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COMMENTS

COVID-19 Impact: Key Takeaways From Our Articles


COVID-19 Impact: Key Takeaways From Our Articles

(Editor's Note: This article has been updated from the previous edition. It now contains key takeaways from recent articles on global and regional credit conditions, the global economy, credit conditions in Asia-Pacific, emerging markets, Europe, and North America, risky credits, the U.K., Latin American and Canadian economies, U.S. state finances, Saudi Arabian insurers, Japan's regional banks, the lodging, leisure, and gaming sectors in the U.S., Indian banks, metal prices, the global consumer goods industry, and European office CMBS transactions.)

The rate of spread and timing of the peak of the coronavirus outbreak are still highly uncertain. As the situation evolves, we will update our assumptions and estimates accordingly. To date, we have published nearly 500 articles that analyze the outbreak effects on economic conditions and credit (see https://www.spglobal.com/ratings/en/research-insights/topics/covid-19-macro-credit-research). We also periodically update this article, which contains an edited compilation of key takeaways from our most up-to-date series organized by sector, region/country, and publication date (see table 1).

Webcast Series And Weekly Digest

S&P Global Ratings has launched a series of webcasts--Coronavirus Insights: Friday Credit Focus. Every other Friday, we provide the market with updates on our view of how the current unprecedented circumstances are affecting credit risk and ratings across asset classes. To register for the upcoming webcasts, please click the link: https://www.spglobal.com/ratings/en/events/webcasts/index

We are also publishing a COVID-19 Weekly Digest, which spotlights key developments, economic and credit market updates, and asset class trends on a weekly basis. See the latest published July 1 here: https://www.capitaliq.com/CIQDotNet/CreditResearch/pdf.aspx?ResearchDocumentId=45247760&isPDA=Y

Rating Actions

In response to investors' growing interest in the coronavirus and its credit effects on companies, S&P Global Ratings is publishing a regularly updated list of rating actions it has taken globally on corporations and sovereigns. These are public ratings where we cite COVID-19, oil prices, or both as a factor. The latest edition is: "COVID-19: Coronavirus- And Oil Price-Related Public Rating Actions On Corporations, Sovereigns, And Project Finance To Date," published July 1.

Structured finance ratings are also affected due to the COVID-19 crisis, see "COVID-19 Activity In Global Structured Finance For The Week Ending June 19, 2020," published June 25. For specific consideration of CLOs, see "Sector Averages Of Reinvesting U.S. BSL CLO Assets: COVID-19-Related Corporate Downgrades Caused Significant Deterioration In First-Quarter 2020," published May 18, "U.S. CLO Exposure To Negative Corporate Rating Actions (As Of June 28, 2020)," published June 30, "A Breakdown Of U.S. CLO CreditWatch Negative Placements (As Of June 1, 2020)," published June 5, and "COVID-19: Coronavirus-Related Public Rating Actions On Nonfinancial Corporations And Affected European CLOs," published June 30.

Moreover, "COVID-19 Activity In U.S. Public Finance," published June 29, summarizes the sector's rating actions and publications to date.

"Credit FAQ: The Ratings Process And The COVID-19 Pandemic," published April 2 and "Top 10 Investor Questions On Our Ratings Process," published June 4 address some questions about the pandemic's effect on S&P Global Ratings and how our credit analysis and surveillance are proceeding during this time. "Q&A: Government Support, Forbearance, And Corporate Liquidity Analysis In A Time Of Stress," published April 9, provides a summary of certain elements of our criteria and rating definitions relevant to understanding how we may assess government support, forbearance, and corporate liquidity in a time of credit stress.

COVID-19 Infections

The number of COVID-19 confirmed cases has surpassed 10.7 million worldwide, with the death toll exceeding 516,000 (see charts 1 and 2). South America has become an epicenter of the pandemic, and cases continue to rise in emerging markets such as Brazil, Russia, and India. Elsewhere, the situation remains complicated as countries transition to recovery. For example, Germany and France have recently experienced infection clusters that have caused the number of reported cases to rise. In the U.S., while new cases in some of the hardest-hit states including New York and New Jersey are flattening, others such as California, Florida, Texas, and Arizona are seeing spikes as they start phased re-openings. Globally, around 51% of the confirmed cases have recovered.

Chart 1

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Chart 2

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Key Takeaways From Our Relevant Published Reports

Credit Conditions

1. Global Credit Conditions: The Shape Of Recovery: Uneven, Unequal, Uncharted, July 1, 2020

Alexandra Dimitrijevic, London, +44-20-7176-3128, alexandra.dimitrijevic@spglobal.com

  • Credit damage. The COVID-led recession will likely weigh on credit metrics well into 2023 from the combination of lost output and increased debt burdens, threatening corporate solvency.
  • A different recovery. The shape of recovery will differ from previous crises, with a wide range of outcomes across industries and geographies, and accelerating some secular industry shifts.
  • Swift stimulus worked; pull-back carries risks. Central banks and governments acted promptly and massively to limit the damages to the real economy and the markets, but debt levels took another step up, making the unwinding of this liquidity support difficult, and widening the gap between market prices and credit fundamentals.
  • Profound political impact. National and international fragmentation could intensify as low income populations are suffering disproportionately, exacerbating inequalities and social tensions, while the disruption of critical supply chains revives economic nationalism.
  • Opportunities. The crisis could present an opportunity for governments to support the recovery through infrastructure investment, supporting a green, digital, and more sustainable economy.

2. Credit Conditions Asia-Pacific: China First To Recover, June 30, 2020

Gavin J Gunning, Melbourne, (61) 3-9631-2092, gavin.gunning@spglobal.com

  • Overall. The road to recovery for Asia-Pacific GDP trends and earnings will stretch to 2023. Geographically, China leads, followed by developed economies, with emerging markets last. Sector wise, essential retail and telecoms are the first to rebound; oil and gas, and autos, will be the last; real estate, capital goods and other corporate sectors in between.
  • Risks. During this recovery, the top risks include a build-up of leverage, economic disruption from COVID-19 measures, economic spillover from the U.S.-China strategic confrontation, and uneven access to U.S. dollar funding.
  • Credit. COVID-19 and an oil price decline have triggered negative rating actions on a third of our regional pool. Indeed, the net negative rating outlook bias comprises one-sixth of issuer ratings. Consequently, while there are "green shoots" signaling a regional recovery, the likelihood of rating downgrades and defaults persists.

3. Credit Conditions Emerging Markets: Slow Recovery, Prevalent Risks, June 30, 2020

Jose M Perez-Gorozpe, Mexico City, (52) 55-5081-4442, jose.perez-gorozpe@spglobal.com

  • Overall: Improving external conditions--including resumption in business activity in key emerging market (EM) trade partners such as the U.S., the Eurozone and China, along with unprecedented accommodative monetary conditions--are shoring up financing conditions for EMs. Activity in EM economies is slowly picking up, but it will take long to get back to business as usual.
  • Risks: Risks remain firmly on the downside, the deep economic shock in 2020 will spike debt levels across governments, corporations, and households in EMs, some of which were suffering from already high debt burdens prior to the pandemic. Lockdown fatigue driven by mounting political pressures and economic costs could lead to poor policy choices. Most EMs have limited room to maneuver, but the absence of proper economic stimulus could derail recovery and prolong the economic downturn.
  • Credit: Issuers will remain under pressure over the coming months. Those able to stay afloat during the severe downturn will probably do with higher debt levels and weaker profits.

4. Credit Conditions Europe: Curve Flattens, Recovery Unlocks, June 30, 2020

Paul Watters, CFA, London, (44) 20-7176-3542, paul.watters@spglobal.com

  • Overall: Supported by stimulus measures, European economies are tentatively reopening since the first wave of the coronavirus has passed its peak. Credit conditions may enjoy some respite over the summer before difficult policy and business decisions need to be made, as the shape of recovery and the timelines for ending support schemes for corporate and household borrowers become clearer.
  • Risks: Key risks remain a resurgence in the virus before a vaccine becomes available; deteriorating credit fundamentals raising solvency issues, notwithstanding short-term liquidity support measures; escalation in (mainly U.S.) bilateral trade tensions globally, including the risk of no free trade agreement (FTA) between the U.K. and EU; and uncertainty and job insecurity inhibiting a recovery in consumer spending.
  • Credit: The severity of the recession and lingering fears of a resurgence in the virus in the absence of a vaccine point to a varied and complicated path to recovery that will differ substantially among countries and sectors. Taking the biggest hit this year are more service-oriented economies such as Spain, Italy, and France, while our new assumption of a limited U.K.-EU FTA at year-end slices 1.7% off U.K. GDP through to 2023. Consumer discretionary sectors affected by social distancing and likely changing consumer preferences, including those related to travel, may not fully recover until at least 2023.

5. Credit Conditions North America: Rolling Out The Recovery, June 30, 2020

David C Tesher, New York, (1) 212-438-2618, david.tesher@spglobal.com

  • Overall: As corporate borrowers confront both operating constraints due to social distancing and diminished consumer demand, the recovery path will likely be rocky and uneven, and many in the industries hit hardest by the severe economic shock will be lucky to escape default—especially if we see a significant pull-back in federal stimulus.
  • Risks: Short of a coronavirus vaccine or effective treatment, there is a risk that a resurgence of the outbreak could lead states to extend, or restart, social restrictions and worsen the pain associated with historically high unemployment and severe business disruption. Moreover, corporate borrowers have incurred more debt, and concerns about high leverage and potential for insolvency are increasing.
  • Credit: At the same time, amid signs the worst of the recession is behind us, financing conditions for U.S. corporations have improved even faster than economic data have. Equity and fixed-income markets are showing exceptional optimism even as new cases of the virus have risen in some areas and the full reopening of the economy is some way off.
Autos

6. Q&A: COVID-19 And The Auto Industry--What’s Next?, June 9, 2020

Vittoria Ferraris, Milan, (39) 02-72111-207, vittoria.ferraris@spglobal.com

  • For the Europe, we assume year-on-year declines of 20% in the first quarter and an unprecedented 65% in the second, and more or less flat growth for the third and fourth quarters. However, if the second quarter turns out to be weaker than we expect and we don't think a stronger second-half recovery will compensate for this, we could revise our forecast.
  • Even before the pandemic, credit trends were weakening for the global auto industry because of lower profitability and weaker cash flow, so many carmakers and suppliers entered this downturn in a fairly weak position. That said, some companies were more effective at flexing their cost base, and we expect them to emerge from the crisis more quickly and with relatively better generation of free cash flow. On another front, some companies will undoubtedly try to address their weaknesses by pursuing partnerships or full mergers.
  • Supply chain disruption is a key risk, and all manufacturers are monitoring the situation carefully. However, we think demand remains the most important risk as the recovery starts. Carmakers will be hard pressed to avoid any buildup of excess inventory of vehicles or parts.

7. COVID-19 Will Further Slow Demand For Heavy Trucks, May 5, 2020

Marta Bevilacqua, Milan, (39)0272111298, marta.bevilacqua@spglobal.com

  • We now forecast a steeper decline in global heavy-duty truck sales than we previously anticipated as the COVID-19 pandemic leads to a global recession in 2020.
  • We now project global sales of heavy-duty trucks will decline by 20%-30% in 2020, to about 1.7 million units from 2.3 million in 2019, followed by a sales recovery of up to 10% in 2021.
  • Across all regions, we expect that the downturn in 2020 will be worst in the U.S., as it often exhibits deeper cyclical troughs.
  • We expect global truck makers and suppliers will face intense pressures on their operating profits and cash flows, which will test the headroom in their credit metrics and liquidity management.

8. COVID-19 Will Batter Global Auto Sales And Credit Quality, March 23, 2020

Vittoria Ferraris, Milan, (39) 02-72111-207, vittoria.ferraris@spglobal.com

  • We are further lowering our forecasts for global light vehicle sales as the coronavirus pandemic escalates and global growth heads sharply lower.
  • We now project global sales will decline by almost 15% in 2020 to less than 80 million units.
  • We expect global automakers and suppliers will face intense credit pressures, which will test their liquidity management and the headroom in their credit metrics.

9. U.S. Autos Rating Action Summary And Key Takeaways Following COVID-19 Related Forecast Revisions, June 15, 2020

Nishit K Madlani, New York, (1) 212-438-4070, nishit.madlani@spglobal.com

  • Given the deep shocks to both the supply and demand sides of the U.S. economy, we estimate that U.S. light vehicle sales will likely decline by 25.0% year over year to 12.7 million units in 2020 before recovering to 15.1 million units in 2021.
  • The frequency and depth of our downgrades in 2020-2021 will likely be less severe than the downgrades we undertook in 2008-2009, which reflects that we already lowered our ratings on many companies in the sector in 2018 and 2019 due to industry headwinds related to high investment needs, tariffs, and regulatory compliance costs in the lead up to the coronavirus pandemic.
  • Investment-grade issuers will likely tap the financial markets to pay down their revolvers and improve their liquidity to better withstand the high production volatility over the next quarter as supply chain bottlenecks emerge or if there is an extended downturn.
  • Speculative-grade auto suppliers, especially those we rate in the low BB/B categories, typically have much less headroom in their cash flow adequacy metrics than their investment-grade competitors and we expect their headroom to weaken further as they build working capital to support the restart of their production facilities.
  • About one-fifth of the U.S. auto issuers we cover are rated 'CCC+' or lower, which indicates a high probability of default.
Aviation

10. Aircraft Lessors, Hit By Coronavirus Fallout, Should Fare Better Than Their Airline Customers, March 25, 2020

Philip A Baggaley, CFA, New York, (1) 212-438-7683, philip.baggaley@spglobal.com

  • The aircraft-leasing sector should fare better than airlines in this coronavirus-related economic downturn, but will still face pressure on their revenues and cash flow.
  • Lessors will need to repossess some aircraft and re-lease them at lower rates in a weak market.
  • Based on past experience, many lessors have mitigated potential risks by having diverse customer bases, collecting security deposits, and matching the terms of their leases and the debt funding them.
  • Nevertheless, we expect to revise many outlooks to negative or put the ratings on CreditWatch, with some downgrades possible.

11. Coronavirus' Global Spread Poses More Serious Challenges For Airlines, March 12, 2020

Philip A Baggaley, CFA, New York, (1) 212-438-7683, philip.baggaley@spglobal.com

  • Current industry conditions in the global airlines sector have weakened substantially as the coronavirus pandemic poses serious challenges to the industry and threatens operators' credit quality.
  • The ultimate impact of the coronavirus outbreak on our global airline ratings will depend on the duration and severity of the crisis, and the type and severity of measures airlines and governments take to mitigate it. These decisions will be partly informed by global, national, and local health authorities' advice on travel to highly affected areas.
  • We see significant downside potential to International Air Transport Assn.'s 19% global "extensive spread" revenue loss projection given the recent, rapid spread of the virus in the U.S. and President Trump's announced 30-day ban on travel to the U.S. from most of Europe.
  • Over the next several weeks we will conduct reviews on global airline companies to reflect our updated views on the industry and this highly uncertain and fast-moving situation.

12. Federal Aid For U.S. Airlines Provides Liquidity Amid A Grim Revenue Outlook; Ratings On CreditWatch Negative, April 15, 2020

Philip A Baggaley, CFA, New York, (1) 212-438-7683, philip.baggaley@spglobal.com

  • The series of agreements announced by the Treasury Department and various U.S. airlines to provide grants and loans to keep employees on the payroll through at least Sept. 30, 2020, provides welcome and much-needed near-term liquidity. The terms were less generous than expected.
  • The aid comes amid a worsening outlook for global air traffic and revenues. The International Air Transport Association on April 14 increased its estimate of this year's decline in air traffic and revenues to 55% globally, compared with a 38% decline forecast only three weeks earlier. IATA's estimate for North America was a 36% decline, compared with a previous 27% drop.
  • These revenue declines are translating into heavy cash outflow for U.S. airlines.
  • Our ratings on nine U.S. airlines, all lowered by one or two notches since the beginning of the COVID-19 pandemic, remain on CreditWatch with negative implications.
Building Materials And Construction

13. Europe's Construction And Building Materials Sector Should Hold Up Better Than After The Last Crisis, June 16, 2020

Renato Panichi, Milan, (39) 02-72111-215, renato.panichi@spglobal.com

  • The European building material and construction sector is among those taking a midsize hit from pandemic-induced shocks and should gradually recover in 2021 and 2022. We anticipate revenue declines of 15%-20% in 2020 for rated companies, with a rebound to pre-pandemic levels in late 2022.
  • We believe that a recovery will be faster than after the financial crisis but uneven, with companies focused on innovative and energy saving building products rebounding faster and large companies in the green building products segment better able to innovate.
  • We have taken negative rating actions on about one-third of the sector--largely outlook revisions to negative and mostly on speculative-grade companies in the 'B' rating category--a smaller share than for the transportation and retail sectors.
  • About 60% of speculative-grade companies have negative outlooks or are on CreditWatch with negative implications, because they entered the crisis with high financial leverage.
  • Large rated building material companies have quickly adapted their financial policy to the downturn, with the largest halving shareholder payouts to less than €3 billion in 2020, but total remuneration remains above financial crisis levels.
Capital Goods

14. Capital Goods Companies Face Shocks From COVID-19 And Economic Recession, April 27, 2020

Ana Lai, CFA, New York, (1) 212-438-6895, ana.lai@spglobal.com

  • The impact of COVID 19 and the sharp economic contraction will result in significant declines in revenue and EBITDA for capital goods companies in 2020, raising the pressure on credit quality in the sector.
  • We have taken over 40 ratings actions in recent weeks and expect the negative rating bias to grow.
  • The extent of the impact depends on end market exposures, with those facing weaker end market more vulnerable to downgrades.
  • Speculative-grade issuers are more vulnerable to downgrades given their limited diversity of end markets and resulting cash flow and liquidity pressures. Investment-grade issuers, while not immune to downgrades, should face less ratings pressure given their more diversified business models, greater cushion in credit metrics, and enhanced liquidity positions.

15. Japan's Capital Goods Industry Enduring COVID-19, So Far…, June 24, 2020

Makiko Yoshimura, Tokyo, (81) 3-4550-8368, makiko.yoshimura@spglobal.com

  • The downward pressure on creditworthiness of Japan's heavy industries and capital goods sector will intensify throughout 2020 amid a pandemic-triggered global economic downturn. The outlook on five of the six rated companies in the sector is stable.
  • Among the six heavy industries and capital goods manufacturers we rate, Hitachi, Mitsubishi Heavy Industries, and Toshiba benefit from diversified profit sources. We expect performances at the six companies to diverge in the next one to two year. The degree to which COVID-19 impacts the companies will vary depending on their business portfolios. Demand is likely to remain weak in 2020 and 2021 amid an ailing global economy.
  • Looking forward two or three years to economic recovery, we expect a relatively fast rebound for types of business that found new demand or met potential needs during the pandemic. Products for semiconductors and IT services are likely to be one such area as data utilization and digitalization needs have generated demand for such products. Factory automation is another case in point: There are growing needs for remote operations and automation
Chemicals

16. Q&A: EMEA Chemicals Face A Long Climb Back From COVID-19 Disruption, June 29, 2020

Paulina Grabowiec, London, (44) 20-7176-7051, paulina.grabowiec@spglobal.com

  • We have taken negative rating actions on about one-third of chemical companies in EMEA since February 2020 due to COVID-19-related disruption.
  • Highly leveraged speculative-grade rated companies and those with more exposure to demand from end markets tied to economic activity will take longer to recover credit quality and earnings.
  • We don't foresee a recovery to 2019 levels of revenues and EBITDA of chemical companies until the second half of 2022.

17. COVID-19 Hurts U.S. Chemical Credit Quality, May 20, 2020

Paul J Kurias, New York, (1) 212-438-3486, paul.kurias@spglobal.com

  • For U.S. chemical companies, the economic fallout from the COVID-19 pandemic will cut deeper and damage credit quality across a wider rating spectrum than recent recessions (including 2008-2009) or cyclical downturns.
  • Companies will face demand destruction and sharply reduced earnings in 2020 because chemical customers in a wide array of end markets including the auto, housing and construction, aerospace, and industrial sectors face demand declines of their own.
  • We list here several U.S. chemical downgrades, including an unusually high number of investment-grade downgrades, and discuss our forward-looking assumptions that have contributed to rating actions.
  • We anticipate chemical markets will recover in 2021, but reflect the uncertainty in timing and extent in a large proportion of negative outlooks.
Commodities

18. China Commodities Watch: Brave New Post-COVID World, May 18, 2020

Danny Huang, Hong Kong, (852) 2532-8078, danny.huang@spglobal.com

  • Chinese commodities prices will likely stay soft in the second quarter amid ample inventories.
  • We have so far revised our outlooks on about one-fifth of publicly rated Chinese commodities firms since the outbreak began.
  • We expect a more meaningful recovery in the second half, with China's cement and steel sectors best positioned for a rebound.
Commodities - Metal And Mining

19. Metal Price Assumptions: Gold Shines, While Slow Recovery Flattens Other Metal Prices, Jul 01, 2020

Diego H Ocampo, Buenos Aires, (54) 114-891-2116, diego.ocampo@spglobal.com

  • We lowered our aluminum price assumptions by $100/ton through 2022 and our zinc price assumptions by $100/ton through 2021. These changes represent 6% and 5% drops, respectively.
  • We also lowered our near-term price assumptions for metallurgical and thermal coal due to lower demand.
  • We raised our gold price assumptions to $1,650 per ounce for the rest of 2020 because we believe gold prices will benefit from uncertainty about the global economic outlook and a weaker U.S. dollar.
Commodities - Oil And Gas

20. S&P Global Ratings Cuts WTI And Brent Crude Oil Price Assumptions Amid Continued Near-Term Pressure, March 19, 2020

Simon Redmond, London, (44) 20-7176-3683, simon.redmond@spglobal.com

  • S&P Global Ratings lowered its West Texas Intermediate (WTI) and Brent crude oil price assumptions for 2020 by $10 a barrel. Oil price assumptions are unchanged for 2021 and 2022. In addition, we affirmed the Henry Hub and AECO Canadian natural gas price assumptions.
  • Over the next several weeks, we will continue to conduct reviews on investment-grade and speculative-grade E&P and oilfield services companies.
  • Oil markets are heading into a period of a severe supply-demand imbalance in second-quarter 2020. The acute oversupply threatens to test the limits of crude and product storage as soon as May, according to S&P Global Platts Analytics.

21. Cure For Pandemic's Spread To North American Refining Is Time, May 29, 2020

Michael V Grande, New York, (1) 212-438-2242, michael.grande@spglobal.com

  • The coronavirus pandemic is testing the North American refining industry by reducing demand to modern lows. U.S. gasoline demand fell to the lowest since January 1969, jet fuel to the lowest ever recorded by the Energy Information Administration.
  • Lower demand is significantly stressing balance sheets and wiping out a large portion of EBITDA.
  • Our approach to ratings already includes possible cash flow volatility, and we use debt to EBITDA as a key ratio in assessing financial risk for 2020, 2021, and 2022.
  • Without expected recovery in the fourth quarter, independent refiners will have to make tough decisions as they face more ratings pressure as liquidity deteriorates and credit quality further weakens.

22. U.S. Upstream Oil And Gas Rating Action Summary And Key Takeaways Following The March 2020 Hydrocarbon Price Deck Revision, May 19, 2020

Thomas A Watters, New York, (1) 212-438-7818, thomas.watters@spglobal.com

  • The slump in oil and gas prices is different from the last downturn mostly because many borrowers can't rely on equity offerings and asset sales to preserve credit quality, and the ability to cut costs further is limited.
  • There are eight companies on the cusp of falling into fallen angel category, which will hinge on the outcome of our price deck review in the third quarter.
  • Speculative-grade issuers will continue to wrestle with refinancing risks amid a lack of market access. More distressed exchanges and bankruptcies are inevitable.
Consumer Goods

23. EMEA Consumer Goods Credit Trends 2020, June 23, 2020

Rocco A Semerano, London, +44 20 7176 3650, rocco.semerano@spglobal.com

  • The pandemic has inflicted a temporary but material shock to the consumer goods industry worldwide. Among longer-term risks, we highlight the disruption to international travels and to the associated tourism spending, with negative effects for the travel retail channel, leisure activities, and the personal luxury goods sector. Moreover, we assume a higher risk of escalation of international trade conflicts. COVID-19 has revealed the fragility of global supply chains to pandemic risks and associated political tensions. This may prompt a strategic revision to more localized supply chains, which could add costs and exacerbate trade conflicts.
  • Companies are typically responding by changing their capital allocations, reducing shareholder distributions, and suspending expansionary investments and M&A. Looking at their internal operations, consumer goods companies are revising supply chains and working capital management, reducing number of SKUs, and renegotiating terms with landlords of the retail network.
  • In the recovery phase, we believe that big brands will likely get bigger thanks to their resilience and consumer appetite for familiar, better-known brands. Moreover, the overall premiumization trend will likely suffer a temporary setback as consumers trade down. Companies with global brands, diversified portfolios at different price points, and simpler supply chain should prove to be more resilient and gain market share in a more volatile environment.

