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U.S. Corporate Debt Market: The State Of Play In 2019

Highlights

By dollar amount, outstanding U.S. corporate debt instruments rated by S&P Global Ratings grew by 3% in 2018--to $9.3 trillion as of Jan. 1, 2019.

Nearly 72% of this debt is investment grade ('BBB-' or higher).

A greater share of this debt is from nonfinancial companies ($7.1 trillion) than from financial services issuers ($2.2 trillion).

The 'BBB' category is the largest by debt amount, with nearly $3.8 trillion, 77% of which is from nonfinancial companies.

May. 17 2019 — Outstanding debt instruments from U.S. companies account for 48% of global corporate debt. Tightening financing conditions contributed to a 24% decline in U.S. corporate bond issuance in 2018. However, even with these headwinds, the level of U.S. corporate debt grew by 3% during the year, and this increase was in line with global credit growth.

Since 2013, the U.S. investment-grade corporate debt market has been expanding at a compound annual rate of 6.7%, as low interest rates have supported robust investor demand for corporate bonds. In 2018, the total amount of U.S. investment-grade debt increased by about 3% to $6.7 trillion as of Jan. 1, 2019 (see Chart 1).

Meanwhile, robust leveraged loan issuance offset a slowdown in speculative-grade bond issuance. As a result, U.S. corporate speculative-grade debt in the U.S. expanded by 4% during the year to $2.6 trillion as of Jan. 1, 2019. Since 2013, the market for U.S. speculative-grade corporate debt has expanded at a 2.8% compound annual rate.

For this report, we looked at the state of play of the U.S. corporate credit market in 2019 by estimating the dollar-equivalent volume of currently rated debt and segmenting by rating, sector, instrument type, and other variables. We show the rating distribution by the dollar amount of currently outstanding debt, whereas we typically report on the distribution by issuer count in many of our other reports. Chart 2 compares rated debt by dollar amount of outstanding debt instruments with the number of rated issuers, and the appendix includes the distribution of global corporate ratings by issuer count over time.

Size Of U.S. Corporate Debt Reveals Prominence Of The Nonfinancial Sector

The majority (72%) of rated corporate debt in the U.S. are investment grade, even as the number of investment-grade companies has dwindled relative to the number of speculative-grade ones. Investment-grade companies account for just 43% of the total number of U.S. corporate issuer credit ratings. These investment-grade issuers include many of the U.S.'s largest and most creditworthy companies, which have high capacities to meet their financial obligations.

While the majority of corporate issuer credit ratings are speculative grade, these issuers tend to be smaller--with less debt, on average--than the investment-grade rated companies. By issuer count, 57% of rated U.S. corporate issuers are speculative grade, but by debt amount, just 28% of U.S. corporate debt is speculative grade (see Chart 2).

Most of this debt is from nonfinancial companies, which account for $7.1 trillion of rated U.S. corporate debt, while financial services companies account for nearly $2.2 trillion. Financial services debt accounts for a smaller share of rated debt in the U.S. (23%) than it does globally (36%).

Financial services debt is more highly concentrated in the investment grade than nonfinancial corporate debt. Of financial services debt, 84% is in the 'A' ($947.7 billion) and 'BBB' ($860.4 billion) categories combined. In contrast, 59% of total nonfinancial debt is in those categories (see Table 1).

Table 1  |  Download Table

U.S. Corporate Debt Amounts By Rating Category
--Debt amount (Bil. $)-- --Debt amount (%)--
Financial Nonfinancial Total Financial Nonfinancial Total
AAA 0.0 80.0 80.0 0.0 0.9 0.9
AA 153.9 422.4 576.3 1.7 4.5 6.2
A 947.7 1,283.3 2,230.9 10.2 13.8 24.0
BBB 860.4 2,932.0 3,792.4 9.3 31.5 40.8
BB 96.4 1,055.3 1,151.6 1.0 11.3 12.4
B 81.1 1,109.4 1,190.4 0.9 11.9 12.8
CCC and lower 16.4 262.0 278.4 0.2 2.8 3.0
Investment grade 1,962.0 4,717.6 6,679.6 21.1 50.7 71.8
Speculative grade 193.8 2,426.7 2,620.5 2.1 26.1 28.2
Total 2,155.8 7,144.3 9,300.1 23.2 76.8 100.0
Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings from financial and nonfinancial issuers. Data as of Jan. 1, 2019. Source: S&P Global Fixed Income Research.

