The Downgrade Massacre Has Started
Just astounding. So many downgrades in just of a couple of days. And zero upgrades. Here’s who got hit.
By Wolf Richter for WOLF STREET:
I get “Moody’s Daily Alert” in my inbox, which lists Moody’s ratings actions for the day. The Alerts are usually a mix of a few upgrades and a few downgrades. Many times, there are no downgrades. Earlier this year, it became obvious without counting that the downgrades were starting to outnumber the upgrades by a large margin. But this week, the three Alerts were a torrent of 69 downgrades and zero upgrades. This is something I haven’t seen since I started subscribing to this service years ago. Some of the downgrades were by multiple notches in one fell swoop.
This ratio of zero upgrades to 69 downgrades by Moody’s this week is a hair-raising deterioration of the already downgrade heavy ratings actions so far this year. Moody’s has now downgraded over 180 companies this year, 69 of which I got in my inbox just this week!
In addition, these Alerts contained a torrent of warnings about “ratings on review for further downgrade” or “negative outlook,” meaning downgrades, or additional downgrades are to come.
The analysts at Moody’s must be working overtime putting together their downgrade reports, and they’ve fallen behind, and it’s going to take them a while to catch up. Meanwhile, they issue warnings about what they’ve got in their downgrade pipeline.
For example, this week, Moody’s downgraded Ford’s senior credit rating one notch deeper into junk (to Ba2). Ford’s corporate family rating is already Ba2. Moody’s warned that it placed the ratings under review for further downgrade. Moody’s said the ratings “reflect what is an already-stressed credit profile and a very long-term restructuring program. The company is now additionally burdened by the prospect of a severe and prolonged decline in automotive markets precipitated by the coronavirus.”
Moody’s also said this week that it has placed FCA (currently Ba1) under review for a one-notch downgrade deeper into junk, and that it has placed GM’s senior unsecured ratings (currently Baa3, one notch above junk) under review for a downgrade to junk. In Moody’s book, Tesla has always been rated junk (currently B3).
As a reminder, on Moody’s scale, “investment grade” is a rating of Baa3 and above such as Baa2 or Baa1, A3 etc. Junk is anything below Baa3, starting with Ba1, Ba2, etc. Moody’s lowest rating is C for default (my plain-English cheat sheet for bond credit ratings by Moody’s, S&P, and Fitch).
Moody’s one day’s worth of downgrades.
The list below shows the 28 actual downgrades of the final Alert this week, sent out on Thursday. There are some big names. Most of them are downgrades from junk deeper into junk.
- Saracen Development: slashed 4 notches deeper into junk from B3 to Caa1 with “negative outlook,” meaning further downgrades are likely.
- Sugarhouse HSP Gaming: downgraded one notch deeper into junk, from B2 to B3; with negative outlook.
- Churchill Downs: downgraded one notch deeper into junk from Ba2 to Ba3; outlook negative
- CCM Merger: downgraded one notch deeper into junk from B1 to B2; outlook negative
- Ford senior debt rating: downgraded one notch deeper into junk, from Ba1 to Ba2; “places rating under review for further downgrade.”
- PetroChoice Holdings slashed by four notches deeper into junk, from B3 to Caa1; stable outlook
- Men’s Wearhouse: slashed by three notches deeper into junk, from Ba3 to B3; ratings on review for further downgrade.
- Bruin E&P Partners: annihilated by eight notches, from B2 (two notches into junk) to Ca (default imminent with little prospect for recovery); outlook stable.
- Metro-Goldwyn-Mayer: downgraded one notch deeper into junk, from Ba3 to B1; outlook is stable.
- Buena Vista Gaming Authority: downgraded one notch deeper into deep junk, from Caa1 to Caa2, ratings on review for further downgrade.
- Mohegan Tribal Gaming Authority: downgraded one notch deeper into junk, from B2 to B3 from B2; outlook negative.
