Fitch Ratings Finds Supply Chains Resilient After Covid-19

Rating stabilizations and positive outlook revisions have picked up pace on an aggregate basis with over 135 issuers placed on Positive Rating Outlook or Rating Watch Positive across corporate, sovereign, financial institution (FI) and public finance sectors over the past month, says Fitch Ratings.

Direct pandemic-related downgrades have dropped significantly and the macroeconomic recovery should accelerate through the second half of the year as noted in their latest Global Economic Outlook.

The percentage of issuers on Rating Outlook Negative (RON) or Rating Watch Negative (RWN) remains notably elevated relative to levels seen prior to the major pandemic outbreak in Europe and North America in March 2020. 22.2% of corporate issuers remain on RON or RWN as of March 19 compared to just 11.4% as of March 1 2020.

For FIs, the proportion of issuers on RON or RWN is currently 42.9% versus 11.2% just over a year ago. Similar disparities can be seen in sovereigns, structured finance and public finance.

However, rating trends have been positive, with the proportion on RON or RWN falling over the past several quarters. Relative to the beginning of the year, the percentage of issuers on RON/RWN has fallen by 4.2 percentage points for corporates, 3.7 ppts for FIs and 1.5 ppts for infrastructure/U.S. public finance.

There remains notable regional divergence in net ratings effects since the onset of the coronavirus pandemic. Regionally, Latin American issuers have seen the most negative rating actions on a proportional basis with 33% of corporate, sovereign, FI and public finance issuers experiencing a negative action. Ratings in APAC, however, have been the least affected with only 13.2% of nonstructured finance issuers experiencing negative rating actions. EMEA and North America were in the middle, with 20.6% and 19.9% negative rating actions, respectively.

Large differences in rating performance are also seen within sectors, with subsectors most directly exposed to coronavirus-related lockdowns and altered consumer behavior showing higher levels of RONs and RWNs.

For example, corporate ratings for transportation, gaming lodging & leisure, aerospace & defense, auto & related and retailing have been the most affected, with the highest proportion of downgrades relative to other subsectors.

By contrast, distribution/postal services was the only subsector globally to have experienced no downgrades on a net basis over the past year. Food, beverage & tobacco and natural gas & propane were also among the least affected.

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