# Credit Benchmark > Consensus Credit Ratings and Data Analytics ### Podcast: Transforming Credit Ratings With Innovative Data Insights The Hidden Power of Aggregated Data LISTEN TO PODCAST On Oliver Wyman's Innovators' Exchange podcast, Donal Smith, co-founder and Chairman of Credit Benchmark, joins hosts Hiten Patel and Archie Stebbings to discuss the evolving role of data in credit risk assessment and capital markets. It’s a deep dive into the power of contributor-sourced, aggregated data, a model that Credit Benchmark pioneered to bring transparency to the under-served private and mid-sized company segment of the market.As traditional credit ratings remain out of reach for many firms due to the limitations of the issuer-pays model, Credit Benchmark offers an independent, bank-contributed view of credit risk. Donal reflects on how the firm aggregates and anonymizes internal credit assessments from global banks - data that previously sat siloed within institutions - and delivers consensus insights that are transforming how banks, asset managers, insurers, and corporates understand counterparty risk. Key Themes Discussed: Democratizing Credit Risk Data: Why so many firms fall outside the radar of the traditional rating agencies, and how Credit Benchmark fills that gap.From Data to Decision: How anonymized, aggregated credit views support smarter risk decisions across capital markets, supply chains, and KYC workflows.AI and the Future: Donal’s thoughts on how AI will reshape data workflows and credit analysis in the years ahead. Leadership Lessons & Market Perspective Donal also shares candid reflections from his career building transformative data businesses - from FT.com to Data Explorers - and offers thoughtful commentary on entrepreneurship, patient capital, and what it takes to scale in the global financial data space. His message is clear: valuable data, when shared responsibly, can reshape markets. “If you aggregate previously disaggregated information, you can create something of genuine value from it.” Donal Smith, Co-Founder and Chairman, Credit Benchmark LISTEN TO PODCAST ### UK Credit Risk on the Move DOWNLOAD PDF Credit risk is on the move, and not where you’d expect. Analysis of UK regional default risk shows sharp divergence across regions, sectors, and credit categories post-Covid. Credit Benchmark’s UK Default Risk Regional Trends analysis reveals powerful regional and sectoral fault lines in default risk across the country. Drawn from forward-looking consensus credit data on over 11,000 corporates, financial institutions, and funds, the analysis highlights where pressures are building fastest — and where resilience remains. From post-Covid rebounds and interest rate aftershocks to region-specific slowdowns, the data maps a shifting economic landscape with clear indicators of where credit events are most likely to emerge next.Key Takeaways North West leads in risk — London stays safest. Default probabilities are highest in the North West, while London, Scotland, and Northern Ireland remain the most stable. Wales flags trouble: most vulnerable borrowers concentrated here. With nearly 3% of entities in the critical ‘c’ category, Wales shows the highest concentration of names most likely to default. Financials under pressure — sharpest risk surges in Wales and Scotland. Financial institutions in these regions have seen the steepest 12-month deterioration, pointing to deeper structural stress. High Yield borrowers driving the risk — but Investment Grade cracks are forming. While High Yield names continue to push risk levels higher, some Investment Grade segments, particularly in the South East and East of England, are starting to deteriorate. Regional shake-up reflects deeper shifts in the UK economy. Credit trends suggest lasting effects from Covid, Brexit, and evolving government policy — with clear winners and losers emerging. County-level hotspots reveal sector stress clusters. Heavy Construction in Essex, Industrial Transport in the North West, and Consumer sectors in Dorset and Gloucestershire all show high concentrations of default-prone borrowers. Credit Benchmark’s Credit Consensus data, based on the credit risk views of 40+ major banks, gives unprecedented insight into UK default risk with 2,012 indices covering more than 11,171[1] UK corporates, financials and funds, spanning 12 regions and 134 sectors, with history available from 2018. The below map shows the UK regions by average 1-year ahead default risk. North West is the highest, London, Scotland and Northern Ireland are the lowest. UK Regional Heat Map - By Aggregate Probability of Default (PD) The following charts show 1) recent trends for Corporates split into UK HY and UK IG, with Global Corporates for comparison and 2) the same for UK Financials. Credit Trend: UK Corporates (High Yield & Investment Grade vs. Global Corporates) Credit Trend: UK Financials (High Yield & Investment Grade vs. Global Financials) The UK Corporate aggregate has followed the Global aggregate very closely. Following the Covid-driven waves of downgrades and upgrades, overall Corporate risk has risen by about 5% since 2022. This has been driven by rising probabilities of default for High Yield borrowers (up nearly 10%) in response to Ukraine and rising interest rates; Investment Grade risk has been stable over the same period. Global Financials show a similar pattern to Global Corporates, but UK Financials have deteriorated by an additional 5%. High Yield and Investment Grade Financials default risk has moved together over this period. Regional Trends The following chart shows combined Corporate and Financial default risk trends for the South East, South West, East of England and Yorkshire & Humberside [2]. Credit Trend: East of England vs. Yorkshire and the Humber vs. South West vs. South East The South East follows a similar pattern to UK Corporates but with a higher deterioration since 2022. The East of England has tracked the South East (although it is more volatile) while the South West has maintained its post-Covid improvement. Yorkshire & Humberside has diverged since 2022, deteriorating to a peak of nearly 25% deterioration since Covid but recovering rapidly in the past 2 years. The next chart shows West Midlands, East Midlands, North East and North West Credit Trend: West Midlands vs. North West vs. East Midlands vs. North East Further North, the North East and North West have tracked one another closely with a full post-Covid recovery and a modest 5% deterioration since the Ukraine invasion. East Midlands shows a similar pattern but West Midlands has diverged, with a stark deterioration and equally dramatic recovery to rejoin the other aggregates.These trends suggest some restructuring of the UK economy following Covid, Brexit and the regional policies of a new Government, bringing some notable shifts in regional default risks. Recent UK Regional Trends by Type and Credit Quality The next chart shows Corporate vs. Financial regional PD changes over the past 12 months. Corporates vs. Financial Default Risk % Change, 12M - By Region These are sorted by regional changes in Corporates, but the rank order of Financial changes is very similar. Financials show a wider divergence, with the largest deteriorations in Wales and Scotland. In England the South West and North West show the largest increase in risk, with the largest improvements in West Midlands and Yorkshire / Humber. The Corporate range is much narrower, but four of these six regions appear in the tails. In England, the South East and East of England show the largest Corporate credit risk rise. The North East is only region where the two borrower types move in opposite directions. This suggests that regional economic trends affect Corporates and Financials in similar ways, but Financials are more volatile. Within Corporates, the 12m regional PD changes split by High Yield and Investment are plotted on the following chart. Corporates High Yield vs. Investment Grade Default Risk % Change, 12M - By Region Sorted by Investment Grade, Wales and the South East show the largest deterioration with East and West Midlands showing improvements by a similar magnitude. Scotland is ranked 3rd but shows the largest increase in High Yield risk. East Midlands shows the largest divergence between Investment Grade and High Yield. Overall, 5 of the 11 regions show divergent directions between the two credit categories, with High Yield showing slightly more volatility. Combined with the previous charts, this suggests that regional economic effects may be offset by national or inter-nation credit trends which will be more industry-driven. The table below shows credit profiles and average default risks by region, across Corporates and Financials, plus recent PD changes and borrower numbers. Credit Profile Table: Corporates & Financials by Region Average[3] default risks in every region are in the High Yield category, with the ‘bb’ category dominating, especially in the North East, Wales, and the East Midlands. West Midlands has the highest default risk, 60% above the North West, ranked 2nd. London and Scotland are the lowest, with the latter possibly reflecting a disproportionate impact of the UK’s 2nd largest capital city. Wales has the highest proportion (2.9%) in the ‘c’ category, which is the source of most (60%+) of actual defaults. North West and South West are also high, with more than 1.5% in the ‘c’ category. The PD changes show increasing risk in all regions over 12, 6 and 3 months except Yorkshire & Humber (all periods), West Midlands (12 months) and East Midlands (3 months). Wales, Scotland, South East and East of England show the largest increase over the past 12 months. The table below shows the balance between Deteriorating and Improving Credit Consensus Ratings (Corporates and Financials combined) by region. This give some indication of future trends in default risks. Net Downgrades % By Region In recent months, the North East shows the highest bias towards rating downgrades (it also has the highest 6-month total) followed by West Midlands. Both are positive over 12 months so the downturn is recent. North West and South West are next highest and have been consistently biased to downgrades. South East, East of England, Scotland and Wales are also biased to downgrades over each period but previous high totals are easing. London and Yorkshire are improving over all periods and East Midlands has recently turned positive. The final chart looks at counties as well as regions in sector detail. Sample sizes are generally smaller so the focus here is on 18[4] sectors with a high ‘c’ category measure, which indicates vulnerability to spikes in default rates. The ‘c’ category is typically the source of two-thirds of annual observed defaults and any borrower in the ‘c’ category has on average a 1-in-4 probability of defaulting in a typical year. County Sectors with highest % in ‘c’ category (Elevated risk of defaults next 6-12 months) Two of the highest risk sectors are in Essex – Heavy Construction and Consumer Goods. Hampshire and East England Construction also appear, with South East Real Estate a high related risk. Trucking in the South West and Industrial Transportation in the North West are also high risks. Industrials in Gloucestershire, Cheshire and Dorset also feature. The other sectors in this chart are mainly in consumer-focused segments, but London Broadcasting and Scotland Food Producers also make the list. Conclusion UK economic growth and employment are expected to be higher than the EU bloc in 2025, but volatile inflation plus the budget deficit are obstacles to rapid rate cuts while the current account remains a challenge. While the trade deal with the US means that the UK avoids a major tariff hit, global economic trends suggest that default risks will continue to rise. However, the data in this report show that within the UK, the regional impact will vary. Appendix 1 - PIT / Impairment Benchmarking Service The PIT / Impairment Benchmarking service is published quarterly, providing consensus company-level and sector level impairment PD term structures. The Credit Benchmark impairment dataset enables you to compare your PD term structure performance against the other banks contributing to the Credit Benchmark dataset. Comprehensive data output is provided in a set of data files along with an accompanying report summarising high level analysis. The output can be used to analyse whether your impairment curves:The output can be used to analyse whether your impairment curves: Change in-line with other banks Are more conservative or aggressive compared to the other banks The output can also be used to: Benchmark quantitative stage allocation rules Benchmark the impact of scenarios Identify anomalies in PD term structure behaviour This service is delivered via our WebApp inbox or via Standard Secured Channel. PIT Coverage Tree Map Appendix 2 - UK Credit Consensus Coverage Map by Region Download Please complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report[1] Total CB UK Credit Consensus universe covers 17,700 obligors, with history dating back to 2015. [2] Regional Trend data is also available for London, Scotland, Wales and Northern Ireland. Northern Ireland is excluded from the subsequent tables due to small sample size. [3] Geometric average. Midpoint PDs arithmetically weighted by Credit Profiles will give a higher 1-year PD. [4] Followed by a long tail of sectors with similar levels. ### Webinar: Powering Smarter Risk Insights Unlocking Smarter Credit Risk Monitoring: Highlights from Our Product Webinar WATCH WEBINAR You can now watch Credit Benchmark's July 2025 product webinar, where we walked through the latest updates to our platform and shared practical tips on using our data for early warning indicators. The session covered: Weekly data updates and how they support more timely credit risk monitoring New tools like Portfolio Lens, offering fresh ways to explore portfolio-level trends A preview of upcoming features, including self-service portfolio uploads and a new risk sentiment index launching in September If you're interested in how peers are integrating consensus credit data into their frameworks, or want a closer look at what’s new in the platform: Watch the full session to learn more. ### Credit Spotlight on Tariffs: The Wider Impact Download PDF Tariff threats are reshaping global credit risks, exposing sectoral and regional vulnerabilities. Tariff proposals have already triggered investment shifts, trade disruptions, and significant rises in corporate default risk globally. Forestry, Transport, Retail, and Basic Materials are facing rising pressures; some sectors like Airlines and Gold Mining show improvement. Countries like Ireland, Mexico, and Canada see increased credit risk, while others adjust via new supply chains and sectors. US tariff proposals announced on 2nd April are on pause till this month, but have already led to a string of trade deals and impacts on investment decisions, trade flows and credit risks. The tree map below shows the 50 largest 3-month increases in default risk by Country and Sector according to Credit Benchmark’s credit consensus indices. Top 50 Increases in Default Risk Since March 2025 - by Country / Sector Paper and Forestry across North America and Europe stand out – continuing trends highlighted in consensus data in May. Transportation Services, especially Trucking, were also major casualties of the air pocket in Chinese export flows. Basic Materials including Chemicals, Autos, Clothing, Alcoholic Drinks, Farming/Fishing have also continued to deteriorate; most of these were also highlighted early in consensus analytics. Retailers are also beginning to appear on the list – even at the base tariff level of 10%, Retailers are often the shock absorber, seeing further squeeze in their already thin margins. The below chart shows the change in average Corporate default risk (Probability of Default; PD) for selected countries over the last 3 months according to Credit Benchmark’s credit consensus dataset. 3-Month Change in Average Default Risk, March-May 2025 The US is close to the mid-point, with a slight PD increase of 1.3%, just above China at 1.1%. For context, over the same period in 2024 US Corporate risk increased by 1.5%. Mexico and Canada, both early targets of the new trade regime, have seen Corporate default risk ticking up by 2.2% and 1.9% respectively. Brazil and Chile are unchanged. The biggest loser is Ireland, with a 5.2% increase in credit risk (+0.8% in the same period last year). Ireland’s business tax regime has made it historically attractive to US companies, especially in the Pharmaceutical sector, but tariffs could cancel that advantage. Across European countries, corporate credit risk has deteriorated in the past 3 months. After Ireland, the largest increases in risk are in Norway, Sweden, France, Poland and Belgium. Only the Netherlands has emerged unscathed. There is not much evidence of an EU/non-EU split, reflecting the highly internal overall European trading bloc. The UK, for example is between Mexico and Canada. In Asia, Korean corporate risk is up 3.4, Japan up 2.3 and Taiwan up 1.3 – all higher than China. Singapore shows little change. The United Arab Emirates has also improved slightly. Specialized financial centres also show improvements – Mauritius, Cayman Islands, Bermuda. Luxembourg is the exception, clearly not immune to European headwinds with a slight increase in PD. Global Sectors Reveal Some Key Divergences Top 25 Global Sectors, Increasing PD Over 3 Months Major losers are Forestry, Office Equipment, Tobacco and Beverages, Retailers, Clothing, Autos, Transport, Iron & Steel and Basic Materials, Fixed Line Telecoms, Integrated Oil & Gas. Timber and Steel tariffs are already in place, while retailers are seeing margins squeezed across multiple product lines. Platinum has been hit by the confusion over smart phone tariffs. Net Downgrades follow a similar pattern suggesting that the next few months will see existing trends continuing. Exceptions are Tobacco and Soft Drinks, which may bottom out; while Platinum and Apparel Retailers look set to see more rapid deterioration. Top 25 Global Sectors, Decreasing PD Over 3 Months Risk Improvements are concentrated in Construction & Building, Equipment sectors (Electronic, Electric, Oil, Health Care, Technology Hardware) as well as Travel, Airlines, Hotels, Marine Transportation, Delivery Services, Utilities, Media and Gold Mining. This seems to reflect adjustment to new supply chains, shifts in manufacturing bases, changes in vacation plans, and some risk aversion renewing demand for gold. Net Downgrades are less correlated with PD improvements; sectors likely to see the strongest continued improvement include Oil Equipment, Airlines and Non-Durables. Delivery Services and Furnishings are stabilising after a wave of downgrades, while some of the Equipment sectors may have reach a peak of improvements at least for the short term. Conclusion Credit Benchmark’s Credit Consensus data shows that tariffs have had an impact even before their full implementation, and in some cases that impact is significant. The overall trend is towards higher credit risk, but some global sectors have improved as consumers and businesses anticipate the changes that are already happening or likely to unfold soon. Credit Benchmark provides detailed information on Regional, Country, Industry, Sector and Subsector default risks. Bespoke indices include High Yield vs Investment Grade, Private vs Public, and Rated vs Unrated. Users can track portfolios down to the single name level with weekly alerts. Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg, Snowflake and AWS. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  DownloadPlease complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Credit Benchmark Launches PortfolioLens™ to Deliver Customized Credit Risk Insights at Scale LONDON & NEW YORK--Credit Benchmark, the leading provider of consensus-based credit risk data and analytics, today announced the launch of PortfolioLens™, its new analytics platform designed to deliver instant, portfolio-level insights on credit exposures and emerging risks - even for unrated and opaque counterparties. What began as bespoke client reports shaped by customer needs has now evolved into a full-scale analytics engine. PortfolioLens™ empowers credit and risk leaders to see their entire portfolio with unprecedented clarity - reducing time spent managing spreadsheets and delivering critical insights in seconds. “Financial institutions face increasing pressure to defend models, validate credit assumptions, and make faster, better-informed decisions in the face of rising uncertainty,” said Michael Crumpler, CEO of Credit Benchmark. “PortfolioLens™ is purpose-built to solve those challenges - delivering tailored, defensible insights at scale and putting Credit Benchmark’s unique consensus data to work in our clients’ decision-making processes.” PortfolioLens™ Key Benefits: Faster Onboarding: Accelerate decision-making with pre-validated consensus ratings contributed by 40+ global banks. Deeper Visibility: Benchmark unrated entities across sectors and geographies, enhancing analysis of private or opaque counterparties. Proactive Alerts: Monitor Early Warning Indicators and credit migrations in real time, supporting a robust control framework. PortfolioLens™ meets the critical needs of credit and risk teams. It accelerates underwriting, closes visibility gaps on unrated entities, and cuts assessment times from days to hours. With peer-based insights, external model validation, and broad coverage, it delivers regulatory-ready data via API, dashboards, or workflow tools. PortfolioLens™ is designed to scale seamlessly across global portfolios, providing risk teams with customized reporting that saves hours on data cleaning and dashboard creation while strengthening governance and auditability. “Banks, asset managers, insurers, and corporate lenders need complete, reliable credit intelligence,” said Crumpler. “PortfolioLens™ is our next step in providing them with the tools they need to support stronger, more defensible decisions.”   About Credit Benchmark Credit Benchmark is the leading provider of consensus-based credit risk data and analytics. Through its unique approach, Credit Benchmark aggregates and anonymizes the internal credit risk assessments of over 40 of the world’s largest financial institutions. These contributions produce Credit Consensus Ratings on over 115,000 obligors across 160 countries and all major sectors - five times the coverage of traditional rating agencies. By delivering one-year, forward-looking Probabilities of Default (PDs) alongside analytics such as credit transition matrices, sector correlations, and benchmarks, Credit Benchmark equips financial institutions to improve risk management, support regulatory compliance, and optimize capital allocation. Its data is trusted by major global banks, asset managers, insurers, and corporates to benchmark internal ratings, validate models, and gain critical transparency into unrated and private counterparties. Founded in 2015, Credit Benchmark has offices in London, New York, and Bangalore. Credit Benchmark. A differentiated view of risk.   Contacts Laura Saville, Credit Benchmark Marketing info@creditbenchmark.com +44 (0) 20 7099 4322   Read press release here.    ### Risk.net: Credit Benchmark wins Credit Data Provider of the Year Credit Benchmark has been recognised as Credit Data Provider of the Year by Risk.net in the Risk Technology Awards which took place in London on 18 June 2025."Credit Benchmark distinguished itself for its innovative, consensus-based approach to credit risk assessment and broad coverage of private and unrated entities...Credit Benchmark’s success lies in its innovative approach to credit data. The company has developed a robust methodology that aggregates internal credit risk assessments from leading global banks, creating a consensus‑based view that is both objective and credible." Risk.net, June 18, 2025.View original article (external link). ### From Blind Spots to Strategic Insight: Mastering Private Credit Risks DOWNLOAD PDF From Blind Spots to Strategic Insights: Mastering Private Credit Risks Higher default rates in private credit have highlighted the need for enhanced investor scrutiny. With the Corporate segment of the market nearing $2 trillion and set to double, risk leaders face a pressing challenge: private credit remains opaque, making default risk assessment difficult without better data. Credit Benchmark tackles this by aggregating anonymized, bank-sourced consensus ratings, providing unique, forward-looking insight into private credit risk. This data bridges crucial gaps, offering clarity and control where it’s most needed. Key Benefits: Unique Transparency: Proprietary consensus data reveals hidden risks beyond traditional ratings. Actionable Insights: Supports regulatory needs and capital efficiency for CROs and investors. Accurate Risk Pricing: Improves spread accuracy, avoiding mispricing. Enhanced Forecasting: Powers proactive portfolio modeling and risk management. Overview Private Credit provides companies with debt financing options via private credit funds. But banks remain integral to private credit primarily for supporting liquidity and at times, providing some leverage to the funds. Additionally, banks are playing roles in originating Private Credit financings, the providers of debt are market participants such as insurance companies and pension funds that are well placed to hold them to maturity. In this paper, we review holdings information for 13 private credit funds and use the Credit Benchmark consensus default risk database to assign risk ratings to those holdings. This gives a credit profile for each fund and a subset of these are plotted in a wider risk-return framework. Executive Summary Out of 2,476 loans across 13 Private Credit funds, 1,241 are loans to unique companies and 1,187 (96%) of these have at least one default risk estimate in Credit Benchmark’s consensus database. The majority of these loans are from issuers rated in the ‘b+’ or ‘b’ categories, implying 1-year default risk in the range of 255 Bps to 650 Bps. The median loan spread over risk free is 525 Bps, with more than a third of the spreads in the 500-600 Bps range. Average spreads by fund range from 400 Bps to more than 600 Bps. While Private Credit fund holdings have high default risks, actual average fund spreads offered to investors are slightly higher than the equivalent expected OAS spreads for that risk level[1]. The market in Corporate private credit is worth close to $2trn; current trends point to that doubling in 5 years. The chart below shows the range and scale of other private credit types. Financing the Real Economy with Private Credit Source: BlackstonePrivate credit represents less than 10% of the $25trn current total, but is growing rapidly. Private Credit funds can point to a long track record of stable returns which is often attributed to high post-default recovery rates and low loan-to-value ratios. How does private credit score on key risk dimensions? Credit Risk – ratings may not exist, be private or be unavailable Market Risk – higher interest rates pressure debt service burdens, tending to make default risk higher; economic downturns may have a more marked effects on heavily indebted borrowers. Liquidity Risk – investments may have time horizons of 3 to 5 years or longer; the longer investment horizon of insurance companies and pension funds mean private credit funds, but it can also leave the underlying lenders with no choice but to hold to maturity even if their investment stance changes. Information Risk – the market has less transparency than listed equities or bonds. If problems do develop, it may take time for these to become fully apparent, raising systemic risk issues. Diversification may be difficult to achieve if the entire asset class falls out of favour, but concentration risks may not be obvious during normal economic conditions. In addition to the lower visibility on private credit risk ratings, creditor behavior toward troubled borrowers has undergone changes. At a recent NYU Stern lecture, Professor Edward Altman[2] warned that record private credit issuance, tight spreads and easy liquidity may be masking default pressure, thanks to a growing prevalence of PIK structures and the willingness of creditors to arrange loan modifications and/or exercise loan take-outs that result in bringing in new investors, while leaving original investors with haircuts. While high-yield bond defaults remain near record lows, 2024 has seen one of the highest bankruptcy counts in decades. The consensus default risk charts below show all private (not just private credit) borrowers in the Global Corporate universe are typically higher risk than their public counterparts. In the past 12 months, private borrowers in this universe have seen credit risk deteriorate faster than public borrowers. Credit Trend: Global Corporates - Private vs. Public Credit Profile: Global Corporates - Private vs. Public Publicly Available Private Credit Fund Holdings Data To focus on credit risk in the private credit segment[3], the consensus dataset is now being cross-referenced with EDGAR / SEC filings for private credit funds. This growing dataset currently covers 13 funds and 2,476 loans filed over the past 18 months. Of these, 2,029 are recognised (mapped) in the Credit Benchmark database, but only 1,241 of these are unique due to multiple loans to the same borrower (with possibly different inception dates and maturities) or multiple funds holding the same loan. 1,187 have at least one current bank estimate of default risk. These charts show the geographic and industry mix: Private Credit Consensus Dataset: Industry Split Private Credit Consensus Dataset: Geography Split These funds are concentrated in Industrial, Financial, Health, Consumer, and Technology –sectors that S&P report have tended to have higher recent default rates. The next chart shows the credit profile for 1,187 borrowers with at least one default risk estimate[4]. Credit Profile: Private Credit Issuers with ≥ 1 Default Risk Estimate The majority are ‘b+’ or ‘b’ but a significant number are in the ‘bb’ category. The ‘c’ rating categories are about two-thirds of the ‘bb-’ total. A small number are in the investment grade category (including a very small % in the ‘a’ categories.) This chart shows the range of spreads over benchmark (risk free) indices for 2,821 (for which spreads are available, but credit ratings are not available) loans across 13 private credit funds for a range of SEC filing dates in the past 18 months. Spread of Loans by % Points Above Index The sample median spread is 5.25%; while the majority of spreads range from 4% to 7%. The single largest category (more than a third of the sample) is the 5% - 6% range. The next chart shows the average spread over benchmark for 13 funds. Average fund spreads vary from around 4% to just over 6%. Private Credit Spread: Average by Fund The following chart shows credit profiles for 7 of the largest (i.e. large samples of holdings) private credit funds. Credit Profile: 7 Largest Private Credit Funds The ‘b’ category dominates and only Fund A has more than 10% in the ‘c’ category. The next chart plots real world default risks against the wider Credit Benchmark universe for a large number of sectors, and compares them with approximate OAS spreads for 3 historic dates based on the credit profile. The subset of private credit funds from the previous chart are plotted below as blue triangles. Green triangles are the actual spreads over risk free for the same funds. Market Price of Risk (Spreads) vs. Real World Default Risk Sources: Credit Benchmark, Factset, FT, St. Louis Fed[Top line = May 2022 / Bottom line = Dec 2023 / Mid line / scatter = April 2025] This chart shows real world 1Y default risks for these private credit funds in the 4.8% - 5.8% range. If private credit fund holdings were liquid and traded and could be priced like HY bonds, investors could expect spreads are in the range of 4.5% to 4.8%. Actual spreads vary between 4% and 5.5%. The differences are mainly due to mixed terms and inception dates for holdings, liquidity premiums and loan to value adjustments. But they may also indicate anomalies and mispricings, especially because default risk data is sparse or unavailable for many of these holdings in the absence of consensus estimates. Conclusion If bond spreads rise materially above current levels, private credit spreads will have to follow suit. This will maintain their appeal for private credit investors, but the higher funding rates will require enhanced vigilance over borrower credit risk.Consensus-based insights from Credit Benchmark are the key to mastering this shifting landscape. Partner with Credit Benchmark to transform how your organization assesses and manages private credit risk. With unique data insights and industry-leading analytics, we empower finance leaders to navigate uncertainty with clarity and conviction. Appendix 1: Using Credit Benchmark Data for Private Credit Portfolio Risk Modeling and Optimization Mapping to ratings: The consensus database can be used to establish a single name credit rating, updated frequently, with a large peer group of similar names and various metrics to add comfort and credibility. Credit Profiles: These ratings can be used to model your portfolio in terms of credit profile (i.e. exposure to aaa/aa/a/bbb/bb/b/c categories). Proxies: In the absence of full coverage, proxies can be used. Generally, coverage of 50% or more will usually be representative of the overall credit profile shape of the portfolio. Indices: Portfolios can also be modelled by mapping identified holdings (often 80%+) to the very long and growing list of Credit Benchmark indices (e.g. “US Private Unrated HY Autoparts”) and assigning portfolio weightings. Monthly data back to 2015 supports scenario planning and event studies. Transitions: With the large library of Credit Benchmark transition matrices, it is possible to project likely portfolio profile and default rates for future time periods. For example, the matrix below represents transitions for Global Corporate borrowers over the past year: Credit Rating Transition Matrix: Global Corporates Correlation Matrix: Global Corporates Correlations: A range of portfolio risk measures can be derived from correlations between indices (above chart) different exposures, such as portfolio volatility over different time periods and scenarios, plus Historic Simulations to potential skew in risk profiles. Excel worked examples are available. Pre-Trade: Proposed private credit trades can be modelled using the risk-return framework outlined in this paper, based on a combination of Credit Benchmark consensus default risk data and EDGAR filing spread data. Appendix 2: Private Credit Stakeholders Map Source: Edward Altman, “Unlocking the Credit Cycle: Insights into Leveraged Finance and the Rise of Private Debt,” Thought Leadership Faculty talk, NYU Stern, May 9, 2025.Credit Benchmark offers readers a complimentary and fully confidential coverage check report plus a fund-specific version of the risk / return plot on page 4 on your private credit names of interest. Contact us at info@creditbenchmark.com to request this or to learn more about how our data can support your business.We would like to acknowledge the major contribution by Wanxuan Li from Columbia University who developed software for extracting and standardising the EDGAR filings data used in this paper. Download Please complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report[1] This marginally higher fund spread may be due to (1) volatile credit risk (2) lack of liquidity (3) loan to value adjustments (4) maturity & vintage differences. In addition, private credit recovery rates have so far been very strong, making fund spreads optically higher. [2] Edward Altman, “Unlocking the Credit Cycle: Insights into Leveraged Finance and the Rise of Private Debt,” Thought Leadership Faculty talk, NYU Stern, May 9, 2025. [3] Note that some “private credit” borrowers may have public equity listings. [4] 70% of these are rated by more than 1 bank. FAQ Q: What are the biggest risks in private credit today? A: Key private credit risks include high default potential, low transparency, limited liquidity, and weak covenants. These factors can lead to mispricing and systemic exposure.   