24. COVID-19 Will Shape The Future Of Consumer Goods, July 1, 2020

Raam Ratnam, CFA, CPA, London, (44) 20-7176-7462, raam.ratnam@spglobal.com

Trends that will dominate:

Home Consumption -

  • Robust growth in packaged food and home care, subdued demand for discretionary goods
  • Well-defined customer proposition around convenience and value
  • Range optimization for essentials, with product and pack size geared for home consumption

Brands –

  • Consumers are seeking comfort and familiarity with big brands
  • Brand equity is moving to center stage as e-commerce gathers pace
  • Greater product segmentation and targeted offerings for discretionary products

Private label –

  • An emerging battleground between retailers and consumer companies
  • Newer challengers in niche categories
  • More premiumization and innovation around products, packaging, and pricing

Supply chain –

  • Increased diversity and visibility of suppliers, with more risk-based and sustainable approaches to sourcing
  • Striking a balance between time, cost, quality and customer experience
  • Building corporate credentials for quality, traceability, and provenance

25. U.S. Consumer Product Ratings Demonstrate Pandemic's Double Edge--Consumer Staples Benefit While Discretionaries Struggle, June 12, 2020

Diane M Shand, New York, (1) 212-438-7860, diane.shand@spglobal.com

  • Packaged food companies and household products will continue to benefit from an uptick in demand because of increased stay-at-home behavior and an increased focus on health.
  • The majority of consumer durables, apparel, food service, and cosmetics issuers have seen negative rating actions, reflecting the impact of stay-at-home mandates related to the COVID-19 pandemic and recession.
  • Rating actions going forward will depend on when retail stores and entertainment venues widely reopen and consumers being willing to go back to these channels as well as when macroeconomic conditions improve.
Corporates

26. Brazilian Companies Are Struggling Under The Burden Of COVID-19, June 9, 2020

Flavia M Bedran, Sao Paulo, + 55 11 3039 9758, flavia.bedran@spglobal.com

  • With more than 710,000 confirmed COVID-19 cases and 37,000 casualties as of June 8, Brazil is the hardest hit country in Latin America. A combination of densely populated cities and poorly coordinated prevention measures contributed to the surge that's straining the medical system
  • We have lowered 21 global scale and 17 national scale ratings, and revised 95 outlooks to negative on Brazilian corporations. About 65% of of them still have a negative bias (either a negative outlook or CreditWatch negative). Chart 1 shows that utilities, infrastructure assets, and transportation and agribusiness companies bore the brunt of the actions so far. The outlook revisions on utilities, infrastructure, and transportation entities followed mostly our outlook revision on Brazil, and to a lesser extent, the lockdown measures, either government mandated or self-imposed. while the changes on agribusiness entities mostly occurred among sugar and ethanol producers that are suffering from sharply lower ethanol demand and prices.
  • Chart 2 shows remaining downgrade risks among the sectors, and the average time we may take to review them since the last published piece. The downside risks are indicative, and may or not materialize depending on when the economy rebounds.
  • Our credit ratings and outlooks assume a 4.6% GDP contraction in 2020, with the steepest decline in the second quarter and recovery starting in the third quarter. If the depth or duration of the crisis are worse than our base-case assumptions that lockdown measures will be lifted by the end of the second quarter, then the impact on the corporate issuers will be more severe. For more details on our macro assumptions, you can read "Economic Recovery From The COVID-19 Pandemic Will Be Uneven Across Latin America", April 17, 2020.
  • International investors' appetite for Brazilian entities' debt remained tepid in the first five months of 2020, resulting in issuances of only $1.8 billion before Petrobras' $3.25 billion issuance at the end of May, compared with $5.7 billion in the same period of 2019. Moreover, the domestic bond market is also posting anemic activity, although it has sped up recently. In the same period, Brazilian corporations issued $4 billion (real equivalents) in the domestic market compared with $7 billion in the same period of 2019. For the entire last year, the domestic market posted record issuance of $38 billion in real equivalent debentures.

27. The Refinancing Clock Is Ticking Louder For China's Issuers, April 16, 2020

Chang Li, Beijing, + 86 10 6569 2705, chang.li@spglobal.com

  • Issuance has jumped in China's domestic bond markets, providing some funding relief for corporate borrowers cut off from volatile offshore markets. However, this may just postpone rather than solve refinancing needs for Chinese corporates.
  • Government stimulus actions have boosted onshore bond markets, providing some relief for Chinese issuers. However, most new issuance is short term, adding to already high maturity walls over the next two years. Shorter maturity profiles aggravate refinancing risk, especially if funding conditions deteriorate.
  • Moreover, continued borrowing amid low demand will likely increase corporate leverage.

28. Canadian Corporates Face Unprecedented Credit Stress In 2020 Thanks To Plummeting Oil Prices And COVID-19, May 11, 2020

Madhav Hari, CFA, Toronto, (1) 416-507-2522, madhav.hari@spglobal.com

  • The COVID-19 pandemic together with plummeting oil prices will drive a 5%-plus economic contraction in Canada this year, peaking in the second quarter at an annualized decline of about 34%; in our base-case forecast, the economy will not get back to pre-COVID-19 levels until the third quarter of 2021.
  • Against this backdrop, and combined with weakened capital market access for several speculative-grade issuers, we anticipate a significant negative impact on corporate earnings and credit quality, with potential negative rating actions on about half of the Canadian corporate portfolio.
  • While the credit impact is broad, we anticipate the energy, non-precious metals, travel, leisure, and consumer discretionary sectors will be very severely affected and expect a slower pace of recovery for these issuers than in other industries.
  • Although we don't have any fallen angels, the proportion of investment-grade (IG) corporate issuers rated 'BBB-' has increased to about 30%.
  • Default rates could increase meaningfully over the next several months given the large increase in the portion of speculative-grade issuers rated 'B-' or lower.
  • Funding conditions, debt maturity profiles, and liquidity appear supportive of higher-rated IG issuers despite wider bond spreads; poor financing conditions for speculative-grade issuers underscore the severity of our recent rating actions for the group.

29. Why German Corporates Could Recover Quickly From The COVID-19 Credit Shock, June 18, 2020

Tobias Mock, CFA, Frankfurt, (49) 69-33-999-126, tobias.mock@spglobal.com

  • Rated German companies are withstanding the COVID-19 shock better than many international peers on average: we have taken COVID-19-related rating actions on just 27% of German corporates, compared with 37% in EMEA as a whole and 41% in North America.
  • Their relative resilience rests mainly on good liquidity and capital market access: only five out of 110 rated companies have sought state support, while the majority have managed liquidity by tapping the capital markets and renegotiating new bank credit lines.
  • This strength, along with other defensive credit protection measures, should also help most German corporates recover pre-Covid-19 credit quality in 2021 and beyond in a more supportive economic environment. Auto companies are an exception, as they are additionally affected by the industry's transformation to electrification.

30. COVID-19 Heat Map: Post-Crisis Credit Recovery Could Take To 2022 And Beyond For Some Sectors, June 24, 2020

Jeanne L Shoesmith, CFA, Chicago, (1) 312-233-7026, jeanne.shoesmith@spglobal.com

  • The credit downturn caused by COVID-19 has been abrupt and severe, with a tremendous variance of impact across different corporate sectors.
  • Even though the health effects of the pandemic may dissipate sometime in 2021, S&P Global Ratings expects credit measures for some sectors will take longer to fully recover. Part of the reason is a massive increase in new debt issuance, with the year-to-date total of $1.6 trillion, rising 60% over the same period in 2019. Incremental debt used to finance operations could delay the recovery of credit metrics for some sectors beyond simply a recovery in revenue and earnings into 2022, 2023, and beyond.
  • In addition, some segments, such as airlines, non-essential retail, and hotels, also face potential longer-term disruption effects, which could impede a recovery. Other sectors, such as pharmaceuticals, telecom, and essential retail, are much less affected.
  • The pandemic occurred against a backdrop of already-weak credit measures for most sectors. Ratings remain under pressure, especially in the transportation, media & entertainment, and automotive sectors, which now have 17%, 19% and 30% of ratings, respectively, on CreditWatch with negative implications.
Credit Trends And Market Liquidity

31. U.S. Dollar Liquidity Returns, Selectively, To Asia, May 21, 2020

Christopher Yip, Hong Kong, (852) 2533-3593, christopher.yip@spglobal.com

  • Access to U.S. dollar funding will stay uneven over the next three to six months across Asian issuers.
  • We are seeing signs that dollar liquidity is slowly returning to Asia for investment-grade names and, tentatively, for Chinese developers.
  • Access to funding is likely to stay difficult or expensive for smaller issuers amid looming maturities and growing refinancing requirements.

32. The European Speculative-Grade Corporate Default Rate Could Reach 8.5% By March 2021, June 8, 2020

Nick W Kraemer, FRM, New York, (1) 212-438-1698, nick.kraemer@spglobal.com

  • We expect the European trailing-12-month speculative-grade corporate default rate to rise to 8.5% by March 2021 from 2.4% in March 2020, and 2.7% in April. To reach this baseline forecast, 62 speculative-grade companies would need to default.
  • In our optimistic scenario, we expect the default rate to rise to 3.5% by March 2021 (25 defaults), and in our pessimistic scenario, we expect the default rate to expand to 11.5% (84 defaults).
  • Similar to our U.S. forecast, we present a wide range of possibilities reflecting a large range between leading credit and economic indicators, and fixed-income market risk pricing.
  • Expansive monetary and fiscal support could lessen defaults over the near term, but much assistance to date adds to existing debt piles at a time when basic revenue is lacking, which could lead to a protracted period of higher defaults, rather than typical cyclical behavior.

33. 2020 Corporate Defaults Surpass The Full-Year 2019 Tally, June 25, 2020

Nicole Serino, New York, (1) (212) 438 1396, nicole.serino@spglobal.com

  • The 2020 global corporate default tally has jumped to 119 after 10 issuers defaulted since our last report.
  • In just over five months, the 2020 corporate default tally has surpassed the full-year 2019 total of 118 defaults, led by the U.S. with 78 defaults so far this year.
  • Both Europe and other developed regions have seen a considerable increase in defaults compared with previous years and have either matched or surpassed their full-year tallies in 2017, 2018, and 2019.

34. The Potential Fallen Angels Tally Reaches A New High At 126, June 17, 2020

Vincent R Conti, Singapore, + 65 6216 1188, vincent.conti@spglobal.com

  • Six more issuers, including three airlines, became fallen angels in May, bringing this year's total to 30, reflecting increased financial risk as well as temporary, though substantive, difficulties due to an abrupt stoppage in revenue amid the COVID-19 pandemic.
  • Credit pressure continues to build, and the number of potential fallen angels has reached 126, a new high.
  • However, the proportion of these ratings on CreditWatch with negative implications eased marginally, which is notable because CreditWatch negative placements typically have a 50% likelihood of downgrade, whereas negative outlooks show a roughly 1 in 3 likelihood and over a longer time horizon.
  • The financial sector again led the new additions to our list of potential fallen angels, all with negative outlooks, but we see the most immediate downgrade potential in the lodging and leisure and auto sectors, which have the greatest number of potential fallen angels with ratings on CreditWatch negative.

35. Historically Low Ratings In The Run-Up To 2020 Increase Vulnerability To The COVID-19 Crisis, May 28, 2020

Sudeep K Kesh, New York, (1) 212-438-7982, sudeep.kesh@spglobal.com

  • We entered the global recession with a median credit rating for corporate and sovereign entities globally significantly weaker than at the onset of the global financial crisis ('BBB' versus 'BB+').
  • Speculative-grade bond issuance more than doubled in the past decade, as low interest rates fueled demand for speculative-grade corporate debt.
  • The median rating for new nonfinancial corporate issuers globally is 'B'; it fell to this historical low at the end of 2017, declining from 'BB-' in 2008.
  • Speculative-grade borrowers are now almost twice more likely to be downgraded than their higher-rated peers with double the proportion of Negative Outlooks and Negative CreditWatch Placements.
  • As of May 20, 70% of rated entities negatively affected by COVID-19 and a sharp drop in oil prices have been in the speculative-grade category, and almost half in the 'B' category and below, a rating level that indicates greater vulnerability to changes in economic and business cycles.

36. 'BBB' Pulse: U.S. And EMEA Fallen Angels Are Set To Rise As The Economy Grinds To A Halt, April 8, 2020

Nick W Kraemer, FRM, New York, (1) 212-438-1698, nick.kraemer@spglobal.com

  • We expect the unprecedented sudden stop of the global economy amid the coronavirus pandemic and the recent plunge in oil prices to lead to a significant pickup in 'BBB' rated companies becoming fallen angels in the U.S. and EMEA.
  • We have performed a hypothetical scenario analysis and estimate approximately $640 billion of corporate nonfinancial 'BBB' category rated long-term debt is vulnerable to fallen angel status in 2020 between the U.S. and EMEA.
  • Sectors that have experienced the immediate and acute economic and business impact of the pandemic, such as airlines, transportation, retail, lodging and leisure, gaming, oil and gas, and autos, are more vulnerable to downgrades than others.
  • Within the 'BBB' category, higher-rated companies are expected to continue to experience lower rates of downgrade into speculative grade than 'BBB-' companies, particularly in recessions.

37. Islamic Finance 2020-2021: COVID-19 Offers An Opportunity For Transformative Developments, June 15, 2020

Mohamed Damak, Dubai, (971) 4-372-7153, mohamed.damak@spglobal.com

  • We expect the Islamic finance industry to show low-to-mid-single-digit growth in 2020-2021 after 11.4% in 2019 following strong sukuk market performance.
  • COVID-19 offers an opportunity for more integrated and transformative growth with a higher degree of standardization, stronger focus on the industry's social role, and meaningful adoption of financial technology (fintech).
  • Coordination between different stakeholders is key to the industry leveraging these opportunities for sustainable growth.

38. U.S. Public Finance Saw Calm Before COVID-19, June 25, 2020

Nick W Kraemer, FRM, New York, (1) 212-438-1698, nick.kraemer@spglobal.com

  • The upgrade-to-downgrade ratio for U.S. public finance in the first quarter was 1.2 to 1, lower than the 1.75 average for the last 12 quarters.
  • Improvements in finances caused the most upgrades, with 42, followed by debt service coverage with 30.
  • Deterioration in finances also caused the most downgrades, with 55, followed by business issues, which led to 13 downgrades.
  • There were two defaults in the first quarter, both in housing.

39. The U.S. Speculative-Grade Corporate Default Rate Is Likely To Reach 12.5% By March 2021, May 28, 2020

Nick W Kraemer, FRM, New York, (1) 212-438-1698, nick.kraemer@spglobal.com

  • We expect the U.S. trailing-12-month speculative-grade corporate default rate to rise to 12.5% by March 2021 from 3.5% in March 2020. To reach this baseline forecast, 233 speculative-grade companies would need to default.
  • In our optimistic scenario, we expect the default rate to rise to 6% by March 2021 (112 defaults), and in our pessimistic scenario, we expect the default rate to expand to 15.5% (289 defaults).
  • This historically wide range of possibilities reflects the uncertain path of the global economy amid the COVID-19 pandemic: Current financial market indicators appear quite optimistic relative to both credit and economic indicators.
  • By some measures, markets may be overly optimistic, and our downside scenario anticipates a historically high default rate as liquidity concerns give way to basic solvency ones.
  • Further monetary or fiscal policy support could lessen defaults over the near term, but all support to date adds to existing debt piles at a time when basic revenue is lacking, which could lead to a protracted period of higher defaults, rather than typical cyclical behavior.
Cross-Sector

40. China Debt After COVID-19: Flattening The Other Curve, June 4, 2020

Terry E Chan, CFA, Melbourne, (61) 3-9631-2174, terry.chan@spglobal.com

  • Total credit in China will rise about 14% in 2020, year on year, as the country uses debt to stimulate the economy.
  • Beijing has given China's local governments US$530 billion in quota to issue special purpose bonds to fund infrastructure.
  • We expect that the authorities will try to bring credit growth back in line with economic growth next year, circumstances permitting.

41. Emerging Markets Monthly Highlights: Financial Conditions Reflect Optimism, Lockdown Fatigue Emerges, June 4, 2020

Jose M Perez-Gorozpe, Mexico City, (52) 55-5081-4442, jose.perez-gorozpe@spglobal.com

  • Activity in emerging market (EM) economies is picking up, as lockdowns are eased gradually, but the recovery is still very slow. High-frequency data confirm a precipitous slowdown in activity in April across EM globally. While April was likely the weakest month in terms of activity, getting back to pre-pandemic levels will take time.
  • A lockdown fatigue is developing across EMs driven by mounting political pressures and economic costs. Some EMs are gradually lifting the lockdowns after taming the pandemic. In some cases, however, lockdowns are eased despite increasing COVID-19 cases, which could undermine a potential recovery.
  • We now expect the Indian economy to contract sharply in 2020. The COVID-19 outbreak in India and two months of a strict lockdown--longer in some areas--have led to a sudden stop in the economy.
  • Ultra-accommodative monetary conditions in advanced economies, a gradual easing of lockdowns, and the expectation for a global economic recovery in the second half of the year are improving financial conditions. Still, risk aversion persists.
  • We expect EM banks to continue supporting financing conditions and keep credit flowing, thanks to central banks measures. Banks in EMs are not facing a capital event, despite weakening asset quality, increasing credit losses, and falling profits.

42. Webinar Follow-Up: Challenging Times Ahead For Latin American Rated Entities Amid COVID-19, May 5, 2020

Alfredo E Calvo, Mexico City, (52) 55-5081-4436, alfredo.calvo@spglobal.com

  • We expect most of the major economies in Latin America will experience a two-quarter-long recession (Q1 2020 through Q2 2020). However, we don't expect business as usual until sometime next year. The speed of the recovery will vary by country depending on the evolution of the COVID-19 pandemic and the economic policy response.
  • The diversity of the region means that the impact of the pandemic will vary depending on the country and on how governments respond. Countries with more policy flexibility, typically with higher credit ratings, will be in better position to recover economically from the crisis. However, other countries with less policy flexibility will suffer more long-lasting economic and social damage, and may emerge from the pandemic with a weaker production base and a slower economic recovery. Countries that depend on tourism, remittances, and external funding from capital markets are more likely to see downgrades, given the worsening prospects for such hard currency inflows.
  • From a credit perspective, generally airlines, gaming, hotels, oil and gas, and transportation assets have seen the largest amount of negative rating actions so far. From a business perspective, most of the sectors are dealing with weak demand, but those referenced are probably facing the highest downside. 
  • Latin American financial institutions will be affected by COVID-19 in the form of an economic slump in the region, with worsening asset quality resulting from the financial difficulties that some borrowers will be facing, in particular those that belong to sensitive economic sectors such as airlines; oil and gas; metals and mining; forest products; and leisure, lodging, and gaming.

43. Risky Credits: The Drop-Off To The 'CCC' Rating Category From 'B-' Still Looms Large, June 29, 2020

Nicole Serino, New York, + 1 (212) 438 1396; nicole.serino@spglobal.com

  • The number of corporate issuers in the 'CCC' rating category in the U.S. and Canada has nearly doubled (to 256 from 132) since the beginning of February 2020, when the COVID-19 pandemic and rapid deterioration in oil prices began.
  • The percentage of companies downgraded to the 'CCC' rating category from 'B-' decreased in May to 3.1%, but the three-month average remains at an all-time high of 10.3%.
  • The U.S. speculative-grade composite spread narrowed by over 14% in May, continuing its path to normalcy since reaching a high of 1,046 basis points in late March.
  • The U.S. speculative-grade 12-month trailing default rate increased to 4.7% as of May 31, 2020. There were 26 defaults globally in the month among companies previously rated in the 'CCC' and 'CC' rating categories (half of which were selective defaults).

44. South Africa Is Yet To Turn A Corner Past COVID-19, June 10, 2020

Ravi Bhatia, London, (44) 20-7176-7113, ravi.bhatia@spglobal.com

Sovereign -

  • The coronavirus pandemic came at a time of weak growth and fiscal pressures.
  • We project that South African GDP will shrink by 4.5% in 2020 and that the fiscal deficit will rise to 13.3% of GDP due to lower tax revenues.
  • We lowered our ratings on South Africa to 'BB-' from 'BB' on April 29, 2020, following our assignment of a negative outlook in November 2019.

Banks -

  • Despite their resilience, banks' earnings will come under pressure because of higher credit losses.
  • The South African Reserve Bank's (SARB's) liquidity measures will help ensure the stability of the financial and banking sectors.
  • We lowered our ratings on top-tier South African banks to 'BB-' in early May 2020, but their standalone credit profiles remain at 'bbb-'.

Insurers -

  • Although insurance claims may increase due to COVID-19, we do not expect the losses to be material.
  • Equity market selloffs and increasing credit risks will likely pressure insurers' earnings, but we do not expect this to affect their capital levels significantly.
  • We cap our global scale ratings on insurers at the 'BB' local currency ratings on South Africa.

Corporations and SOEs -

  • Ratings on South Africa-based corporations reflect the effects of COVID-19 and sovereign downgrades.
  • The corporate sector's resilience to COVID-19 reflects country-specific government measures and the consumer and business response.
  • Rating changes reflect the extent of the government support for state-owned entities (SOEs); constraints on our ability to rate specific corporations above the sovereign; and rating concentration on the national scale, that is, a very large proportion of national scale ratings clustered at two or three rating levels.
Economics

45. Asia-Pacific Losses Near $3 Trillion As Balance Sheet Recession Looms, June 25, 2020

Shaun Roache, Singapore, (65) 6597-6137, shaun.roache@spglobal.com

  • We expect the COVID-19 pandemic to leave lasting scars on Asia-Pacific, with the extraordinary measures needed to shore up economies leading to higher debt, weaker balance sheets, and less appetite for spending in the future.
  • Investment is likely to stay sluggish, especially in the private sector; and even if state-owned enterprises spend more, we still anticipate less productive capital, lower potential output, and a permanent 2%-3% shrinkage of most economies compared to the pre-COVID trend.
  • We project Asia-Pacific's economy will contract by 1.3% in 2020 but show 6.9% growth in 2021, implying $2.7 trillion of lost output over these two years, even assuming broad containment of the coronavirus. We still see China's economy expanding 1.2% in 2020 before growth surpasses 7% next year.
  • The largest downward revision of our growth estimates is for Japan, where we now expect a 5% contraction in 2020 as consumers save more. India's economy will also shrink 5% this year as lockdowns compound underlying vulnerabilities, followed by a rebound next year.

46. Canada's Economy Faces A Patchy Recovery, June 29, 2020

Satyam Panday, New York, + 1 (212) 438 6009, satyam.panday@spglobal.com

  • S&P Global Economics forecasts Canada's real GDP will contract 5.9% in 2020 before rising 5.4% in 2021. In the process, the Canadian economy would go through its worst back-to-back quarterly contraction in the modern era, reflecting a real GDP contraction of more than 13% peak to trough.
  • The economy likely troughed in late April/early May. In the coming months, we expect an economic recovery in two stages: a near-term bounce in aggregate demand and employment activity as lockdown restrictions ease, followed by a more gradual, protracted, and uneven improvement in the economy. The risks to our central estimate of the recovery are squarely tilted to the downside.
  • Lingering scars in the form of coronavirus fear, bankruptcies, below break-even oil prices, and regulated social distancing will limit capacity utilization and growth for a quarter of the economy in the next year or so. House price correction is in the cards despite lower mortgage rates, and the central bank is expected to remain at an effective lower bound until close to the end of 2022.
  • The nature of the shock means there will be permanent losses. The economy will still be 2.5% smaller in 2023, compared with the pre-COVID anticipated size. With duration, there is also a building risk of scarring the labor force and capital formation, and the efficient allocation of the two in the long run, therefore eroding sustainable growth rates that maintain low and stable inflation.

47. The China Confidence Game, June 17, 2020

Shaun Roache, Singapore, (65) 6597-6137, shaun.roache@spglobal.com

  • China's economy is healing but private sector confidence remains fragile. Households are worried about future income prospects and are holding back spending.
  • The new COVID-19 cluster at Beijing's Xinfadi market reminds us that the battle is not over and is likely to keep households cautious for a while longer.
  • We expect a recovery later this year and into 2021 but if confidence remains weak, policymakers may have to choose either lower growth or more stimulus.

48. China's New Stop-Go Cycle, May 25, 2020

Shaun Roache, Singapore, (65) 6597-6137, shaun.roache@spglobal.com

  • China is living through another stop-go cycle even though the stop, COVID-19, is different this time.
  • Over the weekend, policymakers said they aren't setting a GDP growth target this year. The new target is jobs but a sluggish service sector means a slow jobs recovery and more stimulus.
  • Financial conditions confirm stimulus is arriving. This will lift growth for a while (our forecasts are 1.2% for 2020 and 7.4% for 2021), but a tightening will follow in 2021.

49. Eurozone Economy: The Balancing Act To Recovery, June 25, 2020

Sylvain Broyer, Frankfurt, (49) 69-33-999-156, sylvain.broyer@spglobal.com

  • We now expect eurozone GDP to decline a deeper 7.8% this year and rebound 5.5% next year, because the contraction in business activity has been more pronounced than we expected--even though the economy appears to be recovering as lockdowns are easing.
  • The initial fiscal and monetary policy response to the coronavirus crisis has been successful at protecting workers' jobs and ensuring companies' access to liquidity in spite of the sudden stop in cash flow.
  • Fiscal policy during the recovery will be a tricky balancing act because removing extraordinary measures too early could stop it in its tracks: Households might hold onto their savings, depressing consumer demand for longer and exacerbating firms' reluctance to invest.
  • Economic divergence in Europe is set to grow, given that Germany has responded with a bigger fiscal stimulus than its neighbors. The EU recovery fund will likely help reduce divergence but in its current form will not be disbursed in time to finance the recovery.

50. The EU's Recovery Plan Is The Next Generation Of Fiscal Solidarity, June 8, 2020

Sylvain Broyer, Frankfurt, (49) 69-33-999-156, sylvain.broyer@spglobal.com

  • The pandemic is accelerating the debate on fiscal solidarity in the EU, which is responding swiftly and forcefully with a three-layer €540 billion safety net and a proposed €750 billion recovery plan.
  • Europe might be experiencing just a small Hamilton moment, not full fiscal union. However, the European Commission's call for deep changes to the European budget sows the seeds of a closer EU.
  • For the first time, the EU intends to use its strong credit signature to absorb an asymmetric yet common shock on the member states and foster its environmental and social objectives.

51. The Global Economy Begins A Slow Mend As COVID-19 Eases Unevenly, July 1, 2020

Paul F Gruenwald, New York, (1) 212-438-1710, paul.gruenwald@spglobal.com

  • The COVID-19 health and economic shock appears to have peaked in most developed countries and China while many emerging markets struggle to contain the virus and the economic fallout. The focus has shifted to the recovery, which will be longer and more complicated than the downturn.
  • We now forecast global GDP to contract 3.8% in 2020, worse than the 2.4% contraction we previously expected, mainly reflecting a deeper, longer hit to emerging markets, led by India. We see a reasonably strong bounce in 2021-2023 with global growth averaging above 4%, but with permanent lost output from the COVID-19 shock.
  • The risks to our baseline are varied and remain on the downside. Health developments and related restrictions are key in the next year; productivity and public balance sheet risks lie further out.

52. Latin American Economies Are Last In And Last Out Of The Pandemic, June 30, 2020

Elijah Oliveros-Rosen, New York, (1) 212-438-2228, elijah.oliveros@spglobal.com

  • The worsening COVID-19 pandemic in Latin America has extended stringent lockdowns in some countries and slowed the relaxation of such measures in others--prompting us to reduce our growth expectations for the major economies in the region.
  • We've lowered our 2020 GDP forecast for Latin America by just over 2 percentage points to a contraction of roughly 7.5%. We expect growth to be just shy of 4% in 2021. Risks are mostly to the downside.
  • Our projected economic recoveries have worsened across the board, and we now expect permanent GDP losses of 6%-7% for most major Latin America countries compared with their pre-COVID-19 projected GDP, about 1% worse than in our previous baseline forecast.
  • We still see economies with stronger policy support, such as Chile and Peru, having smaller permanent GDP losses than those where support has been limited or ineffective, such as Mexico.

