The credit risk panel at SFNet’s 79th Annual Convention focused on challenges such as consumer headwinds, the higher cost of capital, looming refinancing deadlines, and the prospect of more downgrades, bankruptcies and defaults. Overall, though, panelists were optimistic about credit appetite and the ability to negotiate risk through tighter deal structures and more in-depth borrower and sector analytics.

Ratings Trends
Megan Neuburger kicked off the discussion by highlighting trends in Fitch Rating’s corporate, speculative grade-rated portfolio.In the first half of 2022, she said, ratings improvements were widespread due to the continuing pandemic recovery. But in the second half of 2022, credit performance among speculative-grade issuers in the portfolio began to deteriorate, relative to their investment-grade peers. As the Fed kicked off its tightening cycle, Neuburger explained, high-yield issuers had less financial flexibility and more floating-rate debt. The percentage of issuers with a negative outlook or watch also started to creep up in this timeframe. Relative to historical levels, this number has now reached a “fairly high” 18 percent. “If you look back to those early borrowers in 2019, about 10 percent of this portfolio would typically be on a negative watch or outlook,” Neuburger noted.

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