Q: Is private credit a systemic risk to the financial system? A: Some experts, including Professor Edward Altman, warn that unchecked growth, lax underwriting, and limited oversight could pose systemic challenges—especially in downturn scenarios. ### CVA: Applications of Credit Consensus Ratings Consensus data enables more accurate and comprehensive credit valuation adjustments (CVAs) especially for counterparties lacking traditional credit ratings. Credit Benchmark (“CB”) delivers a unique, data-driven approach to credit risk by aggregating the internal risk views of over 40 global banks, creating anonymized, consensus-based Credit Consensus Ratings. With 115,000 forward-looking ratings across 160 countries, five times the coverage of traditional credit rating agencies, Credit Benchmark addresses a data gap commonly experienced in addressing credit valuation adjustments to derivative contracts. Features of Credit Benchmark dataset include:115,000+ credit consensus ratings (CCRs) (90% of data are unrated today by CRAs).PDs sourced from 40 banks, nearly half of which are GSIBs.130,000 bond and loan ratings representing $34T (available via Bloomberg).1,200 industry and sector credit indices which can be expanded to IG/HY.Weekly updates to dataset, with 10 years of history with month-end date stamps.A CVA (Credit Value Adjustment) is a valuation adjustment to a derivative contract’s recorded value to account for potential losses in the event of a counterparty default.CVA, and the frameworks that bank regulatory bodies have set for the management of CVA, make it a complex topic, with implications for bank capital management commonly measured in tens of billions of dollars. And because CVA has been codified in IFRS and GAAP accounting standards, the topic must also be addressed by non-bank financial institutions engaging in derivative transactions that are material to their financial statements. The credit strength of financial, commodity, and supplier counterparties can be measured in a variety of ways, which tends to be more complex when in the absence of any credit rating history.The usual approach to estimating a CVA is:Estimate future potential exposure(s).Source market derived or credit rating equivalent spread(s) (the market element is critical – the CVA needs to approximate the current cost of insuring against default).Calculate expected default losses, with an allowance for recovery. How do banks source inputs to estimate counterparty CVAs? Banks often use a “waterfall” approach to data sourcing. A common order of preference:CDS spreads: these are universally accepted by regulators so they will be used where available and current.Bond price-derived spreads: these may be closely linked to CDS but may need adjustments depending on seniority, security, optionality, term, etc.Rating agency credit ratings: they allow the bank to map each counterpart to the relevant credit rating and hence to a CDS or bond spread; but they do not remove the need for spread data.Proxies (country/sector matrices) if direct data is unavailable: these can help in two ways: (1) no spread available – use country / sector / maturity samples and interpolate (2) no rating available – use country / sector credit profiles to gauge likely credit rating. The more granular the credit proxy data, the better.The schematic below shows the ranking of Credit Consensus Ratings in the CVA waterfall. If public ratings are available, they will provide some corroboration, but for unrated and private assets the consensus rating may be the main data source. Figure 1 - Waterfall Example What are the challenges? Inaccuracies, estimations and theoretical concepts impact risk estimates, pricing, and capital allocation. Challenges arise when:Counterparties have no observable, traded CDS or bond prices.Market spreads may be inappropriate for some private assets, even if CRA private ratings are available.CRAs do not provide ratings.Internal bank ratings may be restricted by public/private information barriers.Proxy ratings (from country/sector matrices and credit profiles) may have wide margins of error.Credit Benchmark Credit Consensus Ratings may assist CVA practitioners across the CVA process. Existing CVA frameworks used by large and systemically important banks can involve complex, quantitative designs, tight controls, meticulous approvals, and highly specified inputs, which may or may not leave room for credit ratings. Even when inputs of a CVA model or framework do accommodate credit ratings, the type or nature of the credit rating may require analysis and approvals.Where CVA models or frameworks may not have direct credit rating inputs, linkages between a Credit Consensus Rating and other inputs may be contemplated in the approaches below. The approaches are not recommendations, but demonstrate techniques that CVA practitioners can contemplate for meeting the requirements of their regulatory, risk, and accounting environments. Credit rating as an input to produce market implied CDS spreads In this example, a CDS spread is modelled via a simple fitting using CB Credit Consensus PDs.Beginning with a pool of quoted 5-year CDS for large companies, and their corresponding CB ratings, an OLS line is generated, showing relationship of 61.96 + 0.48 x Real World PD between the two variables. Despite the tenor difference, a 1-yr PD and CDS would be expected to hold some measure of interrelationship, which is seen in the plot in Figure [2]. Where a maturity-match is required between CDS prices and PDs, extrapolating the 1-yr PD to a five-year estimate can be performed.The regression fit of 57% is significant, but larger CDS samples, non-linear fits, and filtering of outliers and stale prices may improve the R-squared term. Figure 2 - CDS Spread vs. Real World PD Credit rating as an input to a market implied corporate bond spread This is a similar concept to the CDS case, but the output variable is a corporate bond market option adjusted spread (OAS).The curves in the below chart are fitted from CB US corporate aggregates. Each aggregate has a distribution of rating categories, which are treated as weights. For example, if the US software aggregate has 43% ‘b’ graded entities, .43 is multiplied by OAS of the ICE BofA ‘b’ index. The sum of all OAS’s across the rating grades leads to a plot average PD relative to the summed OAS. The process is repeated for all sectors, creating 130 points, which are fitted to a curve. A CVA desk can enter the graph using a PD (x-axis) and read a corresponding the market implied spread from the y-axis.An end-month fitting was conducted in January 2025 and again in April, demonstrating the credit widening occurring between the two periods. Figure 3 - US Market Implied vs. Real World Jan & April 2025 If a CDS spread is needed, a recovery assumption may be applied to convert the estimated OAS to a CDS spread.If a maturity match between PD and OAS is required, further assumptions would be needed to convert the Credit Benchmark 1-yr PD to the desired tenor. Proxy approaches If only the counterpart sector is known, then the plots shown previously can be used to give an initial estimate for weighted average PD and OAS spread. PD and OAS ranges for sector constituents can be plotted as cross-hairs to give some confidence ranges for this proxy approach.PDs can also be estimated from credit profiles. Credit consensus data is especially valuable here, because the coverage across unrated and private counterparts in multiple countries and sectors supports a large range of credit indices. This gives more accuracy in the proxy approach. Figure 4 - Credit Profile: Mexico Consumer Goods If no market data or default estimates are available, banks can estimate the most likely rating from the credit distribution of the counterparty peer group.The credit profile shown here for Mexico Consumer Goods gives a 45% chance that a randomly chosen counterpart is in the bb category, and 90% likelihood of being in the range of bbb to b.More granular profiles are available, with 21 or even 100 PD categories. The proxy PD can then be used in the CDS or OAS approaches outlined above.Country and sector credit profiles are updated monthly. About Credit Benchmark Credit Benchmark’s mission is to enable global financial market participants to make better-informed decisions. Founded in 2015, Credit Benchmark is the leading provider of consensus-based credit risk data and analytics. By aggregating and anonymizing contributed credit risk views from over 40 global financial institutions, CB delivers unique, real-time insight into obligor creditworthiness. With coverage spanning 115,000 entities - 90% of which are unrated - Credit Benchmark offers critical intelligence that enhances internal risk analysis, supports capital efficiency, and helps institutions make better-informed decisions. Trusted worldwide, Credit Benchmark provides a vital alternative to traditional ratings, combining the collective expertise of global credit experts into a single authoritative view.Contact us at info@creditbenchmark.com to speak with our team and learn more about how our data can support your business.Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  ### Podcast: Tariffs, Trade Wars, and the Credit Risk Reckoning Trade tensions are creating new credit challenges. How prepared is your risk strategy? LISTEN ON GARP.ORG Michael Crumpler, CEO, Credit Benchmark and Jon Hilsenrath, former Wall St. Journal senior writer and founder of Serpa Pinto Advisory joined Katherine Wolicki, Global Head of Engagement and Outreach, GARP Benchmarking Initiative (GBI) on GARP's podcast series to examine early warning signs, strategic responses, and innovative risk management approaches needed in today's volatile trade environment. This podcast explores the intersection of trade policy and credit risk, offering insights for senior risk managers navigating an increasingly complex global landscape: Rising Credit Risk: How tariffs are reshaping the credit risk landscape across key global sectors and what early warning signs risk officers should be tracking. Capital Allocation Strategies: How CROs and portfolio managers should reframe risk appetites given significant credit deterioration in vulnerable sectors. Data-Driven Decision Making: The role of alternative data and credit consensus insights in scenario planning and stress testing for portfolios exposed to supply chain shocks and regulatory retaliation. Central Bank Response: Potential actions the Fed and ECB may take given impacts of tariffs on inflation, Treasury yields, and economic uncertainty. The original research discussed in this podcast can be found here. LISTEN ON GARP.ORG ### Perspectives on Risk: Expert Voices in Financial Resilience with Richard Berner https://youtu.be/tGntphVmTN4Richard Berner, former Director of the Office of Financial Research and Co-Director of NYU’s Volatility and Risk Institute, speaks to Credit Benchmark’s Christa Ancri on navigating systemic fragility, trade shocks, and the evolving role of credit risk in building a more resilient financial system. Navigating Financial Risk in Uncertain Times: A Conversation with Richard Berner In a recent episode of the Credit Benchmark's Perspectives on Risk podcast, our Global Head of Marketing, Christa Ancri, sat down with Richard Berner, Clinical Professor Emeritus at NYU Stern and former Director of the Office of Financial Research, to explore the evolving nature of financial risk, market volatility, and the importance of data-driven resilience.With tariff tensions, geopolitical unrest, and economic shocks continuing to rattle markets, Berner explained how these developments act as significant supply-side disruptions, exposing hidden fragilities in even the most liquid financial systems. He urged policymakers and institutions to remain vigilant, stressing that liquidity is more fragile than it appears, and that complacency during stable periods can be dangerous.A central theme of the discussion was the role of credit risk as a leading indicator. Berner emphasized how aggregated, forward-looking insights—such as those offered by Credit Benchmark’s credit consensus data—can reveal signs of stress before traditional market signals do. By capturing the collective risk views of leading global financial institutions, Credit Benchmark provides a unique lens into emerging credit trends, including for private or unrated entities, helping risk managers enhance stress testing, scenario planning, and capital allocation.The conversation also covered the rapid expansion of the private credit market, its links to traditional banking, and the growing importance of transparency and cross-sector risk monitoring in a highly interconnected system.Berner closed with a reminder that proactive risk management is more critical than ever. With uncertainty the only constant, financial institutions must stay alert, adaptable, and informed.Watch the full podcast above to hear Berner’s take on how institutions can navigate complexity, avoid complacency, and stay ahead of systemic risk. ### Credit Spotlight on US Technology Download PDF US tech stock valuations: focus on default risks may drive industry shakeout US tech stock are increasingly concentrated and volatile, while default risks in the sector have increased, especially among high-yield firms. Over 80% of major listed tech firms are investment grade, contrasting sharply with the broader sector. External pressures and balance sheet disparities may see significant restructuring for tech industry. The tech stock results rollercoaster continues, and tariffs are only one of many issues. The technology landscape changes daily with the latest AI developments, semiconductor supply concerns and cyberattacks; but some of the most reliable earnings streams are in mundane services like cloud computing and search engine advertising. Tesla shares have doubled and halved in just a few months, NVIDIA shares are up 10x since late 2022 but have slipped more than 20% since January. Microsoft stock has outperformed both of these in the past month. Overall technology investment 3-year returns are healthy (around +15% pa) but the stellar returns are volatile and concentrated in a small number of stocks. As the following chart shows, the Nasdaq 100 equity index doubled between September 2022 and February 2025; it is now 10% off its peak. Over the same period, average sector default risk according to Credit Benchmark’s US Technology index has increased 14% from 68 to 78 Bps. High Yield US Tech firms are up 24% from 171 to 212 Bps. Technology: Equity Index vs. Default Risk How do default risk trends compare with these equity moves? The chart above shows that banks contributing risk views to Credit Benchmark have become increasingly cautious about lending to technology firms, although these a trends are in line with US Corporates overall. Even the largest and highest profile technology companies show wide variation in debt-to-equity ratios – high-margin debt-fuelled growth can quickly repay heavy borrowings so balance sheet ratios are a rapidly moving target in this sector.   But if underlying tech growth stalls, and recent tech stock corrections are the start of a sustained trend, investors may put a higher value on balance sheet robustness. The chart below shows the current credit profile of 20 major or critical listed technology firms with Credit Consensus Ratings from Credit Benchmark. Credit Profile: 20 Major Tech7/AI Firms Most of these companies (>80%) are investment grade (vs 40% for the broader US Technology index). A third (7 companies) are not rated by S&P at the issuer level. This sample of publicly listed companies includes the “Magnificent 7”, various headline-grabbing semiconductor companies (mainly, but not exclusively US-based), plus a range of high profile AI-focused service providers. In the past 24 months, the credit profile and default risk for this group has been stable – against the modest deterioration in the broader US Technology industry plotted earlier. And as the following chart illustrates, the US Technology sector has a much higher % in the vulnerable c category – nearly double the US Corporate equivalent. Credit Profile: US Corporates vs. US Technology As tariffs change the landscape and the gap between winners and losers becomes more stark, there is scope for some major industry realignment. The divergence in balance sheet strength between the majors and the broader industry suggests scope for a shakeout. Credit Benchmark data shows credit quality in US and UK Technology sectors is holding up better than Canada or Asia, but both the US and the UK have a higher proportion of firms in the c category: Credit Trend & Credit Profile: UK vs. United States vs. Asia vs. Canada Technology Globally, software is the most stable segment while semiconductor credit has been dramatically underperforming: The Global Technology consensus index covers more than 1,300 companies, with a large coverage of unrated, high yield, and private firms. Consensus ratings, updated weekly, show which companies may be vulnerable, with additional metrics like range and skew of bank estimates plus depth of lender groups. Get in touch to schedule a demo. Credit Benchmark consensus credit data is updated weekly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg, Snowflake and AWS. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  Download PDF ### Italian Consensus Dataset Analysis Download PDF Credit Benchmark’s consensus credit data provides an unparalleled view of Italian default risk through a robust framework of over 3,700 credit risk aggregates covering more than 18,000* Italian corporates, financial institutions, and funds. This dataset spans 20 regions, 70+ sectors, and multiple credit categories and company sizes**, with historical depth dating back to 2017. Italian default risks broadly track the global aggregate, but are more volatile with major differences across regions and sectors. After a steep deterioration, most regions and sectors are showing strong recent improvement. The Investment Grade Corporate aggregate has been very stable, but (unusually) led the recent improvement. Banks have outperformed the main aggregates, Real Estate has underperformed. Calabria is the worst-performing region, with Lombardy the best (and a proxy for Italian risk generally). The bottom left chart shows recent trends for Corporates split into Italy High Yield and Investment Grade, with Global Corporates for comparison. The bottom right chart shows 7-category credit profiles by type for the Italian universe. Italian corporate credit is more volatile than the global aggregate, with a significant drop in risk in early 2024 followed by a steep climb in H2. These aggregates are now recovering again. Corporate and Financial credit profiles are very similar, with the majority in the ‘bb’ rating category. Funds are nearly all IG and mainly ‘aa’ or ‘a’ (mainly mutual funds, so the ratings are similar to global mutual fund ratings). Regional Credit Profiles Obligors (N), Probability of Default (“PD”). Highlighted cells show b >30%, c >5%, PD >1.5%. Highest c%: Basilicata 2nd highest c%: Calabria Highest b%: Calabria 2nd Highest b%: Sardinia Highest PD: Calabria 2nd highest PD: Sardinia Umbria has high c exposure but average PD. Campania has a high PD but b and c exposures are mid-range. Lowest PD: Trentino, Veneto, Piedmont, Friuli. Lowest c%: Piedmont. The table above shows regional credit profiles, obligor numbers, and average default risks. The PD changes in the last three columns show increasing risk in all regions except Trentino over the past 12 months. The 6 month changes also show more modest increases, but the (ascending) 3 month column shows risk dropping in 9 of the 20 regions. The following charts show the 4-month % balance between credit deterioration vs credit improvement for Corporates and Financials by region. Most regions show a 4-month bias to improvements, apart from Aosta and Sardinia. Fruili, Molise, Trentino and Veneto all show strong improvement. Financials show rising risks in Piedmont and Tuscany, but major improvements in Emilia-Romagna and Sicily. Corporate Segmentation and Sector Focus The bottom left chart shows cumulative PD change for Corporates vs Financials since early 2022. Financial risk is still rising but Corporate risk has been improving since Q4 2024. Large Corporates deteriorated more than SMEs, but both are now recovering. The bottom right chart shows Large, Mid and SME for High Yield (“HY”) companies (Corporates and Financials). Again, large firms show the greatest deterioration, Mid show the least, with SME in between. All three show recent stabilization / recovery and could start to close the gap with Investment Grade (“IG”). The bottom left chart shows that within Financials, Real Estate risk is up 15% since 2022, while Banks have improved by 15%. Insurance has tracked Corporates. The bottom right chart shows that Calabria has been the most volatile region with a near 15% deterioration since 2022, while Lombardy has been stable and shows no net change in risk; its is also a proxy for overall Italian Corporate risk. Abruzzo has tracked midway between these two aggregates. The table below shows aggregates with the highest 4-month deterioration. It also show significant PD deterioration over the past 12m, 6m and 3m. Indices with the sharpest recent deterioration are concentrated in Apulia, Sardinia, and Tuscany, particularly in Retail, Food & Drug Retail, and Consumer Services. Large HY entities in Industrial Engineering, Transport Services, and Industrial Suppliers also appear among the underperformers. Half of these indices are High Yield, and only one is Mid-sized—Large and SME segments dominate. Conclusion Despite trailing the broader EU bloc on growth, current account balance, and fiscal indicators, Italy’s recent credit data suggests emerging strength, consistent with the European Commission’s more optimistic 2025 outlook. Credit improvement will depend largely on the success of the Recovery and Resilience Plan, with consumer spending seen as the primary engine of growth. While US tariffs may challenge Italian exports, increased intra-EU trade could provide unexpected support. Notes on Report & Data The analysis within this report uses data that was produced prior to the recent US tariff announcements, but the impact of these policies are anticipated to be reflected in upcoming data updates. Please get in touch for more information or detailed analysis Credit Benchmark consensus credit data is updated weekly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg, Snowflake and AWS. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  Appendix 1 - Credit Benchmark Italian Consensus Coverage by Region Appendix 2 - Probability of Default (“PD”) by Region DownloadPlease complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report* Out of a universe of more than 27,000 single names with history dating back to 2015.** Using reported entity level revenues sourced from company financial reporting ### Global Credit Risk Rising as Trade War Starts: Credit Benchmark Data Show Download PDF Autos, forestry, trucking, soft drinks among sectors already facing internal bank downgrades The global credit outlook is deteriorating for a range of industries as international trade confrontation heats up, according to a study by Credit Benchmark, a credit risk analytics firm that tracks internal bank credit assessments on more than 110,000 public and private entities globally. Credit Benchmark’s “DIN” ratio of internal bank downgrades to upgrades deteriorated globally for corporate credits over the past 27 straight months. Net downgrades exceeded upgrades by 4% in the last four months. Credit Benchmark’s estimate of the average probability of default in the next 12 months among global corporate borrowers, at 0.55%, was higher in February than at any point in 2020 when the Covid pandemic disrupted the global economy. Banks have shifted their credit outlooks in many industries, including a number with highly integrated global supply chains, such as autos, transportation and building materials. Tariffs could disrupt these supply chains, weaken demand and squeeze business profit margins. Though global economic growth has generally been robust during the past few years, rising interest rates, high inflation and regional conflicts contributed to deteriorating credit outlooks in 2023 and 2024. It is evident that banks started to anticipate stress from trade confrontation in recent months. “Credit risk was rising across the globe before the trade war started,” said Michael Crumpler, Credit Benchmark CEO. “Those headwinds could now get stronger, especially in trade-exposed industries.” Global Corporate Probability of Default Credit Benchmark’s dataset provides risk professionals with unique, easily tailored insight into the credit landscape. Credit Benchmark uses internal bank ratings from a panel of dozens of large global banks and mid-sized banks to assess credit risk across their portfolios, including downgrade ratios and probability of default across a vast landscape of markets and industries. The study was conducted with Jon Hilsenrath, former Wall Street Journal economics editor and chief economics correspondent. Broad Regional Deterioration, Concentrated by Sector Deterioration in the credit outlook has affected many regions globally and has been concentrated in real economy sectors exposed to restraints on global trade, including autos & parts, forestry & paper, iron & steel, transportation, building materials, clothing manufacturing, retailing, furnishing and personal goods. The DIN ratio for Canadian forestry firms tracked by Credit Benchmark increased to 31.2% for the past four months, reflecting a strong bias in banks to downgrade firms in that sector. DIN ratios increased to 25.9% for U.S. auto and parts producers, 25.9% for Chinese technology firms, 25.8% for U.S. trucking companies, 25.5% for EU paper businesses, and 22.1% for Canadian industrial engineering business. 20 Global Sectors Experiencing Rising Credit Risk Many firms entered the period on relatively sound economic footing, having benefited from firm global growth. In addition, the financial sector is well capitalized. Probability of default for global financial firms, at 0.3% in February, was lower than for global corporates. However, the data do point to the risk of financial stress if global growth slows substantially or if the world economy enters recession. Stress in Canada, but the U.S. Is Also Exposed Canada was an early target of U.S. tariffs. Rising credit risk is evident for both U.S. and Canadian credit. For U.S. high-yield borrowers, probability of default is now higher than it was at any point during the Covid crisis of 2020 and downgrades have steadily outpaced upgrades. In the chart below, red bars signal rising downgrade ratios and green bars signal falling downgrades (i.e. improvement). A U.S.-Canada trade confrontation could negatively affect industries on both sides of the border. The DIN ratio for high yield Canadian auto suppliers is up to 21.7% over four months, with average probability of default in the next year rising to 1.3%. Over the same period, U.S. automobile suppliers have experienced a 22.2% net DIN ratio and an increase in probability of default to 2%. Other industries – including oil & gas, forestry and farming & fishing -- have experienced more lopsided changes in the credit outlook. For instance, conditions have worsened more rapidly for Canadian foresters than U.S. foresters, but more rapidly for U.S. oil producers than Canadian. The Cost of Hedging Credit Risk Is Rising It paid for banks to be ahead of the curve hedging their portfolios for the worsening risk environment. Research by Credit Benchmark shows that for US Corporate sectors, the cost of hedging versus real world credit risk has shifted up by about 40 basis points in April versus January 2025. The cost of hedging an additional 100 basis points of default risk has increased from about 60 basis points to 110 basis points. Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg, Snowflake and AWS. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  DownloadPlease complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Evolving Opportunities in the SRT Market Download PDF Evolving Opportunities in the SRT Market This is the first joint update on the Significant Risk Transfer (SRT) market from Credit Benchmark and Oxane Partners. In this update, we examine key market developments and emerging trends across the SRT landscape, and analyze how investors can continue to execute, monitor, and manage SRT investments effectively amidst evolving market dynamics.   SRT transactions have become a valuable tool for banks aiming to optimize regulatory capital and diversify risk. The SRT market is currently approximately $80B outstanding, and loans linked to these transactions have reached $1T, of which two-thirds have been in Europe[1]. SRT trades offer investors attractive risk-adjusted returns and diversification through exposure to portfolios of bank loans without the operational burden of managing and servicing these loans.   The European SRT market is relatively mature due to early adoption and regulatory clarity. The US has lagged because of regulatory uncertainty. However, US banking regulatory clarifications in September 2023 have added impetus to SRT issuances in the US[2], with estimates of the US market now representing about 30% of global share. Let's explore the key developments and trends shaping the SRT landscape. Structural evolution and nuances of SRT trades Special Purpose Vehicle (SPV) - Credit-Linked Notes (CLN) structure: With the simple, transparent and standardized (STS) framework in Europe, and prior precedent risk transfer practices in the US, this transaction structure uses a bankruptcy remote SPV and either a guarantee or credit derivative between issuer and the SVP to isolate the transferred credit risk and minimize the counterparty credit faced by the investor.   Direct CLN: The note purchase proceeds serve as collateral against credit losses; however, without an SPV between the issuer and investor, the originating bank retains higher control over note proceeds. To account for the distinctions in risks of direct CLNs, investors will monitor the issuer’s credit ratings and Credit Default Swap (CDS) spreads to assess counterparty risk.   Tranche and funding approaches: With varying levels of information on underlying credits, disclosure/reporting distinctions, and (at times) a paucity of data, investors may have considerable assessment challenges. Furthermore, nuances on replenishment pools, amortization structures, and call options are also evolving across SRT trades. Mezzanine tranche investments are gaining traction, and retained junior notes must be accounted for in transaction valuations. Modeling cashflows according to these structural nuances is pertinent to forecast loss coverage and coupon payments. These structural differences in trades necessitate robust data, and sophisticated modeling and valuation approaches to accurately capture the right assumptions, nuances of payment waterfalls and loss allocations. The valuation modeling approach adopted needs to be flexible and comprehensive to deal with complex payment waterfalls and loss appropriations. Competition The SRT market is experiencing significant growth on the investor side while issuers remain predominantly unchanged—limited to large banks with established track records in SRT trades and securitizations. This skewed supply-demand dynamic has led to spread compression, even as underlying credit fundamentals have remained relatively stable. As competition intensifies, investors must regularly track market dynamics, and risk adjustments on yields should account for changes in the market environment.   