Moody’s: Angels Fall at the Fastest Pace Since Financial Crisis

We’re reading a lot of headlines these days about ‘the first time this has happened since 2008’, yet markets are needling all time highs. In a report out by Moody’s, analyzing the credit downgrades of investment grade paper, the firm cites an alarming number of high quality paper being downgraded. The rate of decline from which companies lost investment grade status had, hitherto, not been seen since the dark days of 2008.

Moody’s is anticipating a further denigration of credit to continue in the not-so-distant future.

Last quarter, a total of 34 companies moved into that so-called crossover zone, for a total of 72 as of March 31. Of those, 59 are potential fallen angels (rated Baa3 on review for downgrade or with a negative outlook) compared with only 13 potential “rising stars” (Ba1 on review for upgrade or with a positive outlook).

Listed among the potential fallen angels are Barrick Gold Corp., Noble Energy Inc. and Ambev SA, the only Brazilian issuer that retains an investment-grade rating, according to Moody’s. Lear Corp. is among the potential rising stars.

Total debt for those potential fallen angels was $265 billion as of March 31, with non-U.S. issuers representing 80 percent of the total, Moody’s said. That’s up from $234 billion at the close of 2015.

None of this can take away from the profits enjoyed by market participants over the past two months. However, and most importantly, it’s paramount that you remember recent history and how a small crisis can easily bubble over into something much larger.

After starting 2008 with a 6% decline, markets rallied, in a ferocious manner, up until June of that year before succumbing to a selling frenzy that will be remembered forever, as a thing of legend. The odds of predicting another crisis to the exact month or week is extremely low. Nonetheless, we are seeing a repetition of warning signs, almost like a carbon copy from 2008, that demands attention. Otherwise, we’re nothing more than a class of morons–unable to learn from one’s history.