53. The U.K. Faces A Steep Climb To Recovery, July 1, 2020

Boris S Glass, London, (44) 20-7176-8420, boris.glass@spglobal.com

  • We have revised downward our forecast and now expect U.K. GDP to contract by 8.1% in 2020. We are also more pessimistic about the time it will take the economy to recover.
  • We no longer assume the post-Brexit transition period will be extended, but expect the U.K. and EU will strike a core free trade deal starting 2021. The switch to this regime would dampen the rebound in 2021 and slow growth in the following years.
  • We now forecast the economy will still be around 3% smaller by 2023 than we had expected prior to the pandemic and under the assumption of an extension of the transition period.

54. The U.S. Faces A Longer And Slower Climb From The Bottom, June 25, 2020

Beth Ann Bovino, New York, (1) 212-438-1652, bethann.bovino@spglobal.com

  • Just as fast as the U.S. economy entered recession, it may have already reached a bottom, in May. We now see full-year GDP contracting 5.0% (was down 5.2% in our April forecast).
  • However, the recovery will be slow, as the lingering effects of COVID-19 severely limit growth. We expect a modest rebound of 5.2% in 2021, a full percentage point weaker than our previous estimate of 6.2%.
  • We expect a slower drift down for the unemployment rate later this year, to 8.9% in the fourth quarter, almost one percentage point higher than in our April baseline forecast. The unemployment rate won't reach precrisis levels until fourth-quarter 2023.
  • The recovery remains fragile--in particular because of uncertainty about when an effective vaccine will be readily available, fears of another wave of COVID-19, and businesses that survive being reluctant to quickly rehire workers.

55. The Paycheck Protection Program Update Shows Small Improvements Are In Reach, June 12, 2020

Beth Ann Bovino, New York, (1) 212-438-1652, bethann.bovino@spglobal.com

  • Based on updated information from the Small Business Association on the Paycheck Protection Program, in our view, the breadth of industry reach seemed to improve with the second round of PPP, though underlying issues remain.
  • The average loan size for total PPP approvals was $114,000, with 4.475 million loans approved. The average loan size for the first round of loans was almost twice that size, at $206,000, with 1.66 million loans approved.
  • However, the more bite-sized approach to loan approvals after the first round doesn't seem to have dramatically offset the industry concentration of loans to industries and states less affected by social distancing. At 42.4%, the total PPP loans approved to service industries significantly affected by social distancing was only slightly higher than the 41.2% share in the first round of PPP loans.
  • While the opening of some states may have come just in the nick of time for some businesses in the service sector, there is still a long way to go. It remains unclear how many of these companies survived, or will survive, the first stage of the sudden-stop recession. That may make the climb back to prepandemic economic levels even steeper.
Environmental, Social, And Governance

56. The EU's Drive For Carbon Neutrality By 2050 Is Undeterred By COVID-19, April 29, 2020

Anna Liubachyna, London, anna.liubachyna@spglobal.com

  • The EU's long-term goal to tackle climate change remains unchanged. But the COVID-19 pandemic will likely delay specific laws needed to reach carbon neutrality as governments and firms mobilize their finances to deal with the economic fallout.
  • Some sectors, such as automotive and aviation, are pushing back on stricter environmental standards and commitments amid the COVID-19 measures. There is also a risk that the drop in global energy demand may end up delaying investment in the transition to a low-carbon economy.
  • Changing consumer habits and preferences in a COVID-19 recovery could push companies and governments to do more in terms of greening the economy.

57. A Pandemic-Driven Surge In Social Bond Issuance Shows The Sustainable Debt Market Is Evolving, June 22, 2020

Lori Shapiro, New York, + 1 (212) 438 0424, lori.shapiro@spglobal.com

  • We expect social bonds to emerge as the fastest-growing segment of the sustainable debt market in 2020. This stands in sharp contrast to the rest of the global fixed income market, for which we expect issuance volumes to decline this year.
  • We believe recent growth in social bond issuance indicates that the COVID-19 pandemic has not turned issuers' or investors' attention away from sustainable finance, but rather interest seems to be growing.
  • Corporations and financial institutions will become more active in the social bond market as the pandemic accelerates private issuers' interest in social considerations.
  • While significant steps have been made to standardize social bond disclosure and reporting, we believe issues persist and improvements have been slow to proliferate.

58. The ESG Lens On COVID-19, Part 2: How Companies Deal With Disruption, April 28, 2020

Michael T Ferguson, CFA, CPA, New York, (1) 212-438-7670, michael.ferguson@spglobal.com

  • In recent weeks, management teams have had to regroup to respond to the most severe public health and economic situation many of them have ever faced.
  • Immediate consequences aside, this pandemic calls into question how companies prepare for black swan risks, which are harder to predict, measure, and prioritize.
  • In addition to ensuring they can buoy themselves in the near term and upskill leadership teams on rapidly evolving epidemiological matters, senior management must weigh the needs of a variety of stakeholders in their response plans and effectively execute enterprise risk management amid the crisis.
  • Furthermore, we'll monitor how the economic recovery takes shape in coming months, to understand how ESG and sustainability initiatives and attempts at fostering an effective, unified culture are influenced by the events stemming from this pandemic.

59. COVID-19: A Test Of The Stakeholder Approach, April 21, 2020

Bernard De Longevialle, Paris, (33) 1-4075-2517, bernard.delongevialle@spglobal.com

  • The coronavirus pandemic is highlighting why stakeholders matter, less than a year after moves by business and industry to shift from a focus on shareholders.
  • Amid the pandemic, insufficient consideration paid to all stakeholders in decision-making is backfiring on a number of companies. In contrast, other companies are stepping up.
  • While most of our rating actions since the beginning of the pandemic have been driven by the impact of the lockdown on revenue and cash flow, we expect that stakeholder management will become a factor in the future.
  • Corporations that better embed stakeholder considerations in their decision-making and strategy will limit unintended consequences and be more resilient over time.

60. The ESG Lens On COVID-19, Part 1, April 20, 2020

Corinne B Bendersky, London, + 44 20 7176 0216, corinne.bendersky@spglobal.com

  • The virus has already been highly disruptive to companies around the world, and promises to continue down this path at least for the next several months.
  • The pandemic has also brought to light the materiality of ESG-related risks and the deep linkages between businesses and their stakeholders across the value chains.
  • In our view, social risks are the most acute factors right now, chief among them are health, safety, and workforce dynamics. There are both direct financial consequences but also less tangible indirect reputational effects to consider.
  • However, good governance during this troubling time is of critical importance, and environmental performance remains key.

61. ESG Evaluations Remain Unchanged For Now In Light Of COVID-19, April 7, 2020

Noemie De La Gorce, London, + 44 20 7176 9836, Noemie.delagorce@spglobal.com

  • S&P Global Ratings has reviewed its portfolio of six public Environmental, Social, And Governance (ESG) Evaluations in light of the COVID-19 pandemic and has left all scores unchanged for now. We will continue to monitor the portfolio.
  • We consider the COVID-19 pandemic to be a social risk that could affect our view of the ESG profile of an entity--particularly the social profile--and a disruption that could affect our view of an entity's preparedness. We may revise our opinion of an entity's ESG profile and preparedness, and adjust our ESG Evaluation score appropriately.

62. Islamic Finance And ESG: Sharia-Compliant Instruments Can Put The S In ESG, May 27, 2020

Mohamed Damak, Dubai, (971) 4-372-7153, mohamed.damak@spglobal.com

  • COVID-19 has significantly slowed core Islamic finance economies because of their governments' measures to combat the spread of the virus.
  • Unemployment rates will rise as some companies see significant revenue reduction.
  • Islamic finance provides socially responsible products, and the current environment could offer the possibility to leverage them.

63. People Power: COVID-19 Will Redefine Workforce Dynamics In The Post-Pandemic Era, June 4, 2020

Lori Shapiro, New York, (1) (212) 438 0424, lori.shapiro@spglobal.com

  • Unprecedented employment challenges stemming from the coronavirus pandemic are rippling across the broader economy and affecting how employees operate and interact with their employers.
  • The fallout from the pandemic is unevenly affecting lower-wage workers who have less access to paid time off, health care, or job security. This has prompted a reconsideration of the value of workers including the salaries and benefits they are being offered.
  • It has also presented a rare opportunity for employees to leverage the pandemic as a platform to demand change in the workplace, including improved health and safety measures.
  • Workplace culture is more fluid now than ever, and corporations will likely need to make significant financial and time investments in their employees to remain competitive in the post-pandemic labor market. Ultimately, we believe changing workforce dynamics will have profound future implications on the workplace structure, health and safety benefits offered to employees, and technological innovation.
Financial Institutions

64. COVID-19: A Test Of The Highly Dollarized Georgian And Armenian Banking Systems, June 24, 2020

Annette Ess, CFA, Frankfurt, (49) 69-33-999-157, annette.ess@spglobal.com

  • We expect Georgia's and Armenia's small and open economies will contract in 2020 due to fallout from the coronavirus pandemic, followed by strong recovery in 2021.
  • Economic shocks will weaken asset quality in the banking systems of both countries and could possibly lead to an outflow of nonresident deposits in Armenia.
  • At the same time, we believe rated banks in Georgia and Armenia can absorb these shocks because of their sufficient capital and liquidity and supportive regulatory environment.

65. Asia-Pacific Financial Institutions Monitor 2Q2020: COVID-19 Crisis Could Add US$440 Billion To Credit Costs, May 14, 2020

Gavin J Gunning, Melbourne, (61) 3-9631-2092, gavin.gunning@spglobal.com

  • The COVID-19 crisis continues to weigh on the credit quality of Asia-Pacific financial institutions. Our ratings outlook bias for financial institutions in the region is tilted firmly toward the negative. Currently, negative outlooks (about 17% of ratings) significantly outnumber positive outlooks (about 3% of ratings).
  • As risks associated with COVID-19, the oil price shock, and significant market volatility take hold, we estimate that Asia-Pacific in 2020 will be hit with US$1.4 trillion in additional nonperforming assets (NPAs), and additional credit costs of about US$440 billion.
  • Numerous Asia-Pacific banks have begun reporting with our focus so far on our outlook for asset quality. Besides the topline impacts due mainly to lower interest rates, we are assessing the impact of debt moratoriums for congruence with our current outlook for bank credit, including on banks' NPAs and loan loss provisioning.

66. Australia's Mutual Lenders Can Weather COVID-19 Downturn, May 18, 2020

Lisa Barrett, Melbourne, (61) 3-9631-2081, lisa.barrett@spglobal.com

  • Credit losses from Australian mutual lenders' low-risk, residential mortgage-dominated balance sheets should remain modest, despite a likely significant rise in unemployment due to the COVID-19 pandemic.
  • We do not expect to lower our ratings on Australian mutual lenders because of COVID-19 related economic stresses.
  • Australian mutuals' capacity to absorb incremental losses within earnings are weaker than larger peers, but their funding and liquidity remain satisfactory, aided by systemwide policy support.

67. Nearly All Australian Bank Ratings Can Withstand Rising Economic Risks, Credit Losses, April 28, 2020

Sharad Jain, Melbourne, (61) 3-9631-2077, sharad.jain@spglobal.com

  • We forecast that the increase in economic risks facing Australian banks due to the COVID-19 outbreak and containment measures should be substantial but temporary.
  • We now view the economic risk trend as negative, reflecting a one-in-three possibility that the economic impact for the banking sector could be significantly more severe or prolonged than our base case.
  • Should we assess our economic risk score for the Australian banking industry as having worsened, we expect our issuer credit ratings on nearly all Australian banks to remain unchanged.
  • We now forecast credit losses to rise to about six times those in 2019. We also expect house prices to fall by about 10% before resuming modest growth around the middle of calendar 2021. Nevertheless, we assess that the major Australian banks should be able to absorb our forecast rise in credit losses within their earnings despite lower interest and fee income.

68. China's Financial Leasing Firms Fall Back On Parent Support Amid Airlines Slump, June 24, 2020

Xi Cheng, Hong Kong, (852) 2533-3582, xi.cheng@spglobal.com

  • We estimate aircraft make up some 20%-50% of portfolios for the bank-owned financial leasing companies we rate in China.
  • Valuation impairments of aircraft could dilute capital adequacy ratios for leasing firms that are regulated as financial institutions.
  • Ratings are supported by strong backing from the parents; however, if the pandemic is prolonged and losses pile up, then group support could weaken.

69. Banking Industry Country Risk Assessment: China To Remain In Group '6', May 5, 2020

Harry Hu, CFA, Hong Kong, (852) 2533-3571, harry.hu@spglobal.com

  • China's banking sector has sufficient buffers at the current BICRA assessment level to absorb the economic blow from COVID-19.
  • We are maintaining our BICRA on China at group '6'.
  • However, risks remain on the downside given uncertainty on the pace of economic recovery.

70. Banks In Emerging Markets: 15 Countries, Three COVID-19 Shocks, May 26, 2020

Mohamed Damak, Dubai, (971) 4-372-7153, mohamed.damak@spglobal.com

  • About one-third of banks we rate in emerging markets now have a negative outlook following several rating actions and Banking Industry Country Risk Assessment changes in recent weeks reflecting the shift in their operating environment as a result of the COVID-19 pandemic.
  • We see three channels through which COVID-19 could affect EM banks: deteriorating asset quality; heavy dependence on external funding; or, third, a lack of government capacity to extend support, weaker governance, or heightened likelihood of political or social tensions.
  • The current shock will affect profitability rather than capital. Profitability in most EM bank systems will decline in 2020 on higher cost of risk and weaker interest revenues.

71. EMEA Financial Institutions Monitor 2Q2020: Resilient But Not Immune To COVID-19, May 14, 2020

Natalia Yalovskaya, London, (44) 20-7176-3407, natalia.yalovskaya@spglobal.com

  • We continue to expect that bank rating downgrades this year resulting from the COVID-19 pandemic will be limited.
  • At the same time, we expect an increasing number of negative outlooks on European banks in 2020.
  • The next few quarters are likely to show up differences between banks in the way they book provisions against future credit losses.
  • EMEA's Additional Tier 1 (AT1) market is seeing changing rules of the game due to COVID-19.
  • Many European banks are adjusting planned dividends and buybacks following regulatory requests for prudence during the COVID-19 pandemic.
  • Turbulent capital markets will mean additional pressure for many emerging markets' banking sectors, which we expect to face asset quality deterioration, and weakening profitability and capitalization.
  • We consider that the Russian banking sector is better positioned to face the current stress than in previous crises. We expect higher credit losses for South African banks. Turkish banks are subject to several sources of stress.
  • GCC banks' strong earning capacity will help them navigate COVID-19's effects and the oil price dive.

72. How COVID-19 Risks Prompted European Bank Rating Actions, April 23, 2020

Giles Edwards, London, (44) 20-7176-7014, giles.edwards@spglobal.com

  • We have today taken negative rating actions on banks in Belgium, France, Germany, Malta, The Netherlands, and the U.K. in response to the deteriorating economic implications from the COVID-19 pandemic.
  • Even under our base case of an economic recovery starting in third-quarter 2020, we expect bank earnings, asset quality, and in some cases, capitalization, to weaken meaningfully through end-2020 and into 2021.
  • Our rating actions reflect these factors, and our view that downside risks remain substantial. That said, we continue to see differentiated implications for banks within and across these banking systems.
  • We will continue to take rating actions (including outlook revisions) on European banks in response to evolving macroeconomic and bank-specific developments, especially if we see a further increase in the downside risk to our base-case scenario.
  • In this commentary, we summarize the actions we have taken and provide further explanation of the rationale, and our forward-looking views.

73. Europe’s AT1 Market Faces The COVID-19 Test: Bend, Not Break, April 22, 2020

John Wright, London, (44) 20-7176-0520, john.wright@spglobal.com

  • As the global recession tests banks' capitalization, the European Additional Tier 1 (AT1) market faces key risks related to potentially waning investor appetite and increasing regulatory enforcement.
  • The regulatory response to the COVID-19 outbreak--cutting buffer requirements and squeezing shareholder distributions--aims to encourage banks to extend credit to the real economy without fear of breaching regulatory requirements. We don't think that this increases the risk of coupon nonpayment per se, though issuers that incur sustained credit pressures might feel the strain.
  • Material secondary market repricing of AT1 securities will likely result in more frequent noncall events, where banks choose not to exercise optional calls, and the emergence of "perpetual vintages" due to reduced economic incentives to call and refinance.
  • Our ratings on hybrid instruments focus on relative default risk, such as the risk of coupon nonpayment. We do not treat a decision not to exercise an optional call, i.e., to "extend" a hybrid past an optional call date, as a default on the hybrid. We believe that enhanced disclosure by banks can help investors to appraise potential extension risks.

74. How COVID-19 Is Affecting Bank Ratings: June 2020 Update, June 11, 2020

Alexandre Birry, London, (44) 20-7176-7108, alexandre.birry@spglobal.com

  • We continue to expect that bank rating downgrades this year due to the COVID-19 pandemic will be limited by banks' strengthened balance sheets over the past 10 years, the support from public authorities to household and corporate markets, and our base case of a sustained economic recovery next year.
  • Nevertheless, our outlook bias turned markedly negative since April, following the downward revision of our central economic forecasts, continued material downside risks to these forecasts, and the potential longer-term impact on banks' profitability.
  • Rating actions on banks slowed in the past month, but we cannot rule out further actions, including downgrades, in particular for banks with pre-existing financial strength issues; second-quarter results will shed more light on the impact, but the full effect on asset quality will likely only become clear much later in the year.
  • Although emerging market banks are often more exposed than developed market peers, we expect most will face an earnings rather than a capital shock, exacerbated by lower rollover rates for systems dependent on external financing, and the oil-price shock for some.

75. How Resistant Are Gulf Banks To The COVID-19 Pandemic And Oil Price Shock?, April 22, 2020

Mohamed Damak, Dubai, (971) 4-372-7153, mohamed.damak@spglobal.com

  • GCC banks' strong earning capacity will help them navigate the shock related to COVID-19 and the oil price dive.
  • Rated banks could absorb up to a $36 billion shock before moving into the red. This corresponds to 2.7x our estimate of their normalized losses on average.
  • Factoring in excess provisions, Kuwaiti banks have the strongest capacity to withstand an increase in cost of risk, while banks in Bahrain, Oman, and the United Arab Emirates are the most vulnerable.

76. COVID And Indian Banks: One Step Forward, Two Steps Back, June 30, 2020

Deepali V Seth Chhabria, Mumbai, (91) 22-3342-4186, deepali.seth@spglobal.com

  • COVID-19 has significantly set back the recovery process for Indian lenders' balance sheets.
  • Indian banks' nonperforming loan ratio could increase by about 50% in the current fiscal year.
  • It will take 12-18 months to get Indian financial institutions sector recovery back on track, leading us to our recent negative ratings actions on lenders.

77. The Coronavirus Pandemic Is Set To Test The Resiliency Of Italy's Banks, March 13, 2020

Regina Argenio, Milan, (39) 02-72111-208, regina.argenio@spglobal.com

  • While most Italian banks started 2020 with their strongest balance sheets of the past decade, they are preparing different plans to cope with the deteriorating environment.
  • The longer and deeper the economic contraction, the more this could impair the banks' asset quality, increase credit losses, and reduce business and revenue generation. Ultimately this represents a significant tail risk for Italian banks.
  • We also note some mitigating factors that could support their credit profiles in the expected downturn. Most Italian banks have tightened their underwriting standards in recent years, improving their loan and client diversification, as well as reducing exposures to riskier customers.

78. COVID-19 A Further Blow To Japan’s Regional Banks, July 1, 2020

Satoru Matsumoto, Tokyo (81) 3-4550-8673, satoru.matsumoto@spglobal.com

  • Financial results of Japanese regional banks we rate have remained weak amid continued narrowing net interest margins.
  • We expect even greater pressure on their profitability as COVID-19 drives up credit costs--with the added risk of weak asset quality and a further fall in their capital ratios.
  • We will consider downgrading the banks or otherwise lowering our credit assessments if their revenue bases weaken or their risks become more likely to rise.

79. Japanese Major Bank Credit Costs Rise On COVID-19, June 16, 2020

Toshihiro Matsuo, Tokyo, (81) 3-4550-8225, toshihiro.matsuo@spglobal.com

  • Estimated credit costs of Japan's five major banking groups for fiscals 2019 and 2020 are roughly 30% lower than our assumptions, but high uncertainty surrounds the impact of COVID-19.
  • Their capital ratios will likely decline and their foreign currency lending rise in fiscal 2020 as they support customers, and their measures in response could become credit factors.
  • COVID-19 will test whether low profitability of Japan's major banks compared with overseas peers reflects accumulation of high-quality assets.

80. Scope Of Policy Responses To COVID-19 Varies Among Latin America's Central Banks, June 3, 2020

Maria M Cangueiro, Buenos Aires, 54 11 4891 2149, maria.cangueiro@spglobal.com

  • As the COVID-19 outbreak spreads throughout Latin America, expectations of a widespread economic recession in the region have been materializing. In this sense, the regional banking regulators have responded with measures to support financial systems, allowing credit to continue flowing to households and corporations.
  • The financial relief programs are similar to those in other parts of the world, such as credit facilities for financial institutions; loan moratoriums; looser loan classification and provisioning, and capital requirements; and government and special trust guarantees on loans to small- to medium-size enterprises.
  • However, the effectiveness, timeliness, and scope of these measures has varied from country to country. Chile, Peru, and Brazil implemented the more comprehensive set of measures while Mexico has been slower. Colombia and Argentina's responses have fallen in the middle.

81. LatAm Financial Institutions Monitor 2Q2020: COVID-19 Hits Banks' Bottom Lines, May 14, 2020

Cynthia Cohen Freue, Buenos Aires, (54) (11) 4891-2161, cynthia.cohenfreue@spglobal.com

  • Banks in Latin America are facing negative rating momentum because of significant effects from the coronavirus pandemic, oil price shock, and market volatility. However, S&P Global Ratings believes mitigating factors will help banks in the region to navigate this turbulent scenario. These include generally high liquidity levels and low dependence on external and wholesale funding, the healthy margins and provisioning coverage, and the substantial support and flexibility that banking systems will receive from public authorities.
  • Because of the economic slump, we expect a shock in asset quality. We predict this in particular for sensitive economic sectors such as airlines, oil and gas, metals and mining, forest products, and leisure sectors, and especially from small to midsize enterprises (SMEs) and self-employed workers who have limited financial flexibility to cope with a sudden stop in cash flow.
  • In our view, major banks in Latin America can cope with a temporary disruption in capital markets. Retail deposits provide the bulk of their funding, net external debt is very low, and regulators have introduced timely measures to boost banks' liquidity.
  • We expect credit growth in Latin America in 2020 to be in the low single digits.

82. COVID-19: Resilient Fundamentals And Assertive Policy Measures Will Buoy Nordic Banking Systems, June 16, 2020

Salla von Steinaecker, Frankfurt, (49) 69-33-999-164, salla.vonsteinaecker@spglobal.com

  • Nordic banking sectors generally are facing pandemic-related shocks and recession from a position of strength, underpinned by strong capital buffers, sound profitability, and substantial financial flexibility.
  • We expect them to benefit from wide-ranging fiscal, monetary, and regulatory measures, the existing pragmatic regulatory regime, and established social welfare schemes.
  • While we have not changed our view of banking markets in Denmark, Sweden, and Norway, we believe economic risks may be building in Finland and Iceland, and that banking industry risk has increased in Iceland.

83. What Could Lead To Rating And Outlook Changes For Alternative Asset Managers Amid COVID-19?, June 16, 2020

Brian Estiz, CFA, New York, (1) 212-438-3735, brian.estiz@spglobal.com

  • We expect most alternative asset managers to maintain steady ratings supported by growing fee-related earnings and locked-up assets under management (AUM).
  • Our economists project a significant contraction in GDP in 2020 due to the pandemic, followed by a partial rebound in 2021.
  • We think the ramifications for asset managers' earnings will depend on fee structures in place, including fees on committed versus invested capital, redemption features, and hurdle rates, as well as specific features per asset class.
  • We believe there is a path for significant fundraising in offerings that could capitalize on distressed assets or that exhibit flexible mandates.

84. North American Financial Institutions Monitor 2Q 2020: COVID-19 Weighs On Earnings And Ratings, May 15, 2020

Brendan Browne, CFA, New York, (1) 212-438-7399, brendan.browne@spglobal.com

  • Credit and bottom-line losses, as well as many of our ratings on these companies, will depend on the length and severity of the downturn--and how effective government programs are at stemming it.
  • Bank earnings and revenue streams have dropped as a result of rising unemployment and falling consumer creditworthiness and confidence. In response to all of this, banks have sharply increased their allowances for loan losses. Positively, unlike in the last crisis, North American banks are entering this period from a position of strength, with capital, liquidity, and profitability near the highest levels they have been in decades.
  • And nonbank financial institutions (NBFIs) are faring much the same--we expect profitability to fall for NBFIs, particularly revenue from asset-based fees, net interest income, and investment banking activity.
  • Governments and central banks in the U.S. and Canada have passed stimulus measures and changed monetary policy, steadying capital markets and offsetting at least a portion of the pain many financial institutions' customers are feeling.

85. COVID-19: Swiss Banking Sector To Remain Resilient, June 17, 2020

Benjamin Heinrich, CFA, FRM, Frankfurt, 49 693 399 9167, benjamin.heinrich@spglobal.com

  • Swiss banks' profitability and asset quality will deteriorate this year, but we expect credit losses to remain contained because of the superior financial strength of both households and corporates in Switzerland.
  • In response to the pandemic-induced recession this year, Swiss policy responses should support a swift recovery and ultimately help to protect domestic banks' credit metrics.
  • We anticipate only few, if any negative rating actions for banks in Switzerland over the next few quarters.
  • We could take a more negative view of the Swiss banking sector if the recovery proves to be substantially weaker than we expect or delayed, the housing market weakens dramatically, or we see an increase in serious money-laundering cases in Switzerland that would destabilize its banking sector.

86. Will COVID-19 Trigger The Long Awaited Consolidation Of The Tunisian Banking System?, May 6, 2020

Mohamed Damak, Dubai, (971) 4-372-7153, mohamed.damak@spglobal.com

  • The COVID-19 pandemic will be a major economic shock for Tunisia in 2020, with only a mild recovery expected in the subsequent years.
  • This will further undermine the already weak asset-quality indicators, profitability, and capitalization of the Tunisian banking system.
  • Some banks might need recapitalization but the government's capacity remains modest and foreign shareholders' appetite is uncertain.
  • The current environment could lead to the long awaited consolidation of the banking system.

