Loan Downgrades Reach Pandemic Highs as Fed Hikes Hit Borrowers

Credit graders are getting increasingly alarmed about US leveraged loan borrowers, signaling that even though the loans have rallied this year there are storm clouds gathering in the market.

Loans to junk-rated companies have in recent months been getting downgraded at the fastest pace since the pandemic, Citigroup Inc. strategists Michael Anderson and Steph Choe wrote in a note this week. Otherwise, this rate of downgrades has rarely been seen over the last decade.

Bond grading firms are cutting credit ratings as factors like higher borrowing and labor costs strain companies’ finances, the strategists wrote. These conditions “appear to have ...