Tuesday August 28, 2017 10:14 AM / Fitch Ratings
Improving global conditions have spurred stable or upwardly revised forecasts for corporate credits in 2018, according to a series of new Fitch Ratings reports. However, increasing political headwinds have tempered growth expectations in some regions during the last quarter.
"With still robust global growth prospects despite rising trade tensions and political risks, corporate forecasts are broadly stable. Emerging APAC is showing the strongest improvement in expected performance, and pressure on Western European forecasts is modest," said Frederic Gits, Managing Director in Global Corporates.
U.S. corporate forecasts are unchanged on stable credit fundamentals and strong global growth prospects. Upward forecast revisions are mostly linked to higher commodity prices. Median leverage is expected to decline to 3.6x by the end of 2018, driven by EBITDA improvement and debt paydown. A renewed, aggressive pace of M&A activity could alter the forecasts.
For EMEA, Fitch has revised leverage expectations upward, driven by industrial, consumer and healthcare, and technology, media and telecommunications. Pharmaceuticals has the biggest year-over-year increase in median leverage forecast, reflecting the completion of Bayer/Monsanto merger, a recent surge in debt-funded investments, and traditionally high shareholder returns. The Middle East and Africa show the largest decrease in leverage compared to last year, on the improved leverage metrics of utilities and transport.
APAC leverage forecasts were revised down by 0.3 turns to 1.7x. The revenue growth forecast increased to 9.1 percent, and the EBITDAR margin forecast rose by 1 percent to 17 percent. The improvement was driven by revised projections in basic materials and energy, which slightly offset higher leverage expectations for real estate and retail, leisure and consumer products.
For Latin America, median free cash flow expectations are close to neutral, with a margin forecast of 0.2 percent in the second-quarter 2018, down from 0.7 percent last year. Forecast median free cash flow improved for chemicals, natural resources, aerospace and defense, and technology, media and telecommunications. Year-end 2018 median net leverage forecasts remain mostly unchanged at 2.7x in second-quarter 2018 from 2.6x last year.