87. COVID-19 Effects Might Quadruple U.K. Bank Credit Losses In 2020, May 4, 2020

Osman Sattar, FCA, London, (44) 20-7176-7198, osman.sattar@spglobal.com

  • We estimate that systemwide U.K. domestic credit losses will rise to £18.5 billion in 2020, or 100 basis points (bps) of domestic lending--more than four times the 2019 level.
  • As the economy recovers into 2021, we estimate that credit losses will fall to 60 bps (close to their long-term average) and then to 35 bps in 2022.
  • Risks are skewed to the downside, given that the effects of COVID-19 on the economy may be more severe, or the rebound slower, than we currently envisage.

88. How U.S. Bank Dividend Cuts Could Affect Ratings, June 3, 2020

Stuart Plesser, New York, (1) 212-438-6870, stuart.plesser@spglobal.com

  • Given the uncertainty about the ultimate magnitude of economic stress due to the COVID-19-induced downturn, some U.S. banks may choose or be told by regulators to cut their common dividends for a variety of reasons.
  • A bank may do so particularly if its income were to fall below the amount of dividends it plans to pay out. Banks may also need to cut their common dividend in an effort to keep their regulatory capital ratios above their capital conservation buffers.
  • In addition, regulators and policymakers may ask banks to cut their dividends as a precaution to ensure that they have the capital to continue making loans to support the economy.
  • A dividend cut in and of itself wouldn't trigger a rating action, as it is a defensive move to protect creditors, can bolster retained earnings, and can be an appropriate response to weaker economic conditions. However, some banks may be more vulnerable to the impact of weaker earnings or other stresses, along with a potential decline in market confidence, which could increase pressure on ratings.

89. U.S. Finance Companies Face Market Volatility And Tougher Financing Conditions Amid Fallout From COVID-19, May 14, 2020

Stephen F Lynch, CFA, New York, (1) 212-438-1494, stephen.lynch@spglobal.com

  • Capital markets for speculative-grade issuers were temporarily dislocated in March and April as the COVID-19 pandemic spread and jolted world economies.
  • Although we are seeing some very early evidence that markets are beginning to thaw, we expect debt issuance activity and financing costs for the largely speculative-grade nonbank finance companies we rate to be choppy and opportunistic. Issuances we have seen since mid-March have largely been to build liquidity as a defensive measure.
  • There is $43.8 billion of debt maturing over the next five years across 53 nonbank finance companies that we publicly rate. Of these companies, 40% have an issuer credit rating that is lower than what they had one year ago at this time or the outlook has been revised to negative.
  • As a result, finance companies will likely see their financing costs rise as they look to address maturities and refinance their debt in tougher conditions.

90. For Large U.S. Banks, Loan Loss Expectations Will Be Key To Ratings, May 5, 2020

Stuart Plesser, New York, (1) 212-438-6870, stuart.plesser@spglobal.com

  • Large U.S. banks reported weak earnings in the first quarter, weighed down by substantial provisions for loan losses, though other earnings measures held up reasonably well.
  • The banks entered the current crisis in a position of strength, but their ability to withstand stress is not limitless, and negative outlooks and downgrades could ensue if economic conditions worsen more than we currently expect.
  • In our view, by how much the banks are required to build up their allowances for projected loan losses will be a major indicator of potential rating actions.
Gaming, Leisure, And Lodging

91. How Macau Gaming's Recovery May Unfold, May 21, 2020

Sandy Lim, CFA, Hong Kong, (852) 2533-3578, sandy.lim@spglobal.com

  • We forecast Macau's gross gaming revenue (GGR) could drop by 40%-50% in 2020. GGR declines will likely accelerate in the second quarter of 2020, from a 60% drop in the first quarter.
  • A combination of quarantine restrictions, visa limitations, travel fears, economic challenges, and reduced gaming capacity will likely weigh on Macau's GGR recovery, especially in 2020.
  • Operators have more than 12 months of liquidity, including cash and revolving credit lines, to cover monthly fixed expenses (our estimate), assuming zero revenue.
  • All of our rated Macau gaming operators are on CreditWatch with negative implications. This reflects our expectation they will experience significantly less revenue and cash flow this year that could cause us to lower ratings over the next 12 months or so.

92. U.S. Lodging, Leisure, And Gaming Sectors Face Rocky Road To Recovery, June 30, 2020

Michael P Altberg, New York, (1) 212-438-3950, michael.altberg@spglobal.com

  • Since mid-March, the U.S. lodging, leisure, and gaming sectors have been facing unprecedented declines in revenue and cash flow due to bans and restrictions on travel and consumer activity related to the coronavirus pandemic.
  • We've downgraded more than two-thirds of the sector and 36% of issuers remain on CreditWatch with negative implications, reflecting ongoing stress factors depending on the extent of recovery beginning in the second half of the year.
  • Both investment- and speculative-grade issuers have been able to access the debt markets, albeit at high rates, to provide liquidity runways in the event of prolonged shutdowns. Still, 4% of the sector has defaulted and additional defaults and restructurings are inevitable.
  • While recovery has begun in various states and regions, for many subsectors we believe it could take two to three years for credit metrics to return to 2019 levels due to long-lasting disruption to business fundamentals.
Healthcare And Pharmaceuticals

93. COVID-19: The Road Ahead Is Bumpy As The European Health Care Sector Recovers, May 19, 2020

Marketa Horkova, London, (44) 20-7176-3743, marketa.horkova@spglobal.com

  • COVID-19's impact across Europe's health care sector will vary, with pharmaceuticals being the least affected and manufacturers of medical products distributed via retail the most.
  • We assume that the health care industry will recover relatively quickly as lockdowns ease, that governments will provide significant assistance to these companies, and because of the essential nature of many of these services.
  • Assuming operations start returning to normal in the second half of 2020, most European health care providers have sufficient liquidity to withstand the shock, and leverage should largely return to levels consistent with current ratings by the end of 2021.
  • As with every sector, the situation in the health care industry remains very fluid and we are consistently monitoring developments.

94. Health Care Credit Beat: Industry Recovering From COVID-19, But Timelines Vary And Ailments Abound, June 25, 2020

Arthur C Wong, Toronto, (1) 416-507-2561, arthur.wong@spglobal.com

  • U.S. health care is in early recovery from the COVID-19 pandemic. We expect further negative rating actions will be limited to company-specific factors.
  • Ratings recovery will be as uneven as our negative rating actions. Some 72% of our negative rating actions were concentrated on nine of 25 health care subsectors, and we expect business and ratings recovery will be just as uneven.
  • Affected companies' credit metrics likely will take 12-18 months to materially return to 2020 projections.
  • With high unemployment and U.S. health care coverage closely tied to employment, uncertainty is hitting an otherwise relatively predictable industry.

95. U.S. Health Care Staffing Companies See A Rough Road To Recovery, Filled With Detours, Risks, And Behavioral Changes, June 18, 2020

David P Peknay, New York, (1) 212-438-7852, david.peknay@spglobal.com

  • The collapse in patient volume following the government directive to delay all elective procedures to conserve hospital capacity and patients' fear of visiting health care providers has cascaded through the health system, dramatically affecting U.S. health care staffing companies' revenues and cash flows. Staffing companies are slowly recovering from the COVID-19-related shutdown as patients return to their health providers, but the pace of the recovery will not be linear.
  • Although health services saw an increase in employment in May, according the U.S. Bureau of Labor Statistics, the gains were largely in dental health practitioners and physician offices while hospitals shed another 27,000 jobs.
  • Staffing companies' recovery will lag behind that of hospitals, as the latter prefer to keep their own staff employed. We expect hospitals to aggressively renegotiate rates and terms with their staffing companies, potentially pressuring margins in the longer term.
  • We took a number of negative rating actions on staffing companies since late March, reflecting the severe decline in business and the resultant strain on their cash flow liquidity.
  • Given the extended disruption, a looming recession, and possible lasting changes to health care providers, credit metrics will be much weaker than what we had previously expected for nearly all staffing companies, but lenders and private equity sponsors have been providing covenant waivers and additional liquidity.

96. A Bumpy Recovery Is Ahead For Hospitals And Other Health Providers As Non-Emergent Procedures Restart, May 26, 2020

David P Peknay, New York, (1) 212-438-7852, david.peknay@spglobal.com

  • Credit analysis will distinguish near-term business disruption from the long-term credit story.
  • The credit impact for health care services is neutral or negative.
  • Many health service providers are receiving significant operating support and liquidity assistance, but not enough to overcome the extent of near-term cash flow and liquidity decline.
  • Elective procedures are beginning to ramp up slowly, although geographically unevenly.
Infrastructure

97. Infrastructure Finance Outlook, May 5, 2020

Karl Nietvelt, Paris, (33) 1-4420-6751, karl.nietvelt@spglobal.com

  • Infrastructure assets are facing a bigger threat from the coronavirus pandemic than during the financial crisis.
  • Airports in particular will likely face a prolonged disruption, with a recovery extending out three to five years, because social-distancing measures, international travel restrictions, and quarantine measures--in combination with what may be more structural changes, such as a likely reduction in business travel and downsizing of airline fleets.
  • The pandemic is likely to further increase the focus on environmental, social and environmental (ESG) factors. As a result, companies and countries need to be more prepared for low-probability, high-risk, and massively disruptive events
  • While risks of climate change are different than those related to the pandemic--since they are likely to be more gradual and disperse--their impact could be as devastating and equally unpredictable, should global warming accelerate.

98. India-ASEAN Infrastructure: Sovereign Strains Add To Lockdown Pain, April 27, 2020

Abhishek Dangra, FRM, Singapore, (65) 6216-1121, abhishek.dangra@spglobal.com

  • One in four South and Southeast Asian infrastructure companies and utilities face downgrade pressure.
  • Regulatory actions expose structural issues underlying infrastructure firms.
  • The sharp fall in economic growth, ratings pressure on sovereigns, and a softening in state support for key counterparties pose further downside risks.

99. The Spread Of The Coronavirus To Erode Credit Quality Of Latin American Infrastructure Assets, April 7, 2020

Julyana Yokota, Sao Paulo, + 55 11 3039 9731, julyana.yokota@spglobal.com

  • We expect credit conditions in Latin America will continue to worsen as the COVID-19 pandemic advances. We've updated our forecasts for the region and expect now that Latin America will fall into a recession this year.
  • Because of the correlation of most infrastructure assets with the economy, their regulated nature, and the measures imposed so far by several governments to contain the pandemic that have hampered cash flow generation, we expect this sector to remain highly vulnerable in the short to medium term.
  • So far, we've taken negative rating actions on more than 60 Latin American infrastructure entities in our portfolio. These were attributable to recent sovereign rating actions and to expected weaker financial performance, particularly in the transportation sector given the mobility restrictions.
  • In our view, downside risks are still significant. A prolonged outbreak or a further dip in oil prices will put additional pressure on local economies and indirectly on sovereign ratings, which in turn could further challenge infrastructure assets.
Infrastructure - Project Finance

100. U.S. Project Finance Conference Center Hotels Facing Unprecedented Operation Challenges, April 22, 2020

Quansheng Li, San Francisco, + 1 (415) 371 5088, quansheng.li@spglobal.com

  • S&P Global Ratings today lowered its senior secured bond rating on Austin Convention Enterprises Inc. (ACE) to 'BBB-' from 'BBB+' and its subordinated bond rating to 'BB' from 'BBB-', and lowered its senior secured revenue refunding bond rating on Baltimore Hotel Corp. (BHC) to 'BB' from 'BB+'. The ratings on ACE and BHC remain on CreditWatch with negative implications
  • The unprecedented pressure from the significant impact of COVID-19 pandemic on U.S. lodging market would push hotel stays to very low levels to at least third quarter, and would likely pose uncertainty over the hotels' performance recovery in the next two to three years.
  • Conference center hotels may face a difficult recovery given their sizable proportion of convention-driven business (such as group bookings), due to reduction in business travel and cancellations or postponements of conferences.
Infrastructure - Transportation

101. Infrastructure: Global Toll Roads' Steep Climb Out Of COVID, June 19, 2020

Richard Timbs, Sydney, (61) 2-9255-9824, richard.timbs@spglobal.com

  • Government imposed community lockdowns have seen traffic levels drop 40%-85%, depending on the nature of the road and the extent of the containment measures.
  • While global traffic levels should recover quickly as lockdown measures are loosened, it may take 12 months for traffic to recover to pre-COVID levels on some toll roads, and much longer on others.
  • Credit quality in the sector could see further weakening absent management action to ease liquidity strains over the next 18 months.

102. Airports Face A Long Haul To Recovery, May 28, 2020

Julyana Yokota, Sao Paulo, + 55 11 3039 9731, julyana.yokota@spglobal.com

  • Airports across the world face a long, slow climb to recovery from the fall in traffic and revenues due to the COVID-19 pandemic lockdowns and travel restrictions.
  • We now estimate global air passenger numbers will drop by about 50%-55% in 2020 compared with 2019, a far steeper decline than we anticipated in March. We expect passenger numbers will stay below pre-pandemic levels through 2023.
  • Since March 2020, we have lowered the ratings on 11 airports and assigned negative outlooks or negative CreditWatch placements to a total of 128 issuers and transactions. We believe additional rating downside is possible over the next few months.
  • Notwithstanding the long-term infrastructure significance of airports, we expect their financial strength and flexibility will be eroded over the foreseeable future by the magnitude and duration of the current airport sector shutdown, an anemic recovery, capacity restructuring, and heightened counterparty risks of airlines.

103. Mexican Toll Roads Remain Vulnerable Amid COVID-19; Recovery Could Come Quickly As Restrictions Ease, May 26, 2020

Daniel Castineyra, Mexico City, (52)(55)5081-4497, daniel.castineyra@spglobal.com

  • Traffic for Mexican toll roads has steeply dropped because of restrictions related to the pandemic, but volumes should recover quickly once these restrictions are lifted.
  • We believe the impact from the pandemic will most affect subordinated series, while senior debt will be more resilient.
  • In our view, notable downside risks for toll roads remain, depending on the length and severity of the pandemic.
Infrastructure - Utilities

104. COVID-19 To Dim, But Not Darken, Brazilian Electric Utilities' Operations, May 29, 2020

Marcelo Schwarz, CFA, Sao Paulo, (55) 11-3039-9782, marcelo.schwarz@spglobal.com

  • Despite projected lower operating cash flows in the short to medium term because of the social-distancing measures and lower power demand stemming from the economic downturn, S&P Global Ratings expects ratings on Brazilian electric utilities to remain mostly unaffected.
  • Give that electric utilities are essential service providers operating under a highly regulated framework, we believe they're more resilient than other industrial companies. We also expect them to withstand the economic crisis mostly due to their relatively comfortable liquidity positions and flexibility to trim investments and dividends if needed.
  • Overall, we expect power generators and transmission entities to be less vulnerable than distributors to working capital needs. However, the industry regulator and the government are currently drafting an extraordinary liquidity package to support distributors. They collect revenues for the entire sector, while balancing the mismatch of lower demand and energy surpluses, as well as dealing with rising delinquency rates.

105. Can Canadian Regulated Utilities Sustain 2019 Improvements Amid COVID-19 And An Oil Price Slump?, June 11, 2020

Andrew Ng, Toronto,(1) (416) 507 2545, andrew.ng@spglobal.com

  • Most Canadian investor-owned utilities (IOUs), including Algonquin Power & Utilities Corp., AltaGas Ltd., ATCO Ltd., Emera Inc., Fortis Inc., and Hydro One Ltd., improved their business and/or financial risk profiles in 2019.
  • However, the current COVID-19 pandemic and the oil price crash in recent months have spurred an economic recession. As a result, reduced load consumption, growing amounts of payment arrears, and pandemic-related expenses could have negative implications for the utilities' credit quality.
  • Furthermore, the capital markets have become more volatile, making it difficult for some Canadian IOUs to continue to access the equity market to fund growth strategies and large capital programs.
  • Taken together, COVID-19 and the oil price slump could dampen momentum for those Canadian IOUs that had recently began to show signs of improvement to credit quality. This makes 2020 a pivotal year for the sector, and our view of the utilities' credit quality will depend on how they respond to these difficulties, and how they execute their own key strategies.

106. Despite COVID-19 Disruption, European Utilities Are Set For Growth, June 25, 2020

Pierre Georges, Paris, (33) 1-4420-6735, pierre.georges@spglobal.com

  • European utilities are showing solid credit resilience in the COVID-19 crisis: we have downgraded only 3% of our rated portfolio since March, while in total 21% have a negative outlook or CreditWatch negative.
  • Regulated networks and long-term contracted renewables, which represent a growing proportion of utilities' core businesses, continue to offer solid growth prospects.
  • We anticipate ongoing strong new investment by utilities over the next two to three years, while past investments will yield additional cash flows over 2021-2023 as projects are commissioned.
  • We also expect the European Green Deal, signed in December 2019 by the European Commission, will be a key enabler of the European economic recovery, supporting investments in the energy sector. However, we believe support will be spread over the next decade rather than provide short-term help.
  • Downside risks for the sector beyond our base case are rising bad debt and a weak power price recovery.

107. Liquidity Lifeline For Distributors Is No Panacea For Indian Power Sector, May 17, 2020

Abhishek Dangra, FRM, Singapore, (65) 6216-1121, abhishek.dangra@spglobal.com

  • The Indian government's loan package for state-owned power distribution companies (discoms) will provide necessary liquidity support for the ailing power sector. However, we believe these measures will only provide a temporary lifeline.
  • We expect power demand to recover, but India is likely to have its first ever power surplus in the fiscal year ending March 2021.
  • State government's fiscal measures to offset the impact of the pandemic and to stabilize the economy, coupled with a decline in operating revenue, could weaken states' budgetary performance indicators.

108. Regulatory Responses To COVID-19 Are Key To Utilities’ Credit Prospects, May 20, 2020

Gerrit W Jepsen, CFA, New York, (1) 212-438-2529, gerrit.jepsen@spglobal.com

  • Many state and provincial governments in North America have instituted mandatory moratoriums on shutting off customers during the COVID-19 pandemic.
  • Utilities may experience material hits to cash flow in coming quarters unless credit supportive measures are taken.
  • Utilities will be tested to maintain liquidity and operating cash flow to support credit quality.
  • Regulatory jurisdictions will be tested to find creative and supportive ways to bolster the credit quality of their utilities.
  • Widening gaps in cost recovery could impact utilities.

109. North American Regulated Utilities Face Tough Financial Policy Tradeoffs To Avoid Ratings Pressure Amid The COVID-19 Pandemic, May 11, 2020

Kyle M Loughlin, New York, (1) 212-438-7804, kyle.loughlin@spglobal.com

  • Some North American regulated utilities are negatively affected by weaker economic conditions related to COVID-19 and are facing unexpected incremental pressure on ratings.
  • Even before the current downturn and COVID-19, a confluence of factors, including the adverse impacts of tax reform, historically high capital spending, and associated increased debt, resulted in little cushion in ratings for unexpected operating challenges.
  • We expect most utilities will be allowed to account for and defer the costs associated with COVID-19 through existing regulatory mechanisms or future rate cases, although the timing and extent of these protections adds uncertainty to already stretched financial profiles.
  • With this as a backdrop, individual companies' financial policies may be tested, as some risk jeopardizing ratings that provide efficient access to capital that feeds this sector.
  • We believe that most management teams remain mindful of the benefits of maintaining credit quality and limiting risk, and that they will take countermeasures to offset financial profile weakness.
  • Tough tradeoffs may have to be considered to forestall potential downgrades and we think most companies will have some ability to influence better outcomes, even in a pandemic.

110. COVID-19: While Most Of The U.S. Is Shut Down, Utilities Are Open For Business, May 5, 2020

William Hernandez, Farmers Branch, 1 (214) 765-5877, william.hernandez@spglobal.com

  • Despite the economic downturn stemming from COVID-19, the North American regulated utility industry remains open for business and continues to provide essential services.
  • The industry has proactively taken steps to reduce risk by effectively managing liquidity, contrasting positively to the financial crisis of 2008.
  • Reflected by record levels of long-term debt issued during the first quarter of 2020, the industry continues to operate with essentially full access to the public long-term debt markets.
  • We expect the industry's capital spending to remain robust provided it maintains consistent access to the long-term debt markets and S&P Global does not materially revise downward its economic outlook forecast.
  • Even with the industry's aforementioned strong performance, many companies are already strategically operating with minimal financial cushion at current rating levels. When combined with the risks of COVID-19 (e.g., persistent volatility in the equity markets, lower volumetric sales, delayed rate case filings, and higher bad debt expense), the industry may experience a weakening of credit quality.

111. COVID-19: What Would A New Tariff Deficit Mean For Spain's Electricity System Operators?, June 25, 2020

Gonzalo Cantabrana Fernandez, Madrid, (34) 91 389 6955, gonzalo.cantabrana@spglobal.com

  • We see the possibility of a tariff deficit reappearing this year in Spain's regulated electricity system because of the dramatic fall in power demand due to economic shocks from the coronavirus lockdown.
  • Past tariff deficits in Spain have weighed on the electricity sector and have largely penalized the financial performance of players.
  • This time, because of the new regulatory framework, we anticipate the potential shortfall to be manageable and temporary for Spanish utilities and renewables, though the adjustment tools remain untested.
  • Overall, our assessment of the regulatory framework for power transmission and distribution networks in Spain continues to be strong/adequate and assumes the country's energy plan (PNIEC) will not create any new structural tariff deficit.

112. Spanish Gas Network Operators: Resiliency Amid The Pandemic, Disruption Risks On The Horizon, May 14, 2020

Gerardo Leal, Frankfurt, (49) 69 33999 191, gerardo.leal@spglobal.com

  • Spain's regulated gas companies should prove to be resilient to shocks arising from coronavirus measures. While declines in gas volumes can reduce regulated revenues, we calculate the resulting drop in EBITDA at less than 3% under stress scenarios for 2020.
  • We believe the recently approved remuneration framework for 2021-2026 provides enhanced visibility for our rated grid operators amid the pandemic, even though it entails a cut in remuneration.
  • As a result, all our rated issuers remain investment grade. In most cases, disciplined financial policies will partly offset lower earnings in the new regulatory period.
  • As the European energy transition results in more uncertain long-term prospects for gas, the companies may need to address the growing risk of disruption by reducing debt over time to maintain their credit quality.

113. Energy Transition: The Outlook For Power Markets In The Age Of COVID-19, June 25, 2020

Trevor J D'Olier-Lees, New York, (1) 212-438-7985, trevor.dolier-lees@spglobal.com

  • The credit risk for U.S. independent power producers is somewhat mitigated by their operational diversity and countercyclical retail power operations, which provide a hedge against weakness in wholesale power markets.
  • And while the disruption is worse in Europe because of lower demand and low power prices, the financial impact on our rated European power generators has generally been manageable so far this year.
  • This is largely because of price hedges. The impact will be greater over 2021-2022, as the hedges are lower and the forward prices weaker than we anticipated last year. Although we expect the effects of these factors to be temporary, the credit risk for projects fully exposed to wholesale power prices has increased.

114. U.S. Energy Update: Refining Our Views On Independent Power Producers, June 8, 2020

Aneesh Prabhu, CFA, FRM, New York, (1) 212-438-1285, aneesh.prabhu@spglobal.com

  • We compare and contrast select investment-grade refiners with independent power producers (IPPs) seeking investment-grade ratings.
  • Investment-grade refiners have significantly higher scale and scope diversity, with EBITDA figures of two to three times those of the largest IPPs. Operations often include less risky segments such as midstream businesses.
  • An economic shock hurts refining cash flow relatively swiftly and acutely because refiners do not hedge production, yet recovery is often equally strong.
  • To counter this potential for cash flow volatility, refiners operate businesses at much lower net leverage levels than IPPs.
  • We rate refiners based on midcycle financial ratios even though they could operate in the base case at stronger financial levels. Conversely, we also have downcycle tolerances at the rated level.
  • In contrast, IPPs typically ratably hedge their economic generation two to three years forward.
  • IPPs are also expanding retail power operations that appear to be better hedges than refiners' retail businesses because they exhibit a countercyclical offset to wholesale power business.
  • A muted effect of the lockdown could underscore the efficacy of the retail-integrated model and result in upgrades for IPPs as the economy recovers.

115. Unregulated Power Update: Independent Power Producers Navigate Falling Demand And Credit Risks In Wake Of Economic Shock, May 6, 2020

Aneesh Prabhu, CFA, FRM, New York, (1) 212-438-1285, aneesh.prabhu@spglobal.com

  • We think the impact on IPPs has been relatively muted up to this point, especially compared to other energy sectors such as oil and gas, midstream and refining.
  • Still, the sharp economic shock represents a stress test of their retail-wholesale integrated business model.
  • A muted impact could underscore the efficacy of the integrated model and result in upgrades as the economy recovers.
  • The economic stress does slow the momentum, but does not change our views about the investment-grade aspirations of these companies.
  • We believe visibility into cash flow preservation in 2021 is equally important to credit improvement as wading through this immediate crisis.
  • We continue to maintain our positive outlooks on four companies through this period. Any rating or outlook changes--in either direction--will likely come in the third quarter or later.
Insurance

116. Australian And New Zealand Insurers Show Resistance To COVID-19, May 29, 2020

Julian X Nikakis, Sydney, (61) 2-9255-9818, julian.nikakis@spglobal.com.com

  • The credit profiles of Australia- and New Zealand-based insurers have been resilient following a summer of significant natural catastrophes and the COVID-19 disruptions.
  • We expect the pandemic to most affect the life and mortgage insurance sectors, both of which we have on negative outlook for Australia, but for insurers generally to be less impacted than noninsurance sectors of the economy.
  • The effect on underwriting should be moderate but will vary by insurance sector, with some lower near-term claims reflecting reduced economic activity while others could be hit by higher future claims depending on the longevity and reach of the event.

117. European Insurers: Capitalization Appears Resilient Under Solvency II, Somewhat Less Under Our Capital Model, May 28, 2020

Taos D Fudji, Milan, (39) 02-72111-276, taos.fudji@spglobal.com

  • Solvency II ratios fell 20 percentage points on average in first-quarter 2020 for the insurers we rate in Europe because of various market and other shocks.
  • These insurers were able to absorb the shock because of high average SII ratios of 230% going into 2020 and the benefit of regulatory stabilizers--so beneficial that we believe they hamper comparability of the ratios.
  • Our capital model may show a more severe impact from market movements and corporate downgrades, depending on the individual business mix of an insurer.
  • Potential downgrades of insurers' bond investments to speculative grade could weigh on SII ratios. In case of significant declines in SII ratios from combined market shock and rating downgrades, we could potentially observe downgrades of hybrid instruments for some insurance issuers that had much lower-than-average initial ratios or higher-than-average sensitivity.

