Evolution of Credit Quality in the Long Investment Grade Market

Every credit cycle leaves a lasting mark on corporate behavior, management financial policy and capital allocation. Today companies that have been able to build ample cash are faced with capital allocation decisions, which could further impact the trajectory of leverage. In these videos, we discuss how investment grade corporates fared through the cycle, recent trends we are witnessing, including ratings migration especially in the long credit market and how we are navigating the current environment.

One of the biggest takeaways we are seeing is one of convergence – ratings, spreads, leverage, interest coverage. The credit metrics between BBBs and As have converged pretty significantly over the last 10 years. From a portfolio positioning standpoint in long duration we believe navigating the BBB space is going to be important in finding situations where companies are positioned well fundamentally, and do not have the extreme cyclicality in their businesses to be exposed to becoming over-levered through the next cycle.