Before Campbell Soup sold $5bn of debt this month to fund its purchase of US snack-food maker Snyder’s-Lance, its chief financial officer told analysts that the company’s prized investment-grade status was safe. But it is only just.

The deal prompted rating agencies to downgrade Campbell to the tier above junk. While New Jersey-based Campbell is more indebted than most of its peers, the era of ultra-low interest rates has left it plenty of company in the riskiest segment of the investment grade market as corporate America’s borrowings have ballooned.

The chunk of the market rated at triple B — the group of ratings just above junk — now accounts for 48 per cent of the investment-grade market, according to data from ICE BofAML Indices. What is more, these corporate borrowers have piled on debt. Triple B-rated issuers were slightly below 3 times levered in 2017, according to Citigroup, up from just about 2.5 times in 2015.

“There’s been an overall credit-quality degradation taking place within the investment grade market,” said Jon Duensing, a senior portfolio manager with Amundi Pioneer Asset Management. “And we have seen more willingness from investment-grade companies — particularly non-financials — to take more leverage on to their balance sheet.”

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With the US economy in its tenth year of expansion since the financial crisis, the danger is that indiscriminate buyers of the lower tiers of investment-grade debt may not be compensated enough for the risks of rising leverage. Low interest rates have kept borrowing costs low and bond-purchase programmes of central banks have compressed risk premiums, or the extra yield offered over US government bonds, thereby cutting the cost to companies of issuing lower-rated debt.

In the six months to the end of February, the spread between triple B-rated debt and benchmark Treasury yields was an average 48 basis points wider than the A-rated spread, according to data from Bloomberg Barclays indices. Over the past 15 years, the gap has averaged 59 basis points.

“You’ve got to believe in the credibility of the management team, and you also have to believe the music keeps playing. If the music stops and companies just levered up, well, that’s why credit cycles reverse,” said Matt Brill, a portfolio manager with Invesco. “When the economy starts to slow and corporations are overlevered, that’s your biggest fear. That’s what a fixed-income investor is constantly protecting their portfolio against.”

The M&A boom has been a contributor to the erosion in credit quality within investment grade. The sale this month by CVS Health of $40bn in bonds to pay for its acquisition of insurer Aetna, nabbed triple B and Baa2 ratings from S&P and Moody’s, respectively. It was the third-largest corporate bond sale in history, leaving the combined company with an adjusted debt to ebitda of 4.6 times, according to Moody’s.

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CVS insisted it would reduce its leverage to about 3.5 times in the first two years after the deal, echoing promises made by other companies that have increased the number of debt-funded M&A deals that earn investment-grade ratings. Campbell, for example, promised to cut its leverage ratio below three times in roughly 3.5 years. And after Sherwin-Williams acquired paint manufacturer Valspar last year, funded by $6bn of triple B bonds, Moody’s forecast leverage will fall below 3 times from 4.5 times within two years.

The headache for investors is that corporate treasurers do not always keep their promises. For example, Verizon Communications bought Verizon Wireless in 2013, with the stated goal of achieving a higher A credit rating in “four to five years”. Nearly five years later,company management said on its latest earnings call that it wanted to deleverage, but did not specify a target level of debt or a credit rating. Verizon is rated triple B-plus by S&P.

“Given where the market’s been, it makes sense for companies to borrow to a point that it brings down quality,” said Monica Erickson, a portfolio manager with DoubleLine Capital. “They don’t have to pay up for it. It’s logical that treasurers have made that choice.”

Investors are becoming more selective about which bonds to buy, especially among triple B-rated companies. The bonds become riskier to own if there is a chance their ratings will be downgraded to junk, because the high-yield market is generally less liquid and more reliant on demand from retail investors.

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“It’s not a problem this second, but once you see a downgrade wave, these are distinct markets with different buyer bases who will have to absorb that,” said Gene Tannuzzo, a senior portfolio manager with Columbia Threadneedle Investments.

For now, there are reasons for optimism about the triple B segment. No one expects US economic growth to stall any time soon. Also, if US regulators allow AT&T to buy Time Warner in an $85bn deal agreed in 2016, even more triple B bond issuance could be in store if other vertical mergers come to pass. Investors say larger companies are more likely to secure — and deserve — triple B ratings because they typically face less market pressure than their smaller competitors in times of stress.

“There’s a size preference,” said Matt Toms, chief investment officer of fixed income at Voya Investment Management. “Bigger is better, and smaller can be forced out of debt markets more easily by competitive pressures.”

However, the growing slice of the triple B segment of the investment grade market may not ultimately prove better for investors.

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