Fitch Ratings calculates 42% of its universe of 480 B-rated issuers will have earnings before interest, taxes, and depreciation and amortization to cover interest expense plus maintenance capital expenditures less than one time based on certain assumptions. These include repricing debt at a 9% to 11% rate for B+ to B- rated companies, and EBITDA dropping by 10% to 30% based on a sector's exposure to the economic cycle.
Last year, less than 9% of the issuers had less than one-time coverage.
Technology, the sector with the largest number of B-rated issuers, will see one-third of the issuers below a one-time coverage ratio under Fitch's stress test. Diversified services and diversified manufacturing will have 44.8% and 46.5% of their universes, respectively, below that coverage threshold, according to Fitch's calculations.
The Bloomberg B U.S. High Yield index's option-adjusted spread stood at 388 basis points over U.S. Treasuries as of March 7, down from 489 basis points at the end of 2022. The spread was 631 basis points at the end of June.