118. COVID-19's Economic Effects Cloud The Outlook For EMEA Insurers, May 18, 2020

Volker Kudszus, Frankfurt, (49) 69-33-999-192, volker.kudszus@spglobal.com

  • For most primary insurers in Europe, the Middle East, and Africa (EMEA), insurance losses linked to the COVID-19 pandemic are forecast to be limited; the exception will be insurers writing industrial lines, such as event and directors and officers (D&O) insurance.
  • Losses in these lines, plus travel and, in some cases, business interruption insurance, will largely be incurred by EMEA-based global reinsurers.
  • During 2020, we expect most rating actions in the insurance sector to be caused by the erosion of unrealized gains on investments weakening balance sheets. Profitability will suffer because of top-line pressure and modest claim frequency, combined with impairments on investments and receivables because there are more corporate defaults.
  • The return of quantitative easing will compress life insurers' investment margins further. We have lowered our long-term interest rate assumptions for 2020-2023.

119. Insurers' Debt Remains Attractive To Investors During COVID-19 Uncertainty, June 22, 2020

Ali Karakuyu, London, (44) 20-7176-7301, ali.karakuyu@spglobal.com

  • Despite higher credit spreads during 2020, the flight to quality has meant that insurers across the globe have retained good market access at favorable coupon rates and should be able to redeem or refinance the $140 billion (20% of total outstanding debt) coming up for call or maturity by Dec. 31, 2021.
  • Insurance bonds remain attractive to investors, providing diversification, relatively favorable yields, and high security--with an average issuer credit rating in the 'A' category.
  • We believe much of the issuance to date has been opportunistic. With some taking advantage of favorable market conditions instead of repairing weakened balance sheets.

120. COVID-19 Pushes Global Reinsurers Farther Out On Thin Ice; Sector Outlook Revised To Negative, May 18, 2020

Johannes Bender, Frankfurt, (49) 69-33-999-196, johannes.bender@spglobal.com

  • Pandemic-related losses, combined with volatile capital markets, and lower investment returns, will likely prevent the global reinsurance sector from meeting our earnings expectations for 2020. Once again, the sector will not earn its cost of capital this year, bearing in mind it has struggled in the past three years to do so due to large natural catastrophe losses and fierce competition.
  • We now assume the global reinsurance sector will deliver a combined ratio of 101%-105% in 2020, or more if global insured COVID-19 losses accelerate beyond $30 billion for the wider (re)insurance sector.
  • Therefore, we are revising our sector outlook for global reinsurance to negative from stable, as we believe business conditions are becoming increasingly more difficult.
  • We expect to take negative rating actions on reinsurers whose COVID-19 losses wipe out their earnings and become a capital event and that in our view won't be able to sufficiently rebuild capitalization over the next 12 to 24 months, as well as for those reinsurers that entered 2020 with an already historical weaker operating performance.
  • That said, property/casualty reinsurance pricing is hardening, life reinsurance earnings remain stable so far, and capital for the sector remains robust, though lower, than at year-end 2019.

121. In A Correlated Market, Catastrophe Bonds Stand Out, May 18, 2020

Maren Josefs, London, (44) 20-7176-7050, maren.josefs@spglobal.com

  • Catastrophe bonds (cat bonds) usually protect against specific perils across different regions and cover predominantly residential risks, with limited exposure to commercial business. Hence, S&P Global Ratings does not expect investors in cat bonds to suffer significant losses as a result of COVID-19 and hence future new issuance to continue.
  • As of the date of this publication, we have taken only one rating action related to COVID-19 in the ILS space. We placed our rating on the outstanding $100 million 2015-I class A notes issued by Vita Capital VI Ltd. on CreditWatch with negative implications.
  • There is substantial correlation between business lines, regions, and markets in the case of a pandemic. For investors to be willing to meet any increase in demand for pandemic protection, modeling needs to be credible and pricing adequate.

122. Insurance Industry And Country Risk Assessment Update: May 2020, May 7, 2020

Ali Karakuyu, London, (44) 20-7176-7301, ali.karakuyu@spglobal.com

Since our most recent publication ("Insurance Industry And Country Risk Assessment Update: January 2020," published Jan. 28, 2020), we have:

  • Assigned our IICRA on Azerbaijan's property and casualty (P/C) sector.
  • Revised the Canada and Australia Mortgage Insurance IICRA assessments to intermediate risk from low risk. This reflects the heightened uncertainty around mortgage delinquencies and related losses due to the increase in unemployment levels in the current stressed economic environment caused by the COVID-19 pandemic. Furthermore, elevated house prices and high level of household leverage might exacerbate the risk.
  • Revised the Austria life industry risk assessment to moderately high from moderately low. The revision is due to weaker market growth prospects, as traditional life insurance products become less attractive to policyholders. This is owing to a cap on the guaranteed rate of 0.5%, as well as cancelled tax advantages on new contracts following a 2016 change in tax law and an attractive state pension system. The weaker growth prospects are compounded by our expectation of a decline in the 2020 economic activity following the COVID-19 outbreak.

123. COVID-19's Economic Consequences Will Test Kazakhstan Insurers' Resilience More Than Underwriting Exposure, June 4, 2020

Ekaterina Tolstova, Moscow, (7) 495-783-41-18, ekaterina.tolstova@spglobal.com

  • Financial market turmoil and recession are potentially greater challenges for Kazakhstan's property and casualty (P/C) and life insurers than underwriting exposure to pandemic risk.
  • The pandemic and weak macroeconomic conditions could hurt smaller and weaker players whose financial indicators were strained before the coronavirus outbreak.
  • However, most of the Kazakhstan insurers we rate are well positioned to handle the immediate impact of COVID-19, given their capital buffers and liquidity.

124. Russian Insurers Should Remain Resilient To The Shocks From COVID-19 And Low Oil Prices, April 20, 2020

Victor Nikolskiy, Moscow, (7) 495-783-40-10, victor.nikolskiy@spglobal.com

  • The economic and financial fallout from COVID-19 and decreased oil prices will test rated Russian insurers, but we believe they will remain resilient to the consequences, which are generally negative for the sector overall.
  • Combined ratios for rated Russian insurers will likely worsen closer to 100%, and return on equity to about 10%.

125. COVID-19 And Lower Oil Prices Could Accelerate Consolidation Among Saudi Arabian Insurers, June 29, 2020

Emir Mujkic, Dubai, (971) 4-372-7179, emir.mujkic@spglobal.com

  • The Saudi Arabian insurance sector recorded a significant improvement in GWP growth and profitability in 2019, mainly because of a stronger earnings at some market-leading insurers.
  • We anticipate that the sector will report strong overall underwriting results in first-half 2020, due to a sharp reduction in motor and medical claims offsetting some weaker investment returns.
  • However, an increase in claims to more normal levels, constrained economic conditions, a higher VAT rate from July 1, 2020, and social benefit cuts will likely have a negative effect on consumer spending and consequently growth and earnings prospects in second-half 2020.
  • In our view, this will further increase competition and accelerate consolidation in the market.

126. Insurance Services Ratings And The Effects Of The COVID-19 Pandemic, May 26, 2020

Julie L Herman, New York, (1) 212-438-3079, julie.herman@spglobal.com

  • We have taken negative rating actions on 11 of the 40 insurance services companies we rate globally stemming from the economic fallout related to COVID-19. The negative rating actions were predominantly limited to outlook changes.
  • We believe the greatest negative impact will be in the health insurance services subsector, where seven of the 10 companies we rate have a negative outlook. For many of these companies, we are expecting double-digit revenue declines for at least the next couple of quarters.
  • With the fallout from COVID-19, health insurers will likely experience greater-than-usual swings in underwriting performance throughout the course of the year.

127. How COVID-19 Risks Factor Into U.S. Property/Casualty Ratings, April 27, 2020

Lawrence A Wilkinson, New York, (1) 212-438-1882, lawrence.wilkinson@spglobal.com

  • The COVID-19 pandemic has brought to the forefront the gap between property/casualty (P/C) insurers' insurable and noninsurable coverage. Pressure is rising among small-business owners, politicians, regulators, and insurance industry participants to solve the ultimate question of whether P/C insurance policies are required to cover COVID-19-related losses.
  • S&P Global Ratings currently maintains a stable outlook on the U.S. property/casualty sector. The industry began 2020 with roughly 20% capital redundancy at the 'AA' level, which provides a great deal of resilience to weather current challenges.
  • While we appreciate that the current pandemic, as well as the uncertainty of catastrophe season, presents key risks that could impair the industry's strong capital position, our current assessment is that these factors alone are not likely to result in a meaningful number of negative rating actions. That said, the current volatile state of financial markets and the U.S. economy adds another element of uncertainty.
Leveraged Finance

128. Health Care Leveraged Finance: Condition Leans Negative, But CLO Exposure To COVID-19 Is Largely Balanced, June 8, 2020

Arthur C Wong, Toronto, (1) 416-507-2561, arthur.wong@spglobal.com

  • Despite the sector's reputation for defensiveness, negative rating actions in health care are about the same as the median sector and as a percentage of rated companies affected by the COVID-19 pandemic. Among 25 major industries rated by S&P Global Ratings, health care is ranked No. 13 for negative actions.
  • They are uneven, concentrated in subsectors dependent on more discretionary or lower acuity procedures, in part reflecting government restrictions on nonurgent procedures to preserve staff and equipment for coronavirus patients: physical therapy, dental, physician groups, outpatient surgical, and related industries (orthopedic manufacturers, dental suppliers, and contract medical organizations).
  • We believe there may be more as the pandemic enters its 13th week and the impact continues. However, we believe they will be largely confined to the subsectors we identify as more vulnerable.
  • For health care companies among the top 250 collateralized loan obligations (CLO) holdings, the mix appears balanced, with the majority in subsectors we see as less affected and at lower risk from COVID-19.
  • Health care will also face pricing pressure, legislative scrutiny, and payer and technological disruption in an election year as a top topic--having essentially "lost" a year to the pandemic.
Media And Telecom

129. Canadian Telecom Carriers Remain Resilient Through The COVID-19 Pandemic: Will They Have Enough Credit Bandwidth For 5G?, June 18, 2020

Aniki Saha-Yannopoulos, CFA, PhD, Toronto, (1) 416-507-2579, aniki.saha-yannopoulos@spglobal.com

  • The COVID-19 pandemic will affect 2020 revenue for the Canadian telecom sector, but likely improve broadband's long-term value proposition and pricing power.
  • This sector's ability to preserve free operating cash flow should aid in supporting balance sheets in 2020.
  • Canadian telecom operators BCE Inc., Rogers Communications Inc., and Telus Corp. need to demonstrate sustained financial discipline to protect credit quality given 5G spectrum investments and the risk of a less favorable wireless mobile virtual network operator (MVNO) decision for companies.

130. COVID-19: EMEA Telecoms Will Prevail, But Not Completely Unscathed, April 6, 2020

Mark Habib, Paris, (33) 1-4420-6736, mark.habib@spglobal.com

  • S&P Global Ratings does not anticipate a large number of downgrades in its EMEA portfolio of telecoms in 2020 as a direct result of COVID-19, despite projections of a global recession and potential pressure on telecoms' business-to-business (B2B) revenue.
  • Rising connectivity demand should insulate the EMEA telecoms sector from the worst economic and credit distress stemming from the COVID-19 pandemic, and there may even be pockets of opportunity.
  • Fixed voice and broadband traffic has spiked by 50%-100%, and a lasting increase in demand may prompt a consumer shift to more premium packages.
  • Telcos could face risks, however, particularly from direct revenue exposure to COVID-19 related disruptions in mobility, retail, and supply chains; potentially constrained liquidity; and country risk where the growth prospects have dimmed because of the pandemic's economic repercussions.

131. Rebooting The U.S. Media Sector In A Post COVID-19 World, June 10, 2020

Naveen Sarma, New York, (1) 212-438-7833, naveen.sarma@spglobal.com

  • The COVID-19 pandemic has devastated many segments of the U.S. media and entertainment industry mostly due to social distancing measures and government-mandated closures.
  • Live-events companies, travel-related companies, trade show and conference operators, theme park operators, film and TV studios, and movie exhibitors have suffered most from the pandemic's fallout.
  • The timetable for recovery for these companies may lag both the general economic recovery as well as the end of formal social distancing measures.
  • To assess the eventual pace of ad market recovery, we've examined key economic indicators, including GDP growth rate, consumer spending, and unemployment rates, as barometers of economic recovery and eventual ad agency growth.
  • The industry's revenues and credit metrics will likely return to 2019 levels by 2021 (2022 for some subsectors), but issuer credits ratings may not recover at the same pace.

132. Pandemic And Recession Deal Blows To Credit Metrics Of U.S. Media And Entertainment Industry, June 10, 2020

Naveen Sarma, New York, (1) 212-438-7833, naveen.sarma@spglobal.com

  • The COVID-19 pandemic and subsequent global economic recession have severely harmed selected subsectors in the global media and entertainment sector, while affecting other subsectors to a lesser extent.
  • S&P Global Ratings has taken rating actions including downgrades, outlook revisions, and CreditWatch listings on 50% of the rated U.S. media and entertainment portfolio.
  • Given the significant number of ratings on companies with negative outlooks or on CreditWatch negative, it is likely S&P Global Ratings will take more downward rating actions in the coming months.

133. The COVID-19 Fallout Is Squeezing U.S. Advertising Spending More Than Expected, May 21, 2020

Naveen Sarma, New York, (1) 212-438-7833, naveen.sarma@spglobal.com

  • We are lowering our 2020 U.S. advertising forecast based on our reassessment of the global COVID-19 pandemic's likely effects on the U.S. economy.
  • We now expect spending to drop 12.3% this year, versus our previous forecast (March baseline) of 8.7%. We also expect digital advertising to be flat compared with last year (and compared with our previous forecast decline of 2%).
  • We still expect the worst quarters for advertising will be the second and third, with a gradual recovery in the fourth quarter, aided by what we expect will be record spending on political ads.
  • The pace of recovery will vary for each media subsector, with short-cycle advertising sectors, such as digital, radio, and the outdoor segments recovering more quickly, and longer-cycle advertising sectors, such as national television recovering toward year-end.
Midstream

134. North American Midstream Companies' Debt Maturities Are Manageable For Most, Challenging For Some, April 22, 2020

Michael V Grande, New York, (1) 212-438-2242, michael.grande@spglobal.com

  • For the next few years, most North American midstream companies' debt-maturity profiles seem manageable, largely because these companies were strong prior to the pandemic and plunge in oil prices.
  • However, this view could change if exploration and production companies recover more slowly than we anticipate, in turn prolonging midstream companies' recovery.
  • Gathering and processing companies could have heightened credit risk in the next five years because most of their debt matures in 2022, 2024, and 2025.
Public Finance

135. Hitting The Books: Could COVID-19 Affect Australian University Ratings?, April 21, 2020

Martin J Foo, Melbourne, + 61 3 9631 2016, martin.foo@spglobal.com

  • Australia's universities will lose hundreds of millions in revenue as international student enrolments plunge because of COVID-19-related travel restrictions.
  • Universities have strong balance sheets, though headroom is eroding at current ratings. The government has announced only minor financial relief.
  • A global recession in 2020 could boost domestic demand for higher education while crimping the future pipeline of foreign students.

136. To What Degree Will Fiscal Package Help Brazilian Local And Regional Governments?, June 9, 2020

Daniela Brandazza, Mexico City (52) 55-5081-4441, daniela.brandazza@spglobal.com

  • The impact of the COVID-19 pandemic and subsequent economic downturn have significantly hit Brazilian local and regional governments' (LRGs) overall tax collection, while increasing expenditure pressures. After several weeks of negotiations, the Bolsonaro administration passed a fiscal package to help Brazilian LRGs on May 27, 2020.
  • Although S&P Global Ratings believes this package could alleviate short-term fiscal pressures, it won't necessarily solve and ensure fiscal sustainability for LRGs in the longer term.
  • Brazil's central government is the largest LRG creditor, representing about 61% of total debt. Loans from domestic banks represent about 12% of LRGs' total debt. LRGs' foreign currency debt, which represents less than 10% of total debt, mostly consists of loans from MLIs such as the Inter-American Development Bank, World Bank, and CAF, among others. We think that this debt composition will likely persist in the next few years, and LRGs may even increase debt with the central government if they keep delaying their amortization schedules as the recent legislation allows for 2020.

137. China Provincial Governments' Risk Indicators, June 9, 2020

Lulu Jiang, Hong Kong, (852) 2532-8087, lulu.jiang@spglobal.com

  • Growth remains divergent across different provinces in China. Local and regional governments (LRGs) with weaker economic fundamentals and greater reliance on transfers could face more uncertainties in sustaining growth or improving income.
  • We expect provinces to manage their fiscal performance better than lower-tier LRGs during this economic slowdown.
  • The growth of direct debt in LRGs would also diverge; highly leveraged ones will be further constrained in their access to additional debt.

138. China's Local-Government Deficits Could Rise To 25% On NPC Targets, May 26, 2020

Susan Chu, Hong Kong, (852) 2912-3055, susan.chu@spglobal.com

  • Chinese central authorities will permit local and regional governments (LRGs) to run much higher deficits this year as they combat the economic shock of COVID-19. S&P Global Ratings projects that the average LRG deficit will soar to 25% this year, compared with our estimate of 14% of total budget revenues in 2019.
  • Key metrics announced at the annual NPC confirm that fiscal stimulus spending by LRGs are vital to China's economic recovery plan. S&P Global Ratings estimates that China's GDP growth will slow to 1.2% in 2020, then rebound to 7.4% in 2021.
  • We estimate that average LRG outstanding debt (including off-budget borrowings) will rise to 240% of consolidated revenues over the next two to three years, from 210% in 2019. Much of this growth will be driven by "special-purpose bonds," a municipal-like bond which is more transparent due to their on-budget nature.

139. COVID-19: French Departments Face Marked Revenue Losses, While Regions Swerve Near-Term Fallout, May 28, 2020

Patrice Cochelin, Paris, (33) 1-4420-7325, patrice.cochelin@spglobal.com

  • Fiscal repercussions from the COVID-19 pandemic will set back rated French LRGs only moderately, in our view, thanks to strong central government support and our expectation of lower capex.
  • Departments will be hit the most and earliest due to revenue losses, while financing needs will likely build for cities and intercities, the biggest capital spenders.
  • Although LRGs will likely moderate capex to help contain new borrowing, we forecast that a 2021 uptick will give way to marked deficits and potentially more than €150 billion of debt--the sector's largest accumulation of debt to date.
  • Since the onset of the pandemic, most rating actions on French LRGs have been outlook revisions to negative from stable, versus downgrades. The sector overall has maintained relatively solid liquidity positions, and further rating actions will depend on the evolution of LRGs' revenues and debt burden over the coming two years.

140. COVID-19: Fiscal Response Will Lift Local And Regional Government Borrowing To Record High, June 9, 2020

Felix Ejgel, London, (44) 20-7176-6780, felix.ejgel@spglobal.com

  • Revenues will decrease and borrowing needs will increase for local and regional governments (LRGs) substantially above our previous February forecasts because of recession triggered by the coronavirus pandemic.
  • We expect subnational borrowings to swell in 2020 and simmer down a bit in 2021. Over these two years, annual borrowings will increase 10% on average, well over our previous 6% forecast, and reach about US$2.1 trillion.
  • Consequently, we also expect a substantial increase in bond issuance, especially in China and developed markets, with the exception of the U.S. We anticipate global issuance to reach US$1.7 trillion on average in 2020-2021.
  • With rising borrowing and subdued economic activity, LRGs will face an increase in their debt burdens. By the end of 2021, Canada will increase its subnational debt to about 55% of GDP, followed by Spain, Japan, and China with about 25%-30%.

141. COVID-19's Effects Will Pressure New Zealand Council Ratings, May 24, 2020

Rebecca Hrvatin, Melbourne, (61) 3-9631-2123, rebecca.hrvatin@spglobal.com

  • The COVID-19 outbreak will cause New Zealand councils' budgetary metrics to deteriorate and debt to rise.
  • Growing budget imbalances and rising debt levels could signal weaker institutional and policy settings for the local council sector.
  • While we expect revenue headwinds to be temporary, it could pressure our ratings on some councils if the economic downturn is more severe or prolonged than our current expectations.

142. How Central Government Support Will Limit COVID-19's Impact On Spanish Regions' Finances, June 24, 2020

Alejandro Rodriguez Anglada, Madrid, (34) 91-788-7233, alejandro.rodriguez.anglada@spglobal.com

  • Spanish normal status regions (NSRs) receive advances from the regional financing system each year based on their expected collection of shared taxes. These advances are later compared with actual tax collection, and the system is settled two years after. In 2020, transfers from the financing system will increase by 7.3% due to the central government's decision in March to increase them, when the pandemic's potential impact on the economy was starting to become apparent. Given that tax collection will be lower than expected, the system will likely generate a large negative settlement to be deducted from regional financing in 2022. We expect, however, that the central government will allow regions to return this settlement over several years.
  • Taking into account the central government support and updated resources coming from the financing system, we now expect Spanish regions to post a deficit after capital accounts of 4.3% of total revenue in 2020. One year ago, in June 2019, we estimated the overall deficit for 2020 at 2.7% of total revenue. We estimate that, without central government support and all else equal, the deficit after capital accounts for the regional tier in 2020 could have reached up to 12% of total revenue.
  • We expect central government liquidity facilities to remain key for the regional tier liquidity over our forecast period (2020-2022). As of June 24, the central government liquidity mechanisms disbursements stood at €31 billion, which is already about 66% of our estimated regional borrowing needs for the year 2020. We estimate that by the year's end about 93% of the regional financing needs will be covered through loans (including central government liquidity facilities), while bonds will cover about 7%

143. COVID-19 Could Further Strain Swedish LRGs' Budgets, May 20, 2020

Linus Bladlund, Stockholm, + 46-8-440-5356, linus.bladlund@spglobal.com

  • The outbreak of COVID-19 has significantly reduced economic activity in Sweden, leading to a surge in unemployment and stagnating tax revenue.
  • The central government has declared a commitment to support the economy and local and regional governments (LRGs) by implementing unprecedented support packages that will mitigate budgetary pressure.
  • However, we believe the support announced so far is unlikely to fully compensate for weaker tax revenue growth, leading to deterioration of LRGs' performance metrics and threatening their creditworthiness.

144. As COVID-19 Grips U.S. State Finances, Some Budget Debates Will Continue Well Beyond The Deadline, June 29, 2020

Thomas J Zemetis, New York, + 1 (212) 438 1172, thomas.zemetis@spglobal.com

  • States' uncertainty about their finances due to COVID-19 and the recession is likely to cause some to delay action on fiscal 2021 spending plans beyond the July 1 fiscal start.
  • 12 states have yet to enact a full-year fiscal 2021 budget. Reasons include compressed budget negotiations in a shortened legislative session, prioritizing closing current-year budget gaps, and waiting for updated economic and revenue estimates.
  • Several have passed or plan to pass short-term or interim budgets until the revenue, expenditure, and federal aid picture comes into sharper focus, which is not uncommon during recessions.
  • While late budget enactment is rarely a good sign, it is not necessarily an immediate threat to credit quality. Many states have procedures to keep operations going and protect debt service.

145. Moderating Debt Burdens Allow Some U.S. States Room To Borrow During A Recession, June 16, 2020

Oscar Padilla, Farmers Branch, (1) 214-871-1405, oscar.padilla@spglobal.com

  • With debt profiles comparatively stable since the Great Recession, S&P Global Ratings expects states will look to increase their capital borrowing.
  • Generally, debt levels are sustainable at low-to-moderate debt ratios with capacity for growth for most states.
  • Acceleration in infrastructure spending could buoy states' economies and induce longer-term growth.
  • From a regional perspective, with the exception of California and Washington, the states at the top of total tax-supported debt list are all east of the Mississippi River.

146. U.S. Oil-Producing States Dealt Double Blow From Price Collapse And COVID-19, June 8, 2020

Timothy W Little, New York, + 1 (212) 438 7999, timothy.little@spglobal.com

  • The double blow of a collapse in oil prices and the COVID-19-induced recession will likely have an outsized economic effect in oil-producing states compared to the rest of the country.
  • U.S. oil-producing states are entering a new period of credit deterioration not unlike what occurred in mid-2015 after the last price rout.
  • Over the past five years, various budgetary management techniques prevented more significant credit deterioration among oil-producing states.
  • Any sharp pull-back in oil exploration and production will likely inflict considerable strain on oil-producing state economies and revenues.

147. Activity Estimates For U.S Transportation Infrastructure Show Public Transit And Airports Most Vulnerable To Near-Term Rating Pressure, June 4, 2020

Joseph J Pezzimenti, New York, (1) 212-438-2038, joseph.pezzimenti@spglobal.com

  • Based on our analysis of various factors influencing future activity levels for each U.S. transportation infrastructure subsector we believe the public transit and airport sectors are generally the most vulnerable to downward rating pressure in the near term.
  • Our current 2020 and 2021 baseline activity estimates relative to pre COVID-19 levels show annualized declines of approximately 55% and 30% for public transit; 50% and 25% for airports; 45% and 15% for parking; 25% and 10% for toll roads; and 20% and 10% for ports. However, due to the high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak, the recession and their combined impacts on transportation infrastructure, our activity estimates will change as more data become available.
  • Rating actions of one or more notches are likely for those credits we believe will experience materially lower, uncertain, or volatile activity in the medium to long term. Conversely, modest downward rating actions or none at all are possible for those credits we believe demonstrate recovery to financially sustainable but lower activity in the near term.
  • Due to the challenges posed by the pandemic-induced recession and concerns of COVID-19 outbreaks and associated impacts, we believe activity levels could be unpredictable or materially depressed beyond 2020. Consequently, many of the negative outlooks on debt ratings of transportation issuers with this exposure are likely to remain on negative outlook beyond this year.

148. COVID-19, Recession, And U.S. Public Finance Ratings, May 14, 2020

Robin L Prunty, New York, (1) 212-438-2081, robin.prunty@spglobal.com

  • All of our sector outlooks in U.S. public finance are now negative due to COVID-19 and the rapid onset of the recession with projections of sharp GDP decline, surging unemployment, and decreased consumer spending. A sector outlook is a macro, forward-looking view on where we see credit trends in the year ahead. For the remainder of 2020 we would expect to see more negative than positive rating actions across U.S. public finance.
  • The majority (approximately 98%) of U.S. public finance ratings are investment grade and would be expected to have a greater ability to weather adverse credit conditions than speculative grade entities. To be clear, there has been and will continue to be rating actions, but we generally expect them to be less frequent and less stark because of these borrowers' financial flexibility.
  • Defaults and bankruptcies remain rare in our rated U.S. public finance universe. While there could be some uptick in both reflecting fiscal stress, we would not expect this to be widespread.

