In this edition of Instant Insights, our key takeaways from recent articles include the following: our 2024 global credit outlook, AI's effect on corporate credit quality, a credit FAQ on China credit spotlight, and Korean corporates. We dive into the wildfire risk in North America, the Southeast Asia property market, midsize E&P companies in Canada, MLI's participation in sovereign debt restructuring, China tier-two local government risk indicators, and sovereign-bank nexus in Europe. We also feature the outlook for the non-U.S. social housing sector, This Month In Credit, the China ABS and RMBS tracker, U.S. structured finance chartbook, as well as HVAC manufacturers, local governments and school districts, the CMBS delinquency rate, CLO BSL index, 'B'-rated tech issuers, BSL CLO managers, and the institutional framework for local governments in the U.S.

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S&P Global Ratings periodically updates this article, which contains an edited compilation of key takeaways from our most up-to-date thought leadership organized by sector, region/country, and publication date (see table 1).

Table 1

Key Takeaways From Our Most Recent Reports

Credit Conditions

1. Global Credit Outlook 2024: New Risks, New Playbook, Dec. 4, 2023

• Borrowers across all asset classes will need to adjust to tighter financing conditions and softer economic growth. While long-term yields will likely peak around midyear, financing conditions will likely stay tight in real terms in 2024. Borrowers have reduced near-term maturities, but the share of speculative-grade debt coming due rises significantly in 2025, making 2024 a pivotal year. Defaults will likely rise further, to 5% in the U.S. and 3.75% in Europe, above their long-term historical trends.
• We expect additional credit deterioration in 2024, largely at the lower end of the ratings scale, where close to 40% of credits are at risk of downgrades. Sectors exposed to a decline in consumer spending are most vulnerable. Meanwhile, investment-grade credits should generally continue to show resilience despite some margin compression—with the exception of the real estate sector.
• The main risks that could derail our baseline expectations, leading to further credit deterioration, include persistent tight financing conditions amid entrenched inflation; a sharper-than-expected slowdown in global growth; elevated input-cost inflation and high energy prices that squeeze corporate profits and pressure governments' fiscal balances; vulnerable commercial real estate; and amplifying geopolitical tensions.
• Looking ahead, heightened geopolitical risks, the need to accelerate the decarbonization of the economy to address the rise in climate-related risks, and the technology revolution will increasingly shape the future of credit.

2. Credit Conditions Asia-Pacific Q1 2024: India, Southeast Asia Advance As China Slows, Dec. 5, 2023

• Shift in regional growth pattern: We expect Asia-Pacific's growth engine to shift from China to South and Southeast Asia. We project China's GDP growth to slow to 4.6% by 2026 (2023: 5.4%), edge up to 4.8% in 2025, and return to 4.6% in 2026. We forecast India will reach 7.0% in 2026 (2023: 6.4%); Vietnam, 6.8% (4.9%); the Philippines, 6.4% (5.4%); and Indonesia steady at about 5%. This shift could constrain the upside over the next few years for China's issuers while improving those of issuers in India, Vietnam, the Philippines, and Indonesia.
• High rates and inflation: Asia-Pacific's central banks will likely keep interest rates high for longer. The region's borrowers, particularly the highly indebted, could rack up higher interest expenses from financing needs. A widening conflict in the Middle East could threaten global supply chains and hike energy costs, fanning inflation. Amid weak currencies, higher input costs could hurt corporate margins, while weakening demand.
• Spillover risks abound: While Asia-Pacific's economic growth remains broadly resilient, buoyed by robust labor markets and service sectors, the growth momentum is susceptible to risks of energy shocks (e.g., from a widening Middle East conflict) and slower global demand (risk of a U.S. hard landing). We lowered our growth projection for the region (excl. China) to 4.2% in 2024. Prospects for industries also differ, with export-centric manufacturing faring worse. The region's net ratings outlook bias stands at negative 1%.
• Risks to outlook: High risks are: (1) China's property downturn, weak business and consumer confidence, and high debt levels; (2) high interest rates exacerbating the debt-servicing burden of highly leveraged borrowers; (3) a harder-than-expected landing of the global economy, further depressing demand and exports; and (4) borrowers' lack of ability to fully pass on inflated costs to customers. Intensifying geopolitical tensions is an elevated risk. Uncertainty about Japan's monetary policy and additional real estate sector cash flow challenges (beyond current ones) are moderate risks.

3. Credit Conditions Emerging Markets Q1 2024: Not Getting Easier, Nov. 28, 2023

• Credit conditions in emerging markets (EMs) will likely deteriorate in 2024, as major economies slow down (the U.S., China, and the eurozone), the effects of rapid monetary tightening surface, and debt maturities pile up.
• The balance of risks for EM credit conditions remains on the downside, given an extended period of high interest rates, the potential for further inflationary pressures, and weaker-than-expected growth in the largest economies. Debt refinancing will likely complicate the picture, as the global maturity wall is building up with considerable peaks in 2025.
• Credit quality across key EMs will likely be strained as risks unfold.

4. Credit Conditions Europe Q1 2024: Adapting To New Realities, Nov. 28, 2023

• 2024 looks set to be a year of adaptation to the hangovers from high inflation, high rates, and high debt, against a more uncertain and volatile geopolitical backdrop.
• Geopolitical conflicts spilling over to Europe, a sharp rise in unemployment dragging Europe into recession, and a protracted period of higher rates exposing financial vulnerabilities are the key risks.

5. Credit Conditions North America Q1 2024: A Cluster Of Stresses, Nov. 28, 2023

• Credit stresses are growing, and borrowers will need to adjust to a new playing field in which financing conditions could become even tighter. The costs of debt service and/or refinancing could be overly burdensome, especially for lower-rated borrowers.
• Other high risks include the chance of recession in the U.S. and persistent cost pressures.
• The net outlook bias for North American corporates was negative 10.3% as of Nov. 15. We expect the U.S. trailing-12-month speculative-grade corporate default rate to reach 5% by September.

Building materials

6. U.S. HVAC Manufacturers Riding A Cool Breeze, Nov. 29, 2023

• We forecast mid- to high-single digit percent organic revenue growth in 2023 for the four U.S. heating, ventilation, and air condition (HVAC) manufacturers that we rate, decelerating somewhat in 2024. Our forecast is driven by demand in nonresidential end markets and pricing, and supported by the conversion of solid backlogs.
• We expect the companies will maintain or build on sufficient cushion in credit metrics over the next 12-24 months to withstand a potential unexpected, modest decline in EBITDA.
• Changing regulations and government programs should support outsize revenue growth for HVAC products and services in the next few years, with good longer-term growth near or modestly above GDP, supported by an expanding installed base and price increases.
• Despite our forecast for solid operating performance and EBITDA growth over our forecast period, several categories of risks for the sector include cyclicality, rapidly changing regulation, technology disruption, and environmental liabilities.

