May 13, 2020 / 04:25 PM / By Fitch Ratings / Header Image Credit: Informa
Fitch Ratings' corporate and financial institution
downgrades from January-April have dramatically increased, owing to the
economic crisis caused by the coronavirus pandemic. Global downgrades in just
the first four months of the year have already exceeded the average annual
There were 58 downgrades in the first 10 weeks of
2020. A further 347 corporate and financial institution issuers have been
downgraded for a total of 405 through the end of April. This includes 264
corporate downgrades and 141 in financial institutions.
The most corporate and financial institution
downgrades in a year occurred back in 2009 when Fitch lowered 747 ratings.
Given the pace of downgrades since mid-March, we expect 2020 will represent a
new peak level of annual downgrades.
There were 1068 negative rating actions taken in
corporate and financial Institutions in 2020 through the end of April.
Downgrades accounted for less than 40% of the negative actions, but the
increased level of Negative Rating Outlooks and, to some extent, Negative
Rating Watches signal more downgrades are likely during the remainder of 2020
and into 2021. Revisions to Rating Outlook Negative were the most common
action, representing 50% of the negative moves, while placing issuers on Rating
Watch Negative accounted for 12% of negative actions.
Since 2002, an average of 35% of downgraded
corporate and financial institution issuers have experienced a multi-notch
rating downgrade change year over year. Multi-notch downgrades can consist of a
single multi-notch rating action or a series of single-notch downgrades over a
given period of time. The ratio of multi-notch downgrades is significantly
higher for the years immediately after the past two credit cycle turning points
in 2002 and 2009 when multi-notch downgrade rates, counted as multi-notch
downgrades relative to total downgrades, were 45% and 46%, respectively.
In 1Q20, the multi-notch
downgrade rate of both corporate and financial institution issuers was
approximately 35%, which matches the historical annual average. However, the
number of multi-notch downgrades in 1Q20 varied by sector, with 13% for
financial institution issuers versus 44% for corporate issuers. Continued
severe economic stress will likely translate into a multi-notch downgrade rate
for 2020, which is higher than 35%.
Regional performance was
generally consistent for the first quarter. The number of multi-notch
downgrades came in slightly lower for Europe and Asia relative to North America
and Latin America.
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