Huge Wave of Upgrades Is Surging to U.S. Corporate Bond Market

(Bloomberg) -- Netflix Inc., The Kraft Heinz Co. and other bond issuers look like they'll get swept up in the biggest wave of credit-rating upgrades the U.S. has seen in more than a decade -- a sign the recovery from the pandemic is accelerating.

The Covid-19 recession had spurred the most downgrades since the 2008 financial crisis, but corporate balance sheets have improved markedly since then. The amount of investment-grade debt being evaluated for an upgrade has swelled to $203 billion, the most since 2010, Bank of America Corp. strategists led by Yuri Seliger wrote in a report Tuesday.

Junk-rated companies should benefit, too. Dell Technologies Inc. has already been lifted to investment-grade status from junk. Netflix and Kraft may also get there, according to Bloomberg Intelligence. Winnie Cisar of CreditSights sees more so-called rising stars emerging in 2022, boosting their bond returns.

“Firms that may be up next in the rising-star category should see spreads tighten as investors anticipate more upgrades,” said Cisar, the firm's global head of strategy. If the wave of upgrades holds, companies that have high-yield status might take advantage of the “continued fundamental momentum” to seek better grades, she said.

Read More: Buy Signal for U.S. Credit as Good Balance Sheets Spur Upgrades

However, Dominique Toublan, head of U.S. credit strategy at Barclays Plc, wrote in a note Friday that impending upgrades to high-grade from junk status have mostly been factored into the price of bonds -- limiting the scope for juiced-up returns in the future.

Elsewhere in credit markets:

Americas

ZipRecruiter Inc. is set to sell $500 million of junk bonds Friday in its debut debt issuance, while U.S. high-grade primary sales are expected to be muted after almost $60 billion priced in the first four days of the new year.

Investment-grade bonds have lost 1.61% in 2022 after falling the first four days of the week; Monday's decline was the biggest since March 2020
At least two deals in the leveraged loan market have commitments due Friday
- Virtu Financial Inc.'s $1.8 billion loan was brought forward to Friday and will fund refinancing and share repurchases
- Dun & Bradstreet Holdings Inc.'s $460 million sale to redeem notes is also expected to close the books
The judge overseeing the reorganization of opioid maker Mallinckrodt Plc questioned the fairness of a plan to protect company executives and others from future lawsuits
For deal updates, click here for the New Issue Monitor
For more, click here for the Credit Daybook Americas

EMEA

Europe's primary market ended the week with a single deal as holidays stalled the start of 2022 issuance.

Next week, banks and other financial institutions are set to drive issuance following mandates from Aareal Bank, CPI Property Group, Logicor, Motability and UniCredit Bank

Asia

China called on banks to boost real-estate lending in the first quarter and eased a key debt restriction for developers, a sign that authorities are becoming increasingly concerned about the industry's liquidity crisis.

Issuance in the Asia ex-Japan primary dollar bond market jumped this week, with jumbo debt offerings from India's Reliance Industries and Hong Kong's airport authority offsetting a slump in deals from mainland China
Primary issuance in Asia ex-Japan surged to about $12.2 billion, the highest in 11 weeks, according to data compiled by Bloomberg