Corporates

7. CreditWeek: How Will AI Affect Credit Quality For Corporates?, Nov. 30, 2023

• While companies across sectors and industries have been using traditional artificial intelligence (AI) for years, we expect the adoption and impact of generative AI to increase exponentially in the years to come.
• AI-based technologies have not yet risen to the level of influence that leads to rating changes, but AI has been already cited as a credit factor in specific instances and has the potential to redefine the competitive landscape for almost every sector in the longer-term.

8. Corporate Results Roundup Q3 2023: Deterioration continues and revenues disappoint, Nov. 16, 2023

• The global Q3 2003 results season for rated nonfinancial corporates is now 69% complete, with 68% of results in for investment-grade (IG) and 70% for speculative-grade (SG). North America accounts for 62% of results at this stage, Europe 15%, and Asia-Pacific 13%.
• Revenue growth has stalled, and EBITDA continues to decline. Measured at annual rate, revenues are near-flat (+0.1%) and EBITDA is down 4.6%. Revenues are down 1.9% versus the same quarter a year ago, and EBITDA down 1.2%. Measured relative to market consensus expectations, revenue "misses" of 7.5% or more account for 8% of results versus 7% for "beats" of a similar magnitude. EBITDA continues to exceed consensus expectations.
• Revenues are still growing if resource companies – oil and gas, metals and mining – are excluded, up 2.6% at annual rate, but the rate of increase continues to slow. EBITDA is still falling ex resources, down 2.0% annually.
• Industry patterns continue to show good performance from some consumer sectors – media, leisure, and retail – and deterioration for heavy industries, resources, transportation (principally shipping), and technology.
• The pressure from surging cash interest payments continues to grow, rising 21% annually overall and 25% for SG based on results so far. Leverage is drifting higher and interest-cover continues to ebb (for more on this see "Interest-cover risks are growing for vulnerable corporate credit", Oct. 26, 2023). Margin pressures continue to be felt with almost two-thirds of industries seeing annual margins decline.
• There are signs that companies are reacting to the deteriorating growth environment. Share buybacks continue to be reduced and annual dividend growth has dropped to 1% from 13.5% in Q1. Capex has been resilient, but there are some signs of change here too, with annual North America capex growth slowing to +11.2% from +15.4% in Q2.

9. Italian Corporate Outlook 2024: Resilience In Tough Times, Nov. 21, 2023

• Four-fifths of rated companies have a stable outlook, which indicates credit resilience in 2024 ahead of current economic weakness. Negative outlooks, at a moderate 11% of total ratings, are unchanged compared with 2022, and slightly better than the European average.
• EBITDA interest coverage would modestly worsen to 2x on average, assuming the refinancing of highly leveraged companies at current rates, and only 10% of companies rated B+ and B would display a coverage ratio under 2x, which is better than the European average of 45%.
• Revenues should increase by a moderate 5% in 2024, in line with the European average and similar to 2023. Falling volumes due to the current weak economic environment should partly offset the continued pass-through of cost inflation.
• EBITDA has recovered to pre-pandemic levels, boosted by higher inflation since 2022, like in European peer countries. The EBITDA margin should modestly rebound in 2023-2024 after the significant drop in 2022 when revenue growth linked with inflation exceeded EBITDA growth.
• Energy costs moderated significantly since the peak reached in Q3 2022 due to lower demand from both corporate and household, thus easing concerns on companies' competitiveness. However, current geopolitical tensions could again amplify volatility ahead of next winter.
• We expect capex growth to lessen in 2023-2024, in line with the European average, due to current economic uncertainty and geopolitical risks. That being said, the industry's capex expansion cycle does not show signs of downturn, pushed by digitalization and sustainability.

10. Korea Corporates: Recovering Operating Performance Is Not Yet Reducing Leverage, Dec. 5, 2023

• The operating performance of Korean corporates is recovering to some degree. Yet leverage remains elevated. Modest recoveries in financial performance are behind a slight bias to the positive for ratings actions so far this year. The actions were mixed, however, with a similar number of positive and negative actions. Tech, utilities, and tourism sectors are seeing better profitability or narrower operating losses versus past year. This should carry into 2024. We expect auto OEMs and healthcare sectors to maintain good momentum after solid earnings growth. While earnings are recovering, debt is also on the rise. In our view, leverage improvement will likely take longer.
• Korean corporates still face many operating challenges over the next 12 months. Slowdowns in demand for electric vehicles (EV) will likely have a broad-based impact on Korean firms that have invested aggressively across the EV value chain. The aggressiveness of investments and financial policy will be key factors for individual creditworthiness. Property market weakness, higher funding costs, and weakening consumer demand will also contribute to difficult operating conditions.
• The creditworthiness of rated Korean corporates will be more resilient than that of non-rated peers. In particular, we expect more serious credit risks for non-rated small and midsized companies that have limited liquidity buffers.

Credit trends and market liquidity

11. China Bond Recovery Review 2023: Property And Non-Property Bonds Diverge, Nov. 15, 2023

• We examined all defaults since 2015 in China's domestic bond market (717 bonds) and dollar bond market (368).
• Key findings include: For U.S. dollar-denominated bonds: In 2023, 4x as many defaulted bonds were resolved by courts than 2022, while only a fifth as many were able to settle out of court. 60% of property and 41% of non-property bond defaults remain unresolved, but more are likely to go to court as other options run out. After defaults, unresolved cases typically enter courts in two to nine months, and are resolved within two months thereafter. Property bonds tend to be resolved faster than non-property, both out of court (18 vs. 44 days) and in court (three vs. 11 months). Most out-of-court property cases extend maturities via existing (38%) or new bonds (31%), rarely paid cash (10%) or other assets (27%). For in-court resolutions, all property and two-thirds of non-property bonds compensated with a mix of cash, equity, assets, and bonds.nProperty bonds' cash recovery rates are lower than non-property both out of court (36% vs. 47%) and in court (3% vs. 18%).
• For domestic renminbi (RMB) bonds: Cases entering courts dropped 70% in 2023, and all were non-property, as property bond investors prefer out-of-court settlements. Only 30% of cases remain unresolved. Among those that are, more are resolved out of court (36%) than in court (31%). After outright defaults, unresolved cases typically enter courts in seven to eight months, followed by resolution in nine to 26 months. Most onshore out-of-court cases are settled by maturity extensions for property bonds (92%) as well as non-property bonds (61%). All property and 64% of non-property bonds resolved in-court compensate with a varying mix of cash, shares, and maturity extensions. Like offshore, cash recovery rates onshore are much higher for out-of-court (46%) than in-court resolutions (11%). Onshore property bonds' cash recovery rates are also lower vs. non-property both out-of-court (33% vs. 61%) and in-court (8% vs. 11%). This is likely due to the property sector's unprecedented and continuing downturn, which is not faced by issuers in other sectors.

