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Monitoring the effects of the pandemic
Explore how the coronavirus crisis intersects with the 2020 credit themes
Moody's response to the coronavirus crisis
The credit impact of the pandemic has manifested via three broad channels: lower growth, the fall in oil prices, and reduced access to financing. Of the 54 mostly negative sovereign rating actions that we have announced so far this year, 23 were the direct result of the coronavirus pandemic.
The coronavirus outbreak is disrupting economies and credit markets worldwide. The impact on issuers’ credit profiles and the economy will depend on the severity and duration of the crisis.
About 22% of rated APAC companies have high exposure to coronavirus disruptions, up from 20% on 31 March. About 39% have moderate exposure, up from 36%. The effects of disruptions on credit quality are becoming more apparent.
Strong liquidity at many global investment banks offsets their large wholesale funding exposure, protecting creditors and shielding the banks against stressed conditions.
Alternative data indicators show a nascent recovery in global trade, and certain economies’ employment. Daily financial data in May show tightening spreads, increased lending and lower equity market volatility in the US and euro area.
Liquidity for the weakest speculative-grade US corporates worsened in April as the coronavirus crisis continued to cut more deeply across most industries. Lower-rated companies that rely on the leveraged loan market, where liquidity has evaporated, are getting hit the hardest. But many stronger speculative-grade companies are able to tap the US high-yield market, which has recovered following the US Federal Reserve’s support for corporate bonds.
Our review of past recoveries shows that US companies that default because of the coronavirus pandemic will likely return less to investors than those that defaulted because of the 2008-09 recession, with prospects particularly poor for first-lien debt. We expect that more companies will complete distressed exchanges, and that many of those firms will later file for bankruptcy. Recoveries will be even worse in a prolonged downturn.
Lucie Villa of the Sovereign team discusses a debt relief initiative for low-income countries grappling with liquidity pressures. Also, Daniela Jayesuria of the Structured Finance team offers insights on coronavirus-related debt moratoriums for individual and corporate borrowers in Latin America, one of the biggest securitization markets in emerging markets.
Moody’s Analytics performs stress tests on state government budgets - estimating the amount of fiscal stress likely to be applied to state budgets under different recession scenarios and comparing that to what states have in reserve. The overall results of the COVID-19 exercise are unmistakably negative during this unprecedented time.