Moody’s has warned that over half of Spain’s non-financial companies rated by the credit agency are at risk of being downgraded in the next 18 months. This is in light of the prospect that their solvency will continue to weaken, even after the government relaxes restrictions on mobility and travel and eases social distancing.
The abrupt interruption of economic and business activity has quickly translated into an increase in financial leverage, weakening the liquidity profiles of rated non-financial companies in Spain. This is particularly true in the case of those with speculative grade ratings, Moody’s notes.
In fact, the ratings agency highlights that between March and May 2020, it took 29 negative actions on the ratings of Spanish non-financial companies. This was mainly due to the impact of the coronavirus pandemic. But also, to a lesser extent, the effect of the collapse of oil prices and adverse movements in emerging currencies’ exchange rates.
In this regard, Moody’s points out that companies in the retail, gambling and business and consumer services sectors are the most affected amongst the rated non-financial companies in Spain.
In fact, around a third of the negative rating actions taken in the wake of the Covid-19 outbreak affected companies in these sectors. Moody’s flags that this trend will continue, as 30% of the negative outlook or ratings under review correspond to firms in these sectors.
While noting that it has had no defaults amongst Spanish companies so far this year, Moody’s warns the rate of insolvencies will increase due to liquidity problems, breach of agreements and forced debt swaps.