US companies rated B3 or lower at 7-year high: Moody's

[NEW YORK] The tally of companies rated B3 negative or lower by Moody's Investors Service have reached levels not seen since the first quarter of 2009, the agency said in a report on Wednesday.

The portfolio of companies with such low ratings as at April 1 matched an all-time high of 291 that was recorded in the midst of the Great Recession default cycle seven years ago, said the agency.

The increase was mainly because 32 per cent of oil and gas companies, rated by Moody's, now carry B3 negative or lower ratings, after a number of new downgrades.

The oil and gas sector was responsible for a 17 per cent quarterly increase in the number of B3 negative or lower rated companies in the first quarter of 2016, according to the report.

Services companies accounted for 12.4 per cent of the bottom rating rungs, while retail had the third highest concentration of low rated companies at 5.5 per cent. The year-over-year increase of all B3 negative or lower rated companies is 54 per cent.

The downgrades were however contained within the oil and gas sector which was in contrast to seven years ago when the list featured a higher percentage of total speculative-grade issuers from a wider variety of industries.

"Despite hitting an all-time high, the ripple effect from the commodity and energy downturn is not evident in the current sector distribution of the B3 negative and lower list, where only four sectors represent more than 5 per cent of the list," the rating agency said.

In April 2009, out of 26 industries tracked by Moody's, seven represented at least 5 per cent or more of the total list, and totaled over 60 per cent when combined - showing the credit crisis was spread more evenly across industries.

Moody's said the number of companies rated B3 negative or lower ratings could expand beyond the current 291 tally.

"The list can easily exceed its prior peak if downgrades of single-B securities continue at the current pace," Moody's said.

IFR