Moody’s readying for mass downgrade of virus-hit firms

Published March 20, 2020
Moody’s is carrying out a global review of its corporate ratings in light of the coronavirus and oil price slump. —File
Moody’s is carrying out a global review of its corporate ratings in light of the coronavirus and oil price slump. —File

LONDON: Credit rating agency Moody’s is carrying out a global review of its corporate ratings in light of the coronavirus and oil price slump, with a first mass wave of downgrades or downgrade warnings likely in the coming days.

The firm has already begun the process in a number of the hardest-hit sectors such as airlines, cruise and oil firms, but the moves are about to ratchet up, two of the firm’s top analysts told Reuters.

“We are undertaking a global review of ratings that are impacted by the virus,” Managing Director of Global Strategy & Research Anne Van Praagh and Christina Padgett, Associate Managing Director of Corporate Finance Research, said in an interview.

“By the end of the week we will have a fair amount of rating actions,” Van Praagh added, saying it was likely to impact whole groups of companies or sectors all being impacted in the same way.

Earlier this week Moody’s said that about 9 per cent of the 920 companies it rated in Europe, the Middle East and Africa had a “high exposure” to the effects of the coronavirus outbreak, with another 54 per cent having moderate exposure.

It also estimated that about 16pc of the more than 2,000 companies it rates in North America would be at high risk of rating move under the now widely expected scenario of a global recession.

“We have the virus, the big fall in commodity prices and now (the pressure in) the capital markets. This combination of events is unprecedented, so we have to come at it from several different angles,” Padgett said.

The first flurry of downgrades could take a few weeks. As well as sectors like airlines, oil and gas and travel, shipping, hotels and entertainment and leisure will all be heavily impacted too.

Firms with weaker finances already in the junk grade, of high yield category as it is, also potentially see multi-notch downgrades, while on the flip side government support, if strong enough, could potentially spare others.

“Some of the bigger companies that are coming under pressure may benefit from extraordinary government support — in those cases, that may temper the rating actions,” Van Praagh said.

Published in Dawn, March 20th, 2020

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Smog hazard
Updated 05 Nov, 2024

Smog hazard

The catastrophe unfolding in Lahore is a product of authorities’ repeated failure to recognise environmental impact of rapid urbanisation.
Monetary policy
05 Nov, 2024

Monetary policy

IN an aggressive move, the State Bank on Monday reduced its key policy rate by a hefty 250bps to 15pc. This is the...
Cultural power
05 Nov, 2024

Cultural power

AS vital modes of communication, art and culture have the power to overcome social and international barriers....
Disregarding CCI
Updated 04 Nov, 2024

Disregarding CCI

The failure to regularly convene CCI meetings means that the process of democratic decision-making is falling apart.
Defeating TB
04 Nov, 2024

Defeating TB

CONSIDERING the fact that Pakistan has the fifth highest burden of tuberculosis in the world as per the World Health...
Ceasefire charade
Updated 04 Nov, 2024

Ceasefire charade

The US talks of peace, while simultaneously arming and funding their Israeli allies, are doomed to fail, and are little more than a charade.