The nonfinancial sectors with the largest amounts of rated corporate debt are high technology ($899.7 billion), utilities ($855.1 billion), and telecommunications (with $752.9 billion). The amount of debt associated with the high technology sector has grown steadily in recent years, and the amount of U.S. corporate debt from this sector grew by 11% in 2018. About 66% of the sector's debt is investment grade, and this includes debt from some of the largest companies in the U.S., such as Apple Inc. and Microsoft Corp.

The sectors with the most speculative-grade debt are media and entertainment ($420.2 billion), high technology ($308.3 billion), and health care ($244 billion) (see Table 2).

Financial institutions--including banks, brokers, asset managers, and finance companies--account for most of the debt within the financial services sector, while insurance companies cover only 22% of it.

Table 2  |  Download Table

U.S. Corporate Investment-Grade And Speculative-Grade Debt Amounts By Sector
--Debt amount (Bil. $)-- --Debt amount (%)--
Investment grade Speculative grade Total Investment grade Speculative grade Total
Financial services 1,962.0 193.8 2,155.8 21.1 2.1 23.2
Financial institutions 1,560.3 126.4 1,686.8 16.8 1.4 18.1
Insurance 401.7 67.4 469.1 4.3 0.7 5.0
Nonfinancials 4,717.6 2,426.7 7,144.3 50.7 26.1 76.8
Aerospace and defense 87.3 59.2 146.5 0.9 0.6 1.6
Automotive 166.8 70.6 237.4 1.8 0.8 2.6
Capital goods 322.3 95.9 418.2 3.5 1.0 4.5
Consumer products 455.8 199.5 655.2 4.9 2.1 7.0
CP&ES 200.1 126.8 327.0 2.2 1.4 3.5
Diversified 0.0 0.4 0.4 0.0 0.0 0.0
FP&BM 37.5 59.6 97.1 0.4 0.6 1.0
Health care 342.8 244.0 586.8 3.7 2.6 6.3
High technology 591.4 308.3 899.7 6.4 3.3 9.7
Homebuilders/real estate cos. 190.3 61.3 251.6 2.0 0.7 2.7
Media and entertainment 248.3 420.2 668.5 2.7 4.5 7.2
Metals, mining, and steel 20.8 63.2 84.0 0.2 0.7 0.9
Oil and gas 249.1 165.9 414.9 2.7 1.8 4.5
Retail/restaurants 347.3 139.9 487.2 3.7 1.5 5.2
Telecommunications 533.9 219.0 752.9 5.7 2.4 8.1
Transportation 206.3 55.3 261.7 2.2 0.6 2.8
Utility 717.7 137.5 855.1 7.7 1.5 9.2
Total 6,679.6 2,620.5 9,300.1 71.8 28.2 100.0
Data as of Jan. 1, 2019. CP&ES--Chemicals, packaging, and environmental services. FP&BM--Forest products and building materials. Includes bonds, notes, loans, and revolving credit facilities rated by S&P Global Ratings. Excludes debt instruments that do not have a global-scale rating. Foreign currencies are converted to US$ at the exchange rate on the close of business on Jan. 1, 2019. Source: S&P Global Fixed Income Research.

By debt type, $7.2 trillion of currently outstanding U.S. corporate debt is in the form of bonds and notes, while about $2.1 trillion debt is in form of revolving credit facilities and term loans (see Table 3). Term loans constitute a considerably higher share of funding for speculative-grade companies, nonfinancials in particular. Loans and revolvers account for more than half (55%) of speculative-grade debt and less than 10% of investment-grade debt.