In response to these competitive pressures, some investors are developing strategic partnerships with key issuer banks, creating value for both parties. As competition affects transaction terms, investors need to differentiate themselves and find competitive advantages. Some investors are now trying to find relative value by evaluating more complex transactions—those involving novel asset classes, relatively riskier portfolios of proven asset classes, or structures presenting distinct challenges. To enhance valuations and monitoring capabilities, investors can partner with independent service providers who provide comprehensive market insights and data analytics, enabling deeper understanding of nuances for informed investment decisions. Diversification and disclosures of reference pools Reference pool composition: The composition of reference pools in SRT transactions has evolved significantly in recent years. While corporate loans continue to dominate in Europe, reference pools have diversified to include subscription lines, commercial real estate loans, residential mortgages, trade finance, CLOs, auto loans, and SME loans. This diversification has been accompanied by increasing geographic diversification, with multi-jurisdiction reference pools becoming more common. Even within reference pools of corporate loans, industry sector distribution has become an important focus for investors seeking to avoid concentration in cyclical industries. Transaction sizes have also grown, with typical reference pool sizes growing, allowing for more diversification within individual deals. Disclosed vs blind pools:  Banks can issue SRT transactions with varying levels of transparency into the underlying obligors. In a “disclosed pool”, the identities of the borrowers are fully revealed to potential investors, while in a "blind pool" the specific borrowers are not disclosed, but varying levels of metadata such as company size, geography, and industry may be provided. A growing number of investors use Credit Consensus Ratings (CCRs) to make informed risk-reward assessments before agreeing to a deal. For undisclosed obligors, investors can use custom indices, credit transition matrices, and sector correlations provided by Credit Benchmark to gauge the likely range of associated risks represented by that portion of an SRT transaction. Growth in the US SRT market The European SRT market has historically dominated the global market, accounting for up to 85% of global issuance[3]. This dominance was due to early regulatory adoption and a stable framework. However, US banks are increasingly utilizing SRTs to manage risk and support capital ratios. Previously, US issuance was hindered by regulatory uncertainty, particularly regarding bank-issued CLNs, which required approval from federal regulators. In September 2023, the Federal Reserve clarified that directly issued CLNs are eligible for regulatory capital relief, leading to a modest surge in US issuance.   With the growth in the US expected to continue, a more diversified investor base has emerged. Asset managers view this as a viable source of risk that is complementary to existing credit portfolios of more traditional asset allocations such as CLOs, ABS, and Private Credit.   While there was an expectation of SRT issuances by regional banks in the US in 2024, this expectation was not met to the extent anticipated. Regional banks are navigating some of the initial challenges of structuring these transactions, constructing the right reference portfolios and managing operational and regulatory requirements in executing these transactions. However, regional banks are likely to increase participation as pressures mount to optimize capital efficiency and manage risk exposures.   As allocations to SRT grow in the US, investors will require a systematic and data-driven approach to underwriting, analyzing and monitoring these transactions. Credit Benchmark’s credit consensus ratings data (CCRs) and proprietary mapping services provide a valuable independent benchmark to SRT participants. 1. Independent Credit Validation and Benchmarking   Credit Benchmark aggregates anonymized credit risk views from 40+ global banks, covering over 110,000 entities globally, a significantly higher number than those rated by the traditional agencies. Investors and advisors can independently validate portfolios, particularly those with undisclosed or privately rated entities, ensuring regulatory compliance and confidence in credit assumptions. Credit Benchmark has been recognized as SRT “Service Provider of the Year” at the Structured Credit Investor (SCI) CRT Awards (2024), as “Category Leader” for Credit Risk Data Solutions, and “Best of Breed” for Credit Portfolio Management and for Regulatory Risk Reporting in the Chartis Research RiskTech Quadrants (2024).   2. Integrated Solutions for Operational Efficiency   Credit Benchmark’s CCR data is available across data feeds, API and web-app, offering end-to-end support from trade execution to portfolio monitoring. CCR data combined with Credit Benchmark’s proprietary data mapping service streamline workflows, reduce manual processes, and enhance transparency in SRT investment monitoring and valuations.   3. Predictive Analytics for Default Rate Projections   Credit Benchmark’s 12-month projected default rate distributions enable stakeholders to anticipate credit deterioration and optimize tranche pricing. Investors gain a forward-looking view of portfolio risks, allowing for robust scenario analysis and enhanced pricing accuracy.   4. Portfolio Diversification Insights   Credit Benchmark’s cross-sector and cross-region indices provide a macro-level view of portfolio diversification opportunities. Investors can identify negatively correlated sectors or regions to mitigate risk concentration.   5.  Dynamic Monitoring of Credit Migration   The 6-month rolling Deterioration-Improvement Net (DIN) metric tracks credit migration trends across geographies and industries. Real-time migration data enables investors to adjust exposures proactively and recalibrate models for emerging risks.   Credit Benchmark’s mission is to enable global financial market participants to make better-informed decisions. Oxane Partners’ independent valuation expertise for SRT transactions Oxane Partners delivers robust independent valuations for SRT transactions across diverse asset classes, structures, and geographies. Oxane combines technical expertise with market insights to provide investors with reliable, audit-compliant valuations.   1. Comprehensive Expertise   Oxane’s valuation team has extensive expertise on the nuances of SRT transactions.   Underlying Asset Classes: Corporate loans, residential-and-commercial mortgages, SME loans, subscription lines, synthetic CLOs, etc. Structures: Static portfolios, replenishing portfolios, disclosed and blind pools, protected tranches (both first loss and mezzanine). Geographies: North America, Europe (including Germany, France, Ireland, United Kingdom, etc.), covering both developed and emerging markets and multi-jurisdictional reference pools from many leading issuer banks.   2.  Rigorous, transparent, and reliable valuations   Oxane’s analysts perform exhaustive analyses by running multiple scenarios, varying assumptions across time periods and refining them at the portfolio and rep-line levels. Oxane also integrates benchmarking and proprietary data such as Credit Benchmark’s credit consensus data to develop sophisticated loss-adjusted cash flow projections. Oxane provides detailed approach notes for complete transparency to valuation methodologies and assumptions.   3.  Market insights   Oxane provides valuations on diverse transactions across the global SRT landscape, including various asset classes, protection tranches (first loss and mezzanine tranches), issuer banks, and geographic regions. Oxane’s experience spans complex deal structures featuring synthetic spreads, time call, and various amortization structures with conditional triggers. Working across clients and deals, we stay current on market liquidity, spreads, and pricing trends.   4.  Fully independent   Unlike many valuation providers controlled by investment firms, Oxane holds no investment positions, ensuring independent and objective valuations. Oxane takes primary responsibility for auditor reviews of positions under independent valuations.   5.  Proven expertise   Oxane provides periodic independent valuations on SRT trades with £90+ billion reference obligation notional amount in the UK, Europe, the US and Canada. Oxane has been consistently recognized as a leading valuation provider and has won several accolades including “Best valuations support for private credit” award in STORM 2024 by Chartis Research, “Best Valuation Service” in European Credit Awards 2022 by Hedgeweek and Private Equity Wire, “Best valuation service” award in Buy-Side Technology Awards 2021.   A Powerful Combination   As the market becomes more competitive and sophisticated, deeper access to data and market insights becomes crucial. Investors need to understand both individual investment performance and broader market trends and risks.  Enhanced data and market visibility allow investors to make more informed decisions about both existing investments and new opportunities. By combining independent credit consensus data with robust valuation frameworks, Credit Benchmark and Oxane Partners empower SRT investors to optimize risk, meet regulatory expectations, and drive superior returns.DownloadPlease complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report  [1] 1Q25 estimate based on prior research by Chorus Capital Management and reported by Bloomberg, 21 October 2024; https://www.bnnbloomberg.ca/business/2024/10/21/loans-tied-to-srts-reach-1-trillion-on-record-pace-of-sales/ [2] Frequently Asked Questions about Regulation Q; https://www.federalreserve.gov/supervisionreg/legalinterpretations/reg-q-frequently-asked-questions.htm [3] European Systemic Risk Board: https://www.esrb.europa.eu/pub/pdf/occasional/esrb.op23~07d5c3eef2.en.pdf ### Credit Benchmark Accelerates Global Growth with Appointment of Mats Ellefsen as Head of Sales  Seasoned Financial Data Sales Leader Joins to Drive Market Expansion and Client Engagement Across Credit Benchmark’s Global Business  London, April 1, 2025 – Credit Benchmark, the leading provider of consensus-based credit risk data and analytics, today announced the appointment of Mats Ellefsen as Head of Sales. Based in London, Mats will lead the company’s global sales strategy and execution, with a mandate to deepen client relationships and accelerate growth across all regions.    With over 15 years of experience in sales, account management, and customer success, Mats brings a deep understanding of the financial data landscape and the evolving needs of global financial institutions. He has held senior commercial roles at AlphaSense and S&P Global, where he consistently delivered strong revenue growth and built high-performing sales teams.    “Mats has a standout track record in scaling commercial operations and delivering results in data-driven businesses,” said Michael Crumpler, CEO of Credit Benchmark. “His leadership will be critical as we expand our global reach and further embed our credit risk solutions with top-tier financial institutions.”    Most recently, Mats served as Regional Director of Sales for EMEA at AlphaSense, where he led strategic growth initiatives and helped drive the firm’s expansion in key European markets. He previously held senior sales and account management roles at S&P Global Market Intelligence and S&P Capital IQ, where he developed deep partnerships with banks, asset managers, and insurance firms.    “I’m thrilled to be joining Credit Benchmark at such a dynamic time,” said Mats Ellefsen. “Credit Benchmark’s unique consensus credit data is increasingly becoming a must-have for risk leaders seeking independent, timely, and actionable insights. I look forward to working with the team to drive adoption, deliver value to clients, and support the next phase of growth.”    In his new role, Mats will be responsible for leading the global sales organization, enhancing market visibility, and deepening strategic client engagements across banking, asset management, insurance, and regulatory sectors.      About Credit Benchmark   Founded in 2015, Credit Benchmark is a leading provider of credit risk data and analytics. The company aggregates and anonymizes contributed risk data from over 40 global financial institutions, producing unique obligor-level Credit Consensus Ratings and other key credit metrics. Covering more than 110,000 legal entities—90% of which are not publicly rated—Credit Benchmark's insights are trusted by major financial institutions worldwide to enhance their internal credit risk analysis and gain accurate risk perspectives. Credit Benchmark is headquartered in London with offices in New York and Bangalore.     For further information contact:   Laura Saville, Marketing laura.saville@creditbenchmark.com Telephone: +44 020 7099 4322 ### Credit Spotlight on Global Defense Download PDF Defense sector credit quality improving globally Rising defense budgets bring credit benefits across the sector. Procurement reviews will be biased to newer technology. Private company credit is keeping pace with public improvements. The new geopolitical reality and economic impact of global uncertainty have begun to impact a number of industries including defense. While the new US Department of Government Efficiency (DOGE) roots out overspending by the Pentagon, Europe is planning for a material increase in defense budgets. Overall, trends show a net positive impact for defense companies in terms of spending; reflected in Credit Benchmark’s defense credit indices which show a lowered default risk outlook. A Ukraine peace deal could ease tensions, but Europe recognizes the need for stronger domestic defense to ensure security, funded by robust economies. The Ukraine conflict, marked by satellite surveillance and AI-assisted drones, underscores evolving warfare tactics, including sabotage on energy and infotech infrastructure. Opinions on military strategies vary. Modernists stress rapid tech advances, while traditionalists prioritize firepower and increased spending on troops and equipment. US Defense Secretary Pete Hegseth supports hi-tech for Europe and traditional focus for the US. The chart below shows regional trends in Credit Benchmark’s Aerospace & Defense credit indices over the past 12 months. Aerospace & Defense Credit Trends: Global, Europe, North America Default risk estimates for European Aerospace & Defense companies have improved by 6% in the past year; while North America showed credit deterioration in early 2024 it has now also improved by a similar amount.The next chart shows the credit profiles for each region. Aerospace & Defense Credit Profile: Global, Europe, North America The majority of companies are investment grade, but nearly a third are in the ‘bb’ or ‘b’ High Yield categories. And North America has a small but growing proportion in the ‘c’ category. If any of these are potential casualties of the DOGE reviews, there may be a one-off spike in high yield North American default rates in the Aerospace & Defense sector.What do stock markets think? In the past year, tech-driven defense stocks (e.g., Palantir) have massively outperformed traditional firms like Lockheed and Grumman. But shares in traditional armaments manufacturer Rheinmetall are up 30% in the past month and have more than doubled in the past year. The charts below show the Credit Benchmark indices for public (i.e. listed) and private Aerospace & Defense firms globally. Global Aerospace & Defense Credit Trend: Public vs Private Global Aerospace & Defense Credit Profile: Public vs Private Default risk for public borrowers has steadily improved about 6%; private credit is following suit after flatlining for most of 2024, showing around 3% credit improvement in recent months. The risk profile charts on the right show that some private firms in the ‘c’ category, (none in the public set) and this proportion has risen slightly in the past year.   The next chart shows the pattern of credit upgrades and credit downgrades seen in Credit Benchmark’s Global Aerospace & Defense index, split by public and private firms. Global Aerospace & Defense Credit Trend & Credit Profile: Public vs Private Of the 13 months plotted here, credit upgrades have outnumbered credit downgrades in 9 months. The positive balance has been particularly high in public companies but private companies show the same monthly bias on a smaller scale. Conclusion Defense spending of about $2.7trn looks set to increase by at least 5% globally in 2025, with Europe rising by closer to 10%. Most traditional and alternative contractors will benefit, unless they are adversely impacted by the wildcard DOGE review. Credit Benchmark’s bank-sourced consensus data shows the trend swinging towards credit upgrades and lower default risks in US and Europe, across both public and private firms.Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg, Snowflake and AWS. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  Download Please complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Significant Risk Transfers - Use Case Explainer Download PDF Benchmarking SRT transactions and managing risk with consensus credit data The SRT market is large, growing, and complex. The outstanding global value of the Significant Risk Transfer (SRT) market is about $80bn, and loans linked to these transactions between banks and investors has reached about $1trn. The market has grown by more than 30% in the past 12 months, boosted by the 2023 Fed ruling on credit-linked notes, and likely to accelerate this year if US banking regulations are eased. In a typical bilateral SRT, the bank retains the senior tranche (80%-95%) of the reference portfolio and may also cover the small “expected” loss junior tranche. Investors become protection sellers, covering “unexpected” losses via an eligible credit derivative. The reference portfolio may cover multiple geography, industry and credit categories. Pricing across these multiple dimensions can be challenging, especially when the reference portfolio includes undisclosed obligors. This note describes how investors are leveraging Credit Benchmark’s bank-sourced default risk estimates to evaluate these transactions, manage portfolio risk and optimize swap structures. Credit Benchmark collects, aggregates and anonymizes the internal risk ratings and associated probabilities of default from over 40 financial institutions globally, over half of which are Global Systemically Important Banks (GSIBs). The resulting Credit Consensus Ratings (CCRs) cover more than 110,000 obligors and are used to create more than 3,000 custom indices across various geographies, industries and credit categories. CCRs have several unique advantages: They are based on bank analyst model-driven estimates of default risk, so are directly applicable to risk-sharing transactions initiated by banks. For investors, CCRs enhance transparency and efficiency[1] in the SRT market. CCRs cover many obligors unrated by the main credit rating agencies that are often included in SRT transactions. This includes SMEs and private companies. SRT transactions often blend disclosed and undisclosed portfolios. In the current market, this blend, and the overall geographic and industry composition of deals offered by banks is largely non-negotiable. However, a growing number of investors use CCRs to make informed pricing decisions and overall risk/reward assessments before agreeing to any deals. And for undisclosed obligors, investors can use custom indices, credit transition matrices, and sector correlations provided by Credit Benchmark to gauge the likely range of associated risks represented by that portion of an SRT transaction. Portfolio Risk Management Based on Projected Default Rates CCRs can be used to model portfolios directly with single name analytics, or indirectly with appropriate indices or proxies. The accuracy of proxies can be assessed by screening multiple criteria. These are outlined as follows: Q1) What are the portfolio characteristics? This table summarizes credit characteristics of a sub-investment grade portfolio for 3 recent monthly snapshots. The “Opinion” section shows that more than 90% of the portfolio shows no change in CCR over the past month; and Improvements currently outnumber Deteriorations. The “Agreement” section shows that bank opinions are broadly aligned for more than 90% of the portfolio, so managers can focus due diligence on the 7%-8% where there is more uncertainty. The “Outlier” section shows that 20% of the portfolio names include some very skewed opinions. In each of these cases, of the banks that provide estimates for that name, one bank probably has a very pessimistic view. The “Credit Profile” section shows a slight recent improvement in credit quality, with most obligors in the bb category. The “Depth” section shows that more than 80% of obligors are borrowing from fewer than 5 banks, and this has increased slightly in the past 2 months. This can be used to track if banks are shifting loan exposures between specific sectors. Q2) How could the portfolio credit profile change? This chart shows how a high yield portfolio can change over time due to transitions. The blue bars show the likely profile after 1 year of typical transitions; the orange bars show the profile after a year of “stress” transitions – in this case modelled on credit behaviour during a credit downturnWith credit cycle data derived from CCRs, it is possible to manufacture a large range of transition matrices appropriate to the current stage of the credit cycle. Q3) What is the likely impact of undisclosed segments? This table shows screening results derived from a large initial universe of Credit Benchmark’s consensus credit indices. The criteria in this example are that there should be high correlations with US Corporates over 36,24,12 and 6 months correlation with US Corporates; and the index average PD should be between 40Bps and 60Bps. This yields 7 major indices that meet all these criteria, alerting both parties in the deal to alternative “proxy” segments. Q4) How is credit quality trending across the credit spectrum? A challenge with tranched investments is divergence between credit classes. This is mainly driven by the first loss characteristics of each tranche, but it may also reflect a general divergence between “Risk On” and “Risk Off”.    This chart shows the recent trends for Credit Benchmark’s US Corporates credit index, split between Investment Grade and High Yield.  HY has deteriorated by 6% in the past year, against 2% for IG.   Investment Grade vs High Yield analysis across a wide range of sectors and geographies can be accessed via Credit Risk IQ, a repository of 10,000+ monthly industry reports. Q5) What other metrics are available? Credit Benchmark’s credit consensus data includes thousands of credit indices, used by banks and investors to track correlations between Probability of Default (PD) changes, divergences in PD levels, and credit upgrade/downgrade behaviour[2].   Credit profiles (% in bb, b, and c) give some indication of the range of PD estimates within each index; investors can compare the profile of their own portfolio with that of the relevant index for a specific sector. They can also compare their own rating estimates with bank views. Conclusion Within the SRT segment, single borrower CCRs give investors an unbiased snapshot of the inbound portfolio. Investors can compare credit distributions for current and proposed portfolios, either in their own credit scales or in classic 21-category format for comparison with external quotes. CCRs can also be used for monitoring of the collected portfolio.     Banks can leverage similar analysis based on detailed CCRs, but without the need to divulge their individual entity ratings. Comparative credit distributions allow them to demonstrate the efficacy of their underwriting standards.   For undisclosed transactions, banks can demonstrate how internal pool ratings compare with the market, again without divulging either entity-specific detail or ratings linked to specific entities, providing a clear and tangible quantification of the efficacy of bank underwriting standards.   Credit Benchmark’s consensus indices provide a rich set of metrics for tracking trends, divergences and proxies.   The rich consensus dataset also supports ongoing portfolio monitoring, servicing and substitutions. Detailed CCRs allow investors to assess marginal changes to risk through additional transactions. For banks who provide ongoing portfolio / trade reporting, consensus data is an independent and regularly updated reference point covering the portfolio lifecycle from trade inception onwards.   Credit Benchmark can run matching algorithms on client deal tapes to reconcile borrowers with our own internal identifiers, normalising for different schemas across multiple deal tapes from different lenders. Bespoke analysis available to clients includes providing deal tape risk governance reports with specific metrics aligned with the borrower’s risk management approach.   Contact us at info@creditbenchmark.com to learn more about our SRT solutions or to request a demo.Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  DownloadPlease complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report[1] By extension, more transparency can also broaden and deepen liquidity [2] The balance between credit downgrades and credit upgrades can provide advance warning of changes in default risks.  This metric can be volatile from month to month, but rolled up over 6 months or more it can reveal regular credit cycles. ### Securities Finance Made Smarter: Same-Day Efficiency Enabled with Trading Apps and Credit Benchmark Collaboration London, January 21, 2025 – Trading Apps, a global fintech innovator, and Credit Benchmark, the leading provider of Credit Consensus Ratings, are joining forces to transform agent lending disclosures (ALD), know-your-client (KYC) processes, and client onboarding. This strategic partnership brings unprecedented speed, efficiency, and information to the securities finance industry by leveraging Trading Apps’ TA.Link messaging platform and Credit Benchmark’s trusted data.   For the first time, ALD processes can shift from outdated, overnight methods to seamless same-day operations. This transformation reduces risk, minimizes errors, and accelerates workflows for securities finance professionals. By integrating Credit Benchmark’s Credit Consensus Ratings into a streamlined workflow, users can accelerate client onboarding, identify reduced risk-weighted asset (RWA) opportunities, and enhance market profitability through automation and simplicity. This collaboration unlocks market potential, increases access to liquidity, and improves the deployment of inventory.   Matthew Harrison, CEO of Trading Apps, stated: “TA.Link is a secure, real-time messaging platform connecting participants across the securities finance ecosystem. It’s the ideal foundation to transform cumbersome ALD processes into an efficient same-day solution. By embedding Credit Benchmark’s industry-accepted data directly into workflows, we’re simplifying KYC, speeding up onboarding, and helping firms unlock higher efficiency and profitability. This collaboration makes a significant leap toward an automated, risk-reduced future for our clients.”   Mark Faulkner, Co-Founder of Credit Benchmark, added: “Our Consensus Credit Ratings and Analytics are becoming essential for in-business counterparty risk management across prime brokerage, agency securities lending, and peer-to-peer models. The integration with TA.Link provides a secure, efficient method to deliver our data where it matters most: directly into client workflows. The early feedback from customers has been overwhelmingly positive. Partnering with Trading Apps underscores our shared mission to solve longstanding ALD, KYC, and onboarding inefficiencies once and for all.”   About Trading Apps Trading Apps is a pioneering fintech specializing in innovative software solutions for the securities finance industry. Founded over a decade ago, it offers a suite of cloud-based tools that automate securities lending and borrowing transactions, enabling clients to scale operations, increase trade volumes, and mitigate costly errors. Its TA.Link platform facilitates pre- and post-trade lifecycle events, offering safe, reliable, and affordable communication for market participants.   About Credit Benchmark Founded in 2015, Credit Benchmark is a leading provider of credit risk data and analytics. The company aggregates and anonymizes contributed risk data from over 40 global financial institutions, producing unique obligor-level Credit Consensus Ratings and other key credit metrics. Covering over 110,000 legal entities—90% of which are not publicly rated—Credit Benchmark's insights are trusted by major financial institutions worldwide to enhance their internal credit risk analysis and gain accurate risk perspectives. Credit Benchmark is headquartered in London with offices in New York and Bangalore. For more information, visit creditbenchmark.com, or follow on LinkedIn  and X.   For further information, please visit:   Trading Apps: tradingapps.com Credit Benchmark: creditbenchmark.com Media Contacts:   Trading Apps: Matthew Harrison, CEO, Harrison@tradingapps.com, +44 (0) 782 4412 664 Credit Benchmark: Laura Saville, Marketing, info@creditbenchmark.com, +44 (0) 20 7099 4322 ### Credit Spotlight on Global Oil & Gas Download PDF Global Oil & Gas: What’s Coming Down the Pipeline? Global supply likely to exceed global demand in 2025 subject to geopolitical developments.  High Yield producers increasingly vulnerable if US competition grows.  European firms may struggle to maintain positive momentum. From a low of $40 per barrel in early 2020, West Texas oil hit $80 during the Ukraine war. Despite some pull-back it has stayed above $60, repeatedly testing $80 during 2024 as the Middle East conflict widened. But with Saudi Arabia building its post-oil economy, an expected boom in US drilling, a slowdown in China and possible ceasefire in Ukraine, 2025 may see an oil glut.   Credit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions, based on the internal credit ratings collected from 40+ global banks. For Oil & Gas Producers, credit has been volatile and generally deteriorating – only Africa currently shows a year-on-year improvement. Oil & Gas Producers: Credit Trend by Region Global Oil & Gas: Rated vs. Unrated Over the past year, Rated and Unrated Oil & Gas companies show consistently divergent trends, with unrated showing cumulative deterioration. US Sectors: Exploration & Production vs. Oil Equipment, Services & Distribution In the past year, US Exploration & Production default risk has slightly deteriorated while Equipment, Services and Distribution show little change. With a possible global oil glut and US policy likely to swing in favour of new drilling, this gap is likely to increase after an initial boost for the Exploration & Production sector. Oil Equipment, Services & Distribution: Europe vs. Canada vs. United States In Equipment, Services & Distribution, the recent improvement in European default risk could continue as Europe swings away from Russian gas; the US could switch to improvement. Pipelines: Canada vs Europe vs United States For Pipelines, the current European improvement could continue given the major shift away from Russian energy sources and the risk of sabotage. Canada and the US have been deteriorating but the US may turn positive in 2025. Canadian Oil & Gas: High Yield vs Investment Grade Canadian Oil & Gas companies show a gap opening up between High Yield and Investment Grade trends. If competition from the US increases, High Yield producers in Canada may be vulnerable so the recent improving trend may reverse.There are strong positive and negative influences on the oil price at the moment but on balance Global Supply is likely to exceed Global Demand in 2025. US policy is an important part of that, but geopolitical developments in Ukraine and the Middle East will be crucial against a backdrop of slow growth outside of the US.Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  Download Please complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### 2025 Default Risk Outlook: G7 + China Download PDF: 2025 G7 + China Default Risk Outlook Report Highlights: US the only economy of G7 + China group expected to show a drop in High Yield (HY) default rates in 2025 due to tax cuts, lower rates and financial de-regulation.China HY Corporates projected to show default rate increase of more than 40%, Japan HY Corporates more than 30%.Most G7 HY Financial indices projected to show smaller (<20%) default rate increases, but French and German HY Financial ranges skewed towards higher risk.UK Corporates and Financials show limited impact in 2025 but 2026 more challenging. Table of Contents Overview: G7 + China Macro Risk Landscape Technology-driven industry re-alignments, trade disruption and regulatory shifts are clouding the 2025 default outlook for G7 and Chinese economies. Countries seeking to avoid US import tariffs face stark trade alliance choices, while political pressure to reduce US short rates could stoke inflation. The US fiscal challenge is to balance lower tax revenues vs efficiency savings while absorbing the impact of cutbacks and deportations. Some sectors will gain, others will lose; but tariffs, tax cuts and loose monetary policy, should bring a short-term boost to the economy, keeping corporate and financial default rates low vs other G7 economies. The charts below show current key G7 + China economic indicators. Source: The Economist The US economy remains strong and long-term real rates are moderate, but a growing current account deficit strengthens the case for protectionism. Tax cuts will boost growth, but lower US short rates and higher import tariffs are inflationary despite lower oil prices. Tariffs will hit all major US trading partners, but UK and Japan are more vulnerable than EU economies.   Japan and Germany face high inflation, shrinking Current Account surpluses if tariffs hit exports and growth rates, and both have a growing defence burden. Italy has a current account surplus, thanks to strong Asian demand for luxury goods plus low dependence on Russian gas. It also runs a primary fiscal surplus, although its historic Sovereign debt load keeps real borrowing rates high. France has similar long term real rates as the US and a mid-range current account deficit, but sluggish growth and political paralysis. The UK’s weak current account and LDI crisis hangover have left it with high real rates but some scope for monetary easing; partly offsetting its vulnerability to trade shocks. China’s strong but below-trend growth rate follows the domestic real estate bust, despite various fiscal stimulus packages. As the world’s largest oil importer, it will benefit from lower oil prices but faces exceptionally high US tariffs in 2025 – negative for China’s traditional role as global credit supplier, positive for various other countries. Nomura lists the main winners from Chinese trade diversion as Vietnam, Chile, Malaysia, Argentina, Hong Kong, Mexico, Korea, Singapore, Brazil and Canada – so Canada may gain here as well as lose from tariffs.  Major shifts in trade and regulation and shifts in the technological and corporate landscape will have some impact on default rates. But even extreme events can have a surprisingly mixed effect on overall default rates. See appendix for chart showing the 40-year track record for loan delinquency rates across US Commercial Banks. Scott Bessent as Treasury Secretary may shift policy emphasis to tax cuts and financial de-regulation. During Trump’s last term in office the US economy grew by 2.7%; tax cuts helped, although they also boosted the deficit – and Citadel economists expect another round of tax cuts to increase the deficit back to Covid levels. The IMF expect global growth to dip by 0.8%. The CEBR expect the UK to lose about 0.2% pa due to US trade policy, and UBS predict 0.5% off growth in China. 2025 G7 + China Default Risk Forecast Credit Benchmark’s 2025 Projected Changes in 1-year Default^ Rates – G7 + China Credit Benchmark’s 2025 Default Risk Projections and Ranges for High Yield Indices – G7 + China Key Takeaways   US Financials and Corporates* expected to improve in 2025. China and Japan Corporates could see material deterioration from low base. Corporates default rate projected increases larger than Financials for most countries, reflecting recent higher migration rates towards downgrades. US credit migration rates for past 12 months already favour improvement UK ranges narrower, reflecting historic low PD volatility; this could increase in 2025. Most Financials ranges wider than Corporates equivalent, due to historic volatility. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for US Corporates* & Financials Tax cuts, rate cuts and financial deregulation bring lower default^ rates – but tariff and inflation impact mixed. All US Corporates Credit Deteriorations vs Credit Improvements 9m Rolling US High Yield Corporates Probability of Default Projections All US Financials Credit Deteriorations vs Credit Improvements 9m Rolling US High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 1.3% from 1.8% Financials 2.1% from 2.7% US Corporate credit deteriorations and credit improvements in balance; credit deteriorations moderately outweigh credit improvements in US Financials. Expect both to move to net credit improvement as regulations eased, monetary policy loosened and tax cuts take effect. Proportion of borrowers in “c”-category is main default rate driver – America first policy may hurt some smaller or weaker companies e.g. importers, but many local SMEs could benefit. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for Canada Corporates* & Financials Modest increase in default^ rates. Tariff impact likely to be limited; domestic politics is the main driver. All Canada Corporates Credit Deteriorations vs Credit Improvements 9m Rolling Canada High Yield Corporates Probability of Default Projections All Canada Financials Credit Deteriorations vs Credit Improvements 9m Rolling Canada High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 1.6% from 1.3% Financials 2.3% from 2.0% Credit deteriorations slightly outweigh credit improvements. Canada Financials expected to stabilise after recent spike in revisions, but modest trend of credit deterioration in Canada Corporates likely to continue if tariffs bite. Major tariff target, but overall impact on economy limited due to global commodity exposure. Domestic politics dominates. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for Germany Corporates* & Financials Default^ rates to rise on weak growth and growing defence burden; tariff hit above EU average, especially in Autos. All Germany Corporates Credit Deteriorations vs Credit Improvements 9m Rolling Germany High Yield Corporates Probability of Default Projections All Germany Financials Credit Deteriorations vs Credit Improvements 9m Rolling Germany High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 2.0% from 1.5% Financials 3.6% from 3.1% Credit deteriorations slightly outweigh credit improvements. Germany Financials could move to net credit improvement soon but credit deterioration likely to continue in Germany Corporates. Tariffs will hit German trade surplus with US, and increasing NATO burden will strain fiscal position. US deregulation likely negative for Financials. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for France Corporates* & Financials Modest increase in default^ rates; domestic strains and rising bond yields add to limited US policy impacts. All France Corporates Credit Deteriorations vs Credit Improvements 9m Rolling France High Yield Corporates Probability of Default Projections All France Financials Credit Deteriorations vs Credit Improvements 9m Rolling France High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 2.3% from 1.9% Financials 3.5% from 3.1% France Corporates: Credit deteriorations and credit improvements balanced but further gains unlikely in current domestic and international context. France Financials: Credit deteriorations outweigh credit improvements, likely to persist if bond yields continue rising. US policy impact negative for trade; less immediate impact from US financial deregulation. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for Italy Corporates* & Financials Corporate default^ rates to rise as domestic credit cycle unfolds; Financials less vulnerable; limited US policy impact. All Italy Corporates Credit Deteriorations vs Credit Improvements 9m Rolling Italy High Yield Corporates Probability of Default Projections All Italy Financials Credit Deteriorations vs Credit Improvements 9m Rolling Italy High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 2.3% from 1.7% Financials 4.0% from 3.5% Credit deteriorations outweigh credit improvements with Italy Corporates in early stage of deterioration phase. US policy impact: limited. Weak growth, but trade is mainly with EU and Asia. Italian domestic banks dominate finance so US deregulation impact unlikely. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for UK Corporates* & Financials Increasing default^ rates due to trade isolation, weak growth and fiscal drag.  Corporates more exposed than Financials. All UK Corporates Credit Deteriorations vs Credit Improvements 9m Rolling UK High Yield Corporates Probability of Default Projections All UK Financials Credit Deteriorations vs Credit Improvements 9m Rolling UK High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 1.8% from 1.5% Financials 3.3% from 3.0% Credit deteriorations outweigh credit improvements in UK Financials; UK Corporates balanced. Credit deterioration in 2025 possible for both. US policy impact likely to be higher for UK Corporates due to trade exposures. UK Financials could see modest benefit from US deregulation. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for Japan Corporates* & Financials Rising default^ rates due to weak growth, tariffs and rising defence burden. Corporate outlook more negative than Financial. All Japan Corporates Credit Deteriorations vs Credit Improvements 9m Rolling Japan High Yield Corporates Probability of Default Projections All Japan Financials Credit Deteriorations vs Credit Improvements 9m Rolling Japan High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 1.5% from 1.1% Financials 2.4% from 2.2% Credit deteriorations outweigh credit improvements in Japan Corporates; expected to continue. Japan Financials have rapidly moved into balance. Any increase in default rates should be small. US policy impact likely to be higher for Japan Corporates due to trade exposures. Japan Financials could see modest benefit from US deregulation. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Outlook for China Corporates* & Financials Higher default^ rates due to tariff hikes; Corporates more vulnerable than Financials on 12-month view. All China Corporates Credit Deteriorations vs Credit Improvements 9m Rolling China High Yield Corporates Probability of Default Projections All China Financials Credit Deteriorations vs Credit Improvements 9m Rolling China High Yield Financials Probability of Default Projections Key Takeaways   High Yield Probability of Default; Now & Projected Q4 25:  Corporates 1.7% from 1.2% Financials 2.4% from 2.0% Credit migrations for the past year already biased to downgrades. Credit deteriorations outweigh credit improvements, especially in China Financials; China Corporates moderately negative. Further credit deterioration likely for both, although China Financial credit cycle could turn positive in H2 2025. US tariffs negative for trade (despite “tariff proofing” by some Chinese Corporates in recent years) – this will hamper attempts to stimulate the economy. As major holder of US Treasuries, higher US long rates could hit the China Financial sector. * Covering all corporate sectors in Credit Benchmark's Industry Schema but excluding financial institutions. ^ Default Risk is defined as an average of the index constituents' Probability of Default (PD), projected one year forward. See Methodology section for more detail. Download PDF Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report Appendix Delinquency Rates on US Commercial Bank Loans This chart shows the 40-year track record for loan delinquency rates across US Commercial Banks Source: St Louis Federal Reserve FREDThe fitted trend decline shows a post-1987 crash peak, a Dotcom bubble burst blip, and a huge subprime bust spike – but Covid and Ukraine barely register. Excluding the subprime era, delinquency rates volatility is about 5% per quarter, 10% pa. So, a current rate of 2% has a normal range of 1.8% to 2.2% over the following year.    Proposed tariffs of 20%+ echo the notorious 1930 Smoot-Hawley Act that collapsed global trade flows – but the 2024 global economy looks far more resilient. Even the largest recent shock – Post-Lehman financial crisis in 2008 – cut GDP by only 10%, with a sharp recovery the following year.   The FRED data shows a loose relationship between GDP growth and Delinquency rates, depending on sample period: very roughly, a 100 Bps drop in GDP growth adds about 3% to the delinquency rate. This can be used to draw up some possible 2025 scenarios. Methodology Additional definitions and explanations Projections are based on derived metrics from 1-Year ex ante Probability of Default (“PD”) estimates contributed by major global banks. Projected default rates are a combination of:  Current credit profile projected one year forward using relevant Type (Corporate vs. Financials) and Country 1-year transition matrix Current 6-month DIN trend projected 12 months ahead – projected proportionate change is applied to PD, adjusted by % of index constituents in “b” and “c” credit categories. “Republican Administration Adjustments”: Most negative for China, most positive for US, non-US G7 economies between these two boundaries. Ranges are based on long term annualised volatility of PD monthly changes For US, lower bound of range is 2sd below lower of current and projected PD. For non-US, upper bound of range is 2sd above higher of current and projected PD. About this report   Credit Benchmark’s Default Risk Outlook draws on an extensive database of 110,000+ unique Credit Consensus Ratings (CCRs). These CCRs represent the internal risk views of expert analysts at the world’s leading banks – a previously untapped source of risk intelligence. 90% of the entities with CCRs are not rated by a major credit rating agency, meaning these projections offer a new and significant capacity for analysing default risk.   Although this report focuses on G7 Corporates and Financials, the methodology can be applied to the broad and highly representative dataset of 110,000+ CCRs (see our Research Library for US, UK and EU Default Forecasts by Industry). The default projections can be customized for our clients to match their own classification schemas and align more accurately with their portfolios and exposures.   Vigilant risk management is vital when navigating an unpredictable economic climate. With broader, deeper, and more frequent analytics than previously available, Credit Benchmark is now able to offer the market a comprehensive and differentiated view on default risks.   If you would like a free and fully confidential analysis of the default risk projections of your own portfolio, we encourage you to get in touch here.   ### Credit Benchmark and Oliver Wyman Launch IRB Nexus to Help Banks Improve Model Performance and Calibration New York, NY, November 26, 2024 – Credit Benchmark, in collaboration with Oliver Wyman, announced today the launch of IRB Nexus, an innovative credit analytics solution that helps banks enhance regulatory compliance of their internal ratings-based (IRB) models, specifically for low- and no-default portfolios. IRB Nexus is Oliver Wyman’s modelling analytics powered by Credit Benchmark data. The solution helps financial institutions to more effectively validate their IRB models, maintain a competitive edge, and address regulatory requirements.   As banks adapt their IRB models to meet evolving global regulatory standards, many struggle to assess risk for low-default portfolios that lack extensive historical data. These portfolios, which may include funds, including alternative investment funds, and non-bank financial institutions are frequently monitored by global regulators due to their potential systemic impact. Without sufficient validation for these models, banks risk facing demands to increase capital reserves—a measure that can restrict lending capacity and hinder competitive positioning.   IRB Nexus helps banks to address these challenges by aggregating more than 10 million risk estimates annually from over 40 of the world’s largest banks. Leveraging Credit Benchmark’s extensive dataset, IRB Nexus offers banks comprehensive benchmarking analytics for validating their own IRB models, allowing them to operate with greater confidence.   “IRB Nexus has the potential to be transformative for banks looking to significantly bolster their historical credit analytics data feeding their capital models,” said Cem Dedeaga, Partner at Oliver Wyman. “With Credit Benchmark’s aggregated data, we’re empowering risk officers with the insights needed to meet regulatory expectations while sustaining their lending potential.”   Michael Crumpler, CEO of Credit Benchmark, added, “We’re proud to bring our extensive dataset to IRB Nexus. By equipping financial institutions with critical data on low-default exposures, this collaboration enhances risk modeling for portfolios that traditionally lack sufficient information, fostering transparency and reliability in commercial credit assessments.”   Supported by a structured implementation process customized to each client’s portfolio, IRB Nexus easily integrates with the client’s IRB models.   For more information on IRB Nexus please visit oliverwyman.com or to schedule a consultation, please contact cem.dedeaga@oliverwyman.com. To learn more about Credit Benchmark, please visit creditbenchmark.com or contact joe.proctor@creditbenchmark.com.   About Credit Benchmark   Founded in 2015, Credit Benchmark is a leading provider of credit risk data and analytics. The company aggregates and anonymizes contributed risk data from over 40 global financial institutions, producing unique obligor-level Credit Consensus Ratings and other key credit metrics. Covering more than 110,000 legal entities—90% of which are not publicly rated—Credit Benchmark's insights are trusted by major financial institutions worldwide to enhance their internal credit risk analysis and gain accurate risk perspectives. Credit Benchmark is headquartered in London with offices in New York and Bangalore. For more information, visit creditbenchmark.com, or follow on LinkedIn  and X.   About Oliver Wyman   Oliver Wyman, a business of Marsh McLennan (NYSE: MMC), is a management consulting firm combining deep industry knowledge with specialized expertise to help clients optimize their business, improve operations and accelerate performance. Marsh McLennan is a global leader in risk, strategy and people, advising clients in 130 countries across four businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. With annual revenue of $23 billion and more than 85,000 colleagues, Marsh McLennan helps build the confidence to thrive through the power of perspective. For more information, visit oliverwyman.com, or follow on LinkedIn and X.      Contacts   Laura Saville, Credit Benchmark Marketinginfo@creditbenchmark.com+44 (0) 20 7099 4322   Patricia Romero, Marsh McLennanpatricia.romero@mmc.com+44 (0) 7825 193311 ### IRB Nexus: Credit Benchmark and Oliver Wyman's New European Credit Analytics Solution The IRB Nexus solution offers data to enhance risk models IRB Nexus, developed by Oliver Wyman in collaboration with Credit Benchmark, enhances risk modeling by aggregating data from 40 banks, providing over 10 million risk estimates annually. As banks rebuild their internal ratings-based (IRB) models to comply with updated regulatory requirements, many are finding it hard to demonstrate the validity of their risk models. A major challenge is a lack of sufficient credit analytics, especially for low-default and no-default portfolios, as individual banks often have a limited number of counterparties and default cases. Such counterparties include private funds and other strategic businesses that global supervisors monitor due to their increased systemic risk, as well as project finance exposures, which are crucial for developing the significant amount of green infrastructure needed to address the climate agenda. Given the lack of defaults, banks have little evidence of the potential conditions under which their borrowers might or might not default in future. That makes it hard to satisfy the supervisory requirements, which can lead to demands that the banks retain more capital to back up their loans. This reduces the amount they can lend out in these businesses, so they face losing competitive advantage to their peers or non-banks, which generally have less stringent regulations on capital requirements.  Oliver Wyman's new European credit analytics solution, IRB Nexus, remedies this problem. In collaboration with Credit Benchmark (CB), the financial data analytics company, IRB Nexus gathers a wider range of data than is normally available to banks. It then combines these with credit risk analytics. This use of collective data enables an individual bank to better develop a risk model or demonstrate the robustness of its model’s assumptions. Thus, the bank is more likely to satisfy the regulator. Oliver Wyman Partner Cem Dedeaga and Credit Benchmark CEO Michael Crumpler talked to Maike Wiehmeier, Oliver Wyman’s head of marketing acceleration, Europe, about the new solution. Michael Crumpler, CEO, Credit Benchmark Cem Dedeaga, Partner, Oliver Wyman Where did the idea for IRB Nexus come from?Cem: Many banks are taking an internal ratings-based model to evaluate credit risk: They estimate their own risk levels to calculate the capital they need to hold. But the bar for complying with the regulations has been rising in recent years with the introduction of more detailed guidance. This is especially having an impact on low-default and no-default portfolios, where traditional approaches were deemed compliant in some jurisdictions but are now being challenged. Credit Benchmark was an obvious candidate to provide this data, as it provides access to data from a large set of banks — many of which use IRB models — and has the ability to identify historical default events.What is Credit Benchmark’s role in helping banks comply with IRB model regulations?Michael: We work with major, global financial institutions to collect, anonymize and aggregate their internal credit evaluations. This aggregated data is based on a wider range of evaluations than institutions normally have available, so it provides a broader, deeper view of creditworthiness for companies and industries. Some of the financial institutions that use the aggregated data are among those that contributed their data to us. Others — such as asset management firms and insurance companies — are subscribers: They don’t contribute data, but they buy access to the consensus data and use them for insights.How extensive is the data aggregated by Credit Benchmark?Michael: More than 40 banks have contributed credit data to Credit Benchmark, adding up to a total of more than 10 million risk estimates each year. The firm thus analyzes over 100,000 counterparties for their probability of default, of which 90% are otherwise unrated. CB then makes the data available to banks as a service. This data enabled one bank to increase its historical default and non-default observations by five times. We have also made sure to harvest the data in a way that is easy to use. Financial institutions can use the results in various ways — for example, as early warning systems for banks.Where did Oliver Wyman get the idea to work with Credit Benchmark?Cem: We needed a comprehensive dataset that would be sufficiently representative of banks’ credit exposures. The data also had to be robust and based on credit processes comparable to those used by the IRB institutions seeking to use these external data, as well as being available at sufficient granularity for our users. The especially challenging segment for our use case is the corporate entities that do not have a public rating from the typical rating agencies. These rating observations have been used for training IRB models in the past and have passed regulatory scrutiny. We are aware of the high regulatory bar to satisfy both the internal validation and the supervisory requirements for using external data. Credit Benchmark had the potential to tick these boxes. Therefore, we went for the collaboration! Given the complementary propositions we bring to this product, we are also very happy to have agreed to an exclusivity arrangement with Credit Benchmark.Beyond the Credit Benchmark data, what else does IRB Nexus consist of?Cem: The underlying data is the starting point. But, given the supervisory expectations on data usage, you cannot simply take the data out and expect that it will pass the scrutiny of the supervisors. I’m sure those who work in the domain will appreciate that. This is where Oliver Wyman comes in, as we have gained expertise through a wealth of experience in the financial sector. We have carried out more than 300 projects globally in IRB modelling, the accuracy of risk-weighted assets, and IFRS 9. We also have regular interaction with more than 15 major global regulators.  Over the last 18 months, we have worked through Credit Benchmark’s available data, done an extended review of the assumptions and limitations, documented these, and produced analytics that can be used for the intended purpose. Our product delivery is end-to-end. We understand a client’s specific problem, whether this is demonstrating that the rating scorecard is robust, the calibration target appropriate — or whether their sample needs to be extended to a greater number of obligors. Then we deliver the needed analytical support. This can also include conservatisms to be added to the capital estimates and comprehensive accompanying documentation that is crucial from a model risk perspective.Who are the primary clients for this service, and which  types of exposures benefit the most?Cem: We have helped banks over a number of issues so far. The most sought-after product concerns exposures to funds and non-bank financial institutions — this is where the need is most immediate, and alternatives are rarer. Institutions have also used the data to expand their modelling samples to areas in which they have limited exposure. For example, banks that are traditionally focused on a certain region have been positioning the product to extend their model approval to other geographies. We are also seeing interest in strategically important areas like Project Finance which are enablers of the climate agenda. Here, there is also potential to improve outcomes for banks and we are working through with a few banks on exploring the potential.Have any banks already tried out IRB Nexus, and what were the results?Michael: As of October 2024, we have worked with three institutions. One had developed a risk model based on its portfolio of funds, which had never defaulted, and its portfolio of non-bank financial institutions (insurers and pension funds) with a very low default rate. We worked with the bank to make an external dataset that was representative of its specific business portfolio. The bank then used this dataset to expand its internal modelling sample with additional observations. In this way, it demonstrated that its internal historical default rate estimates were robust.Are there any competitors to IRB Nexus in the financial business services market?Cem: The potentially adjacent offers are either serving other populations (for example, those with external ratings which limit the use case for this purpose) or do not have the granularity of analytics we are offering that is important for demonstrating compliance. Our aim is to follow the spirit of the supervisory rules as well as their letter. We believe our analytics service enables banks to measure their risk better than alternatives, using the Standardized RWA approach, which brings their own, arguably greater challenges such as providing the wrong incentives for bank lending.What is the process for banks to use IRB Nexus?Cem: We work in three steps. First comes an introductory meeting, so that we can understand the bank’s lending profile and assess the potential for using IRB Nexus. Secondly, we carry out a feasibility study, by cross-referencing the portfolio segmentation to Credit Benchmark’s database in more detail. We then provide a feasibility assessment demonstrating how the bank could satisfy its regulatory requirements — and one key requirement is that the data be representative. The third step is product delivery. We provide a detailed modelling dataset, carry out accompanying analytics relevant to the client’s IRB model, and produce a purpose-built data document including specific assumptions and limitations. We also present an analysis of any adjustments that are needed.What are the future development plans for IRB Nexus?Michael: We envision the product as an ongoing service. The first step is for the client to get regulatory approval using the analytics we provide. Later, we will aim to provide annual analytics updates for clients’ portfolios and IRB models. But this is only the first product. Along with Oliver Wyman, we are working on various ideas for significant-risk-transfer (SRT) products, as well as ways to help banks better benchmark their model outputs to each other. We are also developing other models, including IFRS 9. Learn more about IRB Nexus here. ### Credit Benchmark Appoints Joe Proctor as Head of Banking, EMEA & APAC London, November 22, 2024 – Credit Benchmark, a leading provider of credit risk data and analytics, today announced the appointment of Joe Proctor as Head of Banking, EMEA & APAC, effective immediately. Based in Credit Benchmark’s London office, Joe will lead the company’s business development and commercial strategy for its banking clients across EMEA & APAC.   Joe has served as a Senior Advisor to Credit Benchmark since March 2024 and will continue to work alongside the commercial team and the senior management group in this expanded full-time role. Joe brings with him 25 years of banking experience, having held previous senior positions including Managing Director of Wholesale Credit Risk at HSBC and Chief Credit Officer of Goldman Sachs International Bank, and well as Credit Ratings Advisor for Goldman Sachs across Europe, Middle East, and Africa.   “Joe’s extensive experience at some of the world’s most respected financial institutions makes him especially qualified to drive our growth and enhance our solutions for banking clients in these regions,” said Michael Crumpler, CEO of Credit Benchmark. “His expertise and leadership will be instrumental as we continue to deliver data-driven insights to our clients, helping them to navigate today’s complex credit landscape.”   “I am thrilled to continue to build on the incredible work the team has done in creating and delivering this unique product,” said Joe Proctor. “Having worked closely with Credit Benchmark in recent months, I look forward to further expanding our use cases within the banking and capital markets community and providing value to clients across EMEA & APAC via our innovative consensus credit risk data and analytics.”   An expert in wholesale credit approvals, credit portfolio management, and risk governance, Joe is committed to identifying emerging risks and leveraging the power of data and analytics to strengthen credit portfolios for sustainable growth. He holds an AB with honors in International Relations from Brown University and an MBA from Columbia Business School.   About Credit Benchmark   Founded in 2015, Credit Benchmark is a leading provider of credit risk data and analytics. The company aggregates and anonymizes contributed risk data from over 40 global financial institutions, producing unique obligor-level Credit Consensus Ratings and other key credit metrics. Covering more than 110,000 legal entities—90% of which are not publicly rated—Credit Benchmark's insights are trusted by major financial institutions worldwide to enhance their internal credit risk analysis and gain accurate risk perspectives. Credit Benchmark is headquartered in London with offices in New York and Bangalore.   