149. How Job Losses And Rent Moratoriums Might Affect HFA Multifamily Program Performance, May 7, 2020

Marian Zucker, New York, (1) 212-438-2150, marian.zucker@spglobal.com

  • We believe housing finance agencies' (HFA) multifamily portfolios have the financial strength, flexibility and resources to perform at their current rating levels and that they can withstand any near term disruptions of mortgage payments.
  • Properties in rated HFA multifamily portfolios demonstrate high occupancy levels (averaging 97%), and thus a higher likelihood the properties will collect sufficient revenues to pay debt service.
  • Sophisticated and proactive management will steer organizations through this uncertain landscape.

150. Pension Brief: The Future Of U.S. Public Pensions After The Sudden-Stop Recession, May 6, 2020

Todd D Kanaster, ASA, FCA, MAAA, Centennial, 1 (303) 721 4490, Todd.Kanaster@spglobal.com

  • U.S. public pension funds in aggregate lost approximately $850 billion in the first quarter of 2020.
  • A Q2 2020 return of nearly 30% is needed for government-sponsored pension systems to maintain the 73% average funded ratio from a year ago.
  • Should experience mirror that of the recent Great Recession, adjustments to reduce plan costs and increase contributions are likely.
Real Estate

151. China Developers' 2019 Results Expose Strains Before COVID-19 Crisis Hit, April 8, 2020

Aeon Liang, Hong Kong, (852) 2533-3563, aeon.liang@spglobal.com

  • Chinese developers were battling margin compression well before the COVID-19 outbreak hit.
  • About two-thirds of rated developers reported 2019 revenue below our original forecasts.
  • Even as total contracted sales rebounded 136% in March (on month), we assume a 5%-10% drop in contracted sales in 2020.

152. How Are Lockdown Measures And Remote Working Affecting European Office Landlords?, May 27, 2020

Franck Delage, Paris, (33) 1-4420-6778, franck.delage@spglobal.com

  • Lockdown measures to contain the spread of COVID-19 are eating into eurozone GDP and many European companies' capacity to pay rent. We believe office landlords might share some of their corporate tenants' pain, despite the protection from their long-term leases.
  • In the short term, rent concessions to the weakest tenants and case-by-case rent renegotiations with the stronger ones will inevitably impair office landlords' 2020 revenue growth, albeit significantly less than in the retail property segment. Lease maturities in the coming quarters could also result in vacancies or lower rents if the market uncertainty persists.
  • We therefore estimate potential rent declines between 0% and 5% for office landlords in 2020, but this should not affect the ratings on the 17 office landlords we rate in Europe, thanks to their long lease maturity profiles, creditworthy tenants, and comfortable ratio headroom.
  • Over the longer term, the prospects of a weaker economy and the increased prevalence of remote working could erode companies' need for traditional office space in most office leasing markets. The most high-grade, service-oriented, and centrally located offices should fare better.

153. COVID-19 Dampens The Prospects Of EMEA Real Estate Developers And Homebuilders, April 22, 2020

Franck Delage, Paris, (33) 1-4420-6778, franck.delage@spglobal.com

  • The COVID-19 pandemic is taking a toll on real estate developers and homebuilders as they enter the second quarter of the year, normally a strong season for sales. Weakening economies and longer operating cycles resulting from social distancing measures should affect both offer and demand of newly built properties in 2020.
  • Most European countries permit construction, but technical and administrative challenges are currently constraining works progress and delaying deliveries and sales--even if the most digitalized property developers should prove more resilient.
  • In Russia, the impact could be slightly lower in the near term as real estate may be seen as a safe haven given the current low oil prices, weakening ruble, and higher taxation on deposits. Conversely, in the United Arab Emirates, the outbreak is adding to problems created by oversupply and a slowing economy.
  • As a result, we have taken eight negative rating actions on the 11 property developers we rate in Europe, the Middle East, and Africa, all based or partially based on the pandemic's effects.

154. COVID-19 Accelerates Structural Shifts In Global Office Real Estate And REITs, June 9, 2020

Ana Lai, CFA, New York, (1) 212-438-6895, ana.lai@spglobal.com

  • The global recession, sparked by record job losses in the wake of the coronavirus pandemic, will hurt demand for office real estate, with occupancy and rental rates to come under pressure.
  • Rent collection for office properties has remained high but we expect landlords to share some of the pain as tenants' capacity to pay rent is impaired.
  • Office REITs entered this recession in relatively good shape, with low vacancy rates and steady rent growth, and long-term leases and staggered lease maturity schedules should help mitigate the impact of the recession.
  • We expect COVID-19 to accelerate the adoption of remote working and lead to a gradual reduction in the office footprint. The sustainability of co-working concepts could also add pressure to the office sector, particularly in gateway markets.
  • We expect negative ratings bias to grow over the next year, although downgrade risks are mitigated by adequate cushion under credit metrics, relatively good balance sheets, and solid liquidity.

155. COVID-19 Outbreak To Prolong Indonesia Developers' Recovery, May 4, 2020

Simon Wong, Singapore, (65) 6239-6336, simon.wong@spglobal.com

  • The credit quality of most rated Indonesia developers had been deteriorating long before the COVID-19 outbreak.
  • Slow marketing sales amid the outbreak will erode liquidity buffers in 2020.
  • Refinancing risks are rising for bonds maturing in 2021 amid weakened investor sentiment and the currency depreciation.
REITs

156. Will Asia's REITs Keep Their Angel Wings?, April 27, 2020

Esther Liu, Hong Kong, (852) 2533-3556, esther.liu@spglobal.com

  • Asia-Pacific REITs and landlords will see rents fall and vacancies rise this year and, likely, also next.
  • Office REITs are more protected in the short term, however COVID-19 and remote working habits could drive lingering changes in demand.
  • The rated sector's financial flexibility and buffers will help.

157. For Australasian REITs, COVID-19 Could Strike A Longer And Deeper Blow, April 28, 2020

Craig W Parker, Melbourne, (61) 3-9631-2073, craig.parker@spglobal.com

  • Social-distancing measures and a potential moratorium on rental payments amid a ban on tenant evictions will likely erode the earnings and credit quality of Australian and New Zealand REITs over the next year. This is despite government support such as land tax relief for landlords.
  • We expect the retail property sector to be hit the hardest over the next few months. The structural demand shift for office and industrial space could accelerate as remote working and e-commerce become more prevalent.
  • Deteriorating financing conditions could hit real estate companies, given their heavy reliance on capital markets. That said, the REIT sector has a much stronger liquidity position entering this outbreak than during the GFC.

158. REITrends: Negative Ratings Bias Rises As North American REITs Confront Effects Of COVID-19, May 28, 2020

Ana Lai, CFA, New York, (1) 212-438-6895, ana.lai@spglobal.com

  • April rent collections highlight the stress REITs are confronting in the second quarter as the impact of COVID-19 intensifies.
  • Retail assets, particularly malls, received some of the lowest levels of rent among rated REITs, and healthcare REITs exposed to seniors housing assets experienced significant operating pressure.
  • Although rent collections for office REITs were better than expected in April, social distancing measures and increased work mobility could pressure demand for office space over the intermediate- to longer-term as tenants negotiate lease renewals.
  • All property types are affected by COVID-19, though multifamily, industrial, and data centers appear to be more resilient, reporting relatively high rent collections.
  • S&P Global Ratings has taken 19 rating actions since early March and expects negative rating activity to continue in 2020 as 18% of ratings have negative outlooks as of May 20, 2020.
  • Debt issuance rebounded after some market dislocation in March as the Federal Reserve Bank provided liquidity support and stabilized markets. In our opinion, the REITs generally have solid liquidity and have taken cash preservation measures including dividend cuts.

159. As The Pandemic Pressures U.S. Health Care REITs, Cash Flow Is Key, May 13, 2020

Michael H Souers, New York, (1) 212-438-2508, michael.souers@spglobal.com

  • The coronavirus pandemic is pressuring health care systems throughout the U.S.
  • Some REIT property types, such as life sciences and hospitals, appear to be relatively well insulated, while seniors housing is likely to take the brunt of the adverse effects.
  • We expect rating pressure to grow for health care REITs, particularly those with exposure to seniors housing assets. We recently revised the outlook to negative on the two largest health care REITs: Welltower Inc. and Ventas Inc. (both have 'BBB+' long-term and 'A-2' short-term ratings).
  • Additional rating actions in the subsector may be forthcoming, and the trajectory is clearly negative.
Retail And Restaurants

160. COVID-19 Will Shape The Future Of Retail, May 27, 2020

Raam Ratnam, CFA, CPA, London, (44) 20-7176-7462, raam.ratnam@spglobal.com

  • As countries look to ease the restrictions and open their economies, beleaguered retailers have to rapidly adapt to doing business in the COVID-19 world.
  • We foresee far-reaching and lasting effects on the business models of most retailers and restaurants--these will transcend the selling process; relationships with customers; and changes to assortment, supply chains, store bases, and store configuration.
  • Credit quality will to a large extent depend on how these companies adapt, evolve, and reposition themselves in a dramatically changed environment.
  • The biggest challenge will be to invest and fund this transformation while dealing not only with the pandemic, but the accelerated digital disruption most of the sector has endured in recent years.

161. Shakeout In Retail, Restaurant Sectors Begins With J. Crew, May 5, 2020

Sarah E Wyeth, New York, (1) 212-438-5658, sarah.wyeth@spglobal.com

  • S&P Global Ratings economists project U.S. GDP to contract 5.2% this year and consumer spending to drop 5.5%. The outlook for the retail and restaurant sectors has deteriorated further.
  • Of the approximately 125 rated issuers in those sectors, about 30% are now rated 'CCC+' or lower, implying at least a 1-in-2 chance of default.
  • That suggests a default rate among retails of almost 20% for speculative-grade issuers. We normally expect 10% across the broader corporate landscape.

162. Impact Of The Coronavirus Likely To Drag U.S. Retail And Restaurants Ratings Down Further, April 24, 2020

Sarah E Wyeth, New York, (1) 212-438-5658, sarah.wyeth@spglobal.com

  • The downward revision to our economic forecast implies further weakening of consumer spending than in our previous base case.
  • Retail and restaurants are squarely in the crosshairs of the pandemic. We've taken more than 80 rating actions since early March, in many cases multiple actions on the same issuer as the pandemic impact unfolded and worsened.
  • The concentration of rating actions in department stores, apparel, and specialty offerings reflect the shutdown of nonessential retailing. Even retailers that have been deemed essential and are open are operating at reduced capacity in order to observe social distancing.
  • While we have downgraded half of rated restaurants, nearly all ratings carry a negative outlook or are on CreditWatch with negative implications.
  • U.S. grocery stores, pharmacies, convenience stores and big box discounters stand to be among the biggest potential winners in the coronavirus shakeout amid what we foresee as an otherwise bleak retail landscape.
Sovereigns

163. Double Trouble For CEMAC Sovereigns, But Monetary Union Membership Helps, May 14, 2020

Sebastien Boreux, Paris, (33) 1-4075-2598, sebastien.boreux@spglobal.com

  • Fallout from the coronavirus pandemic and significantly lower oil prices will weigh heavily on the economic performances of CEMAC countries in 2020. Recession, together with high fiscal and trade deficits, will put pressure on pooled foreign exchange reserves.
  • However, the risks of currency devaluation are low given France's guarantee of convertibility as well as significant financial bilateral and multilateral support and existing donor-backed IMF programs. Furthermore, we expect pandemic-related shocks will be temporary and oil prices to rebound in 2021.
  • CEMAC membership remains supportive of sovereign creditworthiness, notably by lessening the risks of exchange rate volatility that threaten to increase the burden of external debt service.

164. COVID-19 And Implications Of Temporary Debt Moratoriums For Rated African Sovereigns, April 29, 2020

Tatonga G Rusike, Johannesburg, (27) 11-214-4859, tatonga.rusike@spglobal.com

  • In response to the coronavirus pandemic, international governments, led by the G20, have agreed to provide debt relief for many low-income countries.
  • To the extent debt relief is provided by "official" creditors, we would not likely view the failure to pay scheduled debt service as a sovereign default under our criteria.
  • To the extent debt relief is provided by private sector (nonofficial) creditors, a country's failure to pay scheduled debt service would be viewed as a credit negative, which in some cases could constitute a sovereign default under our criteria. However, we would assess the relevant issues and characteristics on a case-by-case basis.

165. COVID-19 And Tourist-Dependent Caribbean Sovereigns, May 4, 2020

Paul Judson, CFA, Toronto, (1) 416-507-2523, paul.judson@spglobal.com

  • Economic impact of COVID-19 is longer and more intense than thought. We now see global GDP falling 2.4% this year, with the U.S. contracting 5.2%.
  • Caribbean countries are among the most negatively affected in the world, given their high reliance on tourism, which is at a standstill.
  • We expect tourism levels to plummet 60%-70% (year over year) from April to December across our rated Caribbean sovereigns, with virtually no activity in Q2.
  • Unprecedented decline in tourism receipts will trigger a regional recession in 2020, putting pressure on countries' health care systems, budget, debt and balance of payments.
  • As a result, there is a downward pressure on ratings.

166. Decamping Factories Unlikely To Unplug China's Growth Advantage, May 21, 2020

KimEng Tan, Singapore, (65) 6239-6350, kimeng.tan@spglobal.com

  • China's ability to sustain stronger economic growth than most has been a key credit support factor for the sovereign.
  • Recent developments could see some manufacturers reduce investment in the country, which could affect future growth negatively.
  • However, we expect domestic demand to help maintain growth at rates higher than most. Many foreign manufacturers are also likely to continue investing in China due to the fast-growing domestic market.

167. How Multilateral Lending Institutions Are Responding To The COVID-19 Pandemic, June 9, 2020

Alexis Smith-juvelis, New York, 1 (212) 438 0639, alexis.smith-juvelis@spglobal.com

  • Many multilateral lending institutions (MLIs) have announced large relief packages to support their members through the health and economic effects of the global COVID-19 pandemic.
  • These packages, however, mostly reflect a repurposing of the pre-COVID-19 lending portfolio rather than an expansion of its size. In contrast, MLIs generally responded with more pronounced increases in capital commitments during previous crises.
  • We believe MLIs are constrained in their ability to deploy significantly greater financing, given the need to balance their disbursements with financial and risk considerations in order to avoid pressure on their capital base and credit ratings.
  • Moreover, shareholders' appetite for additional capital increases could wane, as sovereign fiscal resources become increasingly limited. We expect MLIs to continue to leverage additional instruments that can mobilize resources without committing their own balance sheets.
  • While the G-20 has considered a debt moratorium to the poorest sovereigns as a mechanism of support amid the current severe economic and health challenges, we don't expect MLIs to join the moratorium. Rather, we expect MLIs to continue to provide grant and other concessional funding to these sovereigns.

168. Can Multilateral Lenders' Capital Bases Hold Up Against COVID-19?, June 9, 2020

Alexander Ekbom, Stockholm, (46) 8-440-5911, alexander.ekbom@spglobal.com

  • Our stress tests of multilateral lending institutions (MLIs), factoring in the COVID-19 pandemic, indicate a few large capital shortfalls, largely due to planned growth.
  • We believe MLIs will continue to enjoy preferred creditor treatment (PCT) although sovereign downgrades could erode their capital positions; we expect an increase in provisions but mainly to cover private-sector exposure.
  • If MLIs grant a debt moratorium to the poorest sovereigns as agreed among G-20 bilateral creditors, their PCT status might weaken and ultimately weigh on our ratings, unless most of the associated losses are compensated.
  • We anticipate limited additional loan growth over the next few years despite pandemic-related aid packages to member sovereigns, since MLIs are likely to reallocate previous commitments and shift project priorities.

169. IMF Lending And Sovereign Ratings, May 28, 2020

Roberto H Sifon-arevalo, New York, (1) 212-438-7358, roberto.sifon-arevalo@spglobal.com

  • We base our rating analysis and decisions solely on the overall economic, financial, and political conditions in a country. A sovereign's decision to obtain or accept financing facilities from the IMF or any other official creditor does not in and of itself trigger a rating action--either positive or negative.
  • The nature of the credit facility is not a driver for rating actions. However, the differences between the various facilities are important for our analysis of a sovereign. Different IMF lending facilities are targeted at different needs. Hence, sovereigns in different segments of our credit rating scale are likely to seek different types of IMF support.

170. Sovereign Ratings And The Effects Of The COVID-19 Pandemic, April 16, 2020

Roberto H Sifon-arevalo, New York, (1) 212-438-7358, roberto.sifon-arevalo@spglobal.com

  • The financial health, economic structure, and resilience of sovereigns before COVID-19 sets the background for us to incorporate the effects of the pandemic. In this context, some sovereigns that have greater capacity to effectively use their substantial monetary and fiscal flexibility will likely be able to cushion the impact of the pandemic in the short term and postpone or alleviate its potential long-term impact. Several other sovereigns were very exposed to volatility in financial markets because of their pre-pandemic financial and other vulnerabilities.
  • Regarding the eurozone, in our view, while public debt levels are set to increase rapidly over the next 12 months, the risk of a sovereign debt crisis is low.
  • The diversity of the Americas region means the pandemic will leave a greater or lesser negative legacy, depending on the country and on how governments respond.
  • In Asia-Pacific, some sovereigns are seeing near-term rating pressures. Structural fiscal performances are unlikely to be affected by the outbreak, and we expect large deficits in the current and next fiscal years to be temporary in most cases.

171. Why GCC Pegged Exchange Rate Regimes Will Remain In Place, June 1, 2020

Trevor Cullinan, Dubai, (971) 4-372-7113, trevor.cullinan@spglobal.com

  • We believe that the Gulf Cooperation Council sovereigns can maintain their pegged exchange rates. We view all GCC sovereigns as having sufficient access to foreign currency assets, or external financial support, to meet pressures on their exchange rates.
  • Importantly, in terms of reducing pressures on GCC exchange rate pegs, we expect oil prices to recover in 2021, with Brent averaging $50 during the year, up from $30 in 2020. This will provide a key support to the economies and foreign reserves positions of GCC central banks.
  • Higher-rated GCC sovereigns support lower-rated ones to defend their pegs for two main reasons: to prevent financial contagion and promote their foreign policy interests.

172. India's COVID-19 Recovery Will Be Key To The Sovereign Ratings, June 11, 2020

Andrew Wood, Singapore, 65 6239 6315, andrew.wood@spglobal.com

  • The effects of the COVID-19 pandemic will reverberate for the Indian economy over the next few years.
  • A drop in economic growth this year could stymie reform momentum.
  • If the Modi administration handles the crisis successfully, the event may boost its political support, giving it room to introduce painful, but necessary, measures.

173. How The COVID-19 Pandemic Has Affected Sovereign Creditworthiness In Latin America And The Caribbean, May 21, 2020

Joydeep Mukherji, New York, (1) 212-438-7351, joydeep.mukherji@spglobal.com

  • We've affirmed our ratings on only 12 of the 29 (just over 40%) sovereigns in Latin America and the Caribbean, which is lower than the global average. We've either lowered the other 17 or revised the outlooks downward, mostly to negative from stable but in two cases to stable from positive.
  • On a global basis, the majority of our recent negative rating actions have been on speculative-grade sovereigns, and most of these have been in emerging markets. Much of Latin America and the Caribbean falls into those two categories. However, there are distinct differences among emerging market sovereigns, as some are more vulnerable to negative shocks than others.
  • Beyond limited fiscal and monetary flexibility, and sometimes a weak external profile, many countries in the region depend on tourism, remittances, and commodity exports, all of which will suffer this year. Moreover, the region as a whole has weaker GDP growth prospects than other parts of the world do.

174. How Oman Could Weather Tough Funding Conditions Ahead, May 11, 2020

Zahabia S Gupta, Dubai, (971) 4-372-7154, zahabia.gupta@spglobal.com

  • We currently expect that funding conditions for Oman will improve in the second half of 2020 as global economic conditions gradually recover and oil prices track slowly rising demand.
  • In our baseline scenario, we expect the government of Oman will meet its sizable funding needs (including debt redemptions)--totaling almost $50 billion over 2020-2023--through external debt issuance (63%), drawdowns of domestic and external liquid assets (18.5%), domestic debt (15%), and other financial transactions (3.5%).
  • Our ratings on Oman are supported by our expectation that support from GCC countries would be forthcoming if the country were to experience significant external liquidity pressures, particularly those that could threaten the peg.
  • In our forecasts, we assume an average Brent oil price of $30 per barrel (/bbl) during the rest of 2020, $50/bbl in 2021, and $55/bbl from 2022, relative to $64/bbl in 2019.

175. COVID-19 Response Will Push Russian Regions To Post Highest Deficits In 20 Years, Despite Federal Support, May 7, 2020

Natalia Legeeva, Moscow, (7) 495-783-40-98, natalia.legeeva@spglobal.com

  • We assume that Russian local and regional governments could face their highest budget deficits since the turn of the century.
  • In our view, recession and low commodity prices will substantially reduce Russian regions' tax revenue in 2020-2021.
  • The federal government is providing substantial liquidity support to Russian regions, but it will fall short of fully compensating lower revenue.
  • As a result, the deleveraging trend of recent years will reverse this year and regions' debt burdens could climb to 30% of operating revenue by the end of 2022.

176. COVID-19: Spanish Regions' Budgets Will Deteriorate In 2020, But Institutional Strengths Mitigate The Risks, April 7, 2020

Alejandro Rodriguez Anglada, Madrid, (34) 91-788-7233, alejandro.rodriguez.anglada@spglobal.com

  • The coronavirus outbreak is depressing economic activity in Spain, and will lead to a recession in 2020.
  • We expect a deterioration in budgetary metrics for 2020, coming from lower own taxes and a jump in health care expenditures, only mitigated by lower investments.
  • Special status regions will feel an immediate effect on revenues; for normal status regions, the impact will come mostly in 2022 due to the functioning of Spain's regional financing systems.
  • Tourism-intensive regions will face the biggest disruption to revenue, although we expect the central government to soften the blow.
  • Should the crisis prove short-lived, the expected economic recovery should start improving metrics in 2021.
  • Rated Spanish regions continue having access to funding from the central government, as well as to bank loans; for those that issue in the markets, demand remains strong, so we do not see any material risks on liquidity.
Structured Finance

177. How COVID-19 Will Affect Origination And Delinquency Levels In The Argentine Financial Trust Market, April 30, 2020

Daniela Fernandez Gil, Buenos Aires, +54 (11) 4891-2162, daniela.fernandez@spglobal.com

  • Personal and consumer loans with voluntary payments are the most affected by social distancing measures.
  • We do not expect a higher deterioration on payroll deductible loans of pensioners and public workers.
  • If the government decides to apply the social distancing and lockdown measures in a more strict way, this could increase the deterioration of the securitized assets.

178. Australian Nonconforming Home-Loan Arrears Reveal Initial Effects Of COVID-19, June 25, 2020

Erin Kitson, Melbourne, (61) 3-9631-2166, erin.kitson@spglobal.com

  • The Standard & Poor's Performance Index (SPIN)for Australian nonconforming mortgages increased to 5.10% in April from 4.38% a month earlier. Most of the increase was for loans in earlier arrears categories. The SPIN for prime mortgages declined to 1.34% from 1.41%. The decline was due to changes in pool composition for large transactions.
  • The trend in the SPIN mainly reflects maintenance of loan pools, including the removal and addition of loans out of trusts, and some lenders' reporting practices for loans under COVID-19 hardship arrangements. Preliminary information on borrowers under COVID-19 hardship arrangements shows that some are able to start repaying their mortgages. Such borrowers are more likely to work in sectors closer to resuming normal business activity.
  • COVID-19 hardship levels for RMBS securitized trusts vary among lenders and trusts. An average of 7% of prime RMBS loans are under COVID-19 hardship arrangements compared with 18% for nonconforming RMBS.

179. RMBS Performance Watch: Australia Part 1 - Market Overview, June 1, 2020

Erin Kitson, Melbourne, (61) 3-9631-2166, erin.kitson@spglobal.com

  • Australian mortgage arrears, particularly those in the prime RMBS sector, are likely to remain stable during the defined mortgage-relief periods.
  • We are unlikely to see increases in mortgage arrears materialize until at least Q4. While we do not expect all borrowers under COVID-19 support arrangements to move into formal arrears management and foreclosure processes in the next 12 months, some will.
  • The Standard & Poor's Performance Index (SPIN) for Australian nonconforming mortgages rose to 4.38% in March from 3.96% a month earlier. Most of the increase was for loans 31-60 days in arrears. The SPIN for prime mortgages remained unchanged, at 1.41%.

180. How Will COVID-19 Affect Australian RMBS Ratings?, May 24, 2020

Erin Kitson, Melbourne, (61) 3-9631-2166, erin.kitson@spglobal.com

  • Our prime RMBS ratings are relatively resilient to a moderate level of economic deterioration due to rising unemployment. Most of our ratings on prime Australian RMBS benefit from excess hard credit support above minimum rating requirements.
  • Forecast increases in unemployment in 2020 will likely lead to rises in arrears and defaults in the next 12-18 months, albeit from low levels. This will increase ratings pressure on some tranches of RMBS transactions.

181. Will Recent Outlook Revisions On Australia And Australian Banks Affect Structured Finance Ratings?, April 13, 2020

Narelle Coneybeare, Sydney, (61) 2-9255-9838, narelle.coneybeare@spglobal.com

  • Ratings on Australian and New Zealand structured finance transactions are unaffected by a recent batch of outlook changes on sovereign and financial institution ratings. S&P Global Ratings on April 8, 2020, revised to negative from stable its outlooks on Australia, four Australian major banks, and Macquarie Bank Ltd.
  • A significant number of tranches are unlikely to be affected if we lower our long-term ratings on the financial institutions by one notch. This is because many of our ratings are supported by transaction structures that build up support over time, creating a buffer against the potential effect of any change in counterparty rating.

182. How Will COVID-19 Affect Australian And New Zealand ABS Transactions, April 1, 2020

Elizabeth A Steenson, Melbourne, (61) 3-9631-2162, elizabeth.steenson@spglobal.com

  • Liquidity stress, an increased proportion of borrowers unable to make scheduled loan repayments, and a higher default rate will affect the cash flows to many Australian and New Zealand ABS transactions.
  • We expect the performance of auto, auto/equipment, and credit card/sales finance collateral pools to be more affected than agricultural equipment-backed pools.
  • Although employment disruptions caused by the COVID-19 pandemic will put stress on consumers' ability to pay their loan obligations, ABS have numerous structural protections that we believe will protect transactions from near-term liquidity-related note defaults.