12. Default, Transition, and Recovery: Elevated Interest Rates Could Push The European Speculative-Grade Corporate Default Rate To 3.75% By September 2024, Nov. 17, 2023

• We expect that the European trailing-12-month speculative-grade corporate default rate will rise to 3.75% by September 2024 from 3.1% in September 2023 amid persistently high interest rates and lackluster economic growth.
• In our pessimistic scenario, a prolonged growth slowdown or recession could push the default rate even higher--to 5.5%.
• Upcoming maturities in 2024 and 2025 will force many lower-rated issuers in Europe to enter primary markets at much higher rates than what they faced only two years ago. This could strain cash flow further and keep the default rate elevated into late 2024 and beyond.
• Consumer-facing sectors account for many of the region's weakest issuers and may continue to account for the most defaults going forward. But defaults could also increase within the chemicals and capital goods sectors, where there are many issuers with negative cash flows.

13. This Month In Credit: Rising Stars Reach A New High, Nov. 29, 2023

• Divergence within speculative grade is growing as the negative bias for 'B-' and lower is nearly double that of speculative grade.
• Tightening discretionary spending continues to weigh on consumer-facing sectors, including consumer products and media and entertainment.
• More than half of the 155 new potential downgrades (issuers with negative outlooks or ratings on CreditWatch negative) that were added in July-October cited high leverage as a factor.
• Rising stars reached a new monthly high for the year in October (with six), including Greece, Ford Motor Co., and British Airways PLC.

14. Default, Transition, and Recovery: U.S. Defaults To Rise After October Lull, Nov. 16, 2023

• The global corporate default tally rose to 127 as of Oct. 31, 2023, after an additional nine defaults in October. It is now 13% above the five-year average.
• The U.S. total was the lowest since November 2022, but we expect it to pick up given the elevated number of U.S. and Canadian risky credits.
• Health care led global defaults in October while oil and gas recorded its first default of 2023.

15. Default, Transition, and Recovery: 2022 Annual Infrastructure Default And Rating Transition Study, Nov. 16, 2023

• Infrastructure as an asset class has shown resilience, with a two-year average cumulative default rate from 1981 to 2022 of 0.9%, compared with 3.7% for global nonfinancial corporates.
• The number of infrastructure defaults rose to three in 2022 from one in 2021, with the default rate rising to 0.2% from 0.1%.
• Credit quality among infrastructure issuers fell for the third straight year, with 82 downgrades versus 65 upgrades, although this was a smaller difference than 2021 (151 downgrades and 66 upgrades) and 2020 (238 downgrades and 36 upgrades).
• The defaults for the year were Ruby Pipeline LLC and Talen Energy Supply LLC (which defaulted once on senior secured and once on senior unsecured debt).

16. Credit Quality Improved At A Slower Pace In Third Quarter 2023, Nov. 17, 2023

• U.S. Public Finance (USPF) credit quality improved in the third quarter of 2023 (for the 10th consecutive quarter), albeit at a slowing pace: 180 upgrades and 56 downgrades, compared with 465 upgrades, and 79 downgrades in the second quarter.
• Improved finances were the dominant theme driving upgrades in the third quarter (72 of 180 overall), while operations were the leading reason for downgrades (19 of 56 overall).
• Higher education and charter schools had the highest upgrade rate, with 2% of obligors upgraded during the quarter. Healthcare led downgrades, at 4%.
• There were no state level rating changes in the third quarter, following three upgrades in the second quarter.

17. Default, Transition, and Recovery: Higher Rates For Even Longer Could Push The U.S. Speculative-Grade Corporate Default Rate To 5% By September 2024, Nov. 16, 2023

• With Treasury and corporate yields signaling higher for even longer rates ahead, we expect the U.S. trailing-12-month speculative-grade corporate default rate to reach 5% (86 defaults) by September 2024, from 4.1% in September 2023.
• But if the strong third-quarter GDP alongside gradually falling inflation is a signal of things to come, our optimistic projection of a 3.25% default rate could occur.
• The proportion of 'CCC/C' ratings to the total is historically large, with many firms already seeing negative cash flow and large maturities due in 2025. This signals a high level of sensitivity to a drop in growth or a further rise in interest rates, which could push the default rate to our pessimistic scenario of 7%.
• Defaults are becoming more widespread across sectors, but consumer-facing sectors such as consumer products and media and entertainment, along with health care, are likely to continue leading among defaults as these remain sectors with high leverage and strained cash flow.

Cross-sector

18. Asia-Pacific Sector Roundup Q1 2024: Slowing Dragons, Roaring Tigers, Nov. 7, 2023

• Slowing dragons, roaring tigers: Economic growth prospects are shifting from the East to the South. We expect the economic growth of Hong Kong (largest percentage point fall), Japan, Australia, and mainland China to slow in 2024 because of trade and higher interest rates. We anticipate Indonesia will hold steady. Meanwhile Taiwan (largest percentage point gain), Vietnam, New Zealand, Singapore, South Korea, Philippines, India, Thailand and Malaysia could speed up. The prospects for industries also differ with export-centric manufacturing faring worse.
• Near-balanced rating bias: While our ratings outlook bias is nearly balanced at net negative 1%, sector outlooks diverge. The net negative bias is worse for building materials, real estate investment trusts, business services, public finance, technology, real estate development, transportation cyclical, capital goods, and media and entertainment. Middling for hotels, gaming, and leisure; consumer products; auto; sovereign; transportation infrastructure; utilities; and insurance. Neutral to positive for chemicals, metals and mining, telecommunications, financial institutions, oil and gas, and retail.
• Risks to outlook: High risks include (1) troubles in China's property sector, weak business and consumer confidence, and high debt levels; (2) steep interest rates exacerbating the debt-servicing burden of highly leveraged borrowers; (3) harder-than-expected landing of the global economy, further depressing demand and exports; and (4) borrowers' lack of ability to fully pass on inflated costs to customers. Intensifying geopolitical tensions is an elevated risk. Uncertainty about Japan's monetary policy and additional real estate sector cash flow challenges (beyond current ones) are moderate risks.

19. Credit FAQ: China To Avert 'Lost Decade', With Bright Spots Ahead, Dec. 5, 2023

• China's recent slowdown and property crisis have prompted talk that it is on the verge of a "lost decade."
• We do see some similarities between China's situation and the economic stagnation in Japan after the latter's property bubble burst in 1991.
• However, S&P Global Ratings believes China can avert this outcome, helped by regulatory action and the strength of its banking and corporate sectors.

20. Europe's Sovereign-Bank Nexus: Old Habits, New Risks, Nov. 30, 2023

• EU banks' exposures to home sovereigns amounted to a sizable €2.3 trillion as of July 2023. We expect sovereign debt exposures will grow as sovereign net and gross funding requirements remain elevated and central banks have discontinued their government bond purchase programs.
• Despite their preferential regulatory treatment, sovereign exposures are a source of latent credit risk and potential market risk, and we estimate that common equity tier 1 (CET1) ratios would drop by 70 basis points (bps) in aggregate for a sample of large European banks if these risks were more fully accounted for. We reflect these risks in our bank ratings.
• In light of weak economic growth, potential differences in the speed and magnitude of monetary and fiscal policies could bring the sovereign-bank nexus back under market scrutiny in 2024, with potential implications for EU banks' funding conditions.

