The New Royalty of Junk Debt

They borrowed billions in an historic era of low rates. Now they’re getting credit upgrades

- Paula Seligson and Olivia Raimonde

The stock market in 2022 has been on a wild ride, as equity investors question whether companies can grow fast enough to justify lofty valuations. But in the junk-bond market, where the attention is focused on a company’s ability to pay its bills, the story is a bit different. Several major high-yield borrowers—including Netflix Inc., which has seen its share price cut by more than 25% this year— are close to or have recently won promotion from credit rating companies out of the junk pile and up to “investment grade.”

Netflix along with Dell, Tesla, and T-Mobile took advantage of the long era of low-interest rates to borrow billions of dollars relatively cheaply from investors hungry for yield. And then the companies got the help they couldn’t have expected: The Covid-19 pandemic and the Federal Reserve’s aggressive response to it extended the period of low rates and easy financial conditions, giving companies more breathing room to execute their plans.

Earning investment-grade status can allow a company to borrow at lower rates and increases the pool of potential lenders. While new issuance in the junk-bond market can sometimes shut down, the investment-grade bond market almost never does and can provide a steady source of financing even for companies with a lot of debt. “If you go full investment grade, you have much lower capital access risk when you have refinancing,” says Davis Hebert, an analyst at research firm CreditSights. But with inflation on the rise and interest rates likely to increase, can all of these titans-of-junk turned-near-blue chips keep it up?