For further information contact:   Laura Saville, Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### Credit Spotlight on 2024 US Election Impact Download PDF The Trump effect on US sectors: default risk winners and losers Some core US industries to benefit from tariff protection, but retaliation likely. Supply chains will be hit by trade wars and deportations. Financials to benefit from cuts in red tape. The seismic Trump 2024 election victory has already had some real effects (e.g. the price of Bitcoin surging past $90K) and the impact on the US economy in 2025 will be far reaching. Tariffs, tax cuts, higher long rates, regulatory rollback and mass deportations will upset the business environment for a diverse range of sectors. Drawing on internal credit ratings collected by Credit Benchmark from the world’s leading banks this report shows recent default risk trends for some of the most affected sectors in the US and around the world. It also outlines where existing trends are set to accelerate and lists sectors that may now face major turning points. Further updates from Credit Benchmark will follow as we collect updated bank estimates. Domestic Policy Direction Lower corporate taxes and reduced regulation. Political pressure to cut short-term rates despite inflation pressure driving higher yield curve. Potential for significant trade barriers and global hit to growth. Sector Specific Analysis: Recent Trends 2023-24: US Energy Markets Expected impact on default risk in 2025: Stable default risk profile, likely to strengthen. Renewables: 10% deterioration in credit metrics; outlook negative. Key Driver: Policy shift favoring traditional energy. Recent Trends 2023-24: US Healthcare Expected impact on default risk in 2025: Default risk to deteriorate with Federal program cuts. Public health policies to focus on prevention. Pharma hit from anticipated anti-vaccination policies. Recent Trends 2023-24: US Food Industry (Rated vs Unrated) Expected impact on default risk in 2025: Positive for domestic healthy food producers (tariff protection). Negative outlook for processed food (impact of GLP-1 drugs). Recent Trends 2023-24: US Technology Expected impact on default risk in 2025: Domestic Tech: Strong upside in cybersecurity, satellite communications. Anticipated shift in defense requirements and spending to drive civilian tech firm profits. Supply Chain Risk: Taiwan-China tensions could disrupt semiconductor supply globally, with knock on effects to multiple industries (e.g. autos). Traditional Industries: Recent Trends 2023-24: Steel (Regional Trends) Expected impact on default risk in 2025: Global demand set to weaken if tariffs hit European and Asian growth; existing supply overhang could lead to sustained pressure on margins and volumes. US could be an outlier with scope for recovery through tariff protection. Recent Trends 2023-24: US Banks (Public vs Private) Expected impact on default risk in 2025: Regulatory easing to boost loan volumes and margins. Non-bank sector also likely to benefit from lighter touch regulation. Recent Trends 2023-24: US Insurance (Life vs Nonlife) Expected impact on default risk in 2025: Insurance: Negative outlook on climate risk exposure. Healthcare reform impact double edged but likely negative. Trading Partner - High Impact Areas Risk Assessment: Recent Trends 2023-24: China (High Yield vs Investment Grade) Expected impact on default risk in 2025: Limited stimulus effectiveness. Retaliatory trade measures likely if US tariffs spike. Treasury selloff risk – China could liquidate US bond holdings. Recent Trends 2023-24: Mexico (High Yield vs Investment Grade) Expected impact on default risk in 2025: Direct trade exposure. Fiscal impact of expected deportations. Supply chain disruption risk. Recent Trends 2023-24: Aerospace & Defense Expected impact on default risk in 2025: Europe more resilient in face of tariffs due to large internal market. Defense sector outperformance due to geopolitics and NATO realigment. Risk Mitigation Recommendations: Increase monitoring of cross-border exposure. Review sector allocations with focus on domestic beneficiaries: Anticipated domestic beneficiaries: energy, cybersecurity, satellite comms, tech, banking, healthy food producers. Anticipated domestic losers: renewables, semi-conductor, pharma, healthcare, processed food producers. Enhanced stress testing for trade-dependent portfolios. Review supply chain exposures. Stress test for regulatory shifts. Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 10,000+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  Download Please complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### The Desk: Rules and Ratings: Understanding gaps between credit risk data and credit ratings Bloomberg’s Zane Van Dusen speaks to Dan Barnes of The Desk on the value of alternative sources of credit risk data beyond traditional credit ratings. In the interview, Zane highlights the powerful utility of Credit Benchmark’s Credit Consensus Ratings and descriptive analytics for assessing private credit risk.   "Credit Benchmark aggregates credit metrics from banks so any company that has exposure to a bank will be rated by the banks’ internal ratings process, which Credit Benchmark collects to build credit consensus ratings. That’s valuable because usually those banks have information that might not be publicly available about private companies."   The Desk, November 12, 2024.   View original article (external link). ### Credit Benchmark Appoints Christa Ancri as Global Head of Marketing, Member of Management Team New York, November 12, 2024 – Credit Benchmark, a leading provider of credit risk data and analytics, today announced the appointment of Christa Ancri as Global Head of Marketing, effective immediately. Based in Credit Benchmark’s New York office, Christa will spearhead the company’s global marketing strategy and initiatives.   “Financial institutions and market participants are increasingly seeking specialized sources of risk information to gain a competitive edge,” said Michael Crumpler, CEO of Credit Benchmark. “Christa’s extensive experience in driving brand awareness and delivering strategic guidance positions her well to lead our global marketing efforts as we continue to innovate and grow in the credit risk landscape.”   Christa brings over two decades of expertise in marketing, product innovation, partnerships, and strategy, having held senior roles at prominent organizations including Everbridge, Dun & Bradstreet, American Express, and PricewaterhouseCoopers. Most recently, she served as Vice President of Marketing at Everbridge, where she was instrumental in shaping global partner marketing, industry analyst relations, and content strategy.   “I am honored to join Credit Benchmark and to contribute to the company’s exceptional journey,” said Christa Ancri. “As financial institutions increasingly seek differentiated views of risk, Credit Benchmark’s unique consensus credit data offers unparalleled value, empowering better decision-making and insights.”   As Global Head of Marketing, Christa will oversee the development and execution of strategies that enhance Credit Benchmark's position as the only provider of consensus ratings in the credit risk sector. She is committed to elevating the brand’s presence and impact in the financial services industry.   In addition to her professional accomplishments, Christa is a founding member and New York Chapter Lead of CREW, a community dedicated to supporting senior and executive leaders, and an executive member of Pavilion, a network for sales and marketing executives at growth-focused companies. She is also a member of Impact 100 Garden State, a non-profit providing transformational support to underserved populations. She holds an MBA in Finance from New York University, Leonard N. Stern School of Business and a BA with distinction in Economics from Connecticut College.   About Credit Benchmark   Founded in 2015, Credit Benchmark is a leading provider of credit risk data and analytics. The company aggregates and anonymizes contributed risk data from over 40 global financial institutions, producing unique obligor-level Credit Consensus Ratings and other key credit metrics. Covering more than 110,000 legal entities—90% of which are not publicly rated—Credit Benchmark's insights are trusted by major financial institutions worldwide to enhance their internal credit risk analysis and gain accurate risk perspectives. Credit Benchmark is headquartered in London with offices in New York and Bangalore.   For further information contact:   Laura Saville, Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### Credit Spotlight on US & UK Media: High Yield & Investment Grade Indices Download PDF Media Sector: Rising High Yield default risk brings widening gap vs. Investment Grade Credit Benchmark consensus credit data shows major credit downgrades across high yield US Media firms. Default risk for high yield UK Broadcasting & Entertainment firms has increased 40% in past 12 months. Credit Benchmark can now produce High Yield vs Investment Grade credit indices tracking real-world default risk on a range of geographies, industries and sectors. The Hollywood dream is looking tarnished. After surviving a near total collapse in revenues during Covid, box-office takings more than quadrupled in 2 years. But the 2023 anti-AI writers’ strike halted that, and the industry has failed to make another comeback in the face of growing competition from existing and challenger streaming firms. Traditionally lucrative blockbusters are also struggling, with moviegoers showing fatigue with endless sequels, prequels and franchise spin-offs. The current turmoil in the industry creates winners and losers, and favours those with deep pockets. Credit Benchmark’s consensus credit risk data shows that probability of default (PD) risk trends for High Yield (HY) and Investment Grade (IG) firms in the media sector are diverging with increasing velocity, according to the banks contributing risk views to the consensus dataset. The Credit Benchmark HY index shows that probability of default risk for high yield US Media companies rose by more than 15% over the previous 12 months and continues to rapidly increase.  This contrasts with investment grade companies, where credit risk has stayed steady. Looking at net credit upgrades vs credit downgrades month-by-month underlines the deterioration unfolding in high yield US media companies. Investment grade firms, by contrast, show an equal number of months where upgrades outnumbered downgrades. UK credit trends are similar and – as the chart to the left shows - even more dramatic in the Broadcasting & Entertainment segment, in the face of major programming budget cutbacks. Credit risk in high yield UK Broadcasting & Entertainment increased by 40% over the last 12 months. This is drastically different from investment grade companies where, just like in the US Media companies, credit risk was stable. Over the last 12 months, Credit Benchmark data shows that more than 20% of UK Broadcasting & Entertainment high yield entities were downgraded by two or more rating notches, whereas investment grade firms in this sector recorded no significant downgrades.These divergences are likely to continue as the media landscape continues to shift, with increasing pressure on content delivery models and financial sustainability. Methodology for tracking High Yield vs. Investment Grade credit risk indices Typical bond indices and tracker funds (e.g. S&P U.S. High Yield Corporate Bond Index and the iShares iBoxx Investment Grade Corporate Bond ETF) are market price based, tracking divergences in market views of default or shifts in credit spreads. However, Credit Benchmark has developed a methodology utilising 110,000+ consensus credit ratings, sourced from leading global banks, to calculate pure default risk indices tracking high yield or investment grade credit. These types of indices are not typically available from rating agencies. The bespoke methodology gives a consistent method for tracking ‘Real World’ default risk by accounting for (1) migrations between investment grade & high yield, (2) changes in constituents as coverage shifts, and (3) movements in consensus credit ratings.Credit Benchmark consensus credit data is updated twice-monthly and delivered to our clients via our Web App, Excel add-in, flat-file download and third party channels including Bloomberg. Advanced analytics like those found within this report are now also available for free on the Credit Benchmark website via Credit Risk IQ. 5,500+ monthly geography-, industry- and sector-specific risk reports and transition matrices are available on Credit Risk IQ.  Download Please complete your details to download the PDF of this report:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Credit Benchmark named Service Provider of the Year at SCI's CRT Awards Credit Benchmark has been named SRT "Service Provider of the Year" at the Structured Credit Investor (SCI) CRT Awards in London on October 17th, 2024. The firm was shortlisted for the award earlier this year alongside Oxane Partners and Milliman M-PIRe, with the results announced in an awards ceremony among other category winners including "Investor of the Year", "Issuer of the Year" "Transaction of the Year" and "Outstanding Contribution to SRT". The full SCI CRT Awards magazine can be read here, with Credit Benchmark featuring on page 21. Supporting SRT with Consensus Credit Ratings and Analytics SRT investors use Credit Benchmark data to verify their own credit views and those of issuers. Our dataset of 110,000+ Consensus Credit Ratings and advanced analytics are now being used by close to 40 major SRT participants to provide transactional, decision-support and workflow efficiencies. We help our SRT clients to: Enhance trade transparency with precise entity mapping. Our mapping service facilitates efficient due diligence by identifying the exact legal entities in disclosed pools.Accelerate underwriting in an opaque market. Real-world Consensus Credit Ratings allow investors to assess whether a position fits within their desired portfolio risk profile. Better mitigate risk by understanding sectoral changes and correlations over time. Our sectoral indices are built from highly granular data, combining over 1M monthly datapoints.Build credibility - internally and externally. Consensus data helps stakeholders understand and communicate the characteristics of underlying assets to support strategic decisions.Credit Benchmark fills a critical information gap by offering a timely, comprehensive and independent view of credit risk. The dataset complements data available from issuing banks, traditional credit rating agencies and third-party model vendors. Consensus Credit Ratings encapsulate the expertise of 20,000+ credit analysts; a powerful example of “the wisdom of crowds.” Significant Risk Transfer: Global Adoption and Coming of AgeTo discuss how Credit Benchmark can help support your SRT activities please get in touch to book a demo. BOOK DEMO ### 2025 Default Risk Outlook: US Industries (Q3 Update) Download PDF: 2025 US Default Risk Outlook About this report   Credit Benchmark’s US Default Risk Outlook draws on an extensive database of 105,000+ unique Credit Consensus Ratings (CCRs). These CCRs represent the internal risk views of expert analysts at the world’s leading banks – a previously untapped source of risk intelligence. 90% of the entities with CCRs are not rated by a major credit rating agency, meaning these projections offer a new and significant capacity for analysing default risk.   Although this report focuses on US Industries, the methodology can be applied to the broad and highly representative dataset of 105,000+ CCRs (see here for Default Risk Outlook on UK Industries and here for EU Industries). The default projections can be customized for our clients to match their own classification schemas and align more accurately with their portfolios and exposures.   Vigilant risk management is vital when navigating an unpredictable economic climate. With broader, deeper, and more frequent analytics than previously available, Credit Benchmark is now able to offer the market a comprehensive and differentiated view on default risks.   If you would like a free and fully confidential analysis of the default risk projections of your own portfolio, we encourage you to get in touch here.   Table of Contents Overview: US Macro Risk Landscape “Waiting two years for a recession that hasn’t happened”.   Despite loud H1 calls for rate cuts, the Fed held the line. Biden’s Inflation Reduction Act was – ironically – partly responsible for persistent wage inflation pressures. But for 2025, a sharp growth slowdown looks likely, with Jerome Powell indicating that short rates have peaked. The election is a key binary issue: tax and spending spikes or drops will follow, but taking on the worst budget deficit in the G7 is a challenge for either winner. Increased protectionism could boost some US industries, but fossil fuels continue to benefit as industries backpedal on green energy and electric vehicles.   Previously, our January 2024 default risk projections for US industries had forecast a modest deterioration this year, but the strong economy in H1 has avoided that. The exception is Basic Materials, overshooting the 12-month projected increase in less than 6 months due to commodity price declines, reflected in poor earnings. Latest 12m projections show little change in Corporates and Financials average default risk, but trends remain modestly negative for Basic Materials as well as Technology, Telecoms, and Health Care. REITs and Leveraged Loans have been problem sectors throughout 2023/24, but there are signs that default risks there are stabilising. Oil & Gas improved in H1 2024 in line with projections, but the next 12 months looks more challenging if Chinese growth remains sluggish, and OPEC maintains current output levels.   S&P expect high yield default rates to peak this year and drop into 2025, but bank-based projections show non-investment grade default risks continuing to rise in H1 next year. All industries currently show more deteriorations than improvements, so default rates could continue to rise in Q3/Q4 of 2024, but most industries are projected to move to an improving balance by early 2025. How have January 2024 forecasts held up? Most sector projections were correct on default risk direction, and sector rankings for 12m projection vs. 6m outcomes show reasonable alignment. But average default risk has barely changed over 6 months against an expected 10%+ increase. Technology and Health Care have been more robust than expected; Basic Materials deteriorated well beyond expectations. Key Takeaways   Average default risks show little change over the past 6 months, so the 12-month forecast deterioration may be over-cautious. However, there are some noticeable sector mavericks: Basic Materials has already deteriorated far more than expected (60% vs. 20%) Telecoms is forecast to deteriorate by 40% in 12 months; default risk has so far increased by just 10%. Consumer Goods and Services have both deteriorated by about 10%, but full year expectations are for 25%. Oil & Gas has improved by nearly 30% in 6 months – aligned with the forecast but faster than expected. Financials have dodged bad debt problems and benefitted from higher interest rate earnings, showing no change so far against a predicted 15%+ deterioration. Health Care (and Pharma) improved, against expectations of modest decline. Sector changes in rank order are broadly aligned with expectations, but the robust US economy has so far avoided the general 10%+ deterioration that was expected at the start of the year. A Fed move to rate cuts in Q3/Q4 suggests a weaker economic outlook, so a general credit deterioration may become an issue before year end. 2024/25 US Default Risk Forecast Default risks for overall Corporates and Financials look stable as rate cuts cushion the slowdown. But Telecoms and Tech could have a difficult 12 months. Biden boom fades, but rate cuts compensate by H1 2025. Election result crucial for fiscal outlook and Health Care in particular, but global outlook is a mild negative for Basic Materials and Oil & Gas. Credit Benchmark’s projected default rate for Q3 2025 Change (%) in the probability of default (PD) during 2024/25 Key Takeaways   We predict US default^ risks to show little net change over the next 12 months as rate cuts cushion the impact of a slowing economy. Basic Materials, Health Care, Telecoms, Oil & Gas and Technology are expected to show increased default risk by mid-2025; but there is a modest chance that Health Care improves if Democrats win the White House. Industrials, Corporates, Leveraged Loans and Consumer Industries are forecast to show little change. Financials and REITs are expected to show a slight net improvement. While Oil & Gas is expected to show modest deterioration, this is based on slower growth in China and the US, as well as OPEC maintaining a high output level. The range of possible US default rates is narrower compared with previous projections, with the exceptions of Healthcare and Telecoms Outlook for US Non-Financial Corporates* Default risks stable as rate cuts cushion impact of slowing growth. Election result critical to some sectors e.g. Health Care. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Corporate default risks^ to drop slightly (1%) over the next 12 months. There is a 20% chance that it is significantly lower (-11% or better) and a small (10%) chance of an increase of 7% or more.Deteriorations currently outnumber Improvements, so a H2 uptick in default rates is possible. But the balance is likely to move towards upgrades by Q1 2025.Credit migrations will be limited but we expect categories ‘bbb’ and ‘bb’ to increase, with ‘b’ decreasing.The US Corporates universe covers 5251 obligors.Historic 2-year trend: Improvement.* Covering all corporate sectors, including those discussed in this report, but excluding financial institutions. ^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector  credit breakdown as weights derived from contributed bank data. Outlook for US Financial Institutions Default risks forecast to drop slightly as lower interest rates ease rollover pressure on heavily indebted corporates and mortgage borrowers. Volatile markets may hit major bank earnings but broader industry likely to benefit from higher loan volumes due to lower rates. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Financials default risks^ to decrease by 4% by mid-2025. There is a 20% chance of a larger drop (10% or more) and a very small chance (<10%) of an increase of 9%+.Deteriorations outnumber Improvements; but the balance has plateaued and should turn towards Improvements by Q1 2025.Credit migrations are projected to be minimal, with a very slight increase in the ‘bb’ and ‘b’ categories.The US Financials universe covers more than 2515 obligors.Historic 2-year trend: Improvement^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Oil & Gas Default risks likely to rise if China growth falters and OPEC output stays high. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways Our median prediction for the US Oil & Gas sector shows a modest increase (+12%) in default risk^ over the next 12 months. However, the outlook depends on demand from China (the world’s largest oil buyer) and OPEC production – both factors currently pointing to lower oil prices. There is a 60% chance of a moderate increase and a 10% chance of a major increase.Deteriorations and Improvements are in balance, but we have factored in a step shift upwards, expecting deteriorations to persist over the next 12 months if China (and/or US) growth remains weak, with the added negative of an expansive OPEC policy.Credit migrations are mixed. We expect the ‘bb’ category to shrink, with some downgrades to ‘b’ and ‘c’ but also small shifts to ‘bbb’ and ‘a’ categories.The US Oil & Gas universe covers 440 obligors.Historic 2-year trend: improving.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Industrials* Default rates show little change, aligned with US Corporates overall; projected range is narrow and symmetric. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict default^ rates for US Industrials to show no material change by mid-2025 – but some upward pressure over the next 6 months is likely. A modest drop of 5%-10% is more likely than a 5%-10% increase.Deteriorations are currently above improvements (which could drive a short-term increase in default risks) but a shift to improvement is likely in H1 2025.Credit migrations show a drop in the ‘b’ category by mid 2025. We expect the shift from here to be into ‘bb’ and ‘bbb’.The US Industrials universe is large, covering 1312 obligors.Historic 2-year trend: Improving.* Covering the manufacture of industrial goods and services, e.g., constructions materials, aerospace, electronic equipment and components, defense equipment, railroads, marine transportation, industrial machinery, commercial vehicles and trucks, etc.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Basic Materials* Moderate increase (8%) in default risks expected by mid-2025 following major spike (+60%) in past 6 months. China/US growth continue to ease. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Basic Materials default^ rates to increase by 8% over the next 12 months. There is a 10% chance of a much larger move of close to +40%, after a huge (80%) spike in H1 2024. But there is a modest chance (15%) of a drop in the next 12 months if global growth rates hold up.Deteriorations are high relative to Improvements but look to have plateaued. We expect a move towards improvement in H1 2025, but this may stall if global growth falters.Credit migrations are mixed, but we expect a net shift towards non-Investment Grade. The main move is out of the ‘bbb’ category, with transitions to the ‘bb’ and ‘c’ categories as well as some upgrades to ‘a’.The US Basic Materials universe covers 380 obligors.Historic 2-year trend: Deteriorating.* Covering the mining industries for aluminum, iron, steel, coal, gold platinum and precious metals, non-ferrous metals, as well as forestry  and paper products.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Consumer Goods Consumer Goods show a slight increase in median default rates; but could spike moderately higher. Expected range is narrow compared with historic distribution. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Consumer Goods to show a small (2%) increase in default risk^ by mid-2025. There is a 15% chance of a decrease of 5% or more, but near 20% chance of an increase of 6% or more.Deteriorations currently modestly outweigh Improvements but appear to be stabilising. Projections allow for the possibility of another spike up in Deteriorations but the scale of that is likely to be modest.Credit migrations show small movement to the tails. The ‘bbb’ and ‘bb’ sectors are expected to shrink, with migrations to both lower HY and lower IG categories.The US Consumer Goods universe covers 636 obligors.Historic 2-year trend: Deterioration.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Consumer Services Consumer Services forecast to show slight drop in default risk by mid-2025 with modest chance of material improvement before year end. Projected range narrow compared with historic range. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Consumer Services to show a slight decline in default risk^. There is a 15% chance of a drop of more than 12%, against less than 10% chance of an increase of more than 7%.Deteriorations and Improvements are currently close to balance. This is expected to move to a slightly improving balance by early 2025.Credit migrations show a slight convergence to the centre of the distribution. The ‘b’ category is likely to be squeezed, mainly towards the ‘bbb’ and ‘bb’ categories, with some drop in the ‘a’ category as well.The US Consumer Services universe covers about 876 obligors.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Technology Uncertainty prevails: we expect moderate credit deterioration, as AI-driven capex risks short term overcapacity. But projected range is wide, close to or slightly exceeding historic norms. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Technology to post a modest increase (+10%) in median default risk^ by mid 2025, but the range of projections is very wide. There is a small likelihood of a material (33%) drop – which would be slightly larger than the largest historic decline. There is also a small chance (<10%) of a spike in default risk of more than 25%, and possibly more than 50% - close to historic highs.Deteriorations vs. Improvements have dropped a lot in recent months. If current trends continue the sector will move towards an improving balance before the end of 2024, but volatility in the semiconductor market could reverse that.Credit migrations show divergences. Projections show a shift out of the ‘bbb’ and ‘b’ categories, partly into ‘c’ but mainly into ‘bb’.The US Technology universe covers 454 obligors.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Telecoms Sector remains highly competitive and needs sustained investment; but some winners beginning to emerge which could stabilise default rates.Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Telecoms to show another but more moderate increase (+14%) in default risks^, continuing its long-term decline. But the projected range is very wide and includes some scope (20%) for a very significant improvement.Deteriorations continue to outnumber Improvements although the balance is well below its long term high. It is projected to move towards improvement in H1 2025 but there is a high risk that it remains in downgrade territory.Credit migrations are again split between upgrades and downgrades, with another material increase in the ‘c’ category but a modest increase in the ‘a’ category.The US Telecoms universe covers 81 obligors.Historic 2-year trend: Deteriorating.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Health Care Election results are critical – deterioration looks most likely, but there is scope for substantial improvement in some scenarios. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Health Care to show a moderate 17% increase in in default risk^. Although an increase looks most likely, there is a small (10%) chance that mid-2025 default rates drop significantly from current levelsDeteriorations vs. Improvements are substantially skewed to deterioration - this is counterbalancing the sharp improvements that are beginning to appear in some projections. A broader move to Improvement is likely by mid 2025.Credit migrations in the central case are skewed towards the ‘bbb’ category, mainly coming from the ‘c’ category. This is a positive signal for late 2025, since the ‘c’ category is critical to the default rate.The US Health Care universe covers about 440 obligors.Historic 2-year trend: Improving.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US REITs Rate cuts are a major positive for the sector with default rates forecast to be broadly stable into 2025, but the Office sector remains challenging. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US REITs to show a slight improvement in default risk^. There is an 80% chance that mid-2025 default rates drop from current levels, but a small (<10%) chance of a major (+25%) increase. Predicted range for default rates is much narrower than the long-term data.Deteriorations vs. Improvements remain close to their pandemic peak, but a modest move to Improvement is likely by Q2 2025.Credit migrations are minimal but skewed towards reductions in the ‘b’ category, mainly moving to the ‘bb’ category.The US REITs universe covers about 204 obligors.Historic 2-year trend: Improving. ^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Leveraged Loans Projections show continued decline, but pace has slowed. Projection range is very narrow by historic standards. Projected 2025 default rate distribution Deteriorations vs improvements % of total 12M PD change range 2018-2024 Projected change in credit distribution (%) Key Takeaways We predict US Leveraged Loans to show a very slight increase in default risk^. There is a near 10% chance that mid-2025 default rates drop by 9% or more, but a stronger chance of improvement by at least 5%. Deteriorations vs. Improvements show an erratic but declining trajectory with modest move to Improvement likely by Q1 2025. Credit migrations show a major shift out of the ‘b’ category. These are mainly moving to the ‘bb’ category, with small jumps in ‘c’ and ‘bbb’. The US Leveraged Loan universe covers about 778 obligors. Historic 2-year trend: Deterioration. ^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Download PDF Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report Appendix Additional definitions and explanations Projections are based on derived metrics from 1-Year ex ante Probability of Default (“PD”) estimates contributed by major global banks. The reported “Default Rate” is a weighted average of the S&P long-term observed default rates for each of the seven main rating categories (from “aaa” to “c”). The monthly sector credit profile for each sector is estimated from contributed bank data and these are used as weights for the sector “Default Rate” calculation. This gives an index of default risk combined across investment-grade and high-yield borrowers. This index only changes when contributing banks amend the credit classification of borrowers. Changes in the index are therefore directly driven by the credit category transition rates. These are assumed to change with the credit cycle, measured by the 12-month rolling Deterioration-Improvement Net Balance (see below) which records ALL changes in PD estimates. Projections are a mix of different methodologies, using multiple historical sample periods to capture short-, medium- and long-term trends:  Modelled default rates projected directly to end H1 2025, using time series projections for various lookback periods. Rolling 12m net balance of deteriorations vs improvements (“DIN”) across all credit categories in each sector, projected to the end of H1 2025.  This is used to weight peak and trough transition matrices as a function of the sector credit cycle phase. Proportion of sector borrowers projected to be in each credit category by H1 2025, with added weight for the “c” category. The majority of defaulting borrowers will transition from this category. This approach uses a blend of direct projection and projected transition matrices. All projection types use multiple historic periods to give a range of future possible outcomes. Many of these give similar results, but some project large outliers in either tail of the distribution. Reported ranges cover the 10th to 90th percentiles, and the central case is based on the 50th percentile. ### Credit Benchmark Fall '24 Symposium Register Date and Time Location Agenda Speakers Join us for Credit Benchmark's in-person Fall Symposium, taking place in New York on October 10, 2024. Registration is now open This event has complimentary registration but spaces are limited. Submit your registration request below: Register here Register here Please contact events@creditbenchmark.com if you have any questions about the Fall Symposium or need help registering.  