- Twin River Worldwide Holdings: downgraded one notch deeper into junk, from B1 to B2; outlook negative.
- Downstream Development Authority: downgraded one notch deeper into junk, from B2 to B3; outlook negative
- Goodyear Tire & Rubber Company: downgraded one notch deeper into junk, from Ba3 to B1.
- Dayco Products: slashed two notches into deep junk, from B3 to Caa2, negative outlook.
- Cooper-Standard Automotive: downgraded one notch deeper into junk, from B2 to B3; Outlook negative.
- Lifetime Brands: downgraded one notch deeper into junk, from B1 to B2; outlook negative.
- NN, Inc.: downgraded one notch to deep junk, from B3 to Caa1; ratings under review for downgrade.
- Adient’s senior secured rating: downgraded one notch deeper into junk, from Ba2 to Ba3. Corporate family ratings under review for downgrade.
- Casablanca’s (Apple Leisure Group): downgraded two notches, and into deep junk, from B3 to Caa2, outlook negative.
- Ahern Rentals Inc.: downgraded one notch from B2 to B3; ratings placed under review for further downgrade.
- S. Farathane: slashed by three notches, now into deep junk, from B3 to Caa3, outlook negative.
- Fetch Acquisition: downgraded one notch deeper into junk, from B2 to B3; Outlook is negative
- Spectacle Gary Holdings: downgraded one notch, and into deep junk, from B3 to Caa1; outlook negative.
- Blue Ribbon: downgraded one notch from B3 to Caa1 from B3, outlook negative.
- The Enterprise Development Authority: downgraded one notch from B3 to Caa1; ratings on review for further downgrade.
- Jacobs Entertainment, Inc.: downgraded one notch deeper into junk, from B2 to B3; ratings on review for further downgrade
- Peninsula Pacific Entertainment: downgraded on notch and into deep junk, from B3 to Caa1; outlook is negative
On Tuesday and Wednesday, Moody’s hit a combined 41 companies with downgrades. Here are some samples:
- Three large cinema chains: AMC (largest in the world), Cineworld (second largest in the world, and the Redstone family holding company National Amusements (NAI); all three of them to B3.
- Midas Intermediate Holdco (auto service centers) to Caa1.
- A gaggle of companies in the oil-and-gas sector, including Murphy Oil Corporation to Ba3 and Transocean (world’s largest offshore drilling contractor) to Caa1.
- Darden Restaurants to Baa3.
- A slew of casino companies, including Station Casinos to B2; CBAC Gaming to Caa2, and Golden Nugget to B3
- Major hotel chains, including Four Seasons Hotels to Ba3; Hyatt Hotels to Baa3, Marriott’s senior unsecured rating to Baa3, and Aimbridge Hospitality Holdings (largest third-party hotel operator, with over 1,300 properties) to B3.
- VeriFone Systems (electronic payment and point-of-sale systems) to B3.
So far this year, Moody’s issued over 180 downgrades, of which 20 hit investment-grade companies and 160 hit junk-rated companies. That ratio of investment grade to junk is roughly confirmed in the lists above.
S&P got even busier. Its downgrades hit over 300 companies so far this year, and it has upgraded only 75 companies. But those upgrades have stopped. In March alone, S&P downgraded about 200 companies, and just today, it downgraded 27! These analysts are now working as hard as they can to catch up.
