Wednesday,May 13, 2020 / 04:25 PM / By Fitch Ratings / Header Image Credit: Informa
Fitch Ratings' corporate and financial institutiondowngrades from January-April have dramatically increased, owing to theeconomic crisis caused by the coronavirus pandemic. Global downgrades in justthe first four months of the year have already exceeded the average annualtotal 2002-2019.
There were 58 downgrades in the first 10 weeks of2020. A further 347 corporate and financial institution issuers have beendowngraded for a total of 405 through the end of April. This includes 264corporate downgrades and 141 in financial institutions.
The most corporate and financial institutiondowngrades in a year occurred back in 2009 when Fitch lowered 747 ratings.Given the pace of downgrades since mid-March, we expect 2020 will represent anew peak level of annual downgrades.
There were 1068 negative rating actions taken incorporate and financial Institutions in 2020 through the end of April.Downgrades accounted for less than 40% of the negative actions, but theincreased level of Negative Rating Outlooks and, to some extent, NegativeRating Watches signal more downgrades are likely during the remainder of 2020and into 2021. Revisions to Rating Outlook Negative were the most commonaction, representing 50% of the negative moves, while placing issuers on RatingWatch Negative accounted for 12% of negative actions.
Since 2002, an average of 35% of downgradedcorporate and financial institution issuers have experienced a multi-notchrating downgrade change year over year. Multi-notch downgrades can consist of asingle multi-notch rating action or a series of single-notch downgrades over agiven period of time. The ratio of multi-notch downgrades is significantlyhigher for the years immediately after the past two credit cycle turning pointsin 2002 and 2009 when multi-notch downgrade rates, counted as multi-notchdowngrades relative to total downgrades, were 45% and 46%, respectively.
In 1Q20, the multi-notchdowngrade rate of both corporate and financial institution issuers wasapproximately 35%, which matches the historical annual average. However, thenumber of multi-notch downgrades in 1Q20 varied by sector, with 13% forfinancial institution issuers versus 44% for corporate issuers. Continuedsevere economic stress will likely translate into a multi-notch downgrade ratefor 2020, which is higher than 35%.
Regional performance wasgenerally consistent for the first quarter. The number of multi-notchdowngrades came in slightly lower for Europe and Asia relative to North Americaand Latin America.
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