Daily Update: June 25, 2020

The Future of Credit

COVID-19 Heat Map: Post-Crisis Credit Recovery Could Take To 2022 And Beyond For Some Sectors

While businesses around the world are starting to reopen, albeit unevenly, after coronavirus-driven lockdowns, S&P Global Ratings expects credit measures for some sectors to take until 2022, 2023, and beyond, to fully recover. Credit measures were weak prior to the pandemic, as demonstrated by the proliferation of low-speculative-grade ratings in non-financial corporates. The global pandemic and oil & gas price collapse and resulting economic recession have led to significant downgrade actions, particularly in the most affected sectors. In this report, S&P Global Ratings shares regional recovery estimates by sector for 2020-2021 compared to 2019.

—Read the full report from S&P Global Ratings

Ratings On Emerging Market Local Governments Take The Hardest Hit In The First Half Of 2020

For the first time in eight years, stable outlooks on non-U.S. local and regional government (LRG) ratings represent the lowest proportion, at 76%, of the sector's total outlooks. Most of our negative outlooks on these entities stem from the pandemic-induced economic shocks and lower commodity prices. Most of the outlook revisions occurred among LRGs in Argentina, Mexico, China, Sweden, and Italy. Sovereign rating pressure continues to drag down the local governments' credit quality in many cases, though it accounts for less than half of the negative rating actions on these entities during the first half of 2020.

—Read the full report from S&P Global Ratings

Credit FAQ: How Central Government Support Will Limit COVID-19's Impact On Spanish Regions' Finances

S&P Global Ratings' current economic forecasts for Spain, which reflect its estimate of the impact of the coronavirus pandemic, point to a sharp contraction in economic activity in 2020, followed by a rebound over 2021-2022. We estimate nominal GDP will contract by 7.5% in 2020. This will have an effect on Spanish regional budgetary performance, which we expect to weaken because of the pandemic, but only moderately thanks to government extraordinary support and increased revenue from the regional financing system.

—Read the full report from S&P Global Ratings

US high-yield issuance sets new records, with Fed at market's back

The Fed's recent bond-buying bulletin stoked already red-hot conditions for the U.S. high-yield market, contributing to record-smashing volume of issuance last week and a monthly record for June. Deals that printed on Friday for Eldorado Resorts Inc. ($5.2 billion) and Caesars Entertainment Corp. ($1 billion), backing the combination of the two entities, boosted last week’s issuance to $23.53 billion, blowing past the prior record of $21.6 billion for the week to Aug. 13, 2010, per LCD, which began tracking this asset class in 2005.

—Read the full article from S&P Global Market Intelligence

Banking Sector Under Pressure

Pandemic turns tables on risk profiles for restaurant loans

As the virus swept through the country and government officials mandated the closure of public businesses, sit-down restaurants that depend on an intimate experience seem particularly exposed. On the other hand, fast-food operations have largely remained open with drive-thru windows conducive to social distancing. For the financial sector, the dynamic could translate to relative strength for banks, which focus more on fast food, and losses for nonbanks with exposure to higher-end concepts that rely on full tables. Industry experts say losses for lenders will ultimately depend on each loan and the restaurant's market, concept and ability to execute.

—Read the full article from S&P Global Market Intelligence

Hoteliers in summer vacation spots fear 'generational' damage from COVID-19

In 2020, many hotels had only reopened for a week or two in early March when they were forced to shut down again. Then customers began canceling summer bookings, and deposits — often hundreds of thousands of dollars per property — had to be returned. With the ripple effect from a slow peak season, "I'm looking at this as a generational thing, that you basically can destroy a family's inheritance with something like this," said Mike Marshall, whose company, Marshall Hotels, manages seven hotels in the Ocean City area. "It could set you back years. And there will be lenders that get the keys handed back to them."

—Read the full article from S&P Global Market Intelligence

Japan's biggest bank mulls cutting off risky overseas borrowers amid recession

Mitsubishi UFJ Financial Group Inc. may cut off loans to some risky and unprofitable overseas borrowers following a planned expanded review this fiscal year, an official said, amid rising loan loss risk as pandemic-induced recessions hit their markets abroad. The largest Japanese bank by assets plans to review the credit profile of about 600 customers outside Japan in the fiscal year ending March 2021, up from about 500 in the previous fiscal year, an unnamed official from the bank told S&P Global Market Intelligence. The lender had severed ties with 100 non-Japanese borrowers after a review in the previous fiscal year, the official said.

