Coronavirus pushes global credit rating downgrade threat to record high

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LONDON (Reuters) - The number of companies or countries at risk of having their credit ratings cut has been pushed to an all-time high by the coronavirus pandemic, S&P Global analysis shows.

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FILE PHOTO: A Postman walks past a closed iRepair store in Newcastle, following the outbreak of the coronavirus disease (COVID-19), Newcastle, Britain, May 27, 2020. REUTERS/Lee Smith

A total of 1,287 of S&P’s ratings are now on a downgrade warning — either with ‘negative outlooks’ where a move might take two years, or on ‘CreditWatch with negative implications’ where the risk is almost immediate.

It tops 1,028 in the wake of the financial crisis in 2009 and comes despite nearly 700 downgrades already being impacted by COVID-19 in recent months.

“Almost two-thirds of issuers face downgrade potential due to the unprecedented challenges posed by COVID-related containment measures,” S&P said in its analysis.

Media and leisure firms, carmakers and transportation companies have the highest proportion of at-risk ratings, the data also showed.

Hotels and entertainment firms have the highest percentage of CreditWatch negatives as a share of total potential downgrades, with 74% compared to 35% for other companies in media and entertainment, 49% in automotive, and 43% in transportation.

A total of 17 countries have negative outlooks on their sovereign ratings, ranging from triple-A Australia to default- threatened Zambia, as do a third of all banks in emerging markets.

The number of potential “fallen angels” - companies or countries whose ratings could get downgraded to so-called ‘junk’ from ‘investment grade’ is also now at a record high.

There have been 24 such moves already, including major global names like Ford, Kraft Heinz, Renault, Delta Air Lines, and Macy’s that have been stripped of their investment-grade stripes.

It has impacted over $300 billion in debt, S&P estimates, while the 111 of potential fallen angels still at risk have another $444 billion of bonds.

“We expect heavy credit erosion in coming months as issuers, especially those in the lower-rated spectrum come under heavy fire from poor earnings, continued difficulties in managing cost structures, and market volatility,” S&P said.

(GRAPHIC: Credit rating downgrade risks pushed to record high by coronavirus - here)

(GRAPHIC: Sectors most at risk of rating downgrades - here)