The number of companies on Moody's B3 Negative and Lower Corporate Ratings List fell 21% quarter-over-quarter, finishing June with 256 debt issuers, continuing a positive trend, Moody’s said recently.
The list still harbours some lower-rated companies which have a higher chance of default because of weak liquidity and aggressive financial policies encouraged by their private-equity (PE) sponsors, the credit rating agency observed.
The decline in number of firms on the list continued a steady trend from the record number of 417 companies on this at the end of the second quarter of 2020, the firm said.
The continuing decline is a sign of a much better overall default outlook for the next 12 months, according to Moody’s.
The default rate is poised to drop to 1.9% a year from now, well below the long-term average of 4.7%, Moody’s said.
Around 65% of companies on the B3N list are PE-owned and around the same percentage of companies on the list have loan-only debt structures, which in the default scenario do not bode well for investors' debt recoveries, the firm noted.
Most of these companies are concentrated in the Services sector on the B3N list, the firm added.
The Consumer/Business Services sector continues to top the B3N List's sector weightings, accounting for 20.7%, with 43 of the 53 Services companies on the B3N list having private equity backing, Moody’s said.