Investors’ Chronicle: Credit Assessment for Recovery Companies

Credit as an asset class did phenomenally well in the pandemic, writes James Norrington for Investors’ Chronicle.

With struggling companies kept on life support by government support schemes, investors have seen a compression in credit spreads with falling disparity in yields between safe government debt and corporate bonds across the quality spectrum.

The article cites Credit Benchmark credit risk data on Oil & Gas companies and General Retailers to highlight the disparity between credit quality and share prices.

“Credit Benchmark’s ratings have default risk at 51 basis points (or 0.51 per cent) likelihood for large UK energy businesses. That’s worse than the 42 basis points (bps) in June 2020 at the most uncertain stage of the pandemic but still better than UK large cap stocks as a whole (64 bps). In the United States, where confidence for the oil & gas industry had fallen even more drastically, views on credit are no longer worsening.”

Investors’ Chronicle, June 29, 2021.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.