As we head toward 2017, U.S. corporate borrowers face a year of tumultuous change.
It all depends on whether the Trump administration (along with a Republican majority in both halves of Congress) can push through the sorts of sweeping legislation in the areas of tax reform, trade restrictions, and environmental policy, just to name a few, that the president-elect promised during his campaign--or whether, without a filibuster-proof majority in the Senate, such proposals will wind-up so watered-down that the status quo will more or less reign.
- The uncertainty going into 2017 has S&P Global Ratings in a wait-and-see mode with regard to the effects on credit quality for U.S. borrowers--although we expect that policy changes during the Trump administration will have a mixed and mild impact.
- In addition to policy uncertainty, the key risks we see for U.S. corporates are rising borrowing costs; increased M&A and shareholder-friendly activity; continued dollar strength, commodity price movements; China's debt and rebalancing dynamics; a cyclical downturn; and geopolitical developments.
- We believe most U.S. corporates will be able to manage their debt in the near term, given that many have taken advantage of favorable borrowing conditions to extend their maturities at low rates. The mature credit cycle looks to be prolonged.
- We see some potential economic upside from the Trump administration's fiscal-stimulus plans. But in the next couple of quarters, corporate profits may be constrained by modest revenue growth amid rising borrowing costs and wages, and a strong dollar.
It's this "certain uncertainty" of the next four years that has S&P Global Ratings largely in a wait-and-see mode with regard to the effects on credit quality for U.S. borrowers we rate. That said, we can make certain assumptions about what particular policies would likely mean for some sectors and industries. Moreover, our economists have assessed the potential effects of the president-elect's stated plans in such areas as fiscal policy, tax reform, and trade and immigration.
Our initial impression is that a Trump administration will, overall, have a mixed and mild impact on U.S. corporate credit.