S&P’s one day’s worth of downgrades
Below are the 27 companies S&P downgraded today; and it upgraded zero. This list includes some big names, such as retailers Ross Stores, Burlington Stores, Bed & Bath, TJX, and L Brands (again, my cheat sheet for bond credit ratings by Moody’s, S&P, and Fitch):
- Noble Energy: Lowered to ‘BBB-‘; Outlook Negative
- DuPont de Nemours: Downgraded To ‘BBB+’ On Weaker Macroeconomic Conditions; On Watch Negative; Debt Ratings Lowered
- PS Holdco: Lowered To ‘B’ From ‘B+’ On Weaker-Than-Expected Credit Metrics; Outlook Negative
- Centennial Resource Development: Slashed three notches to ‘CCC+’ From ‘B+’ On Sharp Drop In Commodity Prices; Outlook Negative
- Logix Intermediate Holding Corp.: Downgraded To ‘CCC’ On Economic Impact of The Coronavirus; Outlook Negative
- Alliance Resource Partners: Downgraded To ‘BB-‘; Outlook Stable
- Glass Mountain Pipeline: Lowered To ‘B-‘ On Expected Higher Leverage; Outlook Negative
- L Brands (Victoria’s Secret, Bath & Body, etc.): Lowered To ‘B+’ On Expectation For Weak Demand Amid COVID-19; Outlook Negative
- Continental Resources: Lowered To ‘BB+’ From ‘BBB-‘ On Weaker Credit Measures, Refinancing Risk; Outlook Negative
- Covanta Holding Corp.: Downgraded To ‘B+’, Outlook Stable; Debt Ratings Lowered
- BDF Acquisition Corp: Downgraded To ‘CCC+’ From ‘B’ On Expected Weak Performance, Liquidity Pressure; Outlook Negative
- Matador Resources: Downgraded To ‘B-‘ On Weaker Credit Metrics, Tighter Liquidity; Outlook Negative
- National Amusements: Downgraded To ‘B-‘ From ‘B+’ On Reduced Liquidity, Ratings Remain On CreditWatch Negative
- International Car Wash Group: Lowered To ‘B-‘ On Impact Of COVID-19 On Traffic Levels; Outlook Stable
- Antero Resources: Downgraded To ‘B-‘ On Difficult Market Conditions; Outlook Negative
- Bed Bath & Beyond: Lowered To ‘B+’ On Operational Headwinds Exacerbated By Coronavirus; Outlook Negative
- Winnebago Industries: Lowered To ‘B+’ On Anticipated COVID-19 Impact; Outlook Negative
- Cirque Du Soleil Group: Lowered To ‘CCC-‘ On Significant Liquidity Pressure; Outlook Negative
- HighPoint Resources: Downgraded To ‘CCC+’ On Liquidity Risks; Outlook Negative
- The NORDAM Group: Downgraded To ‘B’ On Possible Coronavirus Ramifications; Outlook Stable
- Specialty Building Products Holdings: Downgraded To ‘B-‘ On Impact From COVID-19 And Recessionary Pressures
- Ross Stores: Downgraded To ‘BBB+’ On Performance Challenges Stemming From The Coronavirus Pandemic, Outlook Negative
- Burlington Stores: Downgraded To ‘BB’ On Operational Pressures Amid Coronavirus Outbreak; Outlook Negative
- TJX: Downgraded To ‘A’ On COVID-19 Related Operating Disruption, Weakened Credit Metrics; Outlook Negative
- Thor Industries: Lowered To ‘BB-’ On Anticipated COVID-19 Impact; Outlook Negative
- Dayco: Downgraded To ‘CCC+’ Due To The Effects Of The Coronavirus Pandemic, Outlook Negative
- National Fuel Gas Co.: Downgraded To ‘BBB-‘ As Lower Price Assumptions Weaken Credit Metrics; Outlook Negative
Just one day’s work: 27 downgrades, zero upgrades.
I can just see the analysts working overtime trying to get all these reports out the door. And when they’re done downgrading their universe, the cycle starts all over again with more downgrades and more warnings about future downgrades.
The pace at which this is now happening – the pace that kicked off over the past few days – is just astounding. And it shows to what extent credit ratings agencies are suddenly motivated to catch up with the reality of this Financial Crisis.
Fed’s assets spike to high heaven to bail out the imploded Everything Bubble it had worked so hard to inflate over the past decade. Read… Helicopter Money for Wall Street
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