Credit rating agencies say that most U.S. companies are equipped to weather another recession if one materializes.
In a research note, Fitch Ratings says that approximately 75% of non-financial and non-utility issuers it rates have recovered or surpassed pre-recession levels of revenue, cash flow, or both. Fitch says it believes that companies that haven’t fully recovered from the last recession will see their credit ratings more stressed if a new downturn occurs.
“The extent of incremental stress from renewed weakness will depend on the timing and strength of the next recession, and the fiscal and monetary policies in response to it,” it says.
Additionally, a new report from Moody’s Investors Service finds that non-financial companies in the U.S. are better positioned today than they were four years ago to withstand a mild recession. Moody’s says despite some recent signs of a downtick in corporate credit quality, companies generally have ample financial cushions for riding through a downturn.
“The refinancing and restructuring of the last few years have bolstered corporate balance sheets, which now feature markedly stronger median credit metrics due to improvements in operating earnings, reductions in interest expenses, and the accumulation of substantial amounts of cash since the credit crisis,” it says.
“Still, we are seeing signs of change, in the recent, albeit slight, deterioration of several of our proprietary indicators of credit quality, consistent with a rise in risk-aversion in the credit markets that’s evidenced by widening credit spreads and sharply declining debt issuance,” says Mark Gray, managing director of Moody’s U.S. and Americas corporate finance, and author of the report.
Concerns about the global economy and some European sovereigns could lead to pressure on corporate issuers, notes Moody’s. The pressure would begin if market access for the lower-rated companies were to be curtailed for a prolonged period or if economies were to weaken materially.
At this point, however, it is too soon to point to a downturn in corporate credit, it says, noting that most rating outlooks for Moody’s rated companies are either stable or positive. And, it observes that very few companies are struggling with tight liquidity or covenant compliance.