Table 3  |  Download Table

Rated U.S. Corporate Debt Amounts By Instrument Type
--Investment grade-- --Speculative grade--
(Bil. $) Maturity (through 2023) Maturity (after 2023) Total Maturity (through 2023) Maturity (after 2023) Total Grand total
FINANCIAL SERVICES
Loan/revolver
Revolver 5.4 0.0 5.4 6.9 0.0 6.9 12.4
Term loan 2.8 0.3 3.1 40.0 25.1 65.2 68.2
Loan/revolver total 8.2 0.3 8.5 47.0 25.1 72.1 80.6
Bond/note
Senior secured 60.9 19.8 80.6 8.2 3.5 11.7 92.4
Senior unsecured 938.4 700.5 1638.9 54.7 33.8 88.5 1727.4
Subordinated 38.1 185.5 223.6 0.0 8.6 8.6 232.2
Preferred/other 0.0 10.4 10.4 0.0 12.9 12.9 23.3
Bond/note total 1037.4 916.1 1953.5 62.9 58.8 121.7 2075.2
Financial services total 1045.5 916.4 1962.0 109.9 84.0 193.8 2155.8
NONFINANCIAL
Loan/revolver
Revolver 303.9 0.9 304.7 201.1 6.5 207.5 512.3
Term loan 277.5 65.6 343.1 557.8 598.1 1155.8 1499.0
Loan/revolver total 581.4 66.5 647.9 758.8 604.5 1363.4 2011.2
Bond/note
Senior secured 78.2 200.0 278.2 98.0 73.7 171.7 449.9
Senior unsecured 1512.2 2197.3 3709.4 407.4 446.8 854.2 4563.6
Subordinated 10.0 29.2 39.2 15.2 18.9 34.1 73.3
Preferred/other 21.7 21.2 42.9 2.3 1.0 3.3 46.2
Bond/note total 1622.1 2447.7 4069.7 522.9 540.4 1063.3 5133.0
Nonfinancial total 2,203.4 2,514.2 4,717.6 1,281.7 1,145.0 2,426.7 7,144.3
Includes rated debt from financial and nonfinancial issuers. Data as of Jan. 1, 2019. Excludes debt instruments that do not have a global-scale rating. Foreign currencies are converted to US$ at the exchange rate on the close of business on Jan. 1, 2019. Source: S&P Global Fixed Income Research.

Bonds typically are issued with longer maturities than loans, and currently outstanding loans have a shorter maturity profile on average than bonds. By instrument type, 67% of loans are scheduled to mature through 2023 compared with 45% of bonds. Investment-grade nonfinancial entities tend to issue debt with longer maturity terms than do speculative-grade companies. About 38% of investment-grade bonds were issued with original maturities of 13 years or more compared with 6% of speculative-grade bonds (see Table 4).

The median tenor at issue of a speculative-grade loan to a nonfinancial firm is 6.5 years, while the median tenure of a speculative-grade bond at issue is 8.1 years. Agreements on revolving credit lines are usually of five to six years. Companies often refinance loans three or four years after issue, though this largely depends on credit market conditions and liquidity.

Financial services companies have a median tenor of 10 years (at issue) for bonds. At original issue, the largest share 40% of financial services debt had maturities of seven to 13 years, and 37% had original tenors of seven years or less (see Table 5).

