As a follow-up to a note we published recently regarding the diverging borrowing trends between municipalities and corporations, a report from Moody’s caught our eye this week. Low interest rates fueled another year of record debt issuance by corporate America in 2013, which has led to increased leverage on corporate balance sheets. Higher levels of debt relative to assets and/or cash flows are forcing rating agencies such as Moody’s to reassess ratings levels. As such, in the six months ended November, 223 companies had their bond rating cut versus 172 rating upgrades. This is the highest proportion of downgrades since April. The use of borrowed funds is increasingly going to reward shareholders. This year 15% of offerings went to fund shareholder payouts, the most in five years. At the same time, credit spreads, or the amount of additional yield investors receive for investing in corporate bonds versus government securities, are below the levels seen prior to the financial crisis. When we see trading levels misaligned with fundamentals, we take action, so we have reduced our corporate bond exposure in client portfolios. We believe better entry points will become available as investors recognize that the actions CFOs are taking to lock in low borrowing costs are rewarding shareholders and hurting creditors.