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The Downgrade Massacre Has Started

March 30, 2020

The Downgrade Massacre Has Started

Just astounding. So many downgrades in just of a couple of days. And zero upgrades. Here’s who got hit.

I get “Moody’s Daily Alert” in my inbox, which lists Moody’s ratings actions for the day. The Alerts are usually a mix of a few upgrades and a few downgrades. Many times, there are no downgrades. Earlier this year, it became obvious without counting that the downgrades were starting to outnumber the upgrades by a large margin. But this week, the three Alerts were a torrent of 69 downgrades and zero upgrades. This is something I haven’t seen since I started subscribing to this service years ago. Some of the downgrades were by multiple notches in one fell swoop.

This ratio of zero upgrades to 69 downgrades by Moody’s this week is a hair-raising deterioration of the already downgrade-heavy ratings actions so far this year. Moody’s has now downgraded over 180 companies this year, 69 of which I got in my inbox just this week!

In addition, these Alerts contained a torrent of warnings about “ratings on review for further downgrade” or “negative outlook,” meaning downgrades, or additional downgrades are to come.

The analysts at Moody’s must be working overtime putting together their downgrade reports, and they’ve fallen behind, and it’s going to take them a while to catch up. Meanwhile, they issue warnings about what they’ve got in their downgrade pipeline.

For example, this week, Moody’s downgraded Ford’s senior credit rating one notch deeper into junk (to Ba2). Ford’s corporate family rating is already Ba2. Moody’s warned that it placed the ratings under review for further downgrade. Moody’s said the ratings “reflect what is an already-stressed credit profile and a very long-term restructuring program. The company is now additionally burdened by the prospect of a severe and prolonged decline in automotive markets precipitated by the coronavirus.”

…click on the above link to read the rest of the article…

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

September 26, 2017

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

Two months after S&P downgraded the state capital of Connecticut, Hartford, to junk, when it cuts its bond rating from BB+ to BB- citing growing liquidity pressures and weaker market access, the city which has been rumored is preparing to file for bankruptcy protection and which has seen an exodus of corporations and businesses in recent months, just got more bad news when S&P downgraded it by a whopping 4 notches deeper into junk territory, from BB- to CC, stating that “a default, a distressed exchange, or redemption appears to be a virtual certainty.”

“The downgrade to ‘CC’ reflects our opinion that a default, a distressed exchange, or redemption appears to be a virtual certainty,” said S&P Global Ratings credit analyst Victor Medeiros.

The rating agency also warned that it could take additional action to lower the rating to ‘Default’ if the city executes a bond restructuring or distressed exchange, or files for bankruptcy.

In our view, the potential for a bond restructuring or distressed exchange offering has solidified with the news that both bond insurers are open to supporting such a measure in an effort to head off a bankruptcy filing. Under our criteria, we would consider any distressed offer where the investor receives less value than the promise of the original securities to be tantamount to a default.

 In short: while Chicago has so far dodged the bullet, the capital of America’s richest state (on a per capita basis), will – according to S&P – be also the first to default in the coming months.

Full S&P note below:

Hartford, CT GO Debt Rating Lowered Four Notches To ‘CC’ On Likely Default

…click on the above link to read the rest of the article…

Pound Flash Crashes After Moody’s Downgrades UK To Aa2

September 22, 2017

Pound Flash Crashes After Moody’s Downgrades UK To Aa2 

In an otherwise boring day, when Theresa May failed to cause any major ripples with her much anticipated Brexit speech, moments ago it was Moody’s turn to stop out countless cable longs, when shortly after the US close, it downgraded the UK from Aa1 to Aa2, outlook stable, causing yet another flash crash in the pound.

As reason for the unexpected downgrade, Moodys cited “the outlook for the UK’s public finances has weakened significantly since the negative outlook on the Aa1 rating was assigned, with the government’s fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise.”

It also said that fiscal pressures will be exacerbated by the erosion of the UK’s medium-term economic strength that is likely to result from the manner of its departure from the European Union (EU), and by the increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics.

Moody’s now expects growth of just 1% in 2018 following 1.5% this year; doesn’t expect growth to recover to its historic trend rate over coming years. Expects public debt ratio to increase to close to 90% of GDP this year and to reach its peak at close to 93% of GDP only in 2019.

And so, once again, it was poor sterling longs who having gotten through today largely unscathed, were unceremoniously stopped out following yet another flash crash in all GBP pairs.

Full release below:

Moody’s Investors Service, (“Moody’s”) has today downgraded the United Kingdom’s long-term issuer rating to Aa2 from Aa1 and changed the outlook to stable from negative. The UK’s senior unsecured bond rating was also downgraded to Aa2 from Aa1.

The key drivers for the decision to downgrade the UK’s ratings to Aa2 are as follows:

…click on the above link to read the rest of the article…

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

September 21, 2017

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

Four months after Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how stable China truly is, moments ago S&P followed suit when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, less than a month before the most congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.

