'Downgrades, not surprisingly, accelerated significantly in the second half of the year,' said Eric Rosenthal, Senior Director of Fitch Credit Market Research. 'In the fourth quarter alone downgrades totalled $391.5 billion or 10.6% of market volume.'
Overall, downgrades affected 9.3% ($279.5 billion) of investment grade volume in the fourth quarter while upgrades affected 1.5% ($45.3 billion). On the speculative grade front, the effects of negative and positive changes were 16.8% ($112 billion) and 1.2% ($8.2 billion), respectively.
For the full year, downgrades and upgrades affected 21.7% ($667.5 billion) and 4.0% ($121.8 billion) of investment grade bonds, respectively, and 34.2% ($224.4 billion) and 11.4% ($74.4 billion) of speculative grade bonds.
With both financial and industrial issuers derailed by the most difficult funding conditions in decades, issuance in the second half of 2008 fell 65.9% compared with the first half of the year, and 2008 ended down 30.4% relative to 2007.
Fitch finds that $502 billion in U.S. corporate bonds is scheduled to mature in 2009, representing 13% of U.S. bond market volume. Financials make up the bulk of maturing bonds at $389.1 billion. Speculative grade bond maturities total $30.6 billion in 2009 and $107.3 billion through 2011.
'Refinancing risk continues to be an acute concern overall but especially so at the speculative grade level,' said Mariarosa Verde, Managing Director of Fitch Credit Market Research. 'Mounting pressure on the U.S. high yield default rate suggests that there will be little relief on this front in 2009.'
The U.S. high yield default rate ended 2008 at 8.5%, up from 0.5% at the end of 2007, according to Fitch's U.S. High Yield Par Default Index. As of the date of this release, the default rate on a trailing 12-month basis had reached 10%. Fitch expects the default rate will end 2009 in a range of 15% to 18%.
Fitch finds that over the course of 2008, the share of the U.S. corporate bond market rated 'AAA' or 'AA' contracted to 23.1% from 31.4% at the end of 2007. In addition, the share of the market rated 'CCC' or lower grew from 3.7% at the end of 2007 to 6.1%, topping the share of bonds rated 'AAA' for the first time.
Fitch's new report, titled 'U.S. Corporate Bond Market: A Review of Fourth-Quarter and 2008 Rating and Issuance Activity,' offers additional details on issuance patterns, rating activity by broad market sector and industry, and bonds coming due. The report is available on the Fitch Ratings web site at 'www.fitchratings.com' under 'Credit Market Research'.
Fitch's analysis of default trends is titled 'The Rising Corporate Default Wave' and is also available on Fitch's web site under 'Credit Market Research'.