Moody's - Coronavirus Stimulus Will Lessen Economic Pain, but Credit Climate Will Remain Difficult

•Financial assistance to vulnerable households and businesses will mitigate the economic and employment shock but will not prevent a severe downturn

•Support to large companies will limit credit deterioration for certain issuers

The $2.3 trillion CARES Act follows other fiscal and monetary measures that the US government has taken to address the coronavirus crisis and the resulting economic fallout. While the federal aid package will provide some relief to households, businesses, states and local governments, Moody's Investors Service expects credit conditions will likely remain difficult for many public and private debt issuers over the coming months.

"Combined with other fiscal, monetary and regulatory actions taken to date, the coronavirus rescue package will help contain the damage to the US economy and facilitate a recovery once the virus is contained," says Moody's Vice President Rebecca Karnovitz. "However, given the depth, breadth and nature of the shock, these measures will not be sufficient to prevent a recession or a sharp rise in unemployment."

Creditworthy borrowers in nationally important sectors and large employers as well, will likely benefit the most from the CARES Act's provisions for large companies. However, these measures are unlikely to prevent irreversible credit deterioration and, in many cases, outright default for smaller, weaker companies with speculative-grade ratings. For financial institutions and structured finance transactions, the CARES Act will mitigate a rapid deterioration in asset quality to the extent that support measures help households and businesses meet their financial obligations. Provisions that allow borrowers to defer payments on certain types of debt may also support asset performance in the short term but create longer-term risks for creditors.

The effectiveness of government support will crucially depend on how quickly the aid is disbursed and whether it is sufficient to prevent a major hit to vulnerable households and to businesses' financial stability. Low- and middle-income households, as well as SMEs, tend to have little financial cushion and are particularly vulnerable to even a temporary loss in income. Even with the stimulus measures included in the CARES Act, many businesses will likely struggle to survive with little or no revenue for an extended period.

Registered users of Moodys.com can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1222618