Economics

21. Economic Outlook Asia-Pacific Q1 2024: Emerging Markets Lead The Way, Nov. 27, 2023

• China's property weakness continues to weigh on the economy. We predict the country's GDP growth will be 5.4% in 2023, and slow to 4.6% in 2024. The latter figure aligns with our estimate of potential growth, suggesting economic slack will persist next year.
• Asia-Pacific economies outside of China remain resilient. Growth this year and in 2024 should be the strongest in emerging market economies with solid domestic demand: India, Indonesia, Malaysia, and the Philippines.
• With core inflation continuing to ease, the region's central banks are unlikely to have to tighten monetary policy again. Still, given the pressure from higher-for-longer U.S. interest rates, we expect no meaningful falls in policy rates for the next six months.

22. Economic Outlook Canada Q1 2024: Growth Is Set To Continue Slowing, Nov. 28, 2023

• The Canadian economy has cooled rapidly in recent months. We forecast sluggish growth of 0.8% in 2024 and 1.4% in 2025.
• With subpar domestic demand in store, the job market will also remain sluggish with unemployment rising to a 6.1% average in 2024 from a 5.4% average this year.
• Barring a significant upward surprise from the consumer price index, we now expect the Bank of Canada to maintain a policy rate of 5%, allowing past rate hikes to work through the economy. The first cuts are likely to come in the second quarter of next year.

23. Economic Outlook Emerging Markets Q1 2024: Challenging Global Conditions Will Constrain Growth, Nov. 28, 2023

• Subdued external demand from the U.S., Europe, and China and tight monetary policy will keep growth below trend in most emerging markets (EMs) in 2024.
• The impact of high interest rates has not been fully felt yet, and the effects will contribute to restrained investment in most major EMs next year.
• Disinflation will continue in the coming quarters, and most EM central banks will be in easing mode by the end of 2024. The evolution of the Federal Reserve's monetary policy will influence the magnitude of interest rate cuts in EMs.
• The war in the Middle East could prolong risk aversion toward EM assets and increase volatility in energy prices, although the impact so far has been limited.

24. Economic Research: Why Remittances Matter And Where Do They Matter The Most?, Nov. 20, 2023

• Reported remittances in many emerging and frontier economies, which have steadily increased in the last couple of decades, are key sources of funding for domestic demand, as well as of inflows of hard currency.
• Therefore, understanding the trajectory of remittances can be key determinants of both economic growth, as well as external accounts stability in those countries.
• While cyclical factors and policy decisions that influence the path of remittances are highly unpredictable, structural factors, such as the demographic profiles of migrant workers, will likely become less favorable than they have been in the past couple of decades.
• In some cases, such as several Central American and Caribbean economies, remittances exceed 20% of GDP. In these countries, remittances play a significant role in S&P Global Ratings' assessment of their sovereign credit quality.

25. Economic Outlook Eurozone Q1 2024: Headed For A Soft Landing, Nov. 27, 2023

• A soft landing of the European economy remains the most likely scenario over the near term, with real incomes set to rise because of disinflation and resilient labor markets. We expect the eurozone economy will grow by 0.6% in 2023 and 0.8% in 2024, a marginal deviation from our previous forecast.
• The pattern of the economic slowdown, which we expect will continue over the first half of 2024, is changing. The strong momentum in services is abating, while the end of the manufacturing recession might be in sight.
• Many factors could derail the soft-landing scenario. From an endogenous risk perspective, we will pay particular attention to three factors: the resilience of labor markets, especially in countries whose productivity is declining; inflation expectations, which have not reduced at the same pace as consumer prices; and financing conditions, considering real interest rates are no longer negative.

26. Global Macro Update: 2024 Is All About The Landing, Nov. 29, 2023

• Following a synchronized rise in policy rates, growth is now unsynchronized across major economies. The U.S. is outperforming whereas in Europe activity is flat. The common macro thread comprises strong labor markets and spending on services, fiscal tailwinds, and lingering core price pressures.
• Inflation has likely peaked as have policy rates, but central banks are on guard against declaring victory too early. Our higher-for-longer view applies both to policy rates and market interest rates, real and nominal. Caution among developed market central banks is constraining potential rate cuts in emerging markets.
• We have moved our GDP growth forecasts marginally higher in some key emerging markets but are broadly unchanged elsewhere. We have again pushed any necessary slowdowns into the future.
• The next macro challenge is to "stick the landing." The risks to our soft-landing baseline look balanced. Strong labor markets and fiscal tailwinds are driving the upside, whereas uncertainties about the lagged transmission of cumulative rate hikes since early 2022 are driving the downside.

27. U.K. Economic Outlook 2024: More Stagflation Ahead, Nov. 27, 2023

• The U.K. economy will remain weak in 2024, with GDP growth of just 0.4%, as high price inflation continues.
• The labor market is tight, resulting in persistently high wage growth. Brexit and the COVID-19 pandemic have weighed on labor supply, and vacancies remain 40% above their long-term average.
• A tighter labor market means that monetary policy will need to remain restrictive for longer to get the inflation rate back to the 2% target. We don't expect the Bank Of England to cut rates before the second half of 2024.

28. Economic Outlook U.S. Q1 2024: Cooling Off But Not Breaking, Nov. 28, 2023

• S&P Global Ratings now expects the U.S. economy to expand 1.5% in 2024 on an annual average basis (up from 1.3% in our September forecast) and 1.4% in 2025 (unchanged from the September forecast), before converging to the longer-run sustainable growth of 1.8% in 2026.
• Businesses are facing higher costs of capital, which will lower capital expenditure and hiring. The unemployment rate will likely rise in the next two years--from 3.9% currently to 4.6% in 2025--slightly above the longer-run steady state.
• As normalization in the product and labor markets continues, disinflation will endure, albeit unevenly. We continue to think that the Federal Reserve will hike federal funds rate by another 25 basis points (bps; likely December) before cuts start in mid-2024.

Environmental, social and governance

29. Sustainability Insights: Electric Vehicles Amp Up European Auto ABS Risk, Nov. 29, 2023

• A growing share of electric vehicles (EVs) will increase credit risk in European auto asset-backed securities (ABS).
• As EVs currently depreciate more than internal combustion engine (ICE) vehicles, we adjust our recovery and residual value assumptions in securitized pools with more than 10% exposure to EVs.
• Secondhand values will continue to face pressure in the near term, as demand for used EVs may not keep pace with new registrations growth, with added pressure from reduced new vehicle prices and improvements in battery technology and range.
• The relatively short weighted-average lives of auto securitizations will mitigate the impact of potential depreciation of ICE vehicles over the longer term if consumer demand shifts to EVs.