183. COVID-19 Tracker: Multi-Seller FIDCs Sector Highlights, April 23, 2020

Marcus Fernandes, Sao Paulo, (55) 11-3039-9743, marcus.fernandes@spglobal.com

  • The longer the lockdown, the more intrinsic risks of this asset class will be exacerbated.
  • Liquidity pressures are not a major concern at this point.
  • Volatility in pool performance is expected for a long period, even after lockdown is over.
  • Ratings for multi-seller FIDCs are likely to be pressured over the next several months.

184. Canadian Credit Card Quality Index: COVID-19 Has Slammed The Brakes On First-Quarter Issuance, May 26, 2020

Sanjay Narine, CFA, Toronto, (1) (416) 507 2548, sanjay.narine@spglobal.com

  • Canadian credit card ABS new issuance volume declined 71% year over year to C$1.33 billion in first-quarter 2020, as asset-backed securities markets shuttered on expectations of negative impact on consumers due to COVID-19.
  • The pandemic's impact on credit card receivables performance will depend on the level of consumer indebtedness, the length of the economic lockdown, the nature of forbearance offerings and fiscal stimulus programs, and the credit quality strength of Canadian credit card accounts.
  • As of March 2020, our Canadian Credit Card Quality Index does not point to early performance pressure, though it is still too early to draw any conclusions from this.

185. Canadian Mortgage Servicers Operating In Unusual Times, May 11, 2020

Jason Riche, Farmers Branch, (1) (214) 468 3495, jason.riche@spglobal.com

  • Canadian servicers are receiving a substantial volume of mortgage payment relief requests from borrowers at a time when they have largely shifted staff to working remotely.
  • Delinquencies could rise if the duration of the economic downturn becomes extended and stretches beyond the term of the payment deferrals. If this occurs, servicers may have to examine new solutions and re-deploy or add staff.
  • Existing technology and automation could benefit servicers, but it may not be a cure-all.
  • In general, we do not expect the increased amount of payment advances related to COVID-19 mortgage deferrals to develop into a liquidity crisis for Canadian servicers, which is the concern the U.S. is facing in its residential servicing market.

186. China Securitization Performance Watch 1Q 2020: COVID Pain Still To Come, May 18, 2020

KY Stephanie Wong, Hong Kong, (852) 2533-3529, ky.stephanie.wong@spglobal.com

  • We expect annual issuance to drop by 10%~15% in 2020 year over year, mainly due to weak RMBS issuance momentum.
  • We estimate COVID-19 will increase the default rate for our rated China auto loan ABS and RMBS by 30 ~ 60 basis points (bps) over the remaining life of the respective transactions.
  • This higher level is within our base-case assumptions (1% ~ 1.5%) and can be absorbed by credit enhancement available.
  • Auto loan ABS issuance had a strong start to the year while RMBS issuance contracted.
  • Asset performance has been volatile in the first quarter and remains under pressure.

187. Vacancy Up, Ratings Down? European Office CMBS Transactions After COVID-19, June 29, 2020

Edward C Twort, London, (44) 20-7176-3992, edward.twort@spglobal.com

  • It remains uncertain how new behavioral patterns, social distancing, lower desk densities, and corporate cost reductions after COVID-19 will affect occupational demand and corporate real estate strategy, but these changes could lead to longer-term increased levels of vacancy in the European office market.
  • Our analysis of office-backed U.K. CMBS transactions shows that tranches rated in the 'AAA' and 'AA' categories can withstand increasing vacancy rates with little risk of downgrade, while lower-rated tranches are more vulnerable in higher vacancy stress scenarios.
  • Higher vacancies do not significantly increase our S&P LTV ratios, and we have not adjusted the S&P cap rates in our scenario analysis because of the COVID-19 pandemic.

188. CLO Pulse Q1 2020: Sector Averages Of Reinvesting European CLO Assets, June 23, 2020

Sandeep Chana, London, (44) 20-7176-3923, sandeep.chana@spglobal.com

Based on our review of first-quarter 2020 data, the average reinvesting European CLO portfolio rated by S&P Global Ratings exhibited the following changes:

  • Credit quality deteriorated across several sectors as downgrades and negative CreditWatch placements due to the economic effects of COVID-19 increased toward the end of the first quarter of 2020. In particular, we draw on the inverse correlation between movements in the S&P Global Ratings' weighted average rating factor (SPWARF) and the weighted average price (WAP) over the same time horizon.
  • That said, entities held by European CLOs carry on average 0.25x less leverage than the overall European S&P Global Ratings-rated speculative-grade universe.
  • Interest coverage ratios for European CLO obligors also imply, on average, at least 10% more headroom than the overall European speculative-grade universe.
  • The average unstressed recovery implied by our corporate recovery ratings has continued to be at about 60% since 2019. Rating actions during the first quarter did not materially affect expected recoveries. However, as corporates resort to new debt raises to shore up liquidity, we expect to see lower recovery rates in subsequent quarters.
  • The WAP of the loans in the CLO portfolios plummeted to 88 by the end of first-quarter 2020, although some prices rebounded at the beginning of Q2.

189. How European ABS And RMBS Servicers Are Managing COVID-19 Disruption And Payment Holidays, June 4, 2020

Fabio Alderotti, Madrid, (34) 91-788-7214, fabio.alderotti@spglobal.com

  • Factors driving the difference in payment of holiday utilization: Incentives and disincentives of use, together with ease of accessing schemes vary across the region. The creation of a legal scheme, operational aspects, and borrowers' credit quality are driving different levels of utilization both between servicers in the same country and when comparing country to country.
  • It is too early to conclude if payment holiday rates have peaked, but given recent and further anticipated relaxations in lockdowns there is reason for optimism that if we are not yet at the peak then we are approaching it.
  • For now, there haven't been widespread instances where servicers are observing cancellation of direct debits that would be seen as materially different from the norm.

190. Reporting Requirements For COVID-19 Payment Holidays In European Structured Finance, May 27, 2020

Alastair Bigley, London, 44 (0) 207 176 3245, Alastair.Bigley@spglobal.com

  • Noncontractual payment holidays are agreed bilaterally between lenders and borrowers after the loan was provided and do not form part of the loan contract. They serve as a temporary forbearance measure for households and SMEs in response to an exogenous shock that affects a borrowers' ability to pay. Their intention is to relieve short-term pressure on a borrower and lower overall default risk.
  • We would expect the overall exposure, by number and in monetary terms, to COVID-19 related payment holidays to be available in investor reports (broken down by receivables, security, and borrower types, for example). We would expect this to include the roll rates of borrowers with COVID-19 related payment holidays into delinquency buckets and updated payment schedules reflecting the impact from the agreed exit strategies.
  • As part of the rating process for both new and existing transactions, we are in contact with originators, servicers, and market participants to comprehend the risks introduced to structured finance ratings by the COVID-19 outbreak.

191. European Auto And Consumer ABS: Analysis Adjusted To Reflect COVID-19 Effects, May 11, 2020

Volker Laeger, Frankfurt, (49) 69-33-999-302, volker.laeger@spglobal.com

  • We have updated our assumptions for European auto and consumer ABS transactions to reflect the effect of the spread of COVID-19 and the associated government measures to contain it.
  • The changes include updated liquidity, credit, and residual value assumptions.
  • The updated assumptions apply to the analysis of new issuance and surveillance of outstanding ratings. We will continue to monitor early performance indicators.

192. European CMBS: Assessing The Liquidity Risks Caused By COVID-19, May 6, 2020

Amisha Unnadkat, London, (44) 20 7176 3826, Amisha.Unnadkat@spglobal.com

  • Despite ongoing pressure on European CMBS transactions, we have not yet seen any interest shortfalls or liquidity drawings due to COVID-19 disruptions.
  • Since most European CMBS transactions are structured with liquidity support, we expect that short-term liquidity risks will be somewhat mitigated.
  • We continue to expect that the hotel and retail sectors will be more exposed to liquidity risks than other commercial real estate sectors.

193. How COVID-19 Changed The European CLO Market In 60 Days, May 6, 2020

Shane Ryan, London, (44) 20 7176 3461, shane.ryan@spglobal.com

  • The 12-month trailing speculative-grade default rate for European corporates increased to 2.4% in March 2020 from 2.3% at the end of 2019.
  • Market challenges that existed before COVID-19, including high leverage ratios, EBITDA add-backs, and cov-lite loans, are causing speculation that this may be the perfect storm for CLOs.
  • So far, we believe European CLOs are showing strength when comparing the negative corporate rating actions that have affected them to the total number.

194. How COVID-19 Is Affecting ABCP, June 12, 2020

Dev C Vithani, New York (1) 212-438-1714, dev.vithani@spglobal.com

  • About a third of U.S. banks have a negative outlook, which could lead to downgrades depending on the duration and severity of the COVID-19-related economic downturn. On a positive note, U.S. banks entered this economic downturn with the best capital, liquidity, asset quality, and profitability they have had in many years.
  • A more conservative approach to loan loss provisioning in U.S. generally accepted accounting principles (GAAP) rules compared to International Financial Reporting Standards (IFRS) will generally mean that, all else equal, reporting provisioning will be higher for U.S. banks than for their European counterparts.
  • The Fed announced the Commercial Paper Funding Facility (CPFF) on March 17, 2020. Its purpose is to increase liquidity in the ABCP markets and reduce rollover risk, especially when a large volume of ABCP was maturing overnight. The facility's presence helped to calm the markets and get spreads back at more normalized levels and tenors lengthening to a month or longer.

195. COVID-19 Is Testing The Resilience Of Global Structured Finance, May 18, 2020

Antonio Farina, Madrid, (34) 91-788-7226, antonio.farina@spglobal.com

  • Extended coronavirus containment measures are pushing the world into the deepest recession since the Great Depression. Although we expect the drop in economic activity to be sharp and fairly short, the path to recovery remains very uncertain.
  • As of May 8, 2020, we have taken 1,104 structured finance rating actions globally due to the effect of the COVID-19 pandemic and/or the decline in oil and gas prices.
  • Based on our current global economic forecasts, we expect the bulk of negative rating actions to affect speculative-grade securities. Areas of focus include collateralized loan obligations (CLOs), commercial mortgage-backed securities (CMBS), certain asset-backed securities (ABS), some residential mortgage-backed securities (RMBS), and some Latin American structured finance sectors.
  • In a hypothetical adverse stress scenario, characterized by a slower and weaker economic recovery, we would expect a significant increase in the risk of downgrades and defaults, even for some investment-grade securities.
  • The combination of COVID-19 and a sharp decline in oil prices has resulted in a reduction in obligor credit quality within CLO portfolios, and is putting pressure on lower mezzanine and subordinate tranche ratings.
  • Our main areas of focus in both U.S. and European CMBS are the lodging and retail sectors, although there may be some other pockets of weakness.

196. Redesigning The CLO Blueprint After COVID-19, April 21, 2020

Abhijit A Pawar, London, (44) 20-7176-3774, abhijit.pawar@spglobal.com

  • With market sentiment fluctuating as the COVID-19 effects evolve, CLO structures and their associated documents are being reassessed to adapt to the current market landscape.
  • New issue CLOs are likely to be lower leveraged with structural protections to accommodate downside risk.
  • As the market prepares for an economic downturn after years of growth, new issue CLOs are increasingly adapting their deal documents to include some breathing space to address pressures on par value tests.
  • Accelerating the formation of a CLO by locking in CLO liabilities as soon as possible, and navigating volatility to buy cheaper but fundamentally attractive loans over a shorter period of time than usually observed, may become a common feature in the current environment.

197. Container And Railcar Leasing ABS Risks In Light Of COVID-19, April 15, 2020

Steven Margetis, New York, (1) 212-438-8091, steven.margetis@spglobal.com

  • To date, the impact of the COVID-19 pandemic has been far less severe on the container and railcar leasing markets than it has been on aircraft leasing.
  • There are some early downside risks to the railcar and container markets, as their overall performance are tied to growth in the global economy and international trade.
  • We believe there is little risk of near-term default on notes rated by S&P Global Ratings.

198. How Credit Distress Due To COVID-19 Could Affect Irish Reperforming RMBS, June 3, 2020

Sinead Egan, Dublin, 353 1 568 0612, sinead.egan@spglobal.com

  • All lenders and servicers of the Irish RMBS transactions we rate are currently offering payment holidays to support borrowers facing economic hardship caused by COVID-19.
  • Given the nature of the underlying collateral, Irish reperforming RMBS transactions are particularly vulnerable to performance deterioration, especially as there was already evidence of weak performance before the pandemic.
  • We have performed a scenario analysis to examine the impact of a low, medium, and high shock on Irish reperforming RMBS.
  • Our analysis shows that while 'AAA' to 'BBB' ratings should remain largely stable, 'B' and 'BB' rated tranches, which have less credit support to protect against performance deterioration and are more reliant on excess spread, are most at risk to rating changes.
  • We will continue to closely monitor performance developments to assess the impact on our outstanding RMBS ratings.

199. How Will COVID-19 Affect Japanese Structured Finance?, April 8, 2020

Hiroshi Sonoda, Tokyo, (81) 3-4550-8474, hiroshi.sonoda@spglobal.com

  • We view transactions with underlying assets concentrated in industries that are vulnerable to the outbreak and those located in seriously affected regions as likely to suffer a direct impact from COVID-19.
  • We believe the risk associated with the outbreak is generally limited for most of Japanese residential mortgage-backed securities (RMBS) and asset-backed securities (ABS) transactions we rate.
  • We assume COVID-19 will lead to a limited deterioration in the performance of housing loans backing Japanese RMBS.
  • In our view, there is a fairly low likelihood of a sudden increase in defaults and delinquencies adversely affecting interest payments on securitization issues.

200. LatAm SF: In The Thick Of The Pandemic, June 12, 2020

Jose Coballasi, Mexico City, (52) 55-5081-4414, jose.coballasi@spglobal.com

  • Extended coronavirus containment measures are pushing the world into the deepest recession since the Great Depression. Although we expect the drop in economic activity to be sharp and fairly short, the path to recovery remains very uncertain.
  • Welfare support in Latin America is not robust and, therefore, the impact of lockdown on consumers is expected to be severe.
  • In Argentina and Mexico, policy responses to support businesses have been limited. Therefore, small and medium enterprises (SMEs) in these countries face very challenging conditions.
  • As of May 29, 2020, we have taken 50 structured finance rating actions in Latin America due to the effect of the COVID-19 pandemic and/or the decline in oil and gas prices.
  • Based on our current global economic forecasts, we expect the bulk of negative rating actions to affect speculative-grade securities. Areas of focus are on consumer asset-based securities (ABS) in Argentina commercial ABS in Mexico and Brazil. We are also closely watching residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). In addition, we are also diligently monitoring certain nontraditional asset classes in the region.
  • As a result of recent revisions to our LatAm GDP growth forecasts, we have adjusted our view of country risk for most asset classes in the region. Higher collateral enhancement levels will be required. Our view of base-case foreclosure frequency of RMBS is unchanged.

201. COVID-19 Fallout Threatens Mexican Equipment ABS Performance, April 15, 2020

Antonio Zellek, CFA, Mexico City, +52 (55) 5081-4484, antonio.zellek@spglobal.com

  • Some servicers have already called for noteholders assemblies through which they will propose implementing relief programs for the securitized portfolios. While positive for borrowers, we believe these measures could compromise the transactions' liquidity and capacity to meet monthly interest payments.
  • Although it is still too early to determine the impact of COVID-19 on the transactions' performance, we believe a drop in the economic activity, combined with higher unemployment levels and inflation, could hurt borrowers' capacity to honor their financing agreements.
  • We have identified certain features in the transactions where operational risk have resulted in a rating cap. These include Originators with relatively short track records and small staff and equity, which could increase their disruption risk, limited access to funding, and internal controls and corporate governance practices that are not as robust as those observed in larger market participants.

202. Stranded Cost Securitizations Remain Insulated Despite Current Service Disruption Moratoriums, May 1, 2020

Jay Srivats, San Francisco, (1) 415-371-5045, jay.srivats@spglobal.com

  • The increase in the U.S. unemployment rate will likely result in higher delinquencies and defaults in the electric utility customer base.
  • Stranded cost securitizations are not expected to see a material impact despite service disruption moratoriums in the service territories and general weakness in the North American regulated utilities.
  • Reserve accounts in the transactions will address near term liquidity to ensure no payment disruptions to the bond holders.
  • The true-up mechanisms will cover medium and longer term increases in delinquencies and defaults.
  • S&P Global Ratings continues to monitor these transactions in light of the severity and duration of the COVID-19 pandemic across North America.

203. Investment-Grade U.K. And Dutch RMBS Ratings Likely To Remain Resilient To COVID-19 Effects, June 29, 2020

Alastair Bigley, London, 44 (0) 207 176 3245, Alastair.Bigley@spglobal.com

  • Under our hypothetical stress scenarios, we expect 'AAA' rated notes to remain stable in all scenarios.
  • We expect 'AA' and 'A' rated notes to remain largely stable in all but the most extreme stress scenarios, with implied downgrades limited to two notches in all but the most extreme scenario.
  • 'BBB' and 'BB' rated notes are expected to remain largely stable, with rating migrations beyond three notches only seen in extreme stress scenarios.

204. U.S. CLO CreditWatch Resolutions and COVID-19: Are We There Yet?, June 17, 2020

Stephen A Anderberg, New York, (1) 212-438-8991, stephen.anderberg@spglobal.com

  • We typically resolve our CreditWatch placements within 90 days of the original CreditWatch placement. However, given the scale of the corporate rating changes and the potential for continued changes in the credit profile of CLO collateral pools, we expect that a portion of the transactions with ratings on CreditWatch negative may go beyond the typical 90-day benchmark.
  • If there is material additional deterioration in the credit profile of a given CLO collateral pool, and/or any negative rating actions taken on the corporate loan issuers, we may place additional ratings from the CLO on CreditWatch negative, including at the time we are resolving CreditWatch placements on other classes of notes issued by the CLO.
  • Consistent with our typical process for resolving CreditWatch placements on CLO transactions, we intend to contact the CLO manager ahead of potential downgrades.

205. Are Special Servicers Poised For A “Prime” Comeback Due To COVID-19?, June 8, 2020

Steven L Frie, New York, (1) 212-438-2458, steven.frie@spglobal.com

  • The COVID-19 pandemic has and will continue to have a profound impact on the U.S. residential mortgage servicing industry. Per a press release issued June 1, 2020, by the Mortgage Bankers Assn., approximately 4.2 million homeowners have entered into forbearance plans as of May 24, representing 8.46% of all mortgages in its sample size of nearly 75% of all first-lien residential mortgages.
  • As homeowners continue to file unemployment claims, with a concurrent increase in call volume to their existing servicer as they seek mortgage assistance, these figures could worsen depending on when and how successfully each state reopens their economy when they decide to do so and the impact of any additional government assistance that may be offered to these borrowers.
  • The current situation presents servicing opportunities particularly for nonbank special servicers depending on how other servicers decide to address the default situation in their portfolios as it evolves throughout 2020 and depending on the financial strength of nonbank servicers to pursue mortgage servicing rights or subservice these portfolios.
  • Once the enormity of the delinquent loan population becomes clearer, servicers will need to determine their strategies to handle the expected unprecedented volumes of mortgage assistance requests, including possible transfers to a special servicer.

206. Non-QM RMBS And COVID-19: Locking Down States' Exposure, June 1, 2020

Sujoy Saha, New York, (1) 212-438-3902, sujoy.saha@spglobal.com

  • More than 70% of the properties backing loans in non-QM securitizations are in either California, Florida, or New York. California has the highest portion of self-employed borrowers, Florida has the highest average loan to value (LTV) ratio and lowest average FICO score, and New York has the highest COVID-19 exposure and the highest share of debt service coverage ratio (DSCR) loans as a percentage of loans in the state.
  • The residential housing market is roughly at valuation equilibrium across the U.S., with California slightly undervalued, Florida slightly overvalued, and New York undervalued.
  • Loan-level credit characteristics, along with the regional COVID-19 impact and early remittance data, suggest that the greatest credit sensitivity should be in New York, followed by California and Florida. Adverse credit behavior (as measured by reported delinquency information) is weighted in self-employed borrowers and DSCR loan borrowers.

207. Under Stress: Assessing CLO Manager Performance During COVID-19, June 1, 2020

Daniel Hu, FRM, New York, (1) 212-438-2206, daniel.hu@spglobal.com

  • Managers work to add value for investors in benign economic environments, as well as protect against downside risk during more turbulent times.
  • The credit profile of U.S. CLO collateral pools has shifted more rapidly over the past several months than at any other point in the history of the CLO market.
  • On average, U.S. BSL CLO managers have traded about 8.75% of their portfolio since early March, and reduced their 'CCC' and nonperforming loan exposures by about 1.23% at the cost of 21 bps in par.

208. U.S. Auto Loan ABS Tracker: March 2020 Performance, May 12, 2020

Timothy J Moran, CFA, FRM, New York, (1) 212-438-2440, timothy.moran@spglobal.com

  • The COVID-19 pandemic is starting to take a toll on monthly auto loan ABS credit performance. March's subprime loss rate of 8.37% was the highest March loss rate since 2009 and the segment's recovery rate and 60+ day delinquency levels were at the worst March levels we've ever seen. Also, March's prime recovery rate of 53.89% was the lowest March recovery rate since 2009.
  • Extension rates spiked for March relative to February's levels. An extension is a deferral of an auto payment that is typically added to the end of the obligor's payment schedule.
  • On May 12, 2020, we placed 33 classes of non-IG subprime auto loan ABS securities on CreditWatch negative. These CreditWatch negative actions are in response to the higher losses we are expecting on the associated collateral pools due to COVID-19's economic impact on them.

209. While Stay-At-Home Orders Clear Traffic, U.S. Auto Loan Extensions Rise, May 1, 2020

Amy S Martin, New York, (1) 212-438-2538, amy.martin@spglobal.com

  • One of the first effects that the COVID-19 pandemic has had on outstanding U.S. auto loan asset-backed securities (ABS) has been the spike in extensions.
  • In the prime segment for March, extensions on a dollar basis equaled 3.94% of outstanding loans as of the beginning of the month, 12 times February's level of 0.33%. For the four subprime auto loan ABS shelves (Santander's DRIVE and SDART, AmeriCredit, and World Omni's Select), extensions more than quadrupled to 6.82%, from 1.53% in February.
  • The states with the highest extension levels (based on Reg AB II data) in both the prime and subprime segments are Nevada and Florida. In prime, approximately 8% and 7% of the loans in Nevada and Florida, respectively, were extended in March.
Technology

210. Japanese Tech Faces Stern COVID-19 Tests, June 3, 2020

Makiko Yoshimura, Tokyo, (81) 3-4550-8368, makiko.yoshimura@spglobal.com

  • Creditworthiness of Japan's technology hardware companies will remain under pressure through 2020 amid a global economic downturn triggered by the COVID-19 pandemic.
  • Of the eight Japan-based electronics companies in the technology hardware industry we rate, the ratings on four have either negative outlooks or are on CreditWatch with negative implications.
  • We expect pressure to build on the profitability of electronics companies that generate sales largely from highly cyclical products, such as automotive and consumer electronics (including smartphones, TVs, and digital cameras).
  • We expect both operating profit and operating cash flow at the eight companies to fall dramatically for at least the coming six months. Most of the eight companies have some financial cushion for the current ratings. We expect both operating profit and operating cash flow at the eight companies to fall dramatically for at least the coming six months. Most of the eight companies have some financial cushion for the current ratings.

211. As Global IT Spending Falls, Tech Ratings Pressure Rises, April 29, 2020

David T Tsui, CFA, CPA, San Francisco, (1) 212-438-2138, david.tsui@spglobal.com

  • We expect global information technology spending to decline 4% in 2020 versus our mid-March forecast of 3%, with slight outlook deterioration across all technology segments.
  • Through April 24, S&P Global Ratings has taken 54 rating actions on U.S. tech issuers related to the COVID-19 pandemic and recessionary pressures. Some 52 were taken on speculative-grade issuers and only two on investment-grade issuers.
  • We downgraded eight tech issuers globally to the 'CCC' category since the COVID-19 outbreak. Most downgrades in speculative-grade categories were related to liquidity concerns.
  • We have downgraded only six U.S. rated issuers to the 'CCC' category since the COVID-19 outbreak. Most downgrades in speculative-grade categories were related to liquidity concerns.
  • We expect more negative rating actions on U.S. tech issuers, including investment-grade companies, should global business confidence drop significantly because the coronavirus becomes more resilient and delays the start of global economic recovery. A third-quarter rebound is assumed in our base-case scenario.

212. A Slow Recovery And U.S.-China Trade Tensions Could Test U.S. Investment-Grade Tech Companies, June 3, 2020

David T Tsui, CFA, CPA, San Francisco, (1) 212-438-2138, david.tsui@spglobal.com

  • S&P Global Ratings revised three rating outlooks on U.S. investment-grade tech companies since the COVID-19 outbreak, a stark contrast to 43 rating actions on speculative-grade peers.
  • The resilience in investment-grade ratings is due to these companies' strong balance sheet and liquidity, reduced business volatility over time, and the growing demand for their services in the global economy-which has allowed the tech industry to outgrow global GDP.
  • Credit quality could suffer, however, if the recovery in IT spending is slower than we forecast amid lower global GDP growth arising from the lingering effects of COVID-19.
  • U.S.-China trade tensions could alter the semiconductor and hardware landscape for decades to come, with mostly negative consequences for U.S. investment-grade technology companies as China invests in its native semiconductor industry.

