Dive Brief:

• Credit ratings among non-financial companies worldwide bounced back from January through July, with upgrades exceeding downgrades after a record slump in corporate ratings during 2020, according to FitchRatings.
   
• “As pandemic-related restrictions have relaxed and as many economies return to growth, the most severe credit pressures have abated and the number of positive ratings actions have started to rise,” FitchRatings said. “The corporate portfolio is now showing a higher number of upgrades than downgrades for the first time since 2017.”
   
• Still, the highly-contagious delta variant may slow the credit recovery among leisure, transportation and other U.S. corporate sectors, FitchRatings said. “A continued uptick in infections or emergence of new vaccine-resistant virus variants could delay the reversal of pandemic-related negative rating actions.”

Dive Insight:

Last year's pandemic-induced recession — the sharpest since the Great Depression — prompted the downgrade of nearly 20% of companies rated by FitchRatings, with 7% pushed down by more than one notch, the ratings firm said.

Record fiscal and monetary stimulus helped brighten the credit outlook for many U.S. companies and recently pushed up gross domestic product above its pre-pandemic level.

Congress approved $5.9 trillion in emergency aid, with $4.6 trillion spent so far, and the Federal Reserve cut the benchmark interest rate close to zero. The Fed last year for the first time bought billions of dollars in corporate debt, and it continues monthly purchases of $120 billion in Treasury and mortgage bonds.

Although the coronavirus poses a persistent threat, “better liquidity, relative to the outset of the pandemic, should improve companies’ ability to withstand a pandemic setback over the near term,” FitchRatings said.

Federal stimulus is not the sole reason for the ratings upgrades. Many companies have made prudent financial decisions, FitchRatings said. “Most ratings improvements have been driven by issuers’ resilient financial performance during the pandemic or their more conservative approach to funding.”

A recovery in commodity prices buoyed oil, gas and other natural resources companies, while the work-from-home trend spurred demand for building materials used for home improvement, according to FitchRatings. The pandemic has also fueled demand for healthcare products and services.

“These industries have recorded more frequent upgrades so far in 2021 than most other sectors,” FitchRatings said.

At the same time, “a pandemic setback is a material risk for airlines,” FitchRatings said. “The rebound in leisure travel could slow and the recovery in business travel [could be] pushed out as more companies delay return-to-office dates.”