“China’s prolonged period of strong credit growth has increased its economic and financial risks,” S&P said. “Since 2009, claims by depository institutions on the resident nongovernment sector have increased  rapidly. The increases have often been above the rate of income growth.  Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to  some extent.”

According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, Bloomberg reported. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.

The cut will “have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,” said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “It will affect corporate financing.”

…click on the above link to read the rest of the article…

Fitch Threatens US with Downgrade

August 24, 2017

Fitch Threatens US with Downgrade

Did it forget how the US government hounded Standard & Poor’s?

Bitter irony! Just yesterday, I had a conversation with Bill Tilles, and we agreed on all three points. This morning, we’re already proven wrong on one of them:

  1. A government shutdown as Congress fails to pass spending levels for fiscal 2018? Yes, it could happen.
  2. A failure to raise the debt ceiling, thus pushing the US government into default, or “selective default?” Very unlikely. Lawmakers are political animals that use charades and posturing to accomplish their goals, but they’re not stupid (we hope).
  3. A threat by US ratings agencies to slash the US credit rating due to the debt-ceiling charade and the consequences of a “selective default?” No way, we agreed. Ratings agencies learned their lesson from how the US government hounded Standard & Poor’s after its 2011 downgrade of the US.

A new day, and we’re already wrong. Standard & Poor’s may have learned its lesson. But Fitch Ratings hasn’t – though its language this morning was a lot kinder and gentler (emphasis added).

If the debt limit is not raised in a timely manner prior to the so-called “x date,” Fitch would review the US sovereign rating, with potentially negative implications. We have previously said that prioritizing debt service payments over other obligations if the limit is not raised – if legally and technically feasible – may not be compatible with ‘AAA’ status.

In the most recent letter to Congress, Treasury Secretary Steven Mnuchin said that the US would run out of money by the end of September. This can likely be stretched into October. Just this week, Senate Majority Leader Mitch McConnell swore there was “zero chance” that “we won’t raise the debt ceiling.”

But Fitch adds that Congressional posturing alone could cause a downgrade – the same reason S&P downgraded the US during the debt ceiling fight in 2011. Fitch:

…click on the above link to read the rest of the article…

Angry China Slams Moodys For Using “Inappropriate Methodology”

May 25, 2017

Angry China Slams Moodys For Using “Inappropriate Methodology”

The market may have long since moved on from Moody’s downgrade of China to A1 from Aa3 (by now even long-only funds have learned that in a world with $18 trillion in excess liquidity, the opinion of Moodys is even more irrelevant), but for Beijing the vendetta is only just starting, and in response to Tuesday’s downgrade, China’s finance ministry accused the rating agency of applying “inappropriate methodology” in downgrading China’s credit rating, saying the firm had overestimated the difficulties faced by the Chinese economy and underestimated the country’s ability to enhance supply-side reforms.

In other words, Moody’s failed to understand that 300% debt/GDP is perfectly normal and that China has a very explicit exit strategy of how to deal with this unprecedented debt load which in every previous occasion in history has led to sovereign default.

The Ministry of Finance reaction came after Moody’s first, and very, very long overdue, downgrade of China since 1989 citing concerns about risks from China’s relentlessly growing debt load as shown below.

“China’s economy started off well this year, which shows that the reforms are working,” the ministry said in a statement on its website.  Actually, it only shows that China had injected a record amount of loans into the economy at the start of the year, and nothing else. And now that the credit impulse is fading, the hangover has arrived.

Moody’s on Wednesday also downgraded the ratings of 26 Chinese government-related non-financial corporate and infrastructure issuers and rated subsidiaries by one notch. It also downgraded the ratings of several domestic banks, including the Agricultural Bank of China Limited’s long-term deposit rating from A1 to A2.  It also eventually downgraded Hong Kong and said credit trends in China will continue to have a significant impact on Hong Kong’s credit profile due to close economic, financial and political ties with the mainland.

…click on the above link to read the rest of the article…

S&P Downgrades Saudi Arabia For Second Time In 4 Months, Also Cuts Oman, Bahrain

February 17, 2016

S&P Downgrades Saudi Arabia For Second Time In 4 Months, Also Cuts Oman, Bahrain

For the second time in four months, S&P has downgraded Saudi Arabia.

In late October, the ratings agency flagged sharply lower oil prices and the attendant fiscal deficit (16% in 2015) on the way to cutting the kingdom to A+ outlook negative.

At the time, S&P projected the deficit would amount to 10% of GDP in 2016. That turned out to be optimistic as the shortfall is now projected to be around 13% and that’s assuming crude doesn’t fall below $30 and stay there.

Riyadh has cut subsidies in an effort to shore up the books, but between the war in Yemen and defending the riyal peg, there’s no stopping the red ink, especially not while the kingdom remains determined to wage a war of attrition with the US shale complex.

Moments ago, S&P downgraded Saudi Arabia again, to A-.

On the bright side, the outlook is now “stable” (chuckle).