Table 4  |  Download Table

U.S. Nonfinancial Corporate Debt By Rating Category And Original Maturity Length
--Original maturity length (years)--
(Bil. $) Less than 2 2 up to 5 5 up to 7 7 up to 13 13 thru 20 More than 20 Total
Loan/revolver
AAA 0.0 0.0 0.0 0.0 0.0 0.0 0.0
AA 0.0 4.0 5.0 0.0 0.0 0.0 9.0
A 0.0 44.8 9.0 5.9 0.0 0.0 59.7
BBB 3.3 233.1 190.4 151.2 1.3 0.0 579.2
BB 2.5 140.3 170.3 183.6 0.0 0.0 496.7
B 0.1 74.8 237.2 444.6 0.0 0.0 756.7
CCC/C 0.1 6.6 19.2 84.1 0.0 0.0 110.0
Total loan/revolver 6.0 503.6 631.1 869.4 1.3 0.0 2,011.2
Bond/note/other
AAA 0.0 6.3 9.0 25.1 4.5 35.1 80.0
AA 7.1 50.4 41.9 170.4 7.6 136.0 413.4
A 17.9 110.4 90.2 480.9 31.9 492.2 1,223.5
BBB 15.0 206.8 228.7 1,073.7 37.7 790.9 2,352.8
BB 0.6 22.4 58.5 434.0 2.9 40.3 558.6
B 0.0 32.6 50.1 253.4 1.1 15.3 352.6
CCC/C - 6.4 29.6 109.9 - 6.1 152.0
Total bond/note/other 40.5 435.4 508.1 2,547.3 85.8 1,516.0 5,133.0
Grand total 46.4 938.9 1,139.2 3,416.7 87.0 1,516.0 7,144.3
Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings from nonfinancial issuers. Data as of Jan. 1, 2019. Source: S&P Global Fixed Income Research.

Table 5  |  Download Table

U.S. Financial Services Debt Amounts By Rating Category And Original Maturity Length
--Original maturity length (years)--
Debt (Bil. $) Less than 2 2 up to 5 5 up to 7 7 up to 13 13 thru 20 More than 20 Total
AAA 0.0 0.0 0.0 0.0 0.0 0.0 0.0
AA 8.1 48.6 23.5 40.6 1.2 31.8 153.9
A 20.1 229.5 153.3 361.4 24.1 159.3 947.7
BBB 2.4 163.0 96.2 365.1 27.6 206.2 860.4
BB 0.0 8.3 20.3 41.5 1.8 24.4 96.4
B 0.1 8.4 19.8 48.3 0.3 4.2 81.1
CCC/C 0.0 1.8 2.4 11.9 - 0.4 16.4
Total 30.7 459.7 315.4 868.9 55.0 426.2 2,155.8
Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings from financial issuers. Data as of Jan. 1, 2019. Source: S&P Global Fixed Income Research.

While most of the currently outstanding corporate debt was issued in recent years, a small share of mostly investment-grade bonds issued during or before the financial crisis remain outstanding. Overall, $968.6 billion of currently outstanding bonds were issued in 2009 or earlier, and just 7% of this debt is currently rated speculative grade (see Table 6).

Table 6  |  Download Table

Original Issue Year For Currently Outstanding U.S. Corporate Rated Debt
--Debt amount (Bil. $)-- --Debt amount (%)--
Issue year Investment grade Speculative grade Total Investment grade Speculative grade Total
Loans and revolving credit facilities
2009 (or prior) 1.3 1.3 2.5 0.2 0.1 0.1
2010 0.8 0.3 1.1 0.1 0.0 0.1
2011 8.5 5.7 14.2 1.3 0.4 0.7
2012 13.0 12.3 25.2 2.0 0.9 1.2
2013 42.1 57.2 99.3 6.4 4.0 4.7
2014 69.7 106.3 176.0 10.6 7.4 8.4
2015 79.7 139.8 219.5 12.1 9.7 10.5
2016 127.0 195.6 322.5 19.3 13.6 15.4
2017 183.3 435.9 619.2 27.9 30.4 29.6
2018 131.1 481.2 612.3 20.0 33.5 29.3
Total loans and revolving credit 656.4 1,435.5 2,091.8 100.0 100.0 100.0
Bonds/notes/other
2009 (or prior) 900.5 68.1 968.6 14.9 5.7 13.4
2010 229.9 25.5 255.4 3.8 2.2 3.5
2011 247.9 37.6 285.4 4.1 3.2 4.0
2012 373.0 84.5 457.5 6.2 7.1 6.3
2013 383.8 115.2 499.0 6.4 9.7 6.9
2014 613.0 142.5 755.5 10.2 12.0 10.5
2015 771.4 143.0 914.4 12.8 12.1 12.7
2016 770.7 166.0 936.7 12.8 14.0 13.0
2017 976.3 248.8 1225.1 16.2 21.0 17.0
2018 756.8 153.9 910.7 12.6 13.0 12.6
Total bonds/notes/other 6,023.2 1,185.0 7,208.3 100.0 100.0 100.0
Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings from financial and nonfinancial issuers. Data as of Jan. 1, 2019. Source: S&P Global Fixed Income Research.