30. Sustainability Insights | Research: Lost GDP - Potential Impacts Of Physical Climate Risks, Nov. 27, 2023

• By 2050, if global warming does not stay well below 2 degrees Celsius (2 C), up to 4.4% of the world's GDP could be lost annually, absent adaptation. This will test countries' adaptation plans, particularly those of lower-income nations that are disproportionately exposed and less able to prevent permanent losses. The GDP at risk measure is based on a static view of the economy, assuming no adaptation and that all hazards occur in one year in all exposed places.
• The rising likelihood of compound climate events adds to the challenges of climate analytics. Understanding these non-linear dynamics appears crucial to assessing specific risks each country faces and may help policymakers pursue more-targeted policies.
• The adaptation gap is widening, given slow progress on preparedness, and financing conditions are tightening. Financing rising adaptation costs as the impacts of climate hazards worsen may become more difficult in an environment of higher interest rates, adding another hurdle to developing countries' adaptation implementation.

31. Sustainability Insights: Climate Transition Risk: Historical Greenhouse Gas Emissions Trends For Global Industries, Nov. 23, 2023

• We found that total absolute scopes 1 and 2 GHG emissions did not reduce between 2016 and 2021 in our dataset (see Appendix A1 for a classification of GHG emissions).
• Scope 1 GHG emissions intensity improved between 2016 and 2021 for the majority of industry groups in our dataset, though absolute GHG emission levels only improved for less than half of those industry groups.
• The utilities, materials, energy, and transportation industry groups exhibit distinctly higher scope 1 GHG emissions and emissions intensity compared to other industries; despite some reductions, these industries are arguably still most exposed to climate transition risks, especially because demand for these products and services continues to rise. Scope 2 GHG emissions are more evenly distributed across industry groups.
• Scopes 1 and 2 GHG emissions were positively related with growth of world real GDP from 2016 to 2021, and combined with company revenue were positively related at the industry and regional level in the same period.

32. Sustainable Finance Newsletter Q3 2023, Nov. 20, 2023

• In July 2023, we merged the historical S&P Global Ratings and Shades of Green Methodologies, and released our combined Use of Proceeds SPO Methodology.
• Currently, we are working on consolidating our Sustainability-Linked SPO Methodology.
• We published 19 SPOs in the third quarter of 2023 and 105 for the year through the end of the third quarter. We have published more than 450 cumulative SPOs since the product's inception.
• We expect the global sustainable debt market will exceed $900 billion in 2023, in line with our original forecast from early 2023.
• We also published several research pieces this quarter, commenting on our sustainable debt outlook, post-COVID workforce dynamics in the U.S., lost water, and the recent UN PRI Conference.

Financial institutions

33. Chinese Bank Funding: Rebuilding Buffer Amid Fragile Confidence, Nov. 23, 2023

• China's strengthening funding buffer is one bright spot in its economy. The reported loan-to-deposit ratio (LDR) for the overall banking sector fell to 78.8% in 2022, from 79.7% in 2021. That's the first decline since 2014. It fell further, to 77.7%, as of end-June 2023.
• Capital controls limit funds from leaving China. As households boost savings, this will strengthen the ability of Chinese banks to increase lending that will help China's economic growth when confidence returns.
• The falling average LDR of joint-stock banks (JSBs) is a particularly important indicator of improved funding stability in the system. Many JSBs are systemically important in China.
• JSBs' average LDR fell below 100% in 2022 and in the first half of 2023. JSBs are less influenced by the central government's lending policies than China's six largest state-owned banks, giving them more scope to reduce lending when demand is weak.
• Systemwide funding, meaning the range and stability of funding options available, is a strength of the Chinese banking system.

34. European Banks: Cyclical Earnings Boost Is No Panacea, Nov. 21, 2023

• European banks' rising earnings may appear anomalous against a backdrop of weaker economic growth and tightening liquidity, but they have boosted banks' loss-absorbing capacity and scope for shareholder distributions.
• Yet for most banks, this cyclical uplift is more a normalization of earnings, and does not by itself end banks' battle to cover their cost of equity.
• The earnings upswing has likely already peaked in many European countries, and it could slide if economies, and notably employment rates, weaken more than we expect, or if policy interventions crimp bank revenues further.
• Our predominantly stable outlooks on European banks reflect our view that they will likely show good resilience, and we do not rule out further upgrades where banks display improved structural profitability.
• However, ratings could come under pressure where we see banks losing competitiveness or facing weak results or operating instability, or where we re-evaluate the quality or riskiness of their credit underwriting.

35. Central And Eastern Europe Banking 2024: Solid performance buffers mounting risks, Nov. 21, 2023

• Economic conditions have stabilized in most of Central and Eastern Europe (CEE) after a tricky start to 2023. Falling energy prices have contributed to lower inflation and reduced external deficits, as regional exchange rates recovered and government bonds normalized.
• In terms of wealth, most CEE countries are lagging Western European (WE) countries despite high catch-up growth recently. Sovereign ratings are also typically weaker. Still, not all CEE markets are inherently riskier than WE markets.
• Corporate and household indebtedness is generally lower in CEE than in WE, which somewhat alleviates credit risks for banks amid economic slowdown and higher costs of living and borrowing.
• Policy rates in CEE have increased significantly over recent years, but in several countries we already see rate decreases. In addition, due to ongoing repricing of deposits and the need for issuance to meet the minimum requirement for own funds and eligible liabilities (MREL), we expect net interest margins (NIMs) to fall from their peak in 2023.
• Average return on equity in most CEE countries was below 10% over the past five years, but materially higher than in WE, so that CEE exposure has boosted WE banks' results, a trend we expect to continue. Windfall taxes remain a tail risk for countries where not yet implemented (now in place in Hungary, Czechia, and Croatia, and planned in Slovenia, Slovakia and Romania).
• While asset quality improved over the past five years, it is more sensitive to economic downturns. European Banking Authority (EBA) stress test data show that, under an adverse scenario, CEE exposures would experience the highest percentage-point increase in defaults.

Infrastructure

36. Asia-Pacific Transport Infrastructure 2024 Outlook: Capex Is Becoming A Credit Driver, Nov. 28, 2023

• All rated airports, rails and toll roads in Asia-Pacific will likely be back to pre-pandemic levels over the next year or two.
• Ports have good buffers to deal with softening export flows and potential geopolitical-related disruptions.
• Credit metrics continue to recover; however, rising capex needs for some issuers will limit improvements.

Insurance

37. EMEA Insurance Outlook 2024: Navigating the way home, Nov. 21, 2023

• Rapidly soaring interest rates in 2022 left European insurers with immense unrealized losses on their fixed income investments.
• These devalued by more than €500 billion in Europe (excluding the U.K.) reflecting a double-digit negative return on investments, including unrealized gains and losses.
• We estimate that the pull to par for high quality fixed income investments might take a decade or more, based on our forecast of only gradually declining long term yields in 2024-2026.
• We remain cautious on illiquid investments, real estate, private equity, and private debt, which life insurers added during the lower-for-longer yield environment.
• For insurers we rate, we do not foresee any forced selling of assets because of a hypothetical life insurance mass lapse, or massive natural catastrophe events.
• The insurance machine is slow to turn, but sturdy on its long journey to recovery.