COVID-19 Impact Article Series

Table 1

Coronavirus Impact Article Series
Sector Region/country No. Article title Publication date
Credit conditions Global 1 Global Credit Conditions: The Shape Of Recovery: Uneven, Unequal, Uncharted July 1, 2020
Credit conditions Asia-Pacific 2 Credit Conditions Asia-Pacific: China First To Recover June 30, 2020
Credit conditions Emerging Markets 3 Credit Conditions Emerging Markets: Slow Recovery, Prevalent Risks June 30, 2020
Credit conditions Europe 4 Credit Conditions Europe: Curve Flattens, Recovery Unlocks June 30, 2020
Credit conditions North America 5 Credit Conditions North America: Rolling Out The Recovery June 30, 2020
Autos Global 6 Q&A: COVID-19 And The Auto Industry--What’s Next? June 9, 2020
Autos Global 7 COVID-19 Will Further Slow Demand For Heavy Trucks May 5, 2020
Autos Global 8 COVID-19 Will Batter Global Auto Sales And Credit Quality March 23, 2020
Autos U.S. 9 U.S. Autos Rating Action Summary And Key Takeaways Following COVID-19 Related Forecast Revisions June 15, 2020
Aviation Global 10 Aircraft Lessors, Hit By Coronavirus Fallout, Should Fare Better Than Their Airline Customers March 25, 2020
Aviation Global 11 Coronavirus' Global Spread Poses More Serious Challenges For Airlines March 12, 2020
Aviation U.S. 12 Federal Aid For U.S. Airlines Provides Liquidity Amid A Grim Revenue Outlook; Ratings On CreditWatch Negative April 15, 2020
Building materials and constructionn Europe 13 Europe's Construction And Building Materials Sector Should Hold Up Better Than After The Last Crisis June 16, 2020
Capital goods Global 14 Capital Goods Companies Face Shocks From COVID-19 And Economic Recession April 27, 2020
Capital goods Japan 15 Japan's Capital Goods Industry Enduring COVID-19, So Far… June 23, 2020
Chemicals EMEA 16 Q&A: EMEA Chemicals Face A Long Climb Back From COVID-19 Disruption June 29, 2020
Chemicals U.S. 17 COVID-19 Hurts U.S. Chemical Credit Quality May 20, 2020
Commodities China 18 China Commodities Watch: Brave New Post-COVID World May 18, 2020
Commodities - Metals and mining Global 19 Metal Price Assumptions: Gold Shines, While Slow Recovery Flattens Other Metal Prices July 1, 2020
Commodities - Oil and gas Global 20 S&P Global Ratings Cuts WTI And Brent Crude Oil Price Assumptions Amid Continued Near-Term Pressure March 19, 2020
Commodities - Oil and gas North America 21 Cure For Pandemic's Spread To North American Refining Is Time May 29, 2020
Commodities - Oil and gas U.S. 22 U.S. Upstream Oil And Gas Rating Action Summary And Key Takeaways Following The March 2020 Hydrocarbon Price Deck Revision May 19, 2020
Consumer goods EMEA 23 EMEA Consumer Goods Credit Trends 2020 June 23, 2020
Consumer goods Global 24 COVID-19 Will Shape The Future Of Consumer Goods July 1, 2020
Consumer goods U.S. 25 U.S. Consumer Product Ratings Demonstrate Pandemic's Double Edge--Consumer Staples Benefit While Discretionaries Struggle June 12, 2020
Corporates Brazil 26 Brazilian Companies Are Struggling Under The Burden Of COVID-19 June 9, 2020
Corporates China 27 The Refinancing Clock Is Ticking Louder For China's Issuers  April 16, 2020
Corporates Canada 28 Canadian Corporates Face Unprecedented Credit Stress In 2020 Thanks To Plummeting Oil Prices And COVID-19 May 11, 2020
Corporates Germany 29 Why German Corporates Could Recover Quickly From The COVID-19 Credit Shock June 18, 2020
Corporates Global 30 COVID-19 Heat Map: Post-Crisis Credit Recovery Could Take To 2022 And Beyond For Some Sectors June 24, 2020
Credit trends and market liquidity Asia-Pacific 31 U.S. Dollar Liquidity Returns, Selectively, To Asia May 21, 2020
Credit trends and market liquidity Europe 32 The European Speculative-Grade Corporate Default Rate Could Reach 8.5% By March 2021 June 8, 2020
Credit trends and market liquidity Global 33 2020 Corporate Defaults Surpass The Full-Year 2019 Tally June 25, 2020
Credit trends and market liquidity Global 34 The Potential Fallen Angels Tally Reaches A New High At 126 June 17, 2020
Credit trends and market liquidity Global 35 Historically Low Ratings In The Run-Up To 2020 Increase Vulnerability To The COVID-19 Crisis May 28, 2020
Credit trends and market liquidity Global 36 BBB' Pulse: U.S. And EMEA Fallen Angels Are Set To Rise As The Economy Grinds To A Halt April 8, 2020
Credit trends and market liquidity Islamic Finance 37 Islamic Finance 2020-2021: COVID-19 Offers An Opportunity For Transformative Developments June 15, 2020
Credit trends and market liquidity U.S. 38 U.S. Public Finance Saw Calm Before COVID-19 June 25, 2020
Credit trends and market liquidity U.S. 39 The U.S. Speculative-Grade Corporate Default Rate Is Likely To Reach 12.5% By March 2021 May 28, 2020
Cross-sector China 40 China Debt After COVID-19: Flattening The Other Curve June 4, 2020
Cross-sector Emerging Markets 41 Emerging Markets Monthly Highlights: Financial Conditions Reflect Optimism, Lockdown Fatigue Emerges June 4, 2020
Cross-sector Latin America 42 Webinar Follow-Up: Challenging Times Ahead For Latin American Rated Entities Amid COVID-19 May 6, 2020
Cross-sector North America 43 Risky Credits: The Drop-Off To The 'CCC' Rating Category From 'B-' Still Looms Large June 29, 2020
Cross-sector South Africa 44 South Africa Is Yet To Turn A Corner Past COVID-19 June 10, 2020
Economics Asia-Pacific 45 Asia-Pacific Losses Near $3 Trillion As Balance Sheet Recession Looms June 25, 2020
Economics Canada 46 Canada's Economy Faces A Patchy Recovery June 29, 2020
Economics China 47 The China Confidence Game June 17, 2020
Economics China 48 China's New Stop-Go Cycle May 25, 2020
Economics Europe 49 Eurozone Economy: The Balancing Act To Recovery June 25, 2020
Economics Europe 50 The EU's Recovery Plan Is The Next Generation Of Fiscal Solidarity June 8, 2020
Economics Global 51 The Global Economy Begins A Slow Mend As COVID-19 Eases Unevenly July 1, 2020
Economics Latin America 52 Latin American Economies Are Last In And Last Out Of The Pandemic June 30, 2020
Economics U.K. 53 The U.K. Faces A Steep Climb To Recovery July 1, 2020
Economics U.S. 54 The U.S. Faces A Longer And Slower Climb From The Bottom June 25, 2020
Economics U.S. 55 The Paycheck Protection Program Update Shows Small Improvements Are In Reach June 12, 2020
Environmental, social, and governance Europe 56 The EU's Drive For Carbon Neutrality By 2050 Is Undeterred By COVID-19 April 29, 2020
Environmental, social, and governance Global 57 A Pandemic-Driven Surge In Social Bond Issuance Shows The Sustainable Debt Market Is Evolving June 22, 2020
Environmental, social, and governance Global 58 The ESG Lens On COVID-19, Part 2: How Companies Deal With Disruption April 28, 2020
Environmental, social, and governance Global 59 COVID-19: A Test Of The Stakeholder Approach April 21, 2020
Environmental, social, and governance Global 60 The ESG Lens On COVID-19, Part 1 April 20, 2020
Environmental, social, and governance Global 61 ESG Evaluations Remain Unchanged For Now In Light Of COVID-19 April 7, 2020
Environmental, social, and governance Islamic Finance 62 Islamic Finance And ESG: Sharia-Compliant Instruments Can Put The S In ESG May 27, 2020
Environmental, social, and governance U.S. 63 People Power: COVID-19 Will Redefine Workforce Dynamics In The Post-Pandemic Era June 4, 2020
Financial institutions Armenia, Georgia 64 COVID-19: A Test Of The Highly Dollarized Georgian And Armenian Banking Systems June 24, 2020
Financial institutions Asia-Pacific 65 Asia-Pacific Financial Institutions Monitor 2Q2020: COVID-19 Crisis Could Add US$440 Billion To Credit Costs May 14, 2020
Financial institutions Australia 66 Australia's Mutual Lenders Can Weather COVID-19 Downturn May 18, 2020
Financial institutions Australia 67 Nearly All Australian Bank Ratings Can Withstand Rising Economic Risks, Credit Losses April 28, 2020
Financial institutions China 68 China's Financial Leasing Firms Fall Back On Parent Support Amid Airlines Slump June 24, 2020
Financial institutions China 69 Banking Industry Country Risk Assessment: China To Remain In Group '6' May 5, 2020
Financial institutions Emerging Markets 70 Banks In Emerging Markets: 15 Countries, Three COVID-19 Shocks May 26, 2020
Financial institutions Europe 71 EMEA Financial Institutions Monitor 2Q2020: Resilient But Not Immune To COVID-19 May 14, 2020
Financial institutions Europe 72 How COVID-19 Risks Prompted European Bank Rating Actions April 23, 2020
Financial institutions Europe 73 Europe’s AT1 Market Faces The COVID-19 Test: Bend, Not Break April 22, 2020
Financial institutions Global 74 How COVID-19 Is Affecting Bank Ratings: June 2020 Update June 11, 2020
Financial institutions Gulf 75 How Resistant Are Gulf Banks To The COVID-19 Pandemic And Oil Price Shock? April 22, 2020
Financial institutions India 76 COVID And Indian Banks: One Step Forward, Two Steps Back June 30, 2020
Financial institutions Italy 77 The Coronavirus Pandemic Is Set To Test The Resiliency Of Italy's Banks March 13, 2020
Financial institutions Japan 78 COVID-19 A Further Blow To Japan’s Regional Banks July 1, 2020
Financial institutions Japan 79 Japanese Major Bank Credit Costs Rise On COVID-19 June 16, 2020
Financial institutions Latin America 80 Scope Of Policy Responses To COVID-19 Varies Among Latin America's Central Banks June 3, 2020
Financial institutions Latin America 81 LatAm Financial Institutions Monitor 2Q2020: COVID-19 Hits Banks' Bottom Lines May 14, 2020
Financial institutions Nordic 82 COVID-19: Resilient Fundamentals And Assertive Policy Measures Will Buoy Nordic Banking Systems June 16, 2020
Financial institutions North America 83 What Could Lead To Rating And Outlook Changes For Alternative Asset Managers Amid COVID-19? June 16, 2020
Financial institutions North America 84 North American Financial Institutions Monitor 2Q 2020: COVID-19 Weighs On Earnings And Ratings May 15, 2020
Financial institutions Switzerland 85 COVID-19: Swiss Banking Sector To Remain Resilient June 17, 2020
Financial institutions Tunisia 86 Will COVID-19 Trigger The Long Awaited Consolidation Of The Tunisian Banking System? May 6, 2020
Financial institutions U.K. 87 COVID-19 Effects Might Quadruple U.K. Bank Credit Losses In 2020 May 4, 2020
Financial institutions U.S. 88 How U.S. Bank Dividend Cuts Could Affect Ratings June 3, 2020
Financial institutions U.S. 89 U.S. Finance Companies Face Market Volatility And Tougher Financing Conditions Amid Fallout From COVID-19 May 14, 2020
Financial institutions U.S. 90 For Large U.S. Banks, Loan Loss Expectations Will Be Key To Ratings May 5, 2020
Gaming, leisure, and lodging Macau 91 How Macau Gaming's Recovery May Unfold May 21, 2020
Gaming, leisure, and lodging U.S. 92 U.S. Lodging, Leisure, And Gaming Sectors Face Rocky Road To Recovery June 30, 2020
Healthcare and pharmaceuticals Europe 93 COVID-19: The Road Ahead Is Bumpy As The European Health Care Sector Recovers May 19, 2020
Healthcare and pharmaceuticals U.S. 94 Health Care Credit Beat: Industry Recovering From COVID-19, But Timelines Vary And Ailments Abound June 25, 2020
Healthcare and pharmaceuticals U.S. 95 U.S. Health Care Staffing Companies See A Rough Road To Recovery, Filled With Detours, Risks, And Behavioral Changes June 18, 2020
Healthcare and pharmaceuticals U.S. 96 A Bumpy Recovery Is Ahead For Hospitals And Other Health Providers As Non-Emergent Procedures Restart May 26, 2020
Infrastructure Global 97 Infrastructure Finance Outlook May 5, 2020
Infrastructure India, ASEAN 98 India-ASEAN Infrastructure: Sovereign Strains Add To Lockdown Pain April 27, 2020
Infrastructure Latin America 99 The Spread Of The Coronavirus To Erode Credit Quality Of Latin American Infrastructure Assets April 7, 2020
Infrastructure - project finance U.S. 100 U.S. Project Finance Conference Center Hotels Facing Unprecedented Operation Challenges April 22, 2020
Infrastructure - transportation Global 101 Infrastructure: Global Toll Roads' Steep Climb Out Of COVID June 19, 2020
Infrastructure - transportation Global 102 Airports Face A Long Haul To Recovery May 28, 2020
Infrastructure - transportation Mexico 103 Mexican Toll Roads Remain Vulnerable Amid COVID-19; Recovery Could Come Quickly As Restrictions Ease May 26, 2020
Infrastructure - utilities Brazil 104 COVID-19 To Dim, But Not Darken, Brazilian Electric Utilities' Operations May 29, 2020
Infrastructure - utilities Canada 105 Can Canadian Regulated Utilities Sustain 2019 Improvements Amid COVID-19 And An Oil Price Slump? June 11, 2020
Infrastructure - utilities Europe 106 Despite COVID-19 Disruption, European Utilities Are Set For Growth June 25, 2020
Infrastructure - utilities India 107 Liquidity Lifeline For Distributors Is No Panacea For Indian Power Sector May 17, 2020
Infrastructure - utilities North America 108 Regulatory Responses To COVID-19 Are Key To Utilities’ Credit Prospects May 20, 2020
Infrastructure - utilities North America 109 North American Regulated Utilities Face Tough Financial Policy Tradeoffs To Avoid Ratings Pressure Amid The COVID-19 Pandemic May 11, 2020
Infrastructure - utilities North America 110 COVID-19: While Most Of The U.S. Is Shut Down, Utilities Are Open For Business May 5, 2020
Infrastructure - utilities Spain 111 COVID-19: What Would A New Tariff Deficit Mean For Spain's Electricity System Operators? June 25, 2020
Infrastructure - utilities Spain 112 Spanish Gas Network Operators: Resiliency Amid The Pandemic, Disruption Risks On The Horizon May 14, 2020
Infrastructure - utilities U.S., Europe 113 Energy Transition: The Outlook For Power Markets In The Age Of COVID-19 June 25, 2020
Infrastructure - utilities U.S. 114 U.S. Energy Update: Refining Our Views On Independent Power Producers June 8, 2020
Infrastructure - utilities U.S. 115 Unregulated Power Update: Independent Power Producers Navigate Falling Demand And Credit Risks In Wake Of Economic Shock May 7, 2020
Insurance Australia and New Zealand 116 Australian And New Zealand Insurers Show Resistance To COVID-19 May 31, 2020
Insurance Europe 117 European Insurers: Capitalization Appears Resilient Under Solvency II, Somewhat Less Under Our Capital Model May 28, 2020
Insurance Europe 118 COVID-19's Economic Effects Cloud The Outlook For EMEA Insurers May 18, 2020
Insurance Global 119 Insurers' Debt Remains Attractive To Investors During COVID-19 Uncertainty June 22, 2020
Insurance Global 120 COVID-19 Pushes Global Reinsurers Farther Out On Thin Ice; Sector Outlook Revised To Negati May 18, 2020
Insurance Global 121 In A Correlated Market, Catastrophe Bonds Stand Out May 18, 2020
Insurance Global 122 Insurance Industry And Country Risk Assessment Update: May 2020 May 7,2020
Insurance Kazakhstan 123 COVID-19's Economic Consequences Will Test Kazakhstan Insurers' Resilience More Than Underwriting Exposure June 4, 2020
Insurance Russia 124 Russian Insurers Should Remain Resilient To The Shocks From COVID-19 And Low Oil Prices April 20, 2020
Insurance Saudi Arabia 125 COVID-19 And Lower Oil Prices Could Accelerate Consolidation Among Saudi Arabian Insurers June 29, 2020
Insurance U.S. 126 Insurance Services Ratings And The Effects Of The COVID-19 Pandemic May 26, 2020
Insurance U.S. 127 How COVID-19 Risks Factor Into U.S. Property/Casualty Ratings April 27, 2020
Leveraged finance U.S. 128 Health Care Leveraged Finance: Condition Leans Negative, But CLO Exposure To COVID-19 Is Largely Balanced June 8, 2020
Media and telecom Canada 129 Canadian Telecom Carriers Remain Resilient Through The COVID-19 Pandemic: Will They Have Enough Credit Bandwidth For 5G? June 18, 2020
Media and telecom Europe 130 COVID-19: EMEA Telecoms Will Prevail, But Not Completely Unscathed April 6, 2020
Media and telecom U.S. 131 Rebooting The U.S. Media Sector In A Post COVID-19 World June 10, 2020
Media and telecom U.S. 132 Pandemic And Recession Deal Blows To Credit Metrics Of U.S. Media And Entertainment Industry June 10, 2020
Media and telecom U.S. 133 The COVID-19 Fallout Is Squeezing U.S. Advertising Spending More Than Expected May 21, 2020
Midstream North America 134 North American Midstream Companies' Debt Maturities Are Manageable For Most, Challenging For Some April 22, 2020
Public finance Australia 135 Hitting The Books: Could COVID-19 Affect Australian University Ratings? April 21, 2020
Public finance Brazil 136 To What Degree Will Fiscal Package Help Brazilian Local And Regional Governments? June 9, 2020
Public finance China 137 China Provincial Governments' Risk Indicators June 9, 2020
Public finance China 138 China's Local-Government Deficits Could Rise To 25% On NPC Targets May 26, 2020
Public finance France 139 COVID-19: French Departments Face Marked Revenue Losses, While Regions Swerve Near-Term Fallout May 28, 2020
Public finance Global 140 COVID-19: Fiscal Response Will Lift Local And Regional Government Borrowing To Record High June 9, 2020
Public finance New Zealand 141 COVID-19's Effects Will Pressure New Zealand Council Ratings May 24, 2020
Public finance Spain 142 How Central Government Support Will Limit COVID-19's Impact On Spanish Regions' Finances June 24, 2020
Public finance Sweden 143 COVID-19 Could Further Strain Swedish LRGs' Budgets May 20, 2020
Public finance U.S. 144 As COVID-19 Grips U.S. State Finances, Some Budget Debates Will Continue Well Beyond The Deadline June 29, 2020
Public finance U.S. 145 Moderating Debt Burdens Allow Some U.S. States Room To Borrow During A Recession June 16, 2020
Public finance U.S. 146 U.S. Oil-Producing States Dealt Double Blow From Price Collapse And COVID-19 June 8, 2020
Public finance U.S. 147 Activity Estimates For U.S Transportation Infrastructure Show Public Transit And Airports Most Vulnerable To Near-Term Rating Pressure June 4, 2020
Public finance U.S. 148 COVID-19, Recession, And U.S. Public Finance Ratings May 14, 2020
Public finance U.S. 149 How Job Losses And Rent Moratoriums Might Affect HFA Multifamily Program Performance May 7,2020
Public finance U.S. 150 Pension Brief: The Future Of U.S. Public Pensions After The Sudden-Stop Recession May 6, 2020
Real estate China 151 China Developers' 2019 Results Expose Strains Before COVID-19 Crisis Hit April 8, 2020
Real estate Europe 152 How Are Lockdown Measures And Remote Working Affecting European Office Landlords? May 27, 2020
Real estate Europe 153 COVID-19 Dampens The Prospects Of EMEA Real Estate Developers And Homebuilders April 22, 2020
Real estate Global 154 COVID-19 Accelerates Structural Shifts In Global Office Real Estate And REITs June 9, 2020
Real estate Indonesia 155 COVID-19 Outbreak To Prolong Indonesia Developers' Recovery May 4, 2020
REITs Asia-Pacific 156 Will Asia's REITs Keep Their Angel Wings? April 27, 2020
REITs Australasia 157 For Australasian REITs, COVID-19 Could Strike A Longer And Deeper Blow April 28, 2020
REITs North America 158 REITrends: Negative Ratings Bias Rises As North American REITs Confront Effects Of COVID-19 May 28, 2020
REITs U.S. 159 As The Pandemic Pressures U.S. Health Care REITs, Cash Flow Is Key May 13, 2020
Retail and restaurants Global 160 COVID-19 Will Shape The Future Of Retail May 27, 2020
Retail and restaurants U.S. 161 Shakeout In Retail, Restaurant Sectors Begins With J. Crew May 5, 2020
Retail and restaurants U.S. 162 Impact Of The Coronavirus Likely To Drag U.S. Retail And Restaurants Ratings Down Further April 24, 2020
Sovereigns Africa 163 Double Trouble For CEMAC Sovereigns, But Monetary Union Membership Helps May 15, 2020
Sovereigns Africa 164 COVID-19 And Implications Of Temporary Debt Moratoriums For Rated African Sovereigns April 29, 2020
Sovereigns Caribbean 165 COVID-19 And The Tourist-Dependent Caribbean Sovereigns May 5, 2020
Sovereigns China 166 Decamping Factories Unlikely To Unplug China's Growth Advantage May 21, 2020
Sovereigns Global 167 How Multilateral Lending Institutions Are Responding To The COVID-19 Pandemic June 9, 2020
Sovereigns Global 168 Can Multilateral Lenders' Capital Bases Hold Up Against COVID-19? June 9, 2020
Sovereigns Global 169 IMF Lending And Sovereign Ratings May 28, 2020
Sovereigns Global 170 Sovereign Ratings And The Effects Of The COVID-19 Pandemic April 16, 2020
Sovereigns Gulf Cooperation Council 171 Why GCC Pegged Exchange Rate Regimes Will Remain In Place June 1, 2020
Sovereigns India 172 India's COVID-19 Recovery Will Be Key To The Sovereign Ratings June 11, 2020
Sovereigns Latin America and the Caribbean 173 How The COVID-19 Pandemic Has Affected Sovereign Creditworthiness In Latin America And The Caribbean May 21, 2020
Sovereigns Oman 174 How Oman Could Weather Tough Funding Conditions Ahead May 11, 2020
Sovereigns Russia 175 COVID-19 Response Will Push Russian Regions To Post Highest Deficits In 20 Years, Despite Federal Support May 7, 2020
Sovereigns Spain 176 COVID-19: Spanish Regions' Budgets Will Deteriorate In 2020, But Institutional Strengths Mitigate The Risks April 7, 2020
Structured finance Argentina 177 How COVID-19 Will Affect Origination And Delinquency Levels In The Argentine Financial Trust Market April 30, 2020
Structured finance Australia 178 Australian Nonconforming Home-Loan Arrears Reveal Initial Effects Of COVID-19 June 24, 2020
Structured finance Australia 179 RMBS Performance Watch: Australia Part 1 - Market Overview June 1, 2020
Structured finance Australia 180 How Will COVID-19 Affect Australian RMBS Ratings? May 24, 2020
Structured finance Australia, New Zealand 181 Will Recent Outlook Revisions On Australia And Australian Banks Affect Structured Finance Ratings? April 13, 2020
Structured finance Australia, New Zealand 182 How Will COVID-19 Affect Australian And New Zealand ABS Transactions April 1, 2020
Structured finance Brazil 183 COVID-19 Tracker: Multi-Seller FIDCs Sector Highlights April 23, 2020
Structured finance Canada 184 Canadian Credit Card Quality Index: COVID-19 Has Slammed The Brakes On First-Quarter Issuance May 26, 2020
Structured finance Canada 185 Canadian Mortgage Servicers Operating In Unusual Times May 11, 2020
Structured finance China 186 China Securitization Performance Watch 1Q 2020: COVID Pain Still To Come May 18, 2020
Structured finance Europe 187 Vacancy Up, Ratings Down? European Office CMBS Transactions After COVID-19 June 29, 2020
Structured finance Europe 188 CLO Pulse Q1 2020: Sector Averages Of Reinvesting European CLO Assets June 23, 2020
Structured finance Europe 189 How European ABS And RMBS Servicers Are Managing COVID-19 Disruption And Payment Holidays June 4, 2020
Structured finance Europe 190 Reporting Requirements For COVID-19 Payment Holidays In European Structured Finance May 27, 2020
Structured finance Europe 191 European Auto And Consumer ABS: Analysis Adjusted To Reflect COVID-19 Effects May 11, 2020
Structured finance Europe 192 European CMBS: Assessing The Liquidity Risks Caused By COVID-19 May 6, 2020
Structured finance Europe 193 How COVID-19 Changed The European CLO Market In 60 Days May 6, 2020
Structured finance Global 194 How COVID-19 Is Affecting ABCP June 12, 2020
Structured finance Global 195 COVID-19 Is Testing The Resilience Of Global Structured Finance May 18, 2020
Structured finance Global 196 Redesigning The CLO Blueprint After COVID-19 April 21, 2020
Structured finance Global 197 Container And Railcar Leasing ABS Risks In Light Of COVID-19 April 15, 2020
Structured finance Ireland 198 How Credit Distress Due To COVID-19 Could Affect Irish Reperforming RMBS June 3, 2020
Structured finance Japan 199 How Will COVID-19 Affect Japanese Structured Finance? April 8, 2020
Structured finance Latin America 200 LatAm SF: In The Thick Of The Pandemic June 12, 2020
Structured finance Mexico 201 COVID-19 Fallout Threatens Mexican Equipment ABS Performance April 15, 2020
Structured finance North America 202 Stranded Cost Securitizations Remain Insulated Despite Current Service Disruption Moratoriums May 1, 2020
Structured finance U.K., Netherlands 203 Investment-Grade U.K. And Dutch RMBS Ratings Likely To Remain Resilient To COVID-19 Effects June 29, 2020
Structured finance U.S. 204 U.S. CLO CreditWatch Resolutions and COVID-19: Are We There Yet? June 17, 2020
Structured finance U.S. 205 Are Special Servicers Poised For A “Prime” Comeback Due To COVID-19? June 8, 2020
Structured finance U.S. 206 Non-QM RMBS And COVID-19: Locking Down States' Exposure June 1, 2020
Structured finance U.S. 207 Under Stress: Assessing CLO Manager Performance During COVID-19 June 1, 2020
Structured finance U.S. 208 U.S. Auto Loan ABS Tracker: March 2020 Performance May 12, 2020
Structured finance U.S. 209 While Stay-At-Home Orders Clear Traffic, U.S. Auto Loan Extensions Rise May 1, 2020
Technology Japan 210 Japanese Tech Faces Stern COVID-19 Tests June 3, 2020
Technology Global 211 As Global IT Spending Falls, Tech Ratings Pressure Rises April 29, 2020
Technology U.S. 212 A Slow Recovery And U.S.-China Trade Tensions Could Test U.S. Investment-Grade Tech Companies June 3, 2020

This report does not constitute a rating action.

Primary Credit Analyst:David C Tesher, New York (1) 212-438-2618;
david.tesher@spglobal.com
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Jose M Perez-Gorozpe, Mexico City (52) 55-5081-4442;
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Paul Watters, CFA, London (44) 20-7176-3542;
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Contributors:Joe M Maguire, New York (1) 212-438-7507;
joe.maguire@spglobal.com
Yucheng Zheng, New York + 1 (212) 438 4436;
yucheng.zheng@spglobal.com
Lekha Prabhakar, Mumbai;
lekha.prabhakar@spglobal.com

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