*  *  *

From S&P

Oil prices have fallen further since our last review of Saudi Arabia in October 2015, and we have cut our oil price assumptions for 2016-2019 by about $20 per barrel. In our view, the decline in oil prices will have a  marked and lasting impact on Saudi Arabia’s fiscal and economic indicators given its high dependence on oil.

We now expect that Saudi Arabia’s growth in real per capita GDP will fall below that of peers and project that the annual average increase in the government’s debt burden could exceed 7% of GDP in 2016-2019.

We are therefore lowering our foreign- and local-currency sovereign creditratings on Saudi Arabia to ‘A-/A-2’ from ‘A+/A-1’.

The stable outlook reflects our expectation that the Saudi Arabian authorities will take steps to prevent any further deterioration in the government’s fiscal position beyond our current expectations.

…click on the above link to read the rest of the article…

Moody’s Just Put Over Half A Trillion Dollars In Energy Debt On Downgrade Review

January 22, 2016

Moody’s Just Put Over Half A Trillion Dollars In Energy Debt On Downgrade Review

One week ago, in the aftermath of the dramatic downgrade to junk of Asian commodity giant Noble Group, we showed readers the list of potential “fallen angel” companies, those “investment “grade companies (such as Freeport McMoRan whose CDS trades at near-default levels) who are about to be badly junked, focusing on the 18 or so US energy companies that are about to lose their investment grade rating.

Perhaps inspired by this preview, earlier today Moody’s took the global energy sector to the woodshed, placing 175 global oil, gas and mining companies and groups on review for a downgrade due to a prolonged rout in global commodities prices that it says could remain depressed indefinitely.

The wholesale credit rating warning came alongside Moody’s cut to its oil price forecast deck. In 2016, it now expects the Brent and WTI to average $33 a barrel, a $10 drop for Brent and $7 for WTI.

Warning of possible downgrades for 120 energy companies, among which 69 public and private US corporations, the rating agency said there was a “substantial risk” of a slow recovery in oil that would compound the stress on oil and gas firms.

As first reported first by Reuters, the global review includes all major regions and ranges from the world’s top international oil and gas companies such as Royal Dutch Shell and France’s Total to 69 U.S. and 19 Canadian E&P and services firms. Notably absent, however, were the two top U.S. oil companies ExxonMobil and Chevron.

Moody’s said it was likely to conclude the review by the end of the first quarter which could include multiple-notch downgrades for some companies, particularly in North America, in other words, one of the biggest event risks toward the end of Q1 is a familiar one: unexpected announcements by the rating agencies, which will force banks to override their instructions by the Dallas Fed and proceed to boost their loss reserves dramatically.

…click on the above link to read the rest of the article…

S.&P. Nears Settlement With Justice Over Inflated Ratings

January 13, 2015

S.&P. Nears Settlement With Justice Over Inflated Ratings

On television and in the courtroom, Standard & Poor’s has waged war against a Justice Department lawsuit. But behind the scenes, the giant bond-ratings agency wants nothing more than to buy peace.

After S.&P. mounted a two-year campaign to defeat civil fraud charges — portraying them as retaliation for cutting the credit rating of the United States — the ratings agency is now negotiating with the Justice Department to settle the case, according to people briefed on the matter.

For S.&P., which is accused of awarding inflated credit ratings to mortgage investments that spurred the financial crisis, the delay in settling may prove costly. The Justice Department and more than a dozen state attorneys general are demanding that S.&P. pay more than $1 billion to settle the case, the people briefed on the matter said, a penalty large enough to wipe out the rating agency’s entire operating profit for a year.

If S.&P. capitulates to the government’s financial demands — and it has privately signaled a willingness to do so, the people said — the settlement would support the conclusion that it is futile to fight government fines.

…click on the above link to read the rest of the article…

 

The Three Reasons Why Moody’s Just Downgraded Japan From Aa3 To A1 | Zero Hedge

December 1, 2014

The Three Reasons Why Moody’s Just Downgraded Japan From Aa3 To A1 | Zero Hedge.

Less than two weeks ago we were delighted to remind S&P that about a year ago, the laughable rating agency which is now terrified of being sued any time it tells the truth, promised it would downgrade Japan the moment things for the insolvent nation turn up to be, well, just as they are with the Bank of Japan now monetizing every yen of Japanese debt issuance. And yet, so far S&P has been very quiet on the downgrade front, most likely because it still has its hands full on the litigation front with the DOJ (and Tim Geithner) for downgrading the US back in 2011. So overnight we were not exactly surprised when that “other” rating agency, Moody’s, shocked the world and headline scanning algos when it downgraded Japan by 1 notch from Aa3 to A1.

Here are the reasons why Moody’s just did what it did, just two weeks ahead of the all-important for Abenomics snap election, in which should support for Abe tumble, then all bets on Abenomics, and the global stock market reflation game, are off.

The key drivers for the downgrade are the following:

  1. Heightened uncertainty over the achievability of fiscal deficit reduction goals;
  2. Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and
  3. In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.

…click on the above link to read the rest of the article…

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