Leveraged finance

38. Why European Leveraged Loan Borrowers Like The “Snooze Drag", Nov. 27, 2023

• European leveraged loan borrowers could increasingly use a "snooze drag" workaround in their loan documentation to extend loan maturities more easily amid higher interest rates and an upcoming maturity wall.
• Our research found that eight out of the 10 largest leveraged loans present in European CLO transactions in 2023 contain a snooze clause, signaling its popularity in Europe.
• While snooze provisions can provide borrowers more flexibility to refinance debt, they do not necessarily aid credit quality.

Media and telecom

39. That's All, Folks: Key Takeaways From Media And Entertainment Q3 Earnings, Nov. 22, 2023

• As the third-quarter earnings train pulled into the station, we expected U.S. diversified media companies to report results reflecting the lack of new original content due to the writers' and actors' strikes and continued weak TV advertising trends.
• This would appear in earnings reports as weaker linear TV segment revenues and EBITDA, some modest improvements in operating results for the direct-to-consumer (DTC) businesses, and healthy consolidated free cash flow.
• By and large, the companies met our expectations for advertising and free cash flow (FCF). On the positive side, streaming segment results exceeded our expectations, especially with solid subscriber growth (surprising given the lack of new original content), and a strong improvement in operating losses.

Oil and gas

40. Asia-Pacific Oil And Gas Companies: Prepared For Price Volatility, Nov. 21, 2023

• Most rated producers in Asia-Pacific have maintained conservative financial policies and relatively low leverage amid higher prices. That, along with flexibility to adjust spending, provides rating buffer against oil price volatility.
• We expect two-thirds of the 16 rated companies in Asia-Pacific will maintain financial profiles commensurate with the rating levels even if Brent oil prices fell to US$40 per barrel in 2024 and 2025.
• The stand-alone credit profile (SACP) of the remaining five companies would likely come close to, or breach, their downgrade triggers. Nonetheless, all five are national oil companies, whose overall creditworthiness benefits from likely government support.
• Most upstream operators have moderately leveraged balance sheets and generally low-cost positions, while operators with a long reserve life also have some spending flexibility. This will moderate fluctuations in leverage in a down cycle.
• Earnings of producers with downstream products are likely to be somewhat more resilient in a downturn. But they have less room to adjust their spending, given often larger committed capex.

41. For Midsize Canadian E&P Companies, M&A Isn't The Only Way, Nov. 30, 2023

• Several rated midsize Canadian exploration & production (E&P) companies have amassed substantial financial risk profile cushion to support targeted growth spending.
• Existing acreage is sufficient to achieve healthy reserves and production growth.
• On a dollar per flowing barrel of oil equivalent (boe) basis, we view these companies' organic growth projects as largely more cost effective than recently announced corporate acquisitions.
• Growth through organic development of existing contiguous acreage could have less integration and development risk than growth pursued through acquisitions.

Public finance

42. China Local Governments: Spending Choices Will Be Key To Fiscal Sustainability, Nov. 28, 2023

• China's post-pandemic recovery is unsteady, straining the revenue growth of local and regional governments (LRGs) for the next two years.
• LRGs' spending prioritization will be key to fiscal sustainability, as they will be forced to balance supporting immediate growth with containing government debt risks.
• Lower-tier LRGs, which rely more on land sales and property-related tax revenues, will remain squeezed by the property downturn.

43. Credit FAQ: Can China's 'Basket Of Measures' Defuse LGFV Debt Risks?, Nov. 21, 2023

• China's local government financing vehicles (LGFVs) have been racking up debts for years. It's now a burden that's too big to ignore. Economic softening, sinking land sales, and rising refinancing risk and interest burden are raising the potential for disorderly defaults and systemic risk.
• S&P Global Ratings believes that Beijing's so-called "basket of measures" establishes a plan for tackling this issue. However, Chinese renminbi (RMB) 1.36 trillion raised through the program to reduce immediate liquidity risk just puts a small dent into the problem.

44. New Zealand Local Government Outlook 2024: Bridge Over Troubled Waters, Nov. 20, 2023

• The repeal of Affordable Water Reform legislation will be politically popular but financially detrimental for many New Zealand local councils.
• Alternative reform proposals, such as the voluntary formation of council-controlled water utilities, might not alleviate high sector-wide debt.
• Our net outlook bias on 25 rated councils is negative and downgrade pressure is building.

45. U.S. Local Governments And School Districts Still Benefit From Stimulus As The Clock Ticks Down, Dec. 4, 2023

• Nearly four years after the start of the pandemic, U.S. local governments that received federal stimulus are using it for a variety of needs, although as of summer 2023 approximately 55% of State and Local Fiscal Recovery Fund (SLFRF) and Elementary and Secondary Emergency Relief Fund (ESSER) dollars remained unobligated and/or unspent.
• The flexibility provided by stimulus dollars over the past several years allowed issuers to offset other costs, which helped raise reserve levels; in some cases higher reserves led to a slight improvement in overall credit quality.
• Local governments and school districts that used the money to fund salary increases or other ongoing costs will need to replace the federal dollars with ongoing revenues or risk credit deterioration, which is exacerbated by high interest rates and inflationary pressures.

46. China Tier-Two Local Government Risk Indicators Chartbook, Nov. 30, 2023

• The institutional framework of Chinese tier-two local and regional governments (LRGs) is evolving but balanced. This group (mostly cities) consistently receives strong and exceptional support from tier-one governments.
• Individual credit profiles of tier-two LRGs are divergent and have greater volatility relative to tier-one LRGs in China. High-income cities are generally able to borrow more to support local development, while low-income cities are constrained from aggressive public finance.
• Property sector slowdown has an asymmetric impact on tier-two LRGs. High-income cities are generally resilient with modest land sales decline, while low-income cities are hardest hit. The impact is largely cyclical on budgetary performance but will have a long-term effect on economic developments for some low-income cities.
• Credit metrics for most tier-two LRGs are likely to stay elevated for a while, due to continued infrastructure spending to drive economic development. However, low-income cities with a heavy debt burden will involuntarily fall into a fiscal consolidation phase, with new borrowing quota contained by the central government.
• The capacity of tier-two LRGs to support their local state-owned enterprises (SOEs) will turn more selective--being only applicable to entities with significant policy mandates.

47. Non-U.S. Social Housing Sector Outlook 2024: At A Turning Point?, Nov. 29, 2023

• While we consider that the negative bias across non-U.S. social housing providers (SHPs) will remain in 2024, we think the sector might have reached a turning point as mitigating factors should support more stable to gradually strengthening financial indicators.
• We forecast investments in existing homes will rise at a slower pace, compared with the past two years. Expected growth in rental revenues and abating pressure on the cost base underpin our expectation that financial performance will recover modestly.
• In our view, demand for new affordable homes will remain strong but in light of currently high construction costs and interest rates, as well as the enhanced focus on investments in existing homes, the sector will scale back on developing new debt-funded homes in 2024.
• While we continue to think that SHPs' debt burden will remain elevated, we project that the increase in debt will moderate and forecast that a decrease in borrowing costs next year will ease the pressure on SHPs' interest coverage, which, on average, is weak.

