72003GPU Inc (FirstEnergy)4.6Tenet Healthcare Corp32004AT&T Corp8.4Hess Corp3.52005Ford Motor Credit Co45.5GMAC30.62006Caesars Ent Operating4.8iHeartCommunications3.62007Centex LLC6.1EOP Operating LP5.42008Lehman Brothers23.8Sprint Capital Corp12.52009CIT Grou

47、p12.5Macys Retail Holdings6.42010Intl Lease Finance Corp10Anadarko Finance Co8.92011Embarq Corp4RR Donnelley & Sons Co2.92012ArcelorMittal12.2EDP Finance BV22013Telecom Italia Capital SA9.6Arconic Inc (Alcoa Inc)6.72014Genworth Holdings Inc3.6Cleveland-Cliffs(Cliff Natural)2.92015Transocean Inc7.5Te

48、ck Resources Ltd6.92016Freeport-McMoRan Inc12Pride International5.62017Nabors Industries Inc3.6Mattel Inc1.22018Barclays PLC (sub bonds)5.3Xerox Corp4.72019Pacific Gas & Electric17.0-Source: J.P. MorganApproach 1: The historical downgrade pattern predicts about $108bn/4.6% of BBB debt could fall to

49、HY each yearTo calculate these figures, we start with historical downgrade rates in our JULI index from 2000-2018. Over this period 12.4% of BBB- debt has been downgraded to HY each year on average, 2.7% of BBB flat debt and 1.5% of BBB+ debt has been downgraded as well. Over two years the figures a

50、re almost double these levels, but not quite, as debt which falls to HY in one year cannot fall again the next year, so a two year probability is slightly less than 2x the 1yr probability.Exhibit 9: Percentage of JULI debt downgraded to HY over 1-year depending on rating at the beginning of the year

51、.BBB+BBB-flatBBB-50%BBB+BBB-flatBBB-40%30%20%10%200020012000200120022003200420052006200720082009201020112012201320142015201620172018Exhibit 10: Percentage of JULI debt downgraded to HY over 2-years depending on rating at the beginning of the first year.BBB+BBB-flatBBB-60%BBB+BBB-flatBBB-50%40%30%20%

52、10%20002001200020012002200320042005200620072008200920102011201220132014201520162017Exhibit 11: Historical percentage of HG debt downgraded to HYbased on rating bucketeachyear 1 yearBBB+BBB-flatBBB-Exhibit 12: Historical percentage of HG debt downgraded to HY based on rating bucket over a twoyearperi

53、od 2 yearBBB+BBB-flatBBB-Average2%3%12%Average3%5%24%Median0%1%10%Median1%5%21%Std Dev3%3%10%Std Dev4%5%14%Min0%0%2%Min0%0%5%Max11%13%45%Max13%15%53%Source: J.P. Morgan, MoodysApplying these ratios to the current JULI outstanding and ratings distribution results in an estimate of about $210bn BBB de

54、bt downgraded to HY over 2 years and $305bn over 3 years. This assumes the average downgrade rate occurs, but history shows we rarely see average downgrades. Usually the rate is lower, and then occasionally there is a large spike in downgrades to HY driven by a broader economic slowdown or specific

55、industry challenges. If one uses downgrade probabilities which are one standard deviation worse than the average for each of the BBB rating categories the amount of predicted downgraded debt rises significantly, to $367bn in 2 years and $494bn in 3 years.Approach 2: Market pricing suggests $137bn/5.

56、8% of BBB debt is priced in the range of BB debtOur second approach to estimating fallen angel risk is based on market pricing. A bonds spread level compensates investors for its risks. Therefore, the market implies that credit ratings are “off” when a BBB-rated bond trades at about the same spread

57、level as a generic BB-rated bond with a similar maturity date. This means that market expectations of ratings migration can be inferred from the spread between any BBB bond and a generic BB bond.In practice, this comparison is not simple. First, both BBB and BB bonds trade in a wide range. Second, t

58、here is a significant spread overlap between the two rating buckets, as shown in the Exhibit below. Currently the median BBB bond with 4-6 years to maturity trades around 125bp, while the median BB bond trades at 265bp. About 10% of 4-6yr BBB bonds are trading wider than the mid-point between the tw

59、o medians (i.e. 195bp), and 7% of BB bonds are trading tighter than that mid- point.Exhibit 13: BB bonds trade wider than BBB bonds on average, but there is a significant overlap between the distributionsActual spread distribution (4-6yrs)BBB Actual spread distribution (4-6yrs)BBB BB10%8%6%4%2%03003

60、06090120150180210240270300330360390420450480510540570600630Exhibit 14: Our model of the BBB and BB spread distribution used to assess the market implied ratingModel based spread distribution (4-6yrs)BBBModel based spread distribution (4-6yrs)BBBBB10%8%6%4%2%0%050 100 150 200 250 300 350 400 450 500