Salient to Investors:

Corporate creditworthiness in the US is deteriorating at the fastest pace since 2009 with earnings growth slowing as yields rise from record lows.

Moody’s said the ratio of upgrades to downgrades fell to 0.89 times in the first 5 months of the year after reaching a post-crisis high of 1.55 times in 2010  S&P said the proportion has declined to 0.83 from 1 a year earlier.

Moody’s cut credit rankings on 194 US companies and raised 173 in the first 5 months of 2013, the weakest ratio since the first five months of 2009. S&P has cut 138 US companies through June 17 and upgraded 114 companies.

Analysts forecast earnings growth of 2.5 percent in Q2, the least in a year.

Ben Garber at Moody’s Analytics said the trend of improving credit quality has slowed as profits are slowing, and as the recovery matures, companies are liable to get more aggressive in taking on share buybacks and dividends.

Rob Leiphart at Birinyi Associates said rather than using cash to pay down debt, companies in the S&P 500 Index are trying to boost their share prices by buying back almost $700 billion of stock in 2013.

Anthony Valeri at LPL Financial said that after cutting expenses as much as they could to improve profitability, companies need further revenue growth to boost earnings. said the average cost of new 30-yr, fixed-rate home loan has climbed to 4.58 percent versus the record low 3.36 percent in December.

Investors are pulling back from auto debt, the largest part of the asset-backed market, threatening to constrain financing to borrowers with blemished credit histories.  John McElravey et al at Wells Fargo said subprime vehicle debt accounted for 13.2 percent of asset-backed issuance this year compared with 10.5 percent in 2012.

Earnings growth at S&P 500 companies is poised to slow from 2.7 percent in Q1 and 8 percent in Q4 2012.

The ratio of cash to total assets for S&P 500 companies is at 10.3 percent versus the low of 5.6 percent in March 2007.

Rajeev Sharma at First Investors Mgmt said companies have done a great job cleaning up their balance sheets but now the focus has moved on to dividends and share buybacks, making the ratings agencies apprehensive.

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