Date and Time Thursday October 102:00PM - 6:30PM ET (Eastern Time - New York) Location IndustriousLever House390 Park Avenue, New York 10022 Agenda 2:00PM - 2:30PM Arrival and networking coffee 2:30PM - 2:45PM Welcome and opening remarks 2:45PM - 3:45PM Significant Risk Transfer (SRT) panel Panel includes: Chris Moses, Senior Vice President, Guy CarpenterMolly Whitehouse, Managing Director, Newmarket CapitalTony Bakshi, Structured Credit Principal, Sixth StreetWilliam Im, Director, Global Credit Opportunities, BlackRockModerated by Simon Boughey, US Editor, Structured Credit Investor 3:45PM - 4:00PM Break and refreshments 4:00PM - 5:00PM Credit risk executive panel Panel includes: Greg Frenzel, Former Chief Credit Officer, Credit Suisse & CitiLarry Bressler, Chief Credit Officer, Wholesale Banking, MUFG AmericasEric Lindberg, SVP, Head of Credit, Institutional Client Group, U.S. BankRyan Atkinson, Chief Credit Officer, Mizuho AmericasModerated by Mark Faulkner, Co-Founder, Credit Benchmark 5:00PM - 6:30PM Cocktail reception Speakers Chris Moses Senior Vice President, Guy Carpenter Chris is a broker on Guy Carpenter’s mortgage & structured credit team, with a focus on portfolio risk transfer trades including bank Significant Risk Transfer (SRT), Non-Payment Insurance (NPI),  various fund finance facilities, and mortgage Credit Risk Transfer (CRT). He is an Account Executive for structured credit and mortgage insurance clients, and plays a key role with Guy Carpenter’s Government Sponsored Enterprise (GSE) clients. Prior to joining Guy Carpenter, Chris was a director in institutional structured credit trading at Janney Montgomery Scott, LLC where he traded agency and non-agency Residential Mortgage Backed Securities (RMBS), Commercial Mortgage Backed Securities (CMBS), and bespoke Asset Backed Securities (ABS).  In addition, he has held roles in trading, structuring, and asset valuation at Bank of America Merrill Lynch, Washington Mutual Capital Corporation, and The Winter Group, a hedge fund in New York City. Chris earned a Master of Business Administration from The Wharton School at The University of Pennsylvania, a Bachelor in Business Administration from Saint Bonaventure University, and is an active CFA Charterholder. Molly Whitehouse Managing Director, Newmarket Ms. Whitehouse is a Managing Director and founding member of Newmarket. She is also the Lead Portfolio Manager for IIFC IV, having served in the same capacity for IIFC III. Her primary responsibilities are the origination, structuring, and management of investments. Prior to founding Newmarket, Ms. Whitehouse served as a Director at Mariner Investment Group, where she also led the origination and structuring for multiple credit risk sharing investments. Ms. Whitehouse is a frequent speaker at various industry conferences. Prior to joining Mariner, Ms. Whitehouse served as an Analyst at Cohen & Company and completed the White House Internship Program. In 2019, Private Debt Investor named Ms. Whitehouse one of its “Rising Stars.” Ms. Whitehouse earned her BA in Political Science with Honors from Yale University and her Masters of Liberal Arts with a focus in Sustainable Development from the University of Pennsylvania. Building on her professional experience, her master’s thesis explored capital management practices at multilateral development banks. Tony Bakshi Structured Credit Principal, Sixth Street Anthony Bakshi is a Principal on the Sixth Street team focused on managing structured credit investments (AUM ~$7.1bn as of 3/31/2024). Prior to joining Sixth Street, Mr. Bakshi worked on the investment team at King Street Capital Management as a structured credit and loans trader and data scientist. He began his career at Barclays in the credit strategy group. Mr. Bakshi received a BA in Mathematical Economics from Brown University and an MS in Analytics from the Georgia Institute of Technology. William Im Director, Global Credit Opportunities, Blackrock William Im is a senior investment professional on the Opportunistic Credit team at BlackRock in its Global Private Debt business, and a portfolio manager for its Synthetic Risk Transfer (SRT) sub-strategy. Prior to joining BlackRock, Will was a distressed credit & special situations investor at SVPGlobal, where he focused on the infrastructure, media, and retail sectors. Mr. Im previously worked at Apax Partners, where he evaluated private equity investments in the retail & consumer space, and at Bank of America Merrill Lynch in the Financial Sponsors Group. Simon Boughey US Editor, Structured Credit Investor (SCI) Simon Boughey has written about capital markets and derivatives for a variety of print media for thirty years, based both in the UK and the US. He has been US editor of Structured Credit Investor for the last four years, and though he writes about structured finance in general, the SRT market is the principal focus. Previously, he had editorial roles with International Financing Review, now part of Thomson Reuters, Global Capital and Financial News. He grew up in Staffordshire, England, and has history degrees from Cambridge University and King’s College, London. Larry Bressler Chief Credit Officer, Wholesale Banking, MUFG Americas Laurance (Larry) Bressler serves as Chief Risk Officer (CRO) for MUBK U.S. as well as Executive Credit Officer and is the Chief Credit Officer (CCO) of Wholesale Banking for MUFG Bank in the Americas, reports directly to the Americas Chief Risk Officer for MUFG Bank in the Americas and the Executive in Charge of Credit in Tokyo. Larry is responsible for the oversight of a $250+billion credit portfolio and a team of 100 credit professionals and administrators covering Wholesale, Commercial, FIG, Structured Finance, Real Estate and Workout clients headquartered in Canada, the U.S. and Latin America. Larry oversees and maintains responsibility for the review, approval and ongoing monitoring of wholesale credit risk and the assignment of borrower risk ratings. Larry serves on several internal governance committees including Risk, Credit, Allowance, Policy, Reputation and Benefits.During his 35 years in banking, Larry has held a variety of positions of increasing responsibility in business development and risk management at MUFG and its predecessor banks including Co-Head of Project Finance at the former Sanwa Bank, Chief Credit Officer in the Americas at the former UFJ Bank, Deputy General Manager of the Credit Examination Office of the Americas and Head of Portfolio Management for U.S. Corporate Banking at BTMU.Larry holds a BS degree in Management from Binghamton University, and an MBA in International Business and Finance from the Stern School of Business at New York University. Larry is FINRA Series 79 and Series 24 licensed and is a member of the Risk Management Association (RMA) Credit Risk Council. Larry lives in NYC with his wife and daughter and enjoys playing competitive basketball. Ryan Atkinson Chief Credit Officer, Mizuho Americas Ryan Atkinson is the Chief Credit Officer of Mizuho Americas. He is a Managing Director based in New York. Prior to joining Mizuho in January 2022, Ryan was at Credit Suisse, most recently as the Chief Credit Officer of the Global Investment Bank and previous to that, as the Global Head of the Enterprise Valuation Group. He first joined Credit Suisse First Boston in 1999 as a member of the Investment Grade Bond Trading desk. In 2003, Ryan moved to Asset Management where he was the Head of Research for a multi-strategy credit hedge fund that was spun out in 2005. In 2008, he returned to Credit Suisse as a member of the Distressed Debt Trading business. Between 2012 and 2015, Ryan worked for RBC Capital Markets as Co-Head of High Yield, Loan and CLO Trading. Ryan started his professional career in Mergers and Acquisitions at BT Wolfensohn. Ryan holds an MBA in Finance from the University of Chicago Booth School of Business and graduated Summa Cum Laude from Virginia Tech with a BS in Accounting. Eric Lindberg SVP, Head of Credit, Institutional Client Group, U.S. Bank Eric Lindberg is Head of Credit for the Institutional Client Group, encompassing all underwriting and portfolio management activities for wholesale clients spanning middle market to large corporate. His team includes approximately 500 portfolio managers and enabling functions covering a broad array of sectors. Eric is a member the Business Resource Group (BRG) Advisory Board and management advisor to the Disability Business Resource Group. He joined US Bank in 2019 and is based in New York. Prior to joining U.S. Bank, Eric was Deputy Chief Credit Officer for Goldman Sachs Bank USA.  He and his team were responsible for risk management of the majority of corporate lending and derivatives business for Goldman Sachs and contributors to the development of related businesses including transaction banking. He worked in New York and London UK in risk, and in Dubai UAE, where he was middle east regional Chief Operating Officer. Eric is active with Scouting, serving both as prior President and current board member of Greenwich Council, Scouting America and as Troop Committee Chair for a Greenwich Connecticut-based Troop, and as a volunteer for the Greenwich United Way Community Investment Committee. He earned an MBA from New York University Leonard N. Stern School of Business and graduated from the US Air Force Academy with a BS in Computer Science.  Eric lives in Greenwich, Connecticut with his wife and three children. Greg Frenzel Former Chief Credit Officer, Credit Suisse & Citi Greg has close to three decades of experience in financial institutions, with a deep background in credit, structured products, leveraged finance, and distressed debt. He was the Group Chief Credit Officer for Credit Suisse prior to its acquisition by UBS. Prior to that he held a variety of roles at Citigroup, including Chief Credit Officer, Chief Risk Officer for the Investment and Corporate Bank, and Chief Risk Officer for Citibank, N.A. He started his career as a coverage officer with Citigroup in Lima, Peru. Before joining Citi, Greg was a Foreign Service Officer serving in Uruguay and Mexico. He holds a BA in Economics from Georgetown University and an MS in Economics from the University of Wisconsin-Madison. He is a CFA charterholder.  Mark Faulkner Co-Founder, Credit Benchmark Mark has an established track record in bringing transparency to rapidly-developing areas of financial services. In 1994, he spotted an opportunity to provide customers in the securities financing industry with independent specialist advice and services. The company he founded, Data Explorers, is now the leading provider of securities lending data across all global market sectors, and was acquired by IHS Markit in 2012. Mark graduated from the London School of Economics and held management roles at LM Moneybrokers, Goldman Sachs and Lehman Brothers. ### Credit Spotlight on German Corporates Download PDF German Corporates facing accelerated credit deterioration amid economic struggles Credit Benchmark data shows German Corporates have second largest credit deterioration of all the major European economies.Consumer Goods, Healthcare and Basic Materials are the worst performing German industries.1-year credit outlook also negative; deteriorations continue to outweigh improvements.Germany faces growing economic and political challenges. While fiscal rectitude remains the bedrock of its historically rock-solid AAA Sovereign rating, the FT has commented on the scope for other factors to undermine that. Growth is the primary concern, with GDP recording a surprise Q2 drop of 0.1%, against +0.3% for the rest of the Eurozone. Structural factors – like an aging population – are part of the problem; Ifo President Clemens Fuest recently commented: “The German economy is increasingly falling into crisis.” And sluggish growth looks set to continue, with the Ifo business outlook slipping back to the Feb-24 level [1] Recent gains in Thuringia for far-right party AfD suggest that economic difficulties are mirrored in political shifts, especially in the former GDR; but political tension and uncertainty can themselves undermine investment and growth prospects. Consensus credit risk data from Credit Benchmark shows the impact across the German private sector. 12m change (%) in probability of default: major European economies In the past 12 months, consensus credit risk indices for German Corporates have posted the second largest credit deterioration of the major European economies. Probability of default risk shows a cumulative increase of more than 6% in the past 12 months, second only to Switzerland at around 9%. France is close to unchanged while Irish Corporates have actually improved 3% over the same period. 12M change (%) in probability of default: German Corporates vs German Financials Credit Benchmark’s consensus credit ratings index for German Financials also shows a modest but steady credit deterioration over the same period (+2%). 12M change (%) in probability of default: German industries The worst performing credit sectors in Germany were Consumer Goods (+15%), Health Care and Basic Materials (+20%). Credit upgrades vs credit downgrades net balance: German industries German Basic Materials have posted a 6th consecutive month of net credit downgrades; last July, 10% more companies has their credit rating downgraded rather than upgraded. Rolling 12m net balance of deterioration and improvement: German Corporates Credit Benchmark’s 1-year credit outlook for corporates is also negative. This chart plots the rolling 12-month balance of deteriorating and improving probability of default risk estimate changes over the past few years. Credit deteriorations continue to outnumber credit Improvements by a substantial margin.Credit Benchmark consensus credit data is updated twice-monthly; advanced analytics are now also available on the Credit Benchmark website via Credit Risk IQ industry reports. Register now for free access. DownloadPlease complete your details to download the PDF of this report:  First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report[1] The S&P’s Global Purchasing Managers’ Index for August is also below thecontraction threshold for the 2nd month in a row. ### Client Analytics ### My Portfolio ### Monitoring & Alerting ### Watch List & Surveillance ### Credit Transition Matrices ### Correlation Matrices ### Credit Benchmark appoints Matt Noll as Head of Business Development, Americas New York, August 1, 2024 – Credit Benchmark, a leading provider of credit risk data and analytics, today announced the appointment of Matt Noll as Head of Business Development for Americas, effective immediately. Matt will be based in Credit Benchmark’s New York office and will lead the firm’s business development and commercial strategy efforts across the Americas. Matt joins Credit Benchmark from EY, where he provided credit risk and financial consulting services to banks. A proven leader in the credit ratings space, Matt brings over two decades of experience in a series of senior roles at Moody’s Investors Service, Morgan Stanley, KBRA, and Fitch Ratings. “I am incredibly honored to be joining Credit Benchmark and helping to continue the company’s remarkable journey,” says Mr. Noll on his appointment. “Banks and private credit lenders will increasingly turn to specialized sources of risk information for competitive advantage. Credit Benchmark’s positioning as the only provider of consensus ratings places the firm at the forefront of innovation in the rapidly evolving landscape of credit providers.”  Michael Crumpler, CEO of Credit Benchmark, adds “We’re thrilled that Matt is joining the team and bringing with him his significant experience delivering value to clients across the financial services sector. His deep understanding of credit risk ratings and products and strong track record of delivering strategic guidance to financial institutions places him perfectly to lead our commercial expansion across the Americas.” About Credit Benchmark Credit Benchmark is a leading provider of credit risk data and analytics. Its products are derived from contributed risk data from more than 40 global financial institutions.   These data are aggregated, anonymized, and published twice monthly in the form of unique obligor-level Credit Consensus Ratings as well as credit transition matrices, sector correlations and credit indices. The data set covers over 105,000 legal entities, 90% of which are not publicly rated. Credit Benchmark’s insights are trusted by major financial institutions globally and are used to benchmark their own internal credit risk analysis against those of a global peer group and gain accurate credit risk views where none were previously available. Credit Benchmark was founded in 2015 and is headquartered in London, with offices in New York and Bangalore. For further information contact: Laura SavilleHead of Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### UK default risk to rise in second half of 2024 with Telecoms and Tech most affected, Credit Benchmark reports London, 24 July 2024 – Credit Benchmark, a leading provider of credit risk data and analytics, today said that it predicts default risk for UK industries to rise this year before plateauing in 2025 as post-election economic growth picks up. However, as explained in its new UK Default Risk Outlook, some industries face heightened credit deterioration, with Basic Materials, Telecoms and Technology all predicted to see default rates increase by more than 10%. “The new Labour administration has inherited some challenging fiscal limits but political uncertainty in other major markets is expected to bring an influx of foreign investment to the UK,” says Michael Crumpler, CEO of Credit Benchmark. “This supply of capital should see growth in several UK industries, but any credit impact will take some time to unfold.” “And with interest rates remaining high, the shorter-term credit outlook for UK industries is for deterioration,” continues Mr Crumpler. “Our analysis shows that only 18% of the 134 UK sectors tracked by Credit Benchmark will see any decrease in default risk over the next year.” “We expect to see the biggest jump in defaults in industries already facing global pressures. Basic Materials, Telecoms and Technology firms are looking at increases of more than 10%,” explains Mr. Crumpler. Credit Benchmark’s new report covers 10 major UK industries, representing more than 11,000 companies, 90% of which are not rated by a major credit rating agency. This significant coverage and diversified dataset allows Credit Benchmark to make unique and credible sector-specific default risk projections for 2024/25. All of Credit Benchmark’s data and projections are based on borrower probability-of-default estimates, which are aggregated from over 40 leading banks, nearly half of which are GSIBs. This report is the third in Credit Benchmark’s Default Risk Outlook series, with analysis on US and EU Industries published earlier this year.   About Credit Benchmark Credit Benchmark is a leading provider of credit risk data and analytics. Its products are derived from contributed risk data from more than 40 global financial institutions.   These data are aggregated, anonymized, and published twice monthly in the form of unique obligor-level Credit Consensus Ratings as well as credit transition matrices, sector correlations and credit indices. The data set covers over 105,000 legal entities, 90% of which are not publicly rated. Credit Benchmark’s insights are trusted by major financial institutions globally and are used to benchmark their own internal credit risk analysis against those of a global peer group, and gain accurate credit risk views where none were previously available. Credit Benchmark was founded in 2015 and is headquartered in London, with offices in New York and Bangalore. For further information contact: Laura SavilleHead of Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### 2024/25 Default Risk Outlook: UK Industries Download PDF : UK Default Risk Outlook About this reportCredit Benchmark’s UK Default Risk Outlook draws on an extensive database of over 105,000 unique Consensus Credit Ratings (CCRs). These Consensus Credit Ratings represent the internal risk views of expert analysts at the world’s leading banks – a previously untapped source of risk intelligence. 90% of the entities with Consensus Credit Ratings are not rated by a major credit rating agency, meaning these projections offer a new and significant capacity for analysing default risk.Although this report focuses on UK Industries, the methodology can be applied to the broad and highly representative dataset of 105,000+ Consensus Credit Ratings (see here for Default Risk Outlook on US Industries and here for EU Industries). The probability of default projections can be customized for our clients to match their own classification schemas and align more accurately with their portfolios and exposures.Vigilant risk management is vital when navigating an unpredictable economic climate. With broader, deeper, and more frequent analytics than previously available, Credit Benchmark is now able to offer the market a comprehensive and differentiated view on default risks.If you would like a free and fully confidential analysis of the default risk projections of your own portfolio, we encourage you to get in touch here. Table of Contents Overview: UK Macro Risk Landscape Credit default risk for UK companies is expected to plateau by mid-2025. The UK’s new Labour administration faces tight fiscal limits, but it has so far passed the currency and bond market credibility test. Andy Haldane of the FT expects an influx of international capital, responding to political uncertainty in the US and EU. Former Governor of the Bank of England Mark Carney has outlined a revised public-private partnership model under Labour’s National Wealth Fund, proposing a 25% Public / 75% Private funding split. Part of this is intended to bring long term investors (pension funds and insurance companies) into national infrastructure projects. Reform of planning laws will aim to tackle the chronic UK housing shortage which is good volume news for housebuilders, but margins may be thinner. With no quick fix for the NHS – other than pay rises – current broader Health Care sector trends are likely to continue.The credit impact of these changes will take time to unfold. Some sectors – Railways and the Utilities – face major restructuring, with possible public ownership, and these are excluded from this report. More broadly, the new administration sees a need for sustained private sector investment; aiming for positive long-term results at the cost of short-term balance sheet strains.Without significantly lower interest rates coming into play, the 1-year credit outlook still forecasts a modest increase in UK Corporate default rates. Current projections show that default risk will decrease for only 18% of the 134 UK sectors tracked by Credit Benchmark in the next 12 months. This report highlights that the most vulnerable industries are those with global drivers: Basic Materials, Technology, and Telecoms. The major domestic groupings – Corporates, Industrials and Financials – show modest deterioration, while Consumer, Healthcare and Oil & Gas sectors show little change. The final section of this report lists the top 10 improving and deteriorating sectors; detailed analysis for these is available on request. 2024/25 UK Default Risk Forecast Default risks to plateau over next 12 months; any rate cuts will have limited short-term impact, but positive medium-term outlook if bond and currency markets remain stable, and proposed public-private investment boom gathers momentum. Credit Benchmark’s projected default rate for Q1 2025 Change (%) in the probability of default (PD) during 2024/25 Key TakeawaysWe predict UK default^ risks to drift higher during H2 2024, plateauing in H1 2025 as growth picks up. But higher inflation or any post-election FX volatility could delay BoE rate cuts.Basic Materials, Telecoms and Technology are expected to show higher (>10% increase) default rates by Q2 2025.Industrials, Corporates, Financials and Consumer Industries are forecast to post moderately higher (5% to 10% increases).Health Care and Oil & Gas are expected to show no material change.The range of possible UK default rates is wide and the larger industry projections are skewed to the lower end. This leaves some scope for surprise post-election credit upgrades.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Non-Financial Corporates* Labour policies likely to favour growth but may heighten inflation risks. Default risks to rise in H2 2024 but stabilise by mid-2025.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Distribution by rating category (%) Key TakeawaysWe predict UK Corporate default^ risks to rise by about 8% over the next 12 months. There is a 10% chance that it is lower, but more than 50% of projections show a material increase.Deteriorations currently outnumber Improvements, but the balance is likely to peak before mid-2025, clearing the way for upgrades in H2 2025. NB: IF the UK Corporates credit cycle turns positive earlier – e.g. due to lower rates and / or an investment boom – then expect to see other industries also swinging towards Improvement.Credit migrations will be limited but we expect categories ‘bbb’ and ‘c’ to increase, with ‘bb’ and ‘b’ decreasing. The ‘a’ category is also likely to increase.Credit Benchmark covers 8,701 UK non-financial Corporate obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Improvement. * Covering all corporate sectors, including those discussed in this report, but excluding financial institutions. ^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector  credit breakdown as weights derived from contributed bank data. Outlook for UK Financial Institutions Default risks set to rise as heavily indebted borrowers face rollover challenges; backdrop of global regulatory change, possible rate cuts and UK investment boom should limit any deterioration.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict UK Financials default^ risks to increase by 6% in H2 2024 and H1 2025. Projections include a small drop (10% chance) but there is a 60% chance of an increase of 6% or more.Deteriorations outnumber Improvements; the balance has plateaued but has not yet swung back to Improvement.Credit migrations are being pulled to the credit distribution tails. We expect the ‘bb’ category to decrease, with shifts to ‘a’ and ‘c’; the latter is a key driver of the default rate.Credit Benchmark covers 2,304 UK Financial Institution obligors, 93% of which are not rated by a credit rating agency.Historic 2-year trend: Deterioration.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Oil & Gas Default Risk outlook stable; but GB Energy plan will bring opportunities and risks for private energy majors. Current trends are skewed more to increase than decrease.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysMedian forecasts for the UK Oil & Gas sector show no change in default^ risks over the next 12 months. However, the outlook depends on post-Election policies on subsidies, exploration licences and taxation. There is a 40% chance of small increase, but a 20% chance of a drop of 10% or more.Deteriorations and Improvements are in balance but expect Deteriorations to dominate over next 12 months;this suggests high default risks by H2 2025.Credit migrations are mixed. We expect the ‘bb’ category to shrink, with upgrades to ‘bbb’ but also a small shift to the ‘b’ category.Credit Benchmark covers 277 UK Oil & Gas obligors, 94% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Industrials* Default rates to rise nearly 10% over next 12 months, but early investment boom could mitigate.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Industrials default^ rates are forecast to rise 9% by mid 2025. There is only a 10% chance of a modest drop, and a 10% chance of an increase exceeding the median forecast of 9%. However, this industry grouping is a bellwether for the UK economy; if Labour policies succeed in kickstarting an investment boom expect to see the signs here.Deteriorations are slightly ahead of Improvements; any significant shift towards net Improvements could mitigate the current projected increase in default risks.Credit migrations are mixed. We expect a shift from ‘bb’ and ‘b’ to ‘c’, but also some moves into ‘a’ and ‘bbb’.Credit Benchmark covers 3,241 UK Industrial obligors, 99% of which are not rated by a credit rating agency.Historic 2-year trend: Improving.* Covering the manufacture of industrial goods and services, e.g., constructions materials, aerospace, electronic equipment and components, defense equipment, railroads, marine transportation, industrial machinery, commercial vehicles and trucks, etc.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Basic Materials* Significant increase (16%) in default risks expected by mid-2025 as EIU expects China/US growth to ease while UK, Japan and EU take up some but not all slack.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Basic Materials default^ rates are predicted to increase by 16% over the next 12 months. There is a 10% chance of a small drop, but a more than 50% chance of an increase in the 15% - 20% range.Deteriorations have risen sharply relative to Improvements. While this may plateau, it will take time for the global cycle to swing to significant net Improvement. NB: this industry group has been in net Deterioration for most of the past 5 years.Credit migrations show modest downgrade shift. We expect the ‘bb’ category to shrink, with transitions to the ‘b’ and ‘c’ categories as well as some upgrades to ‘a’.Credit Benchmark covers 471 UK Basic Materials obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating* Covering the mining industries for aluminum, iron, steel, coal, gold platinum and precious metals, non-ferrous metals, as well as forestry  and paper products.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Consumer Goods Consumer Goods show a modest increase in default rates; but could overshoot. Post-election policies unlikely to have immediate material impact.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict UK Consumer Goods to show a small (5%) increase in default^ risks into 2025. There is a small chance of a decrease, but a 25% chance of an increase of closer to 10%.Deteriorations currently modestly outweigh Improvements, but in previous cycles this sector has made large shifts. If deteriorations spike again, a further increase in default rates is possible in H2 2025.Credit migrations show movement to the tails. The ‘bb’ sector is expected to shrink, with migrations to both lower HY and lower IG categories.Credit Benchmark covers 1,223 UK Consumer Goods obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Consumer Services Consumer Services at risk of modest deterioration in 2025 but – unlike Consumer Goods – there is a material chance of improvement.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Consumer Services are also forecast to post a 5% rise in default^ rates by mid-2025. However, there is a 30% chance of a material drop in the 10% - 15% range. There is a small chance that any increase exceeds 10%.Deteriorations and Improvements are currently in balance. The past few years have been skewed to Deterioration but current trends imply limited downside.Credit migrations show a mixed picture for 2025. The ‘bb’ and ‘b’ categories are being squeezed, with some moves to the high default risk ‘c’ category but a noticeable shift to the lower IG area as well.Credit Benchmark covers 2,265 UK Consumer Services obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Improving.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Technology Significant credit deterioration continues despite high funding for startups. New UK Government pledges measures to expand sector but individual company outcomes are highly volatile.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict the UK Technology sector to show a marked increase (+13%) in default^ risks into 2025, continuing a long-term trend increase. There is only a limited chance of a small improvement, but deterioration in the 10% - 20% range is much more likely.Deteriorations vs. Improvements are at their highest level since 2020. The balance is now dropping slowly; periods of net improvement have been short in previous cycles.Credit migrations show a bias to downgrades. Projections show a major shift out of the ‘b’ category, mainly into ‘c’ but with some upgrades to ‘bb’ and ‘bbb’.Credit Benchmark covers 430 UK Technology obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Telecoms Sector needs major infrastructure and funding overhaul; global move to satellite suggests credit challenges persisting in 2025.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysThe UK Telecoms sector is projecting another sizeable increase (+14%) in default^ risks, continuing its long-term decline. The upper bound of the projected range suggests increases of 20%+. There is limited scope for a major drop, and that would be conditional on a burst of M&A in the sector. Persistent deterioration into H2 2025 is likely.Deteriorations continue to outnumber Improvements although the balance is well below its long term high. It is unlikely to move towards sustained Improvement anytime soon.Credit migrations are equally split between upgrades and downgrades, but the increase in the ‘c’ category the key issue as the main source of defaults. Projections show a squeeze in the ‘b’ category with moves into the ‘bb’ and ‘c’ categories.Credit Benchmark covers 122 UK Telecomms obligors, 94% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Health Care NHS reforms will take time to benefit private suppliers, but some private care providers may benefit from ability-to-pay approach. Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysOur UK Health Care forecast is for little change in default^ risk. There is a 10% chance that mid-2025 default rates drop from current levels, but most projections are higher with the upper bound close to an 8% increase.Deteriorations vs. Improvements are close to balance, but modest move to Improvement likely by mid-2025.Credit migrations are skewed towards the ‘bbb’ category, but small jump in ‘c’ risks pull average default risk slightly up. General trend is towards upgrade from high yield to investment grade.Credit Benchmark covers 388 UK Health Care obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Selected Mid-Scale Sectors Largest Deterioration (Default Rate increase >+10%) Household Goods & Home Construction Food & Drug Retailers Real Estate Holding & Development Chemicals Industrial Machinery Media Hotels Building Materials & Fixtures Computer Services Construction & Materials Home Construction will continue to be hit by higher mortgage rates, with some resets only now making an impact (planning reform should be a boost to the sector longer term, but meeting housebuilding targets runs the risk of lower margins.) Real Estate generally – especially Offices – is also expected to continue to suffer, along with Household Goods, Building Materials, and Construction Materials. Other discretionary spending sectors – Media and Hotels – are expected to continue to deteriorate along with essentials such as Food & Drug Retailers.Chemicals, Industrial Machinery, and Computer Services are likely to be medium-term beneficiaries of a pro-investment policy stance.Largest Improvement (Default Rate increase <0%)Aerospace & DefenceInsuranceSpecialty FinancePharmaceuticals & BiotechnologyBeveragesRestaurants & BarsAutomobiles & PartsTravel & LeisureOil & Gas ProducersBroadline RetailersA limited number of sectors are projected to show modest default rate improvements over the next 12 months. Geopolitics will continue to drive improvement in Aerospace and Defence. Spending habits focused on small tickets will support hospitality and leisure segments, while insurance continues to benefit from harder rates in Property & Casualty lines. Specialty Finance is at the core of the Private Credit boom – attracting additional funding as well as increased regulator scrutiny. AI is helping Pharma & Biotech to shorten development cycles. Plans to tackle climate change are still in direct conflict with the immediate demand for petrol-driven transport; Oil & Gas and Autos & Parts are forecast to see default risk improvements into 2025.Contact Credit Benchmark for more details on any of these sectors. Download PDF Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report Appendix Additional definitions and explanationsAll projections cover H2 2024 and H1 2025.The historic data set that we used for our projections is based only on derived metrics from one-year ex ante probability of default (“PD”) estimates contributed by major global banks to Credit Benchmark. No external micro- or macro-level data was used.The reported “Default Rate” is defined as a weighted average of S&P’s long-term observed default rates in each of the seven main rating categories (from “aaa” down to “c”), using the monthly sector credit breakdown as weights derived from contributed bank data.This gives an index of default risk combined across investment-grade and high-yield borrowers, and this index only changes when contributing banks amend the credit classification of borrowers. It is therefore directly linked to changes in transition rates, which can be tracked and potentially predicted via the deterioration vs improvement net balance, which records ALL movements in single-name PDs across all rating categories.Our projections are a combination of three types:The proportion of sector borrowers projected to be in the “c” category by H1 2025. The majority of defaulting borrowers will transition from this category.The rolling 12m net balance of deteriorations vs improvements (“DIN”) across all credit categories in each sector, projected to the end of H1 2025. This is used to weight peak and trough transition matrices as a function of the sector credit cycle phase.The modelled default rate projected directly to end H1 2025.Industry credit “betas” estimated from historical long run relationships with the Corporate index, and then projected as a function of the Corporate Index projections.  This provides an element of consistency and anchoring across the otherwise independently projected industries.All projection types use multiple historic periods to give a range of future possible outcomes. Many of these give similar results, but some project large outliers in either tail of the distribution.Reported ranges cover the 10th to 90th percentiles, and the central case is based on the 50th percentile. ### July 2024 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. Credit Benchmark covers 10,610 Financial entities, 82% of which are not rated by a credit rating agency. Financials showed neutral credit quality this month, with an equal amount of credit improvements to deteriorations. Banks Central Banks (of which we cover 99 entities, 93% of which are unrated) showed the strongest ratio of credit improvement this month, with four improvements to each deterioration. EMEA Banks (539, 55% unrated) had a positive ratio of 3:1 improvements to deteriorations, and the GSIB group (30 banks) showed a ratio of 2:1 improvements/deteriorations. The group with the largest bias towards net credit deterioration this month was North America Banks (296, 66% unrated), with a negative ratio of 1:1.8. Intermediaries  Of the Intermediaries, Prime Brokers (24 entities, 8% unrated) showed a strong trend towards credit improvement, with an improvements to deteriorations ratio of 4:1. Credit movement was otherwise fairly mild, with CCPs (44, 76% unrated) showing the largest net credit deterioration with a ratio of 1:1.5. Buy Side Buy Side firms remained neutral on the whole, with only two instances of net credit deterioration. Asset Managers (969, 92% unrated) had a negative ratio of 1:1.3 improvements to deteriorations, while Sovereign Wealth Funds (36, 92% unrated) showed a ratio of 1:1.5. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Managing Credit Portfolio Default Risk with Credit Rating Transition Matrices What is a credit rating transition matrix and how are they used? A credit rating transition matrix shows, for a group of companies, the proportion that migrate from one credit rating category to another over a set time period. For example it could show the proportion of firms with rating AA that migrate to AAA, A, BBB, BB, B and C, plus those that remain in the AA rating category, in the course of a single year. For some use cases, it also includes a Default column to show the proportion of firms that default.Use cases for credit rating transition matrices include calibration of default risk term structures, pricing of bonds and other credit-risky instruments and asset-liability stochastic projections. This page focuses specifically on their use for short term credit risk portfolio management and optimization. Access 500+ free global transition matrices on Credit Risk IQ Detailed vs generic credit rating transition matrices Credit rating transition matrices are key components in default models and credit portfolio management, but calibration can be a challenge. The simplest approach tracks actual credit migrations for a cohort of names over a specified time period, but this has the drawback that smaller industries or short time periods may be subject to high sampling variation and outliers; and even large samples can show persistent anomalies. This page describes a more generic approach with worked examples using large samples of consensus credit ratings from the Credit Benchmark dataset (e.g. all Corporates) for multiple time periods. It shows how generic credit rating transition matrices can be adapted by credit cycle data to derive robust, time-varying and industry-specific credit migration probabilities. Credit Benchmark vs. S&P credit migration rates S&P’s annual default and migration study for 2023 comprehensively documents 42 years of credit rating history. For example: S&P Global Corporates data shows that in an average year, 87.63% of S&P AA-rated Global Corporates do not transition to another 7-category rating in the same year; 6.40% of the BB-rated Global Corporates downgrade to B in the course of an average year.The Credit Benchmark consensus credit rating equivalent has a shorter history but a larger sample. The tables below compare average one-year migrations for 6 credit rating categories (AAA/AA, A, BBB, BB, B, and C*.) The differences are larger in the lower right high yield grades**; Credit Benchmark consensus credit rating data shows fewer firms remaining in the same credit rating category (despite the shorter time period). Consensus credit rating data especially shows significantly more upgrades from B to BB. So the overall credit migration rate (+/-) is noticeably higher in Credit Benchmark’s consensus credit ratings. There are a number of possible reasons for this. Credit rating agencies frequently adjust rating “Credit Watch” and “Credit Outlook” status without changing the actual credit rating, whereas bank lenders will change the actual probability of default. Credit agency ratings are opinion based, so their credibility hinges on longevity and stability. Bank internal ratings need to reflect prevailing risk levels at various time horizons ranging from Point-in-Time to pure Through-the-Cycle.* Adjusted for the removal of the Default (“D”) and Not Rated (“NR”) columns as well as combining the AAA and AA rows/columns to reflect the very small universe of AAA names. ** Credit Benchmark consensus credit data includes more firms with withdrawn ratings or those that have chosen not to be rated. Peaks and troughs in credit rating transition matrices Credit rating transition matrices change over time and can show considerable industry variation*. The matrices below show the scale of this over the Covid era for Global Corporates.For Global Corporates, the credit downturn phase (top right matrix) shows large values on the first off-diagonal of the upper right triangle. The largest values are in the higher credit rating categories. The credit upturn phase (lower left matrix) shows large values on the first off-diagonal of the lower left triangle; the largest values are in the lower credit rating categories. The pre- and post-Covid years are skewed to credit upgrades.Similar free matrices are available for Global Financials, as well as for specific geographies, industries and sectors via Credit Benchmark’s Credit Risk IQ portal. 5,000+ free industry reports are available monthly via Credit Risk IQ. Access 500+ free global transition matrices on Credit Risk IQ * See S&P standard deviation statistics in the first table of this report. Credit cycle adjustments for industry-specific time-varying matrices Credit cycle data offers a simple but powerful way to estimate robust, time-varying credit rating transition matrices for a broad range of industries and sectors. A key advantage of Credit Benchmark’s consensus credit ratings data is the large number of probability of default risk updates every month, and these include small changes in risk estimates – below the threshold for actual rating changes. This gives a form of early warning that major credit rating transition matrix changes may be in the pipeline. The chart below illustrates this. The blue triangles show the credit cycle, measured by rolling 12-month net credit deterioration/improvement balances. The plotted line is the 50th percentile of this metric across 1200 indices derived from Credit Benchmark’s consensus credit rating data. The bars show key statistics for the end-year credit rating transition matrix – blue shows the average % of Global Corporate entities that are unchanged in credit quality, green shows total credit upgrades, and red shows total credit downgrades for each year. The final column averages these over the 6 years 2018-2023. Covid brings a spike in credit deteriorations (i.e. probability of default changes), rising to 140% of the total number of names (i.e. some names show multiple credit risk rises). In 2019, Upgrades and Downgrades (i.e. credit rating category changes) were in balance; by the end of 2020, Downgrades outnumber Upgrades by 2:1. The net credit deterioration/improvement moved quickly in 2020, flagging up the pending credit rating transition matrix change. Monthly consensus credit ratings data makes it possible to predict future credit rating transition matrix changes with a high level of confidence. A credit portfolio manager can measure current industry net credit deterioration/improvement vs. its long-term range, with the long run average as a baseline. The distance above or below the baseline relative to the maximum or minimum net credit deterioration/improvement provides the weight for a linear combination of the long run credit rating transition matrix and the Trough or Peak credit rating transition matrix, giving a credit cycle adjusted credit rating transition matrix for that industry in the current time period. This is a simplified version of the z-factor approach.  For default rate forecasting, Credit Benchmark uses separate credit rating transition matrices for Corporates vs. Financials; but we assume that large sample credit rating transition matrices can be used for most corporate industries. Observed differences are mainly due to sampling variation or industry credit cycle timing differences. The next section illustrates the calculations.  Example of credit cycle adjustments used to calibrate robust, industry-specific credit rating transition matrices A sample portfolio consists of entirely of US Technology obligors within Credit Benchmark’s consensus credit ratings dataset. Portfolio single name exposures are aa=5%, a=17%, bbb=25%, bb=35%, b=15%, c=3%. Using current credit exposures as weights for the S&P long term Observed Default Rates gives portfolio probability of default risk of 147 Bps (top left). Using the Long Run consensus credit rating transition matrix, it will rise 1.3% in the next year to 149 (next column, top left) as a result of credit migrations. This assumes no portfolio changes or movements in the expected default rate per credit rating category during the year.During the Covid pandemic, the equivalent default rate would rise 13% to 166 Bps (middle second column, halfway down). During the recovery, it would drop 11% to 131 Bps (Second column, bottom right). Currently the net credit deterioration/improvement is 36% of the historical high (shown above credit cycle chart), so the credit rating transition matrix used is a weighted average of 36% of the Trough transition matrix and 68% of the Long Run transition matrix. This implies a 6% increase in the coming year to 155 Bps.The net credit deterioration/improvement chart suggests that the rate of credit deterioration is set to drop relative to credit improvements. Projecting this out by 12+ months would likely show a drop in prospective default risk vs. current. Similarly, an industry which was currently in the green but heading into the red could show a dramatic increase in projected default risk. Some industries lead or lag the main credit cycle.This approach can be used for every industry in the portfolio and will have a direct bearing on portfolio decisions, including Significant Risk Transfer (SRT) deal structures. Portfolio optimization example: optimizing exposures to avoid future spike in default rates This example quantifies the combined benefit of industry net credit deterioration/improvement metrics and large sample credit rating transition matrices. The table below shows the structure of a hypothetical US credit portfolio weighted by consensus credit rating categories. Current probability of default rates for each industry listed in the last (bold) column are derived from the product of the credit rating category weights and long-term S&P observed default rates – Oil & Gas are lowest, and Technology is highest. The portfolio exposures in the second last (grey) column partly reflect these risk levels – light in Technology and heavy in Oil & Gas. The credit-cycle adjusted long term global corporate transition matrix can be used to give the projected 1-year ahead credit structure for each industry; and this gives a revised set of future expected default rates: Adjusting for credit cycles, all industries apart from Travel & Leisure are projected to increase over the next year. The weighted average portfolio risk (bottom row) shows an increase of 3.8%, mainly due to the high Oil & Gas exposure, which has the lowest risk level but the highest projected risk increase.This analysis can be taken further, by allowing for 7-year correlations between credit cycles: Oil & Gas and Travel & Leisure show a lower correlation with Industrials compared with other Industries. The table below adds a row for correlation adjusted risks: The portfolio risk level has dropped from 1.54% to 1.45% (with correlations <1, some risks cancel out) but the projected increase is slightly higher, rising 3.9% from 1.45% to 1.50%. Credit portfolio managers may have scope to adjust their exposures. That makes it possible to hedge against expected future risk increases. The table below shows an optimal set of exposures that leave estimated future risk unchanged from the current level. Despite rising credit risk in most industries, the new portfolio has the same level of overall risk as the initial allocation, offsetting the deteriorating transition pattern over the year. This is achieved by allocating more to Industrials and Oil & Gas (rising, but low) and away from Consumer industries, especially higher risk Consumer Services. Travel and Leisure is high but falling and receives an increased allocation; Technology is high and increasing but has a small increase in allocation to balance reductions elsewhere. This shows that there is scope to achieve a lower risk level despite the increasing probability of default risk in most industries. Credit Benchmark produces free credit rating transition matrices on 500 different geographies and industries. You can also build transition matrices on your own portfolios, using historical consensus credit cycle data on 100,000+ obligors. Get in touch below for a complimentary analysis of default risk on your portfolio. Request free portfolio default risk analysis Addition of default rates as extra credit rating transition matrix column The matrices in the previous examples do not include firms that transition to “NR” (not rated) or “D” (Default), but for many use cases (e.g. term structures) it is necessary to add a default column.The Credit Benchmark credit rating transition matrix equivalent below uses 1-year probability of default midpoints for each credit rating category. These are typically higher than the median observed rates (“conservative margin”) but are within the historic observed ranges. The S&P credit rating transition matrix below includes median long term observed default rates for each credit category; these and the preceding columns are normalised to give row totals of 100%. The differences below show the same pattern noted earlier in this report – consensus credit rating data generally shows higher migration rates in both directions. S&P also publish “Not Rated” (NR) rates. These withdrawn ratings cover defaults, takeovers, changes in ratings provider. They are, however, correlated with historic default rates. Credit Benchmark consensus credit rating data includes dropped names, and these may be useful as a time-varying default proxy. Consensus credit rating category probability of default to rating scale ### July 2024 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month credit industry monitor for end-June, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Credit Benchmark covers 40,991 non-financial Corporate firms, 93% of which are not rated by a credit rating agency. This month, Corporates saw balanced credit movement, with an even number of improvements and deteriorations. Financial firms (of which we cover 10,610, 82% of which are not publicly rated) similarly showed credit neutrality, with a 1:1 improvements to deteriorations ratio. Industry Level Credit Movement: At the industry-level, credit movement in either direction was mild, with most categories showing close to neutral credit quality. Of those biased towards credit deterioration, Heath Care firms (1,482, 90% unrated) and Technology firms (1,522, 85% unrated) both showed a ratio of 1:1.2 improvements to deteriorations. Telecommunications (469, 78% unrated) showed the strongest positive ratio, with 1.7:1 improvements to deteriorations. The next strongest performer was Utilities (1,701, 74% unrated), with a ratio of 1.3:1. Sector Level Credit Movement: Amongst the sectors, Canada Oil & Gas (160, 79% unrated) outperformed its' US and UK peers, with a positive credit ratio of 1.9:1 improvements to deteriorations. The US group (459, 67% unrated) were slightly in the red, with a ratio of 1:1.2 improvements to deteriorations, and the UK firms (265, 96% unrated) slightly positive with a ratio of 1.1:1. Conversely, Canada Corporates (1,610, 90% unrated) showed the highest instance of net credit deterioration with a ratio of 1:1.4 improvements to deteriorations. Credit movement was otherwise fairly balanced for the sectors. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Credit Spotlight on African Sovereign Ratings African economy on tightrope but growing commodity exports may see Sovereign default risk improve by 10%+ in next year Steady credit deterioration for African sovereigns since 2020 African Sovereign credit ratings have deteriorated significantly in recent years, hit hard by Covid, the Ukraine war, climate change, military coups and Sovereign debt defaults. The chart below shows that Credit Benchmark’s consensus credit rating index for African Sovereign default risk has increased by 35% since early 2020, especially after the Ukraine invasion. Most African Sovereigns are non-investment grade, mainly in the b and c credit rating categories. But some African Sovereigns have fared better than others. The 8 largest economies generate nearly 70% of African GDP; the chart below shows the breakdown with detailed 100-point consensus credit ratings. Prior to technical default in Q4 2023, Ethiopia was highest risk with a consensus credit rating of 76 (ccc+); lowest is Morocco (consensus credit rating = 35, bb+). In recent years, oil-rich Nigeria has deteriorated from b to ccc+ (consensus credit rating = 70). Troubled Kenya has also deteriorated but remains in the b category (consensus credit rating = 58). Angola (consensus credit rating = 68, ccc+) has slightly improved, but is below the main credit rating agency ratings. South Africa (consensus credit rating = 43, bb) and Morocco (consensus credit rating = 35, bb+) have remained stable. Egypt - Africa’s largest economy - dropped from b to ccc+ in recent years but has since recovered (consensus credit rating = 65, b-). Algeria (consensus credit rating = 48, bb-) has very patchy credit rating agency coverage; but consensus credit data shows an improving trend over the past 9 months. Shifting geopolitics may drive demand for African resources Africa may be rich in natural resources, but its 12% share of the global population earns just 3% of global GDP; sustained growth has often been hampered by some unique obstacles to economic development. The chart below plots key current economic indicators for Africa vs the rest of the world: Median interest rates, inflation, unemployment and budget deficit in Africa are above the global ex-Africa median - but so is current GDP growth. The main outlier is the Current Account; Africa is not exporting enough to cover import demand. But shifting geopolitics may bring new benefits: technology needs and supply chain shocks are driving China, Russia and the US to compete directly for favourable raw material trade deals with numerous African countries. Using Credit Benchmark consensus credit rating data to project recent trends and credit cycles suggests the following range for 49 African Sovereign & Central Bank default risks over the next 12 months: This chart is derived from 5th to 95th percentiles. It shows a high (70%) probability of a modest (13%) decline in median African Sovereign default risk over the next 12 months, and a small (<10%) possibility of a more significant drop of 20% or more. There is a small chance (<5%) that median Sovereign default risk increases. This range in the previous chart shows possible projections of African Sovereign default risk using a mixture of linear and non-linear extrapolations. It is heavily influenced by trends in the proportion of obligors in the c credit rating category, which is the source of most defaults. Credit cycles have a major impact on the pace of credit downgrades and hence the proportion in the c credit rating category. The balance between credit deteriorations and credit improvements in the African Sovereign universe shows the scope for turning points (obligors beginning to upgrade from the c credit rating category back into the b categories). The two charts below show the credit rating category mix over time (left chart) and the 12-month cumulative balance in credit deteriorations vs. credit improvements (right chart). The c credit rating category has more than doubled since 2018; it was particularly steep during Covid, before stabilizing in 2021. But the Ukraine invasion brought renewed credit decline and it currently stands at around one third of all African Sovereign ratings. During Covid, rolling 12-month credit deteriorations were nearly 70%; this dropped to 10% during the recovery before spiking again to 60%. This recent trend is projected to continue, so the pace of credit downgrades is also likely to slow. At the very least, the c-category proportion is expected to stabilise and there is a possibility that African sovereign credit ratings move into a net credit improvement phase, especially if global commodity demand continues to grow. Credit improvement on the horizon for African sovereigns The African economy is on a tightrope - climate change and political instability are major negatives, but the growing need for raw materials of the increasingly competitive global superpowers may bring some benefits in the form of investment and growing exports. We forecast that African Sovereign default risk will improve by more than 10% in the next 12 months Credit Benchmark offers entity-level Credit Consensus Ratings on over 105,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products. If you would like a free analysis of the default risk projections of your own portfolio, we encourage you to get in touch here. Download Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Credit Benchmark Says Default Risk Will Peak Late-2024 for Most EU Industries, but Tech, Telecoms, Oil & Gas and Utilities Could Rise Significantly, as Discussed in New EU Default Risk Outlook London, May 22, 2024 – Credit Benchmark, the provider of global consensus ratings and analytics, today said that it predicts that default risks will rise and peak in H2 2024 across most EU industries, as explained in its new EU Default Risk Outlook. Default rates are expected to mostly return to current levels in 2025 – however, some industries will remain at risk. “EU economic growth remains weak, and rates remain high, driving the slight rise in default risk we can see across the market,” says Michael Crumpler, CEO of Credit Benchmark. “However, the data is more optimistic in Europe compared to some other major markets, and we expect this rise to level out by early next year, barring any unpleasant inflationary surprises.” “That said, our default rate projections highlight some industry-specific risks,” explains Mr Crumpler. “EU Oil & Gas firms face an increasingly volatile outlook on geopolitical risks, not to mention a shift towards renewables adding extra pressure to the sector. Our most likely scenario shows a 19% increase in default risk for this group of companies.” “We’ve recently seen record deteriorations in EU Technology firms, with the industry lagging the US. Our projections show a marked increase in default rates of 22%. Similarly, EU Telecoms – burdened with mounting infrastructure and interest overheads, on top of global satellite competition – points to a 16% increase in default risks, persisting into 2025,” explains Mr Crumpler. Credit Benchmark’s new report covers 11 EU industries, representing more than 4,500 companies and legal entities, 70% of which are not rated by a major credit rating agency. This significant coverage and diversified dataset allows Credit Benchmark to make unique and credible sector-specific default risk projections for 2024/25. All of Credit Benchmark’s data and projections are based on borrower probability-of-default estimates, which are aggregated from over 40 global banks, nearly half of which are G-SIBs (Global Systemically Important Banks), and anonymized. This report follows off the back of Credit Benchmark’s inaugural 2024 Default Risk Outlook on US Industries, published at the start of this year. About Credit Benchmark Credit Benchmark provides Credit Consensus Ratings and Analytics that are derived from data and internal credit risk ratings contributed by more than 40 leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). The contributions are aggregated, anonymized, and published twice monthly in the form of unique Credit Consensus Ratings and Credit Indices. This means that Credit Benchmark is making the views of far more analysts publicly available than ever before. Covering over 100,000 entities, 90% of which are unrated by any other publicly available traditional ratings methods, Credit Benchmark’s credit risk data covers around 170 countries and close to 200 industries and sub-sectors worldwide. Credit Benchmark’s insights are trusted by a host of the largest financial institutions in the world, either to benchmark their own internal credit risk analysis against those of a global peer group, or simply to gain accurate credit risk views where none were previously available. Credit Benchmark was founded in 2015 and is headquartered in London, with offices in New York and Bangalore. For further information contact: Laura SavilleHead of Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### 2024/25 Default Risk Outlook: EU Industries About this reportCredit Benchmark’s EU Default Risk Outlook draws on an extensive database of over 100,000 unique Credit Consensus Ratings (CCRs). These CCRs represent the internal risk views of expert analysts at the world’s leading banks – a previously untapped source of risk intelligence. 90% of the entities with CCRs are not rated by a major credit rating agency, meaning these projections offer a new and significant capacity for analysing default risk.Although this report focuses on EU Industries, the methodology can be applied to the broad and highly representative dataset of 100,000+ CCRs (see here for US Industries Default Risk Outlook). The default projections can be customized for our clients to match their own classification schemas and align more accurately with their portfolios and exposures.Vigilant risk management is vital when navigating an unpredictable economic climate. With broader, deeper, and more frequent analytics than previously available, Credit Benchmark is now able to offer the market a comprehensive and differentiated view on default risks.If you would like a free and fully confidential analysis of the default risk projections of your own portfolio, we encourage you to get in touch here. Download PDF: EU Default Risk Outlook Table of Contents 2024/25 EU Default Risk Landscape Default risks mainly peaking by end 2024 but further improvements may stall if inflation surprises delay ECB rate cutsCredit Benchmark’s projected default rate for 2024/25 Change (%) in the probability of default (PD) during 2023/24 Key TakeawaysWe predict that default^ risks will rise slightly in H2 2024 as weak EU growth persists, but most sector default rates should return to current levels by early 2025, if ECB cuts rates in June in line with market expectations.Financials, Industrials and Consumer Goods are expected to show modest drops in default rates by Q1 2025.Corporates, Health Care, Basic Materials and Consumer Services are unchanged or slightly higher.Technology and Telecoms could see a significant rise. Oil & Gas and Utilities are expected to show moderate % increases, from lower base default rates.S&P expectations are for High Yield default rates to peak earlier and fall back to end 23 levels by end 24. Optimistic is 40% lower; Pessimistic is 40% higher.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Non-Financial Corporates* Default risks to rise in H2 2024 but return to current levels by Q1 2025Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Distribution by rating category (%) Key TakeawaysWe predict EU Corporate default^ risks to rise slightly in H2 2024 before dropping back to current levels in Q1 2025. A rise of as much as 7% is possible but there is a significant chance of a 12% drop.Deteriorations currently outnumber Improvements, but the balance is likely to peak in Q4 24.Credit migrations will be limited but we expect categories “bb” and “c” to increase, while “bb” and “b” to decrease. The “a” category is also likely to increase.Our aggregated consensus ratings cover more than 3,400 EU non-financial Corporate obligors, 90% of which are not rated by a credit rating agency.* Covering all corporate sectors, including those discussed in this report, but excluding financial institutions.