For this study, we included companies incorporated in the tax havens of Bermuda and the Cayman Islands with the U.S. region. Nearly all (97%) of the debt covered in this study is from companies incorporated in the U.S., while $262 billion in debt is from issuers incorporated in the tax havens. This debt shows some notable concentrations by sector, as the high technology, homebuilders and real estate, and telecommunications sectors together account for nearly 44% of this debt from tax havens. In both the high technology and the homebuilders and real estate sectors, much of this debt belongs to issuers that operate primarily in China but were incorporated in the Cayman Islands, where they could gain more access to sources of external funding through global debt and equity markets.

Table 7  |  Download Table

Distribution Of Rated Debt Within The U.S. Region
--U.S.-- --Tax havens (Bermuda and Cayman Islands)--
(Bil. $) Investment grade Speculative grade Investment grade Speculative grade
Aerospace and defense 87.3 59.2 - -
Automotive 166.5 70.6 0.3 -
Capital goods 319.1 94.6 3.1 1.3
Consumer products 444.0 195.1 11.8 4.3
CP&ES 200.1 123.5 - 3.4
Diversified - 0.4 - -
Financial institutions 1,542.3 125.4 18.0 1.1
FP&BM 37.5 59.0 - 0.7
Health care 342.8 237.3 - 6.7
High technology 559.3 291.1 32.1 17.3
Homebuilders/real estate cos. 187.0 29.1 3.3 32.2
Insurance 383.1 61.5 18.6 5.9
Media and entertainment 238.7 404.3 9.6 15.8
Metals, mining, and steel 20.8 62.5 - 0.7
Oil and gas 244.9 154.0 4.1 11.8
Retail/restaurants 346.3 139.0 1.0 0.9
Telecommunications 529.8 192.8 4.1 26.2
Transportation 200.7 49.0 5.6 6.4
Utility 704.1 134.9 13.6 2.5
Total 6,554.4 2,483.4 125.2 137.1
Country is based on the country of incorporation of the parent. CP&ES--Chemicals, packaging, and environmental services. FP&BM--Forest products and building materials. Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings from financial and nonfinancial issuers. Data as of Jan. 1, 2019. Source: S&P Global Fixed Income Research.

Data Approach

For the U.S. region (including Bermuda and the Cayman Islands), we included the rated debt of all U.S. companies and their foreign subsidiaries. We counted the debt of all of these companies regardless of the currency or market in which the debt was issued. We converted any non-U.S.-dollar-denominated debt to U.S. dollars based on the end-of-day exchange rates on Jan. 1, 2019. Unless otherwise noted, we did not include in our totals debt issued by foreign companies in the U.S. market or debt issued by U.S.-based subsidiaries of foreign companies.

The issue types include loans, revolving credit facilities, bank notes, bonds, debentures, convertible bonds, covered bonds, intermediate notes, medium-term notes, index-linked notes, equipment pass-through certificates, and preferred stock. In the case of revolving credit facilities, the amount usually represents the original facility limit, not necessarily the amount drawn. Debt amounts are tallied as the face value of outstanding rated debt instruments. We excluded individual issues that are not currently rated at the instrument level as well as instruments from issuers that are currently rated 'D' (default) or 'SD' (selective default).

We aggregated the data by issue-level credit rating. We also aggregated sector-specific data according to the subsector of the issuer. The financial sector is defined as all banks, brokers, insurance companies, asset managers, mortgage companies, and other financial institutions. We aggregated debt issued by financial arms of nonfinancial companies with the sector of the corporate parent. We excluded government-sponsored agencies, such as Fannie Mae and Freddie Mac, and public finance issuers.