Corporate ratings upgrades in the U.S. surged by 51% quarter on quarter in the three months to December 2020, hitting a two-year high as regulatory approvals of COVID-19 vaccines and the enactment of a $900 billion stimulus package boosted the economic recovery outlook for 2021, according to S&P Global Ratings.
Upgrades totaled 65 in the fourth quarter, the highest number since the 67 upgrades in the second quarter of 2018, Ratings said in a report published on Feb. 1. Speculative-grade issuers accounted for most of the upgrades and issuers rated B- or lower accounted for nearly half.
Retail and restaurants led all sectors with 12 upgrades, which were mostly for speculative-grade companies in the home-related, sports and outdoors, and food industries.
Despite an increase in the fourth quarter, corporate upgrades remained fewer than downgrades, which fell by 18% to 88. Downgrades totaled 910 in 2020, setting a new annual record and pushing speculative-grade ratings to an all-time high of 58% of corporate ratings.
The oil and gas and utility sectors each recorded 15 downgrades in the fourth quarter, the highest among all sectors. Media and entertainment came in next with 13 downgrades.
Nonfinancial corporates accounted for most of the ratings actions in the quarter, with 81 downgrades and 62 upgrades. Issuers from the financial services sector saw seven downgrades and three upgrades.
In the speculative-grade space, the number of downgrades fell by 18% to 78, the lowest since the fourth quarter of 2018, while upgrades climbed by 50% to 60, the highest since the first quarter of 2018.
S&P Global Ratings warned that downgrade potential remains elevated for U.S. companies despite the improved growth prospects for this year.
"Some sectors are not expected to recover their credit metrics to 2019 levels until 2023 and after," the rating agency said.