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Resurfacing Credit Headwinds

After an era of remarkably favorable financing conditions, rapidly changing circumstances are redefining the global economy and challenging credit markets. The second half of 2022 will likely be characterized by limited access to and a higher cost of credit.

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S&P Global Ratings sees 2022 as a year of divergence and accelerated disruption that will redefine the global economy and credit landscape.

This Week In Credit

Rating Indicators Sound A Note Of Caution

Take heed: Rating indicators—in the form of upgrades and downgrades as well as outlooks—all trended red last week. While one week does not signify an inflection point, it does warrant consideration. As market talk in different regions ebbs between the consequences of higher inflation and the possibility of recession, U.S. CPI numbers (Wednesday) will take center stage this week.

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Key Takeaways From Our Articles

Access an edited compilation of key takeaways from our most up-to-date series organized by sector, region/country, and publication date.

Global Debt Leverage

A Stress Test Of 20,000 Unrated Corporates

Stagflation scenario. Lower global growth, inflation spikes and higher interest spreads could see corporate loss-makers (potential defaulters) rise 2.4x to 17% by 2023.

China fares worst. Its loss-makers triple to 22% under our severe scenario. Accounting for a third of global corporate debt, China's corporates pose a contagion risk

Struggling sectors hit. Consumer discretionary, industrials and real estate have not fully recovered from the COVID crisis. Under stress, their loss-makers rise by over half.

To get a broad overview of how global unrated corporates are faring, we conducted a stress test on a sample comprised of 20,000 corporates (93% unrated) with debt totaling $37 trillion—representing 41% of total global corporate debt.


Additional Scenario Analyses

S&P Global Ratings has run multiple scenario analyses to assess potential challenges from varying degrees of downturn—evaluating how CLO ratings might be affected by another recession; the implications of interest rate and EBITDA stresses for rated U.S. speculative-grade corporates; how a recession could affect rated European speculative-grade nonfinancial corporates; and what implications higher borrowing and inflation costs will have on Asia-Pacific rated corporates overall. These stress tests followed the publication of a stress scenario analyzing what a 300 bps rise in both interest rates and inflation could mean for unrated corporates globally.

The Ratings View

In this week's summary of ratings views: Corporate sectors face an increasingly challenging outlook as recession risks rise. Global banks will also face tougher tests as economic growth weakens and higher-for-longer inflation affects borrowers. The European corporate credit outlook is dimming as recession risks mount. The U.S. distress ratio more than doubled in a month, to 9.2%. Homebuyers have withheld payments on mortgages spanning hundreds of residential projects in China.

Credit Conditions

Global Credit Conditions Q3 2022: Resurfacing Credit Headwinds

Sharp monetary tightening is putting a brake on global growth, with inflation, energy security, and geopolitical uncertainty being the chief risks. Other notable risks stem from governments struggling to balance energy security and affordability in the short term, with long-term decarbonization ambitions.

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