Bangkok--14 Mar--Standard & Poor's
So far in 2011, credit trends have improved, with upgrades outpacing downgrades 1.7 to 1. Notwithstanding a prolonged shock from energy prices, Standard & Poor's continues to expect credit quality to improve moderately through the first half of 2011, said an article published today, titled "Credit Quality Improved In February, But Will Oil Derail The Recovery?."
The recent rise in oil prices is one risk to the outlook. Between Feb. 15 and March 9, oil prices increased 17% to $104/barrel for West Texas Intermediate and 20% to $115/barrel for Brent. Sustained prices well above $100 could threaten the recovery, and, as Standard & Poor's economists point out, oil at $150/barrel could put the U.S. back into recession.
"In the near term, we expect that the surge in oil prices will have only a minimal impact on U.S. nonfinancial issuers' credit quality, assuming that oil prices do not increase substantially more," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. Nevertheless, heavy consumers of energy, such as the transportation sector, will likely see higher fuel costs for unhedged exposure (and higher hedging cost for that matter), which could dampen first-quarter results.
"On the positive side, debt markets remain vibrant, with more than $88 billion in U.S. nonfinancial bonds issued so far in 2011 (through March 8)," said Ms. Vazza. "Low-rated companies have easily refinanced debt, and the cost of credit is attractive."
In addition, both manufacturing and consumer spending are off to a good start in 2011. The manufacturing sector has performed well, with the ISM manufacturing hitting 61.4 in February, up from 60.8. This is the highest level since May 2004. Similarly, the industrial production index was up 5.6% year over year in January, though capacity utilization is still relatively low in the manufacturing sector.
The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
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Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760