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COVID-19 Heat Map: Post-Crisis Credit Recovery Could Take To 2022 And Beyond For Some Sectors

While businesses around the world are starting to reopen, albeit unevenly, after coronavirus-driven lockdowns, S&P Global Ratings expects credit measures for some sectors to take until 2022, 2023, and beyond, to fully recover. Credit measures were weak prior to the pandemic, as demonstrated by the proliferation of low-speculative-grade ratings in non-financial corporates. The global pandemic and oil & gas price collapse and resulting economic recession have led to significant downgrade actions, particularly in the most affected sectors.

In this article, we share our regional recovery estimates by sector for 2020-2021 compared to 2019. In the coming month, we intend to provide an additional Industry Top Trends update for each sector, with more insights on the progress of recovery and what could derail it.

Some industries, notably those that involve groups of people in close proximity (e.g., cruises, airlines, airports, gyms, theaters, restaurants, retail, etc.), may not return to prior levels of revenue for several years. These sectors may face ongoing social distancing rules, leading to capacity restrictions, higher operating expenses, and reluctant consumers until we have widespread vaccination. For example, while consumers may be permitted to fly, ongoing and uncertain restrictions and the loss of confidence by passengers will likely keep air travel below 2019 utilization levels through 2023. More broadly, we expect consumers will make permanent shifts in how they work, shop, and spend their leisure time even after a vaccine becomes available.

For some industries, such as enclosed retail malls, it could be several years, if ever, before credit metrics return to pre-pandemic levels as distancing measures and the recession may accelerate consumers' shift to other channels.

Government intervention, such as paying the wages of millions of furloughed workers, and short-term work programs have dampened the effects of a near halt in business activity in many regions. While we are already seeing service employees returning to work, it may take several years for unemployment levels to return to pre-crisis levels. The pace and stability of employment recovery will feed into consumer sentiment, business confidence, and corporate investment plans.

Many industries that were facing a high degree of fixed costs or drastically lower revenue (or some portion of both) during the virus restrictions were forced to dip into cash balances or borrow to fund operations, the latter being strongly supported by measures from central banks to bolster market liquidity. While revenue for these sectors may recover as soon as next year, a full recovery of credit metrics will take longer as companies dig out of the higher debt load they now carry.

For those regions and sectors where there is a meaningful representation of rated issues, we have estimated when credit metrics might reach a run-rate recovery back to 2019 levels. S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions, but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: As the situation evolves, we will update our assumptions and estimates accordingly.

While we have assumed companies will be interested in restoring credit metrics, there could be more permanent shifts in financial policy that keep incremental debt on the balance sheet longer than currently anticipated. The return to pre-crisis levels of operations and credit metrics is unlikely to be smooth or swift, and will almost certainly result in modifications in how governments, businesses, and consumers behave. We see this risk of modifications as highest for sectors indicated in the regional "Sector Level Impact and Recovery" charts ("LT Industry Disruption/Acceleration"), which could delay or even prevent a return to pre-crisis-level credit metrics.

Regional Heat Maps

For each region, we have assessed the following based on the rated universe of credits:

  • The impact of COVID-19, global recession, or the collapse of oil & gas markets in 2020. The impact descriptor (high, moderate, low) is our qualitative view of the degree of impact to the sectors' operations and credit metrics. It does not directly translate to risk of rating actions, which depend on a number of factors, including initial headroom under a rating coupled with the expected length and severity of the crisis.
  • 2020 estimates of impact on revenue and EBITDA for the rated universe in the region. Incremental borrowings is a directional estimate of additional debt the sector will carry into next year, which we expect to update and refine over time.
  • 2021 estimates of revenue and EBITDA shortfalls relative to 2019 levels. For sectors where we expect revenue and/or EBITDA to be at or better than 2019 levels next year, we use the descriptor '=>2019'.
  • Longer term industry disruption/acceleration. For sectors exposed to higher risk of longer term changes in consumer government or corporate consumption patterns or an acceleration of a secular change that could delay or disrupt a recovery of credit metrics, we have marked the sector with 'Yes'.
Asia-Pacific (Contacts: Anthony Flintoff, Xavier Jean)

The climb back has begun in selected countries in Asia-Pacific, but progress is likely to be slow with sporadic setbacks. China has passed the first-wave COVID-19 peak and has gone some way to restarting its economy. Utilization rates in the industrial sector have increased while the service sector is opening at a slightly slower pace, hampered by social distancing rules that look set to remain in force at least for now. Policy stimulus has been building and should provide a tailwind for ongoing recovery through the second half. Operating recovery is likely to take longer in countries such as India and Indonesia, which have not yet seen a peak in the first wave of COVID-19.


EMEA (Contact: Alex Herbert)

Many corporates in EMEA are getting back to business, as lockdown measures in many countries are being eased. This comes after three months of lockdown, where sectors most vulnerable to social distancing--such as retail and leisure--saw activity abruptly halted. Early signs of recovery in Western Europe include higher traffic levels and truck mileage, and improved business confidence. Schools are reopening and cross-border travel restrictions are being lifted. New virus cases in many countries are now far below peak levels, but in some countries, such as Russia, new cases remain relatively high. We see a risk of increased infections as easing progresses, so we expect the recovery to take some time.


Latin America (Contacts: Diego Ocampo, Luis Manuel Martinez)

Most Latin American countries started reopening their economies at the end of May/early June. However, the pace of new infections continues to rise across the region, which means reopening will be very gradual, and consumer and business caution will prevail for several months.


North America (Contacts: Jeanne Shoesmith, Robert Schulz)

With lockdowns easing in many areas of North America (even as COVID-19 cases spike in a number of states in the U.S.), some economic activity has resumed. Much of this is better-measured by non-traditional gauges of activity, such as restaurant-bookings and travel data, than by tried-and-true economic indicators such as factory orders or quarterly GDP--the former are often more forward-looking while the latter tend to quantify what has already happened.

As it stands, the National Bureau of Economic Research has confirmed what we all knew to be true--that the longest-ever expansion in the world's biggest economy, at 128 months, ended in March with the shutdown-driven shock. And while we think this recession could prove to be the shortest on record (even briefer than the six-month slump that ended in July 1980), we continue to expect the recovery to be slow, uneven, and fragile.



This report does not constitute a rating action.

Primary Credit Analysts:Jeanne L Shoesmith, CFA, Chicago + 1 (312) 233 7026;
Alex P Herbert, London (44) 20-7176-3616;
Secondary Contacts:Anthony J Flintoff, Singapore (61) 3-9631-2038;
Xavier Jean, Singapore (65) 6239-6346;
Diego H Ocampo, Buenos Aires (54) 114-891-2116;
Luis Manuel Martinez, Mexico City (52) 55-5081-4462;
Robert E Schulz, CFA, New York (1) 212-438-7808;

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