Return to crisis-era spreads may lead to downgrades

According to an article published last week titled “If Credit Spreads Hit Crisis Levels, US Corporates Would Fare Better Than Those In The Emerging Markets,” companies in North America and Europe would fare better than those in Latin America and Asia-Pacific.

“Globally, the sector most hurt in our stress scenario would be homebuilders, with about one in six issuers (16 per cent) at risk of a downgrade,” S&P credit analyst and co-author of the report David Tesher said.

“Other sectors in the worst quintile include metals and mining, transportation, forest and paper products, and retail and restaurants.”

S&P noted that homebuilders' vulnerability is concentrated in Asia-Pacific, where property markets have ridden high amid surging economic growth in the past decade.

Metals, mining and forest and paper products also share the ongoing vulnerability of the commodities sectors in recent years.

“We believe our findings imply that deeper debt markets would help borrowers to extend the distribution of maturities and would take pressure off the banking sector during times of crisis,” Mr Tesher said.

[Related: S&P warns of 'significant risks' to bank credit quality]