Leverage Will Be High for Quarter of EMEA Corp Ratings at End-2022

A quarter of all Fitch-rated EMEA corporate issuers will have leverage exceeding their negative rating sensitivity by end-2022, Fitch Ratings says in a new report. However, as the proportion will decline rapidly in the short term due to credit profiles’ improvements, only a third of these issuers have ratings on Negative Outlook.

Sector differences in rating headroom are mostly related to varying exposure to the pandemic, the effects of high inflation and the cost of living crisis, the deteriorating economic outlook and different proportions of high-leveraged issuers in our rated sector portfolios that are more exposed to rising interest rates.

Gaming, lodging and leisure, healthcare, aerospace and defence, technology, homebuilding, and consumer have the largest shares of issuers whose leverage will exceed their negative rating sensitivities by end-2022. Sectors with more stable performance, such as utilities, have far fewer issuers lacking rating headroom.

We forecast the share of EMEA corporates with leverage exceeding their negative rating sensitivity will decline from 26% in 2022 to 21% in 2023 and 12% in 2024. These expectations of improvements in leverage profiles mean that the ratings of only a third of companies that will have leverage above their rating sensitivities by end-2022 are on Negative Outlook (or Rating Watch Negative).

The results of this EMEA corporate rating headroom analysis are consistent with the findings ofour study of Fitch-rated North American corporates, with minor sector variations due to regional differences in the composition of our rated portfolios.
Source: Fitch Ratings