Investing

10 Fresh Credit Rating Downgrades Could Send Corporate Borrowing Costs Sky-High

New Residential Investment Corp. (NYSE: NRZ) was downgraded in the long-term issuer rating from Moody’s to B3 from B2 on Monday afternoon, and its ratings are on review for further downgrade on liquidity concerns. The mortgage real estate investment trust was up 30% at $4.55 during Tuesday’s market rally, but the shares were above $16 as recently as March 5. To put it mildly, mortgage payments being skipped and an inability to rectify missed payments is bad news for mortgage REITs and their dividends. Moody’s said that, while the ratings downgrade reflects the company’s recent liquidity stress, the initiation of a ratings review for further downgrade was brought on by New Residential’s ongoing liquidity challenges.

PNM Resources Inc. (NYSE: PNM), a $3.3 billion electric utility covering parts of New Mexico and Texas, was downgraded by S&P to BBB from BBB+ based on the expectations that the company’s weak historical financial measures will remain under the ratings agency’s downgrade threshold over the next two years. S&P also revised the Texas/New Mexico Power financial risk profile to significant from intermediate as its higher capital spending to support the expansion in transmission will lead to weaker financial measures. With a share price of $42.00, PNM Resources generates a 2.93% dividend yield for its common holders, and its shares are down 25% from their highs.

Ralph Lauren Corp. (NYSE: RL), which has rallied with the market despite a negative COVID-19 business update, was put on CreditWatch Negative at S&P as the rapid drop in consumer spending and store closures around the country will bring significantly lower operating results. S&P has an A− issuer credit rating, so that is not close to junk ratings at this time. Ralph Lauren’s stock price was up 12% at $77.00, with close to a $5.7 billion market cap, but that is down from a high of $133.63. Ralph Lauren currently has a 5% dividend yield, and the current $2.75 annualized dividend per share is against normalized earnings of more than $7.00 per share.

StoneMor Inc. (NYSE: STON), an owner and operator of cemeteries and funeral homes, has seen its shares plunge. S&P lowered its credit rating deeper into junk territory with a new CCC− rating based on liquidity risks and debt covenant risks. This stock has been in decline for several years, and a share price of $0.57 probably tells enough of the story here.

Tivity Health Inc. (NASDAQ: TVTY), which provides fitness and nutrition solutions along with the Nutrisystem and South Beach Diet brands, was downgraded to B at S&P and it remains on CreditWatch Negative. The ratings agency sees Tivity posting lower earnings due to its own underperformance and to pandemic pressure. With a market cap of $310 million, after nearly a 20% gain to $6.35, Tivity was a $23 stock as recently as mid-February. Tivity’s total liabilities of almost $1.4 billion come with long-term debt of almost $1.05 billion, versus total assets of $282 million or so after backing out $654 million in good will and another $689 million in intangible assets.

YRC Worldwide Inc. (NASDAQ: YRCW), a trucking company that has been under pressure for two years, has seen its credit rating lowered to CCC+ based on weaker operating prospects. Unfortunately, S&P also still has a negative outlook that could bring an additional downgrade. At $1.35 a share, YRC Worldwide has a mere $50 million market cap, against total liabilities of $2.27 billion.

Tuesday’s top equity analyst upgrades and downgrades included BHP, Electronic Arts, Gilead Sciences, Immunomedics, KeyCorp, Peloton Interactive, Shopify, Sunnova Energy, Take-Two Interactive, Walt Disney and many more.