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector  credit breakdown as weights derived from contributed bank data. Outlook for EU Financial Institutions Expect return to improving trend in H2 2024; could fade in 2025 if rate cuts hit interest margins and insurance cycle softensProjected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Financials default^ risks to drop in H2 2024 but any improvement will fade into Q1 2025. Projections range from a drop of 3% to a drop of 21%.Improvements still narrowly outnumber Deteriorations, but the favourable balance is likely to peak in Q4 24.Credit migrations will be pulled to the centre of the credit distribution. We expect categories “bbb” and “bb” to increase, drawn from both IG and HY ends of the credit spectrum.Our aggregated consensus ratings cover more than 1,355 EU Financial obligors, 75% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Oil & Gas Default Risk to rise in 2024/25; sector at risk of supply disruptions and shift to renewablesProjected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Oil & Gas default^ risks to rise significantly over the next 12 months but the outlook is increasingly volatile on geopolitical risks. There is a small chance that default risks drop but the central case of a 19% increase is close to the upper bound of a 23% increase.Balance has shifted to Deteriorations and likely to climb over next 12 months; recent default rate index easing expected to reverse.Credit migrations show modest downgrade shift. We expect categories “b” and particularly “c” to increase, driven by transitions from “bb” category.Our aggregated consensus ratings cover more than 130 EU Oil & Gas obligors, 90% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Industrials* Default rates stable this year, could improve significantly early 2025Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Industrials default^ risks to show little change over the next 12 months but outlook is increasingly volatile on geopolitical risks. The expected range is biased to lower default rates, which may fall by as much as 15%.Improvements are likely to overtake Deteriorations by Q4 2024; recent default rate index uptick is expected to stabilise.Credit migrations are mixed. We expect the main shift to be from “bbb” and “b” to “bb”, and a small increase in “c” balanced by a larger increase in “a”.Our aggregated consensus ratings cover more than 1,300 EU Industrial obligors, 92% of which are not rated by a credit rating agency.* Covering the manufacture of industrial goods and services, e.g., constructions materials, aerospace, electronic equipment and components, defense equipment, railroads, marine transportation, industrial machinery, commercial vehicles and trucks, etc.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Basic Materials* Credit cycle trends suggest risk of currently stable default rate rising significantly in mid/late 2025Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Basic Materials to stay within a narrow range with only a slight increase in default^ risks over the next 12 months but significant deterioration is possible later next year.Balance has shifted to Deteriorations and could significantly increase over next 12-18 months. Sector has a history of wide variations in this metric and in default rates.Credit migrations show modest downgrade shift. We expect the “bbb” category to shrink slightly with transitions mainly to the High Yield categories.Our aggregated consensus ratings cover about 370 EU Basic Materials obligors, 92% of which are not rated by a credit rating agency.* Covering the mining industries for aluminum, iron, steel, coal, gold platinum and precious metals, non-ferrous metals, as well as forestry  and paper products.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Consumer Goods Consumer Goods expected to benefit from lower rates; scope for significant drop in default ratesProjected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Consumer Goods to show a slight improvement in default^ risks later this year and this could accelerate in H2 2025. There is a significant chance of lower default rates, down by as much as 25%.Deteriorations currently outweigh Improvements, but the cycle is expected to turn more positive from Q1 2025 onwards.Credit migrations show modest downgrade shift. We expect to see a modest shift from Investment Grade to the High Yield categories but this should stabilise by the end of 2024.Our aggregated consensus ratings cover about 550 EU Consumer Goods obligors, 93% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Consumer Services Consumer Services at risk of modest deterioration in 2025 but optimistic scenario shows scope for significant improvement if rate cuts drive wider economic recoveryProjected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Consumer Services to show a slight increase in default ^ risk by early 2025. But there is a significant chance of a drop by as much as 30%.Deteriorations and Improvements are currently in balance but there is a risk that the cycle turns decisively negative early next year.Credit migrations show a positive bias for 2024. This is mainly driven by a drop in the “b” category and an increase in the “a” category. There has also been a trend decrease in the “c” category over the past 3 years; any reversal in this would lead to a spike in default rates.Our aggregated consensus ratings cover about 510 EU Consumer Services obligors, 97% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Technology Significant credit deterioration with record deteriorations; EU Technology development lagging USProjected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Technology to show a marked increase (+22%) in default ^ risks later this year although this should fade by early 2025. There is a small chance of a slight improvement, but the upper bound of the range implies an increase of 27% or more.Deteriorations vs. Improvements are at their highest level for 5 years; but this negative cycle should have played out by mid 2025.Credit migrations show a bias to downgrades. We expect to see a major shift from Investment Grade to the High Yield categories although the “b” category may drop as obligors transition to “c”.Our aggregated consensus ratings cover about 175 EU Technology obligors, 88% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Telecoms Infrastructure overheads and interest burdens plus increased global satellite competition points to difficult credit outlook persisting in 2025Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict EU Telecoms to show a sizeable increase (+16%) in default ^ risks and this trend is expected to persist in 2025. The upper bound of the projected range suggests increases of more than 24%, with very little chance of any reduction.Deteriorations vs. Improvements are at more than double the previous high over the past 5 years; and any improvement is likely to be slow.Credit migrations are skewed towards downgrades. We expect about 3% of the sector to transition from “bbb” to “bb” and “b” categories.Our aggregated consensus ratings cover about 67 EU Telecoms obligors, 65% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Health Care Demographics and AI benefits expected to drive growth and credit improvementsProjected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict little change in default ^ risks for the EU Healthcare sector. The projection range is very narrow and shows no bias in either direction.Deteriorations vs. Improvements are at a 2 year high but expected to drop in the next 12-18 months.Credit migrations are skewed towards the “bb” category. While the “c” category shows a small increase, the “b” category is likely to shrink by more as some obligors upgrade.Our aggregated consensus ratings cover about 155 EU Healthcare obligors, 90% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for EU Utilities Significant increase due to interest burden and higher capex; but scope for 2025 improvement if ECB cuts ratesProjected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict a significant increase (+22%) in default ^ risks in the EU Utilities sector. There is a small chance that exceeds 25%, and a modest chance of a drop; but range is heavily biased to an increase. This is partly because the recent drop in default risk is far below trend and could reverse.Deteriorations outnumber Improvements; this could reverse soon but indicators for the EU Utilities sector are noticeably volatile; an extended cycle of capex-driven deterioration is possible before the balance moves clearly into an improvement phase.Credit migrations are skewed towards High Yield. These are nearly all projected to move from the “bbb” category.Our aggregated consensus ratings cover about 190 EU Utilities obligors, 75% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Download PDF Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report Appendix Additional definitions and explanationsAll projections cover Q2-Q4 2024 and Q1 2025.The historic data set that we used for our projections is based only on derived metrics from one-year ex ante probability of default (“PD”) estimates contributed by major global banks to Credit Benchmark. No external micro- or macro-level data was used.The reported “Default Rate” is defined as a weighted average of S&P’s long-term observed default rates in each of the seven main rating categories (from “aaa” down to “c”), using the monthly sector credit breakdown as weights derived from contributed bank data.This gives an index of default risk combined across investment-grade and high-yield borrowers, and this index only changes when contributing banks amend the credit classification of borrowers. It is therefore directly linked to changes in transition rates, which can be tracked and potentially predicted via the deterioration vs improvement net balance, which records ALL movements in single-name PDs across all rating categories.Our projections are a combination of three types:The proportion of sector borrowers projected to be in the “c” category by Q1 2025. The majority of defaulting borrowers will transition from this category.The rolling 12m net balance of deteriorations vs improvements (“DIN”) across all credit categories in each sector, projected to the end of Q1 2025. This is used to weight peak and trough transition matrices as a function of the sector credit cycle phase.The modelled default rate projected directly to end Q1 2025.All projection types use multiple historic periods to give a range of future possible outcomes. Many of these give similar results, but some project large outliers in either tail of the distribution.Reported ranges cover the 10th to 90th percentiles, and the central case is based on the 50th percentile. ### Credit Spotlight on UK Water Industry Looking beyond Thames: default risk for UK water companies set to rise by at least 10% in next 12 months Sector default risk set to rise by at least 10% in next 12 months, 20% chance it rises by more than 20% Deteriorations outnumber Improvements; balance back to Covid high Credit downgrades for various subsidiaries of multiple parent firms The Thames Water (Kemble) Finance bond default shows the fault lines in commercial public utilities and means that the UK’s unique experiment1 in 100% water privatisation may be ending. Credit Benchmark’s United Kingdom Water credit risk index covers 52 companies, and the Global Gas, Water and Multi-utilities index covers 505 companies. The charts below show credit trends and distributions for these two indices. The steady erosion in UK Water credit quality accelerated during Covid, recovered slightly, and is now plumbing new depths. Global Multi-Utilities are broadly stable over the same period. The UK Water sector has a higher proportion in the “b” and “c” categories, and slightly less in “aa”, but most of the UK Water companies are in the “a” and “bbb” categories. In other words, the deterioration in the trend chart is from a base of high credit quality. The chart below shows how the UK Water credit profile has changed over time. The proportion in the “aa” category has been stable for nearly 3 years, but the “a” rating group has declined in the past 9 months, from nearly 40% to around 30%. Many of these have migrated to the “bbb” category, which has increased from a low of 29% in mid-2022 to around 40% currently. The “bb” category has declined from 24% in Q3 2022 to about 15% now, while the “b” category has tripled in size from around 2.5% to more than 7% in the past 12 months. Kemble was downgraded to the “c” category a few months ago, and appears at the top right of the chart. These credit migrations are driving the increase in default risk shown in the first chart of this note; they are spread across subsidiaries of multiple parent companies in the UK Water industry. The four charts below show default risk projections for the UK Water sector for the next 12 months. United Kingdom Water - April 2024 Default Rate Index 52 Constituents Current 0.90% Projected 12m 0.99% % Change +10.7% The top right chart plots the UK Water sector credit cycle – the sector has been heavily biased to downgrades from at least 2018. There was a brief recovery after Covid, but the deterioration trend returned at the end of 2022. It is now close to the record peak seen during Covid, and if it continues to climb, the UK Water industry could see a spike in defaults over the next 12 months. The range of projections in the top left chart shows that the 12-month projected default rate is likely to rise by at least 10%, but there is a 20% chance that it rises by 20% or more. The lower charts show that the main driver of this is likely to be a shift from investment grade to high yield, with a small but important increase in the “b” and “c” categories that can easily lead to defaults. These projections are based on the internal risk estimates of the banks that contribute data to the Credit Benchmark consensus view, which have been flagging potential problems in the Water sector for some time. The Kemble default is making bond investors nervous about the outlook for other firms in the sector; the bank consensus implies that they may be right. Credit Benchmark will be releasing default projections on a range of UK industries and sectors this summer. Additionally, similar analyses are available for all 1,200 indices in the Credit Benchmark universe. Get in touch if you want to see this analysis for your sectors of interest or to discuss the wider implications for credit portfolio risk management. Download Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### April 2024 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. Credit Benchmark covers 10,940 Financial entities, 82% of which are not rated by a credit rating agency. Financials showed very slight improvement this month, tipping the balance from last month's next deterioration to a neutral credit reading. Banks GSIBs (of which we cover all 30 entities) were the group showing the strongest incidence of net credit deterioration this month, with a negative ratio of 1 improvement to every 4 deteriorations. North American Banks (293 entities covered, 54% unrated) followed this trend, with a negative ratio of 1:1.9. The groups with the strongest credit showing this month were Central Banks (99 entities, 94% unrated) and Latin American Banks (190 entities, 53% unrated), both with positive ratios of 1.7:1 improvements to deteriorations. Intermediaries  Of the Intermediaries, Central Counterparties (44 entities, 76% unrated) showed only credit improvement this month, with no instances of deterioration. Broker Dealers (280 entities, 59% unrated) were net positive, with an improvements to deteriorations ratio of 1.7:1. On the other hand, Prime Brokers (24 entities, 8% unrated) skewed negative with a ratio of 1:2. Buy Side Buy Side firms remained positive on the whole this month. Sovereign Wealth Funds (37 entities, 92% unrated) showed the highest positive ratio, with 2 improvements to each deterioration. Insurance Companies (1,773 entities, 85% unrated) followed, with a positive ratio of 1.6:1. Pension Funds (1,967 entities, 100% unrated) were comparatively the poorest performer, but managed to remain credit neutral with a ratio of 1:1. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### April 2024 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month credit industry monitor for end-March, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Credit Benchmark covers 42,300 non-financial Corporate firms, 93% of which are not rated by a credit rating agency. This month, Corporates leant towards net credit improvement, with a modest positive ratio of 1.2 improvements to every deterioration. Financial firms (of which we cover 10,940, 82% of which are not publicly rated) showed credit neutrality, with a 1:1 improvements to deteriorations ratio. Industry Level Credit Movement: There were few instances of strong credit movement in either direction amongst the Industries. Utilities (covering 1,702 firms, 74% unrated) and Industrials (20,346 firms, 97% unrated) had the strongest performance, both with positive ratios of 1.4:1. The group showing the strongest bias towards credit deterioration was Telecommunications (483 firms, 77% unrated) with an improvements to deteriorations ratio of 1:1.8. Technology (1,579 firms, 85% unrated) and Basic Materials (2,997 firms, 91% unrated) followed some way behind, both with negative ratios of 1:1.2. Sector Level Credit Movement: At the sector level, Oil & Gas firms came out on top, with Canada Oil & Gas (174 firms, 78% unrated) showing a positive ratio of 3:1 improvements to deteriorations, and UK Oil & Gas (269 firms, 96% unrated) following behind with a ratio of 1.8:1. US Oil & Gas (465 firms, 67% unrated) was also positive but with a near neutral ratio of 1.1:1. Conversely, Canada Corporates (1,935 firms, 91% unrated) as a whole performed the worst, with a negative improvements to deteriorations ratio of 1:1.5. General Retailers (3,095 firms, 95% unrated) were neutral this month at 1:1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Credit Spotlight on Global Credit Cycles Tracking the Global Credit Cycle: Leaders, Laggards and Mavericks Credit Benchmark’s consensus data history runs from 2016, spanning the China growth shock, pre-Covid monetary tightening, Covid and its aftermath, plus the recent rate hikes, inflation spikes and rising geopolitical risk. These recent, dramatic economic cycles are reflected in major shifts in default risk estimates supplied to Credit Benchmark by major banks. These shifts can be tracked by the Deterioration-Improvement Net (“DIN”)[1] balance metric, a key driver of changes in transition matrices. The chart below shows this metric for a large number of credit consensus indices, split into deciles. Across 1,200 credit indices[2], the chart shows the 10th to 90th percentiles of the 12-month cumulative rolling DIN for each month from end-2016. In late 2019, for example, the deciles are tightly clustered, indicating that the pattern and scale of deteriorations and improvements across most sectors is very similar – in other words, the global credit cycle was highly synchronised and uniform. The pandemic triggers a widening of the decile boundaries as they spike higher, with worst-hit sectors see waves of downgrades while others show limited impact. Recovery from Covid in 2021 shows the decile bans dropping and tightening again, but rising rates and the Ukraine war have brought a fresh set of downgrades across most indices. Unlike the Covid phase, the percentiles do not show marked widening; so downgrades have been widespread, leaving few safe asset classes and sectors for credit portfolio managers. Credit consensus default risk data shows a clear global credit factor. However, the timing and scale of individual sector responses to changes in the macro environment shows significant variation over time. In each credit cycle phase, some sectors will lead or lag, but the majority will move as a group. No two cycles are identical, but Global sector data for the period 2016-2023 show some clear leaders, laggards and mavericks. To identify sector lead/lag signatures, each Global industry and sector index is compared with the Global Corporate index. Correlations are calculated across the whole 2016-23 period, with three time shifts: (1) 6 month lead (2) no lead or lag (3) 6 months lag. The table below shows the industries and sectors with significant patterns: Leading sectors: Correlation with 6-month lead vs. Global Corporate Index is higher than no lead or lag. Proxy sectors: Correlation with no lead or lag is higher than lag or lead correlation. Lagging sectors: Correlation with 6-month lag vs. Global Corporate Index is higher than no lead or lag. Building Materials & FixturesComputer HardwareDrug RetailersDurable Household ProductsElectronic Office EquipmentFarming, Fishing & PlantationsFixed Line TelecommunicationsFood & Drug RetailersFood ProducersFood ProductsForestry & PaperFurnishingsGold MiningLeisure GoodsPharmaceuticalsPharmaceuticals & BiotechnologySemiconductorsSoftwareTechnology Hardware & EquipmentTelecommunicationsTelecommunications EquipmentTobacco Computer ServicesDistillers & VintnersElectrical Components & EquipmentElectronic & Electrical EquipmentFinancial ServicesGas DistributionGas, Water & Multi-utilitiesGeneral MiningHealth CareHealth Care Equipment & ServicesHeavy ConstructionHedge FundIndustrial MachineryInvestment ServicesMarine TransportationMiningMobile TelecommunicationsMulti-utilitiesNondurable Household ProductsNonlife InsurancePaperReal Estate Investment TrustsSoftware & Computer ServicesSystemically Important BanksTiresVenture Capital Fund Aerospace & DefenseAirlinesBeveragesBrewersClothing & AccessoriesContainers & PackagingDiversified IndustrialsGeneral IndustrialsHotelsIndustrial SuppliersIron & SteelPlatinum & Precious MetalsRailroadsSoft DrinksTravel & Leisure Leading sectors are typically the first to show a credit improvement when macro conditions turn positive – Building, Hardware, Consumer Durables and Furnishings, Food, Pharma, Software, Tech and Telecom. Proxy sectors include Utilities, Healthcare, Heavy Construction and Machinery, Mining, Transport, various Services. Lagging sectors are more discretionary spending focused – Airlines, Clothing, Hotels, Beverages, Railways. Most of these are intuitive but credit consensus data can show the latest DIN behaviour for each of these sectors – so that credit portfolio managers can finesse the timing of exposure adjustments and have some warning of when the traditional pattern is changing. Some detailed examples following: Lead: Global Farming, Fishing & Plantations This sector was clearly in trouble in 2018 and 2019 as Deteriorations outweighed Improvements in nearly every month of that pre-Covid period. Covid pushed the 12m rolling DIN to a peak of close to 40%, but recovery was rapid as supply chains reformed in early 2021. War and tighter money began to bite in early 2023. Main cycle: Global Corporates The pattern is repeated for many of the proxy sectors. It is worth noting that deterioration began in early 2019, as Central Banks attempted to tighten monetary policy and normalise interest rates. The DIN reached 50% during Covid, and has only recovered about half of that during the recovery phase that began in mid 2021. The return to Deterioration set in during summer of 2023. Lagging: Global Hotels The sudden and catastrophic effect of Covid on this sector is clear, with the 12m DIN metric reaching more than 120%. Recovery also came late but was also large, reaching more than 50% balance towards Improvements. Unlike most sectors, the 12m DIN for Global Hotels is still in the net improvement zone; it looks unlikely to swing back to Deterioration for another 6 to 9 months. Some other sectors (e.g. Mobile Telecoms and – reassuringly – Global Systemically Important Banks (GSIBs)) are mavericks, following their own internal credit dynamics. Some (e.g. Basic Materials) are leaders AND laggards, probably because their constituent companies range from early to late cycle suppliers. These metrics are now being used to model transition matrix changes, with the credit cycle progressively shifting the balance of migrations from the upper right triangle (downgrades) to the lower left (upgrades). This gives credit portfolio managers detailed visibility of the likely future credit profile for each sector exposure. Similar analyses are available for all 1,200 indices in the Credit Benchmark universe. Get in touch if you want to see this analysis for your sectors of interest or to discuss the wider implications for credit portfolio risk management. Download Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report [1] This captures ALL movements in default risk estimates, not just the credit category upgrades and downgrades.  The net difference is normalised by the number of index constituents and can be updated intra-month. [2] These cover various types, regions, countries, industries, sectors and subsectors. ### March 2024 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. Credit Benchmark covers 10,642 Financial entities, 82% of which are not rated by a credit rating agency. Financials remain in the red, with a very slight trend towards net credit deterioration last month. Banks North American Banks (of which we cover 288 entities, 55% of which are not publicly rated) showed the strongest movement towards credit deterioration this month, with a ratio of 1 improvement to every 4.4 deteriorations. APAC Banks (541 entities; 55% unrated) followed, with a negative ratio of 1:2.1. The two strongest performers were LatAm Banks (198 entities; 52% unrated) and EMEA Banks (1,182 entities; 58% unrated), both with positive ratios of 1.4:1 improvements to deteriorations. Intermediaries  Credit movement skewed negative for the Intermediaries, with Custodians and Sub Custodians (150 entities; 35% unrated) showing the strongest negative ratio of 1:1.6 improvements to deteriorations. Prime Brokers (24 entities; 8% unrated) followed closely with a ratio of 1:1.5, which translated to a quarter of all entities deteriorating last month. CCPs (48 entities; 73% unrated) were the only group with positive credit quality, showing no instances of deterioration last month. Buy Side Buy Side Managers remained near neutral last month, with Asset Managers (992 entities; 92% unrated) and Insurance Companies (1,769 entities; 85% unrated) both showing slight negative ratios of 1:1.1. Of the Buy Side Owners, Pension Funds (2,044 entities; 100% unrated) and Sovereign Wealth Funds (37 entities; 92% unrated) both showed negative credit balances, with ratios of 1:2.2 and 1:2 improvements to deteriorations respectively. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### March 2024 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month credit industry monitor for end-February, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Credit Benchmark covers 40,572 non-financial Corporate firms, 93% of which are not rated by a credit rating agency. The credit trend for this group was close to balanced last month, with an improvements to deteriorations ratio of 1.1:1. Financial firms (of which we cover 10,642, 82% of which are not publicly rated), tipped in the opposite direction, with a very slight skew towards deterioration and a ratio of 1:1.1. Industry Level Credit Movement: Balance was seen throughout the different industries, with the majority of the categories registering neutral or near-neutral credit ratios of 1:1 or 1.1:1. Technology firms (covering 1,492 firms, 85% unrated) and Utilities (1,611 firms, 73% unrated) edged out slightly in front, both with a positive ratio of 1.2 improvements to every deterioration. Healthcare (1,406 firms, 89% unrated) was the worst performer, with a mildly negative ratio of 1:1.3 improvements to deteriorations, closely followed by Telecommunications (478 firms, 78% unrated), with a ratio of 1:1.2. Sector Level Credit Movement: There was slightly more pronounced movement at the sector-level, with Travel & Leisure (1,715 firms, 93% unrated) coming out on top with a positive ratio of 1.5:1 improvements to deteriorations. UK Corporates (8,486 firms, 97% unrated), and Construction & Materials (3,286 firms, 97% unrated) followed, with ratios of 1.3:1. Canadian firms fared less well, with Canada Oil & Gas (169 firms, 78% unrated) showing the strongest negative ratio of 1:2, and Canada Corporates (1,761 firms, 91% unrated) showing 1:1.5 improvements to deteriorations. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Credit Spotlight on Significant Risk Transfer SRT Case Study: Portfolio Risk Management Based on Projected Default Rates The Significant Risk Transfer (SRT) market continues to expand. Encouraging Fed guidance on credit-linked notes is likely to attract more investors, increasing the need for risk / return benchmarking to ensure transparent pricing and rapid market clearing. SRT investors effectively write a Credit Default Swap (CDS) on an obligor basket covering multiple geography, industry and credit categories. Pricing across these multiple dimensions is a blend of art and science, especially when the underlying portfolio includes undisclosed obligors. This note outlines recent applications for Credit Benchmark's credit consensus dataset in managing portfolio risk and optimizing trade structures. As the two EU sector charts below show, credit consensus data shows clear credit cycles[1]. These patterns can be used to model the relationship between different geographies and industries, with scope for leads, lags and turning points. They can also be used as inputs to simulate default rate projections. These two charts plot the rolling 12-month cumulative Deterioration/Improvement net balance (DIN), a leading indicator for changes in transition matrices and potentially for observed default rates. Credit Benchmark’s EU Automobiles index (comprising 93 constituents) show an obvious peak – with deteriorations outnumbering improvements – during the early stages of the Covid pandemic. But Credit Benchmark’s EU Broadline Retailers index (comprising 45 constituents) posted significant deterioration long before that, peaking in mid-2019. Their post-Covid recovery is patchy and turned negative again in early 2023. Autos remain slightly positive. These are just two of more than 1,200 credit consensus indices available from Credit Benchmark covering geographies and industries; many of those display a strong global credit factor effect during Covid, but they also exhibit specific country and industry effects, as well as leads and lags as credit effects move through supply chains. These indices are built from credit consensus data that covers a large number of obligors across multiple geographies and industries. The resulting dataset is especially powerful for top-down default rate projections; by projecting trends in credit categories and transitions, it is possible to plot the likely range of default rate outcomes for individual sectors. For some SRT trades, the possible default rate range may be an important factor in pricing. The examples below contrast Global and Swedish Corporates. These plot the expected position, scale and shape for two contrasting 12-month projections in default rate distributions. 12-Month Projected Default Rate Distribution - Global Corporates 12-Month Projected Default Rate Distribution - Sweden Corporates The upper and lower limits plotted here are the 10th and 90th percentiles drawn from a large number of projected default rate paths. Credit Benchmark’s Global Corporates index (comprising 20,533 constituents) show a narrow “Default Rate Index”[2] range of 1.25% to 1.56%, whereas Credit Benchmark’s Swedish Corporates index (comprising 89 constituents) show a wider absolute and % range of 0.46% to 1.15%. The dark diamond shows the current default rate index, so the most likely Global projection is for the median Corporate default rate to fall slightly, from 1.56% to 1.41%, with a small chance of it rising. For Swedish Corporates, the most likely outcome is an increase from 0.63% to the 0.81%-0.98% range, with a small chance that it exceeds 1.15%, almost doubling the possible loan loss. The Global range is positively skewed (majority of outcomes are clustered on the left) whereas the Swedish Corporate range is more symmetric around the higher projected median. Predictive analytics like these are powerful when combined in support of portfolio optimization. Leads and lags in the 12m DIN offer scope for diversification (or concentration) as cycles diverge or synchronise; variations in the position and shape of projected default rate ranges can also be offset through optimal portfolio structures. The scatterplot below shows the projected default rate and projection range for Credit Benchmark indices of corporate obligors in 10 countries / regions; the point labelled “Portfolio” shows the same analytics for the equally weighted average of each plotted credit index. The average projected default rate for the portfolio is the simple average of the default rates for the ten indices, but the range (on the x-axis) is noticeably lower than those of the plotted indices.  This shows the very powerful diversifying effect that a portfolio approach has on this metric.  It is the result of (1) divergences in the timing of potential turning points in the Deterioration / Improvement Net balance plus (2) negatively correlated projected default rate paths for different indices. This analysis can be extended in several ways. For example: Projected default rate trends for High Yield and Investment Grade credit categories can be modelled separately, to give a more granular assessment of the impact of default spikes on tranches. Correlations in the Deterioration / Improvement Net (“DIN”) balance for different indices can be measured to test assumptions about implied default rate correlations between tranches. The DIN series can be used as a macro factor proxy in the z-factor approach, used to forecast detailed transition matrix changes and future credit distributions. Wider Usage of Credit Consensus Ratings in SRT Transactions The top-down approach based on credit indices is especially useful for analysing undisclosed portfolios. Where individual obligor data is at least partly available, it can be mapped to the granular Credit Consensus Ratings (CCR) dataset to provide detailed analysis of disