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Bolloré ups Vivendi stake; Vodafone launches Vodafone Pay in UK

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market Driven View


Bolloré ups Vivendi stake; Vodafone launches Vodafone Pay in UK

TOP NEWS

* Bolloré Group announced it has raised its stake in Vivendi SA above the 20% threshold in shares and voting rights. Taking into account the double voting rights to be achieved by April 20, 2017, the Bolloré Group expects to hold at that date approximately 29% of Vivendi's votes.

* Vodafone UK launched its Vodafone Pay contactless payment service in the U.K., in partnership with PayPal, the British telco announced. Vodafone Pay, which can be used even when users' phones are switched off or out of battery, also works with the Transport for London network as well as on National Rail services in and around London which accept Oyster and contactless transactions.

PAN-EUROPEAN

* EU Competition Commissioner Margrethe Vestager said that they are not probing into Google Inc.'s tax deals with European national authorities, Reuters reports. Vestager added that she wanted to build strong cases in relation to the European Commission's antitrust investigations against the Alphabet Inc. unit.

UK AND IRELAND

* South Korean public service broadcaster Arirang TV launched its HD feed on Sky plc in the U.K. and Ireland, Broadband TV News reports. The HD channel is supported by Orange SA's media solutions provider unit Globecast.

* Ofcom chief Sharon White said the British Broadcasting Corp. currently lacks diversity in its programming, the Financial Times of London reports. As Ofcom begins overseeing the public broadcaster in 2017, White identified drama, U.K-made content, kids' programs and news and current affairs as four areas the British media watchdog will initially focus on.

GERMANY, SWITZERLAND AND AUSTRIA

* IAC/InterActiveCorp's HomeAdvisor struck a deal to buy a controlling interest in German home services marketplace MyHammer Holding AG from Holtzbrinck Digital GmbH, according to a news release. HomeAdvisor will acquire Holtzbrinck Digital's stake of about 70% in MyHammer, as well as Holtzbrinck Digital's direct ownership stake in MyHammer's principal operating unit.

* Nemetschek, the German-headquartered construction software specialist has announced a profit growth of 20% until the end of 2016 to €341 million. According to Handelsblatt, the business has profited from its focus on international expansion.

* German media company Gruner + Jahr has combined its communications activities led by Head of Communications Frank Thomsen, according to German media magazine DWDL. The move is part of a larger plan to expand the firm's communications business and modernise as well as digitalise its brands.

* Lisette Schlippe has been announced as Director Content Licensing at American broadcasting firm Turner Broadcasting System Inc. for central and eastern Europe, reports German news site Kress. The position has been newly created. Schlippe joins the senior management team for the region which includes Germany. Time Warner Inc. owns Turner.

* German Bundesbildungsministerin Johanna Wanka (CDU) (Minister of Education) has announced plans to equip 40,000 schools in Germany with laptops and WLAN to facilitate a digital learning environment, reports German news site Die Welt. The provision would require €5 billion in funding until 2021.

FRANCE

* Christophe Barbier resigned as Editor in Chief of French weekly L'Express, Le Parisien reports. He will be replaced by Guillaume Dubois, who will add the responsibility to his current position as Managing Director of Press for Altice NV unit SFR Group - Cable's SFR Média.

* The Digital Republic bill took effect officially in France on Oct. 7, strengthening the role of telecoms regulator ARCEP, Univers Freebox reports. ARCEP will, among other new powers, incite deployment of fiber optics, encourage innovation, and monitor net neutrality.

* Google will roll out the identification of Accelerated Mobile Pages (AMP) in Europe in the coming month, CB News reports. When a search is done via mobile phone, a symbol will indicate that it is an AMP fast-loading site. AMP pages load, on average, in less than a second.

* Universal Music Group, a subsidiary of Vivendi, launched music production platform Spinnup in France, CB News reports. The service allows musicians to self-produce and upload tracks to online listening platforms like Spotify Ltd., Apple Inc.'s iTunes and Deezer SA. The platform charges a fee for the upload and artists retain their rights and 100% of their potential income.

* French data hosting service OVH will build its first data center in the U.S., Usine Digitale reports. The facility will be located in Virginia with an estimated cost of $47 million.

NETHERLANDS, BELGIUM AND LUXEMBOURG

* Deutsche Telekom AG unit T-Mobile Netherlands will enable customers who have a subscription of at least 6GB a month to freely and unlimited stream music via 4G from services such as Spotify and Deezer, AD writes. Dutch competition regulator ACM is launching an investigation into the offer, saying T-Mobile's move conflicts with Dutch laws on internet neutrality, which state that providers should offer services on a non-discriminatory basis.

* Dutch provider KPN NV has announced it will renew its 'benefit bundles' for use outside the European Union, GSMHelpDesk reports. The new bundles will consist of 'units' which can be used as an SMS, MB, or call minute within the 40 most popular destinations outside the EU.

* Dutch operator E-Fiber has completed the preparations for a demand aggregation in the town of Bernheze, with a number of information evenings for residents, reports Telecompaper. At least 40% of targeted households, equal to 5,200 residents, need to sign up for the service in order for the fibre network roll-out to kick off.

NORDIC COUNTRIES

* Ericsson AB Chairman Leif Johansson has defended the group's restructuring plan, writes Swedish newspaper Göteborgs Posten. Johansson described the corporate streamlining by Ericsson as a "technology shift." Johansson said the group would also not rush the appointment of a new CEO.

* DNA Oy and Telia Co. AB's Sonera Oy have cooperated in expanding their 4G data network to the southern Karelian area of eastern Finland, DNA said in a statement. The DNA-Sonera 4G network already covers northern Karjala. The mobile network will reach 130,000 persons in southern Karelia.

* Soundtrap AB has raised 50 million Swedish kronor from investors in a new funding round led by venture capital firm Industrifonden, reports Swedish technology newspaper Digital Di. Spotify's former CFO, Peter Sterky, is a new investor in the Sweden-headquartered cloud-based music making platform.

* Johan Carlström has left his role as business developer in Fingerprint Cards AB, writes Swedish business newspaper Affärsvärlden. A major shareholder and former CEO of Fingerprint, Carlström will pursue private business interests. He received an exit severance payment of 10.9 million Swedish kronor.

* Schibsted ASA has purchased 61,000 B-shares in the company, paying an average price of around 197.36 Norwegian kroner per share, the Norwegian media company said. Schibsted will use the share buyback to raise the number of treasury shares available in connection with its own employee incentive program.

SOUTHERN EUROPE

* Vodafone Portugal invested €625,000 in exchange for a 33.3% stake it acquired in Portuguese premium sports network Sport TV, Telecompaper reports, citing Jornal de Negocios. A total of 125,000 shares worth €5 each were issued as part of the cash-based capital increase.

* NOS inked a strategic partnership with China's Huawei Technologies Co. Ltd., Digital TV Europe reports. The two companies reportedly agreed to work together in the areas of networks and technology, including the Internet of Things, broadband and video services.

* MásMóvil Ibercom SA clinched a deal for its newly acquired unit Yoigo to use Orange SA's mobile network across Spain, Telecompaper reports. The agreement, which takes effect in 2017, enables both Yoigo and MásMóvil to gain access to Orange's 4G network, with MásMóvil also able to install its antennas on Orange-owned sites.

* Portuguese taxi drivers blocked access to the Lisbon international airport in a protest against Uber and other cab-hailing services, Reuters reports. The drivers vowed to maintain their blockade until their demands are met, including limiting the number of cars not identified as cabs.

EASTERN EUROPE

* AMC Networks Inc. unit AMC Networks International - Central Europe struck a carriage deal with Telekom Austria Group for the latter's pay TV service in Bulgaria and Croatia. Under the deal, Telekom Austria will make localized versions of AMC available to customers of its Bulgarian unit Mobiltel and Croatian subsidiary VIPnet. Telekom Austria is owned by América Móvil SAB de CV.

* RCS&RDS SA's parent company Cable Communications Systems NV is aiming to raise €375 million and 1.43 billion Romanian lei with the launch of two bond issues, Telecompaper reports, citing Ziarul Financiar. The bonds' proceeds will be used to refinance debt and to reduce currency exposure.

* Netia SA named Aster Papazyan as its general director for the business-to-business market, effective Nov. 2, Telecompaper reports. Papazyan joins the Polish cable operator from parcel machines operator easyPack.

FEATURED NEWS

The Daily Dose Asia-Pacific: Samsung halts sales of Galaxy Note 7; Alibaba strikes film deal with Amblin: Samsung Electronics said it will ask its global partners to suspend sales and exchanges of the Galaxy Note 7, while Alibaba Group's film unit entered into a co-production and distribution deal with Steven Spielberg's Amblin Partners.

CAPITAL Letters: Attempting to gauge the impact of so-called 'Netflix taxes': It is difficult to quantify the impact of streaming taxes on subscription growth. I suspect there is always a bit of price elasticity in play, but streaming's inherent popularity suggests the tax impact could be minimal.

'Chicago Fire' season 5 debuts Oct. 11; Amazon orders horror anthology 'Lore': The latest installment of The Program Guide includes the Oct. 28 season debut of "Tracey Ullman's Show" on HBO and the Nov. 16 debut of the docu-series "Polar Bear Town" on Smithsonian Channel.

Data Dispatch: Banking on a new, live-action Disney: Disney is rolling out new live-action remakes of many of its beloved classics, and the strategy seems to be working.

M&A Replay: European deals through Oct. 7: Hutchison, Orange, Nokia: S&P Global Market Intelligence provides a wrap-up of European media and communications deal announcements, completions and updates from Sept. 30 to Oct. 7.

M&A Replay: EBay buys visual search tech firm; Gannett acquires Golfweek: S&P Global Market Intelligence provides a wrap-up of U.S. media and communications deal announcements and completions from Oct. 3 to Oct. 7.

The week in OTT: Netflix CEO discusses China; Amazon greenlights horror show: Netflix CEO said at an event in New York that the likelihood of the streaming giant entering the Chinese market "doesn't look good," while Amazon.com greenlit an original horror anthology series, "Lore," based on a podcast of the same name.

FEATURED RESEARCH

Economics of Internet: State of Malaysian online video: Subscription: As with many Asian markets, Malaysia's demand for internet access exceeds the capabilities of its infrastructure. However, video-on-demand subscriptions continue to grow.

Multichannel Trends: Charter best positioned for ad windfall in final weeks of presidential race: With less than a month to go before Election Day, Charter has emerged as the multichannel provider likely to benefit the most due to its footprint across key Electoral College states, according SNL Kagan's assessment of political advertising.

Broadcast Investor: Analysis of nation's 3 major radio networks, 2016: Average unit ad rates rising slowly: Based on our updated analysis of the nation's three largest radio networks, syndicated news/talk shows and pre-programmed music formats averaged 13.7 minutes of ad time per hour in 2016 at an estimated $10.08 per 30-second ad spot, up 0.9% from $9.99 in 2015.

Sylvia Edwards Davis, Anne Freier, Charlotte van Hek and Esben Svendsen contributed to this report. The Daily Dose has an editorial deadline of 7 a.m. London time. Some external links may require a subscription.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market Driven View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Giorgio Baldassarri, Global Head of the Analytic Development Group, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Giorgio focused on the analysis of the evolution of the credit risk profile of European Union companies between 2013 and 2017, and how this may change under various Brexit scenario; if you want to know more, you can visit here.

I started with an overview of key trends of the credit risk of public companies at a global level, before diving deeper into regional and industry sector-specific performance and pointing out some key drivers of country- and industry-level risk. Credit Analytics Probability of Default (PD) Market Signals model was used to derive these statistics. This is a structural model (enhanced Merton approach) that produces PD values for all public corporates and financial institutions globally. Credit scores are mapped to PD values, which are derived from S&P Global Ratings observed default rates (ODRs).

From January 2018 to October 2018, we saw an increase in the underlying PD values generated by PD Market Signals across all regional S&P Broad Market Indices (BMIs), as shown in Figure 1. For Asia Pacific, Europe, and North America, the overall increase was primarily driven by the significant shift in February 2018, which saw an increase in the PD between 100% to 300% on a relative basis. The main mover on an absolute basis was Latin America, which had a PD increase of over 0.35 percentage points.

Figure 1: BMI Benchmark Median credit scores generated by PD Market Signals, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

Moving to the S&P Europe BMI in Figure 2, we can further isolate three of the main drivers behind the overall increase in PDs (this time measured on a relative basis), namely Netherlands, France, and Austria. Among these, the Netherlands had the most prominent increase between August and October. Again, one can identify the significant increase in the PDs in February, ranging from 150% to 230%, across all three countries. Towards July, we saw the spread between the three outliers shrink significantly. In August and September, however, the S&P Europe BMI began to decrease again, whilst all three of our focus countries were either increasing in risk (Netherlands, from a 150% level in the beginning of August to a 330% level at the end of September) or remaining relatively constant (France and Austria).

Figure 2: European Benchmark Median PD scores generated by PD Market Signals model, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

In the emerging markets, Turkey, United Arab Emirates (UAE), and Qatar were the most prominent outliers from the S&P Mid-East and Africa BMI. As visible in Figure 3, the S&P Mid-East and Africa BMI saw less volatility throughout 2018 and was just slightly above its start value as of October. Two of the main drivers behind this increase were the PDs of the country benchmarks for Turkey and the UAE. Turkey, especially, stood out: the PD of its public companies performed in line with the S&P Mid-East and Africa BMI until mid-April, when it increased significantly and showed high volatility until October. On the other hand, the benchmark for Qatar decreased by over 60% between May and October.

Figure 3: S&P Mid-East and Africa BMI Median PD scores generated by PD Market Signals, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

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We then looked at different industries in Europe. As shown in Figure 4, the main shift in S&P BMIs occurred in February, with most industries staying on a similar level for the remaining period. The main outliers were the S&P Industrials, Materials, and, in particular, Consumer Discretionary Europe, Middle East, and Africa (EMEA) BMIs. The S&P Energy BMI saw some of the highest volatility, but was able to decrease significantly throughout September. At the same time, the Materials sector saw a continuous default risk increase from the beginning of June, finishing at an absolute median PD level of slightly over 1% when compared to the start of the year.

Figure 4: S&P EMEA Industry BMI Median PD scores generated by PD Market Signals, between January 1 and October 1, 2018.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion, looking at the public companies, Latin America, Asia Pacific, and Europe pointed towards an increase of credit risk between January 2018 and October 2018, amid heightened tensions due to the current U.S. policy towards Latin-American countries, the U.S./China trade war, and Brexit uncertainty.

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

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