—Read the full article from S&P Global Market Intelligence

China's Financial Leasing Firms Fall Back On Parent Support Amid Airlines Slump

China's bank-owned financial leasing companies have sizable exposures to the slump in global airline travel. However, most of these firms are subsidiaries of large banking groups that should support them in times of stress according to regulatory guidance. S&P Global Ratings believes this will cushion the ratings for those leasing companies.

—Read the full report from S&P Global Ratings

ESG in the Time of COVID-19

Listen: Why S&P Global Ratings sees ESG as critical to COVID-era credit quality

The coronavirus has hit just about every industry, and many companies have seen their credit rating downgraded as a result. In the latest episode of our ESG Insider podcast, we hear how environmental, social and governance issues are driving credit rating decisions during COVID-19. "Managing ESG risk is critical ... because it is a central piece of understanding credit quality," S&P Global Ratings' sustainable finance team lead Michael Ferguson explains in the episode.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Market Intelligence

Renewables building power market share during COVID-19: IRENA

The renewable power sector has grown its share of the market globally during the coronavirus pandemic, while oil, natural gas and coal have all declined, the director general of the International Renewable Energy Agency said June 24. Even as oil prices slumped amid the pandemic, the share of renewables in production of electricity has grown in all parts of the world, Francesco La Camera said in a webinar co-sponsored by the Financial Times. "We have heard voices saying the COVID-19 was going to destroy the direction of renewable energy and we have said from the beginning this was just going in another direction," he said.

—Read the full article S&P Global Platts

Banking Sector Under Pressure

Oil market right to be nervous of second wave: Fuel for Thought

Oil markets are recovering quickly, but may have hit the buffers. Deep production cuts from West Siberia to West Texas and resurgent gasoline demand have helped revive prices, however, a huge stock overhang and fears of further economic lockdowns to counter a second wave of the coronavirus pandemic remain significant risks to a full recovery. “We see 4 million b/d of new demand coming on each month through to August as the world recovers from the lockdowns,” said Chris Midgley, global director of S&P Global Platts Analytics, at a media briefing June 18. “But in September, as you go to the lower traditional seasonal demand, it’s only 1 million b/d, and that’s maybe when you will see more oil coming on the market. So there is a danger that people get too confident.”

—Read the full article from S&P Global Platts

Feature: Australia's diverse crude quality shields its oil export earnings from volatile Asian cracks

Australia's ability to produce both ultra light and heavy crude oil may prove beneficial in protecting the country's overall crude export earnings against volatile Asian refining margins, as regional fuel producers increasingly rely on Australian feedstocks for a wide variety of oil products. Asian refiners have witnessed wild swings in crack spreads for various oil products so far this year, due to transportation restrictions to contain the spread of the coronavirus, as well as the implementation of IMO 2020, which capped sulfur content on all marine fuels at 0.5% from Jan. 1. As a result, price differentials for various crude grades actively traded in the Asia Pacific market also registered high volatility.

—Read the full article from S&P Global Platts

Nigerian oil output at risk from coronavirus as cases at offshore oil fields rise

The rising number of coronavirus cases among workers at Nigeria's offshore oil fields and platforms is a growing concern for Africa's largest oil producer, with disruption to output likely, sources say. Maintenance at the offshore Bonga oil field has already been disrupted after the operator, Shell, was forced to evacuate workers due to a coronavirus outbreak, sources close to the matter said on June 24.

—Read the full article from S&P Global Platts

US sanctions five Iranian ship captains for delivering gasoline to Venezuela

The US Treasury Department on June 24 sanctioned five oil tanker captains for delivering 1.5 million barrels of Iranian gasoline and related supplies to Venezuela earlier this year. The captains, all Iranian nationals, sailed the Iranian-flagged Clavel, Petunia, Fortune, Forest and Faxon tankers to Venezuelan ports, the US State Department said. Venezuela turned to Iran, another target of US oil sanctions, to meet domestic gasoline demand as the South American country's crude production and refining capabilities have crumbled in the face of US sanctions and dire economic turmoil.

—Read the full article from S&P Global Platts

FEATURE: US cruise ship pause weighs on North American bunkers market

Many bunkers markets in North America are grappling with the impact of a recent announcement that large cruise lines will extend the suspension of departures from US ports through mid-September. With the current US Center for Disease Control-issued No Sail Order set to expire on July 24, it is increasingly apparent that a potential opportunity to resume cruise activity soon after has eroded, the Cruise Lined International Association said last week amid continued evidence of strong coronavirus statistics.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.