The third-quarter economic rebound has helped slow downgrades globally. Nevertheless, the path of recovery continues to diverge widely across countries and industries. Europe’s surging second COVID wave and a renewed upward trend in U.S. cases threaten to undermine recovery prospects.Read the Weekly Digest
Our periodic roundup of key takeaways from our articles brings together all of S&P Global Ratings’ coronavirus-related research—including our regularly updated list of rating actions we have taken globally on corporations, sovereigns, and project finance.
Published October 12, 2020
Keynesian and Schumpeterian dynamics are kicking in to help the European economy in its tricky transition out of the COVID-19 crisis.
The fiscal space that Europe has finally found represents the Keynesian element of expected demand, incentivizing economic agents to convert their excess savings into consumption and investment decisions.
The strong increase in business starts, like those we are seeing in France and Germany, is the Schumpeterian process of value creation following the economic shock.
Economic Research: U.S. Real-Time Data: The Economic Recovery Decelerates
As more states reopen, the number of COVID-19 cases per million population has started to rise again in the U.S., and real-time data is indicating a slowdown in the economy's recovery.
Upside for the goods sectors that were quick out of the gates has diminished, and service sectors that are still below pre-pandemic levels may be finding a new temporary normal amid health concerns and restrictions.
Pressure on people-facing businesses and industries remains unprecedented--a result of government restrictions on capacity, expiring government stimulus hurting pocketbooks, and a curbing of customers' demand based on fears of venturing out.
Risks of policy intervention are still tilted to the downside at this time, while initial unemployment claims remain 4x the pre-pandemic level and job openings in cities are well below normal.
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COVID-19 Heat Map:
We are updating our COVID-19 sector recovery expectations. While there is a tremendous variance of recovery prospects across different corporate sectors, we continue to believe it will take until well into 2022 or, in some cases, 2023 and beyond for many sectors to recover credit metrics.
Low interest rates and the long road to recovery puts financial policy as a key factor and variable that could further shape and delay the recovery timeline.
While most sectors remain in line with our initial view, there are a couple of bright spots (homebuilders, building materials, and consumer staples, for example) that, in some cases, we expect to recover sooner than our initial expectations, while the auto industry is showing some signs of stabilization.
Travel-related segments, especially related to air travel, continue to be under pressure and may not recover until 2023 and beyond as a result of restrictions, reluctant consumers, and heavy debt burdens.
Global Banking: Recovery Will Stretch To 2023 And Beyond
COVID-19 and the oil price shock of 2020 are taking a heavy toll on global banks. S&P Global Ratings has taken 335 negative rating actions globally since the outbreak began, and we anticipate it will be difficult for the financial strength ratings on financial institutions to return to pre-crisis levels. We don't expect the world's largest banking sectors, including more than half of G20's, to recover to pre-COVID-19 levels until 2023, or beyond.
The ESG Pulse
Published October 8, 2020
Total environmental, social, and governance (ESG)-related rating actions reached 1,945 during April-August (of which 666 were downgrades).
Of the 296 downgrades in July-August, 199 related to CreditWatch resolutions on U.S. commercial mortgage-backed securities (CMBS) transactions. These structured finance rating actions reflected our revised valuations and credit views on the underlying assets (malls and hotels). Downgrades were primarily for speculative-grade classes.
In percentage terms, sovereign and international public finance ratings remain the most directly affected by COVID-19, at 24% and 14% respectively.
Overall, U.S. public finance saw only 4% of ratings affected by ESG factors over the last five months, but in higher education and public transport it's closer to one-third.
Rating actions on corporates and infrastructure affected 15% of the rated universe. Actions remain heavily concentrated in sectors such as air travel, restaurants, retail, hotels, and leisure and are likely to remain negatively oriented as pandemic-related pressures persist.
Economic Research: China's Energy Transition Stalls Post-COVID
China's transition to a low energy intensity economy fueled increasingly by renewables will stall in 2020 and 2021 as policy stimulus ripples through the economy.
