Credit Markets: Ratings Firms Give Leeway To Some Big Borrowers -- WSJ | 10/21/2019 | Staff
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In August, bond-ratings firms Moody's Corp. and S&P Global Inc. predicted that Newell Brands Inc. would soon reduce its heavy debt load, allowing it to keep its coveted investment-grade bond rating.

They made the same prediction in 2018. And in 2017. And in 2016. And in 2015, when the company announced a big merger that quadrupled its debt. Yet bond ratings for the maker of Rubbermaid containers and Sharpie markers haven't budged.

S - P - Moody - Projections - Error

When S&P and Moody's made their upbeat projections in 2018, they made an error that understated Newell's indebtedness, according to a Wall Street Journal review of the rating firms' calculations. They have since fixed their numbers, but still rate Newell investment-grade. Investors have been less forgiving, selling off the bonds and driving up their yield.

Moody's and S&P didn't dispute revising their calculations, but said the changes didn't affect their ratings.

Borrowing - Spree - Ratings - Firms - Borrowers

Amid an epic corporate borrowing spree, ratings firms have given leeway to other big borrowers like Kraft Heinz Co. and Campbell Soup Co., allowing their balance sheets to swell.

"It's pretty eye-popping if you've been doing this for 20-plus years, to see how much more leverage a number of these companies can incur with the same credit rating," said Greg Haendel, a portfolio manager at Tortoise in Los Angeles overseeing about $1 billion in corporate bonds. "There's definitely some ratings inflation."

Years - Interest - Rates - Boom - Borrowing

Years of rock-bottom interest rates have fueled a boom in borrowing, driving debt owed by U.S. companies excluding banks and other financial institutions to nearly $10 trillion -- up about 60% from precrisis levels. Leverage -- how much debt a company owes relative to its earnings -- hit a high in the second quarter of this year, according to JPMorgan Chase & Co. data on investment-grade bonds going back to 2004, which also excludes financial companies.

The buildup has fueled one of the...
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