48. Sustainability Insights: North American Wildfire Risks Could Spark Rating Pressure For Governments And Power Utilities, Absent Planning And Preparation, Nov. 29, 2023

• To maintain profitability in regions exposed to climate hazards, insurance companies manage losses by implementing various strategies, including discontinuing writing new business
• Collaboration between different levels of government, as well as an entity's planning and preparedness for emerging risks, could help offset exposure to wildfire risk
• Certain U.S. state regulatory frameworks can increase the credit risks from wildfires for public power and investor-owned utilities, potentially leading to litigation risks.

49. 2023 Update Of Institutional Framework For U.S. Local Governments, Nov. 28, 2023

• Continued economic and revenue growth in 2023, coupled with additional financial flexibility from federal stimulus funds, preserved state revenue distributions, leading to our maintenance of predictability and revenue and expenditure balance scores.
• Since our last publication on Oct. 12, 2022, we only revised two institutional framework (IF) subfactors and one overall score was revised in Oklahoma due to new statutory financial transparency requirements. The longer period of revenue stability also resulted in overall score revision for Maine.
• Missouri's county IFs were consolidated due to new statutory requirements that require all county government classes to prepare annual financial reports.
• Overall scores remain predominantly strong (70%) or very strong (17%).

50. U.S. Privatized Student Housing Stabilizes As Recovery Continues And University Financial Support Dwindles, Nov. 20, 2023

• S&P Global Ratings raised two ratings and revised five outlooks to positive on U.S. privatized student housing issuers in the past year, as many projects' operations rebounded to pre-pandemic levels.
• Occupancy continues to increase slowly as more projects near full capacity.
• Financial operations have stabilized, given increases in rental revenue and occupancy since the onset of the pandemic in early 2020.
• As of fiscal year-end 2022, two projects have underfunded debt service reserve funds, but most have increased their reserves.

Real estate

51. Update On Southeast Asia Property: Glimmers Of Gains Amid The Strains, Nov. 30, 2023

• Indonesia and Vietnam property sales sentiment will improve in 2024 underpinned by supportive regulatory policies.
• Refinancing pressure on Vietnam and Indonesia developers remains elevated owing to sizable maturity walls looming in 2024 and 2025.
• Prime commercial real estate in Singapore remains resilient. Downtown malls and hospitality assets benefit from increasing tourist inflows.

Retail

52. U.S. Holiday 2023 Sales Outlook: Retailers’ Wishlist; Consumers Say Bah Humbug, Nov. 22, 2023

• S&P Global Ratings analysts in the retail, restaurant, and consumer goods sectors collectively forecast an average of about 3.5% increase in retail sales, largely driven by price, for the 2023 holiday season.
• We remain cautious about the holiday season amid pressured household budgets and sustained demand for experiences.
• Retailers that are exposed to discretionary spending are three times as likely to face a downgrade within the next one to two years than retailers whose sales are driven by more stable nondiscretionary spending.
• If consumers are more frugal than we expect this season, we could see significant downgrades.

Sovereigns

53. Argentina's Incoming Administration Faces Difficult Economic Policy Implementation, Nov. 22, 2023

• Economic imbalances provide complex conditions for the Milei administration even before he takes office.
• Argentina is facing significant policy change, which reinforces its track record of deep swings in policy alongside changes in government--extending a track record of policy unpredictability and reversal.
• Impacts on sovereign, provincial, corporate, financial institutions, and structured finance ratings will depend on the specific policy initiatives undertaken to tackle macro imbalances and pace of recovery in the economy.

54. Germany's Medium-Term Growth Could Suffer From Top Court's Decision, Nov. 27, 2023

• Germany's federal constitutional court ruled against the repurposing of €60 billion in unused pandemic-related borrowing authorizations to finance Germany's green transition because the repurposing is at odds with the country's debt brake rule.
• If the German government wants to reduce budget deficits by a total of €60 billion over the next few years, it must increase revenues, reduce the planned investment spending, or reduce other spending.
• We consider Germany's fiscal capacity stronger than many other developed markets' because of the country's moderate debt burden, which we estimate will be 63% of GDP in 2023.
• Yet, the effect of the constitutional court's decision on Germany's medium-term growth remains a key concern after decades of low public investments and could test the cohesion of the current three-party coalition. If the German government cannot find alternative ways to fund public investments, the growth prospects of Germany's trading partners, in particular in the eurozone, will also suffer.

55. Credit FAQ: How Would MLIs' Participation In Sovereign Debt Restructurings Affect Our Preferred Creditor Treatment And Ratings?, Nov. 28, 2023

• An increase in the number of sovereign debt restructurings and sovereigns in debt distress has led to calls for multilateral lending institutions (MLIs) to participate in the restructurings on equal terms with other creditors.
• Our hypothetical scenario testing found that MLIs' involvement in smaller debt restructurings would not necessarily affect the preferred creditor treatment (PCT) assessments that inform our ratings on the MLIs, whereas larger-scale restructurings may result in negative changes.
• However, smaller-scale restructurings may affect other aspects of the ratings, such as our funding and liquidity assessment, should an MLI's market access deteriorate as a result of its participation.
• In addition, we believe that if MLIs participated in debt restructurings on equal terms with other creditors, it could meaningfully alter their business models. For example, MLIs may need to increase their loan pricing significantly, and/or undertake capital increases more frequently.

Structured finance

56. China Securitization: ABS And RMBS Tracker October 2023, Nov. 29, 2023

• The weighted-average 30-plus-day delinquency rate and severe delinquency rate for auto asset-backed securities (ABS) that we rate inched up to 0.27% and 0.13%, respectively, in October 2023.
• The three-month median of coupons on the most senior tranches of recently closed auto ABS rebounded to 2.3% during August to October.
• The weighted-average 90-plus-day delinquency ratio of residential mortgage-backed securities (RMBS) that we rate climbed to 2.49% in October from 2.34% in September. This is mainly driven by a recent prepayment spike and the paying down of outstanding notes, which led to a smaller base for the balance of total outstanding mortgage loans.
• The auto ABS transactions that we rate remain stable. Delinquency in our rated RMBS transactions may remain elevated because the underlying pool size has shrunk following the recent prepayment spike.

