More Junk-Rated Companies Are Facing Credit Downgrades and Defaults

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The prospects of U.S. companies with significant leverage or rated several notches below investment grade have turned bleaker in recent months, credit-rating firms say

were downgraded by at least two ratings firms in recent weeks while attempting a debt exchange.

S&P on March 21 also downgraded WeWork’s issuer credit rating by three notches, to CC, after it reached a deal to cut its debt by roughly $1.5 billion and extend some maturities. Ratings firm Fitch Ratings on March 27 downgraded WeWork’s long-term issuer default rating by two notches, to C.

Companies approaching a default, for example those incapable of generating cash flow at the rate at which they would have to refinance, have limited options for avoiding a default-related credit rating. A distressed publicly traded company probably will have trouble issuing equity and would need to focus on slashing costs and demonstrating it can generate sustainable cash flow, potentially paving the way for a refinancing, Mr. Lemos-Stein said.

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