Downgrade doom looms for coronavirus-hit firms and markets

The coronavirus' suckerpunch to the global economy has prompted Moody's rating agency to review its corporate ratings, the agency told Reuters this week, with a slew of downgrades or downgrade warnings on the cards.A credit rating cut is a blow for a company in any circumstance, making it more expensive to raise fresh debt or refinance existing bonds. But it is potentially devastating when markets are in a panic and company cashflows are shrinking.

"There was no one to catch the knife when it fell," he said."As the ratings get pushed down there are not enough junk grade investors to absorb it all."S&P upped the ante on Friday cutting two of Europe's biggest flag carriers British Airways' owner IAG and Germany's Lufthansa to the last notch of investment grade and warning they could be downgraded again.

At the same time, the creditworthiness of companies has weakened. The share of bond issuers with the lowest investment grade rating - BBB- for S&P and Fitch or Baa3 for Moody's - has risen to around 45per cent in Europe from around 14per cent in 2000, and to 36per cent in the United States from 29per cent, BIS analysis shows.

Senior ratings industry sources say the agencies can also work with companies to work out steps to avoid downgrades including, cutting costs, halting investment plans and selling assets. This time around, some experts are warning that the number of companies that will get into trouble may be far larger than the ratings agencies have estimated.

Source: News Formal (newsformal.com)

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