Investment in renewables continues but signs of a turn back to coal are emerging, a tendency that could strengthen as post-pandemic geopolitics push energy security up the policy agenda.
We will only learn whether China is executing an energy U-turn after the next five-year plan for 2021-2025 is published in the first quarter next year.
Energy In Transition
Global power generators have faced mounting uncertainty - the transition toward renewable energy sources, weakening load growth, and declining fuel prices. We explore the ‘Energy Transition’ and its credit implications.
Credit Trends: Risky Credits:
Published September 21, 2020
The number of 'CCC' category ratings on U.S. and Canadian companies steadied in August as both the pace of companies entering the rating category and defaults slowed.
U.S. 'B' and 'CCC' composite spreads continued to tighten in July, by 7% and 2% to 618 and 1,094, respectively, as investors' risk tolerance increased for 'B-' rated debt.
Through August, 11 companies rated in the 'CCC' and 'CC' rating categories defaulted, and five have defaulted so far in September (as of Sept. 9).
During the first half of 2020, we downgraded or placed on CreditWatch negative about one-third of the issuers whose loans are held in U.S. broadly syndicated loan collateralized loan obligations.
Credit Markets Research
S&P Global Ratings Credit Markets Research is used by the world’s financial markets when they need data driven insights and analysis. Whether to help evaluate strategic portfolio positions, develop investment ideas, or identify potential gaps and opportunities, we provide top-down information on global credit trends, macroeconomic conditions, and sector-specific developments that impact global capital markets.
Here, S&P Global Ratings answers the top 10 investor questions we've received regarding the analytical decision-making process.Read the Full Report
Top 100 Banks
Published October 6, 2020
S&P Global Ratings has updated its risk-adjusted capital (RAC) ratios in its annual capital review for the world's top 100 rated banks. This year's review indicates that the RAC ratios of the top 100 banks have improved slightly in 2019 compared with those in 2018. The average RAC ratio ticked up to 9.0% in 2019 from 8.8% for the prior year. However, the asset quality and revenue deterioration stemming from COVID-19 will hit internal capital generation. At the same time, banking regulators across the globe have encouraged banks to continue to lend to their customers by loosening capital requirements and minimum buffers. As such, we expect the average RAC ratio to weaken in 2020 to about 8.7% and stabilize in 2021. The marginal degree of the projected decrease leaves our view of the capital strength among these banks largely unchanged, and we continue to consider it as neutral to slightly positive.
Losing LIBOR: Most European Banks Are Unlikely To Face A Cliff Edge
Despite the challenges posed by the current pandemic and economic crisis, regulators remain committed to transitioning from the London Interbank Offered Rate (LIBOR) and other benchmarks to alternative risk-free reference rates by the end of 2021. Close collaboration among multiple stakeholders is crucial to the success of this complex, wide-ranging initiative.
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U.S. And European CMBS COVID-19 Impact
Published September 28, 2020
Our recent review of U.S. CMBS ratings resulted in 185 downgrades, comprising 88 SASB and large loan classes and 97 conduit classes.
Meanwhile, our surveillance of European CMBS since the COVID-19 outbreak has resulted in rating actions on approximately 20% of the transactions we rate.
Retail and lodging are the sectors hardest hit by the pandemic, and it remains uncertain how pandemic-related changes may affect the office and multifamily sectors.
As The Deadline For The Transition From LIBOR Approaches, Work Remains For U.S. Structured Finance
The COVID-19-induced recession has distracted from the LIBOR transition, but the phase-out deadline is still approaching.
U.S. structured finance still has significant work to do to minimize disruptions to markets in the transition.
Significant variation exists in typical fallback language across major U.S. structured finance sectors and also between transactions within a given sector.
Some of the largest challenges facing U.S. structured finance in preparing for the transition include the difficulty of amending transaction documents given the unanimous investor approval typically needed, the lack of clear fallback provisions and/or differences in fallback language between assets and liabilities, and the extensive logistics needed for amending LIBOR-based collateral in securitization.