Risk Insight Video & Blog Series: January 2016
It has been a jam-packed year of credit events in the United States and around the world – some good, some bad, and all newsworthy. Although it was hard to choose, here is my list of the top 9 credit risk events of 2015.
- First, and most recently, the United States Federal Reserve’s decision to raise its benchmark interest rate for the first time in nearly a decade. Now the question remains -- how long until the Fed raises rates again? Still, this was a landmark event, and it was able to happen given the strength of the US economy.
- Let’s now focus on Standard & Poor’s Ratings Services upgrades in 2015. After surveying dozens of upgrades, we would like to highlight the upgrade of the State of California to ‘AA-‘ in July of 2015, a three notch increase since 2012. This upgrade reflects the state’s “improved fiscal sustainability”.
- One other upgrade that caught our attention was Spain’s upgrade in October of 2015 to ‘BBB+’. Spain was rated ‘BBB-‘in 2013 and upgraded to ‘BBB’ in 2014 and, in 2015, continued this upward trend. Along with Portugal’s upgrade, this credit event reflects a broader rebound in the Southern European economy.
- When reviewing downgrades, there were several considered, but we will focus on Brazil. In September 2015, Brazil was downgraded to the non-investment grade rating of ‘BB+’ from ‘BBB-‘. Brazil was rated as high as ‘BBB‘ in 2013. This two notch decline over a two year period symbolizes the recent financial, political and economic struggles of the country. Also contributing to Brazil’s deteriorating credit is the ongoing corruption investigation into Petrobras, Brazil’s state-run oil and gas company.
- Another noteworthy downgrade was Volkswagen, downgraded to ‘BBB+’ from ‘A-‘in December 2015. According to Standard & Poor’s Ratings Services, the lower rating reflects the “ongoing adverse credit impacts from its manipulation and misrepresentation of engine emissions and fuel consumption levels.”
- In the US, we selected the downgrade of the City of Chicago to ‘BBB+’ from ‘A-‘ in July 2015. According to Standard & Poor’s Ratings Services, the city has not created a credible plan to address the city’s fiscal imbalance. Chicago, like many cities nationwide, is facing mounting pressures from pension obligations that have eroded their financial flexibility.
- Sticking with Public Finance, Puerto Rico’s financial struggles certainly jump out as a major credit event in 2015. Puerto Rico has defaulted on some of its debt obligations and the ongoing debate centers on whether Puerto Rico, as a US territory, can file for bankruptcy protection.
- Continuing with the bankruptcy theme, on the corporate side is RadioShack. RadioShack filed for bankruptcy in February 2015. 30 years ago, this US retail giant was rated ‘AAA’. However, its inability to adapt to an e-commerce world led to its eventual downfall.
- Finally there was quite a bit of high profile merger activity in 2015 with Dow Chemical and DuPont merging, as well as Pfizer and Allergan. Another key merger was the InBev-SAB Miller, which I affectionately refer to as the merger between the Budweiser the “king of beers” and Miller the “champagne of beers”.
Thank you for checking out the January 2015 installment of the Risk Insight Monthly Video & Blog Series! Check back here each month to read the latest Risk Insight blog and video. We look forward to exploring a range of credit risk management topics of key importance to you throughout 2016 and beyond.Click here if you would like to be added to the mailing list, and, each month, you will receive an email with links to the video, the blog, and a “Get More Info” form. We want this series to be as interactive as our webinars, so please take advantage of this form to ask us questions or simply to get more info on the topic at hand.
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