57. EMEA Structured Finance Chart Book November 2023, Nov. 21, 2023

• Regulation: In late October, the U.K.'s Prudential Regulation Authority (PRA) published a discussion paper, which raises the possibility of revisions to banks' regulatory capital requirements for securitization exposures. These considerations have been triggered by the upcoming implementation of wider changes in the global Basel 3.1 standards, including a so-called "output floor". This aims to minimize the differences in capital requirements between banks using internal model-based calculation approaches and those using standardized formulae (see chart) but may make the use of securitization for risk transfer uneconomical in some cases. Among other issues, the PRA is seeking feedback on whether a more general review of securitization capital requirements is warranted, with proposals and a further consultation set for 2024.
• Issuance: Investor-placed securitization issuance for October 2023 was €9.3 billion--more than double the volume for the same month 2 Highlights—News Source: S&P Global Ratings. in 2022. Overall year-to-date issuance of €75 billion at end October exceeded the previous year's equivalent for the first time, by 2%. European benchmark covered bond issuance has been robust throughout the year, reaching €159 billion year-to date by the end of October 2023. While momentum has slowed in recent months, year-end volumes still look set to exceed the strong issuance in 2022 and come in at a decade high. Benchmark issuance in October was €11.8 billion--down about 25% on volumes in October 2022.
• Rating actions: In October 2023, we raised 36 of our ratings on European securitization tranches across a wide mix of sectors, including U.K. nonconforming and buy-to-let RMBS, CMBS, and CLOs. There were nine downgrades, mostly in CMBS.

58. A Primer On European Auto ABS, Nov. 21, 2023

• Most European auto ABS securitizations are backed by prime obligors and new vehicles, although more recently, an increasing number of transactions are securitizing used vehicle and near-prime borrower assets, especially in the U.K.
• In the short to medium term, the transition to electric vehicles may pose additional challenges, particularly relating to recovery values and residual value risk. If securitized, residual values may expose these transactions to direct market value risk.
• The market is defined by loan and lease products. While historically loans have dominated the scene, more recently customers are favoring lease and subscription products over ownership. Maintenance and other service contracts introduce additional legal risks.
• Auto ABS transactions are primarily revolving given the short weighted-average life of the assets. Historically, transactions are structured with one to two classes of rated notes, although fully rated capital structures are becoming more frequent.

59. U.S. Structured Finance Chart Book: November 2023, Nov. 30, 2023

• Although a reduction in home equity could disincentivize timely mortgage payments, housing fundamentals remain supportive despite regional pockets of weakness.
• The abnormally wide spread between the 30-year fixed rate mortgage and the 10-year Treasury note yield continues to strain affordability.
• Student loan payment resumption is unlikely to cause meaningful mortgage payment disruption. However, there may be minor performance issues in the investor property non-qualified mortgage (non-QM) subsector.
• We assessed debt service coverage ratio (DSCR) loans that collateralize the residential mortgage-backed securities (RMBS) transactions we rate to demonstrate the shock a renter might experience upon resumption of student loan payments.
• We considered various combinations of rental property values (and corresponding rent payment/yield) and examined how additional monthly obligations in the form of student loan payments would impact the renter's payment ratio and the property's rental yield (assuming the student loan repayment translated into a direct reduction in collected rent).

60. SF Credit Brief: The Overall U.S. CMBS Delinquency Rate Increased By 16 Basis Points To 4.0% In November 2023; Office Loan Delinquency Rate Resumes Climb, Dec. 1, 2023

• The U.S. CMBS overall delinquency rate increased by 16 basis points month over month to 4.0% in November 2023.
• Seriously delinquent (60-plus-days and 120-plus-days) loans represented 85.3% and 17.8% of delinquent loans, respectively.
• Special servicing rates increased for multifamily and office loans, and remained flat for retail, lodging, and industrial loans.
• By balance, delinquency rates increased for lodging, multifamily, and office loans, and decreased for industrial and retail loans.

61. SF Credit Brief: CLO Insights 2023 U.S. BSL Index: CLO Metrics Tick Lower, And We Assess The Benefits Of Active CLO Management, Nov. 30, 2023

• After a small flurry of negative rating actions on CLO obligors in late October and November (downgrades to 'B-', into the 'CCC' rating category, and in some cases, to non-performing ratings; see table 2 below), average 'CCC' exposure across our index of rated reinvesting U.S. broadly syndicated (BSL) collateralized loan obligation (CLO) is now 7.84%, slightly above the 7.5% threshold for the first time since the second quarter of 2021.
• We note that excess 'CCC' haircuts are starting to impact CLO junior overcollateralization (O/C) test cushions, along with defaulted asset haircuts

62. CLO Spotlight: Managers Matter: Active Management Of U.S. BSL CLOs During Uncertain Times Shows Its Value, Nov. 30, 2023

• CLO managers' active management of U.S. BSL CLOs during uncertain economic times has measurable benefits.
• We performed a study assessing the impact of active management in the post-pandemic era, focusing on a seven-quarter period from the start of 2022 through third-quarter 2023.
• We found that without active management, some CLO metrics could have deteriorated to levels not seen since the pandemic, including some 'CCC' buckets going to over 12%.
• Higher assets-under-management managers experienced more stability as they maintained higher exposure to large obligors and were more likely to purchase fixed-rate assets at a discount.

63. Accounting For Regional Volatility When Assessing Home Price Appreciation: A Portfolio Management Theory Approach, Nov. 22, 2023

• Despite a recent interest rate-related slowdown between the third and fourth quarters of 2022, home price appreciation (HPA) has remained strong in most regions across the U.S. for the past decade, particularly during the period immediately following the onset of the COVID-19 pandemic.
• The Federal Housing Finance Agency (FHFA) All Transactions Home Price Index for the U.S. has recently surpassed the record-high level of 2022 as a supply-constrained housing market copes with demand from the millennial generation.
• Idiosyncratic economic forces play a large role in how certain regions sustain "hot" markets while others are more "tepid" or even "cold". It is likely, however, that some portion of home price gains derives from the volatility inherent to specific local markets. To account for this effect, we draw from portfolio management theory, which aims to measure returns normalized for volatility (as measured by the standard deviation).

Technology

64. Gen AI Is Writing A New Credit Story For Tech Giants, Nov. 14, 2023

• The popularity and development of generative AI will spur heavy AI investment over the next three years and boost demand for related tech hardware.
• Foundry leader Taiwan Semiconductor Manufacturing Co. Ltd., memory chip producer SK Hynix Inc., and chip designer NVIDIA Corp. will be among the chief beneficiaries of the investment boom. To a lesser degree, server vendors should also benefit from AI server sales, which is incremental to conventional server business.
• The longer-term implications for rated tech firms are less clear, and depend on whether each firm can adapt to an evolving AI-induced shift. Accurately pacing, timing, and executing AI-related investments will be key determinants.

65. As Recession Concerns Fade, 'B' Rated U.S. Tech Issuers Aren’t Out Of The Woods, Nov. 29, 2023

• The resilience of the U.S. economy and lower risk of a recession haven't diminished negative rating pressure on 'B' rated technology issuers. Many have high debt leverage and variable-rate debt capital structures that will continue to constrain cash flows over the next 12 months.
• This year, rating actions have been two times more negative than positive. More importantly, seven issuers were lowered to the 'CCC' category in 2023, and we have 12 rated 'B-' with negative outlooks, indicating downside pressure remains.
• Liquidity and interest coverage metrics have become increasingly important in our rating assessments with interest rates remaining high for a while longer.
• Issuers will need a more conducive capital market environment to refinance, otherwise we should expect significant credit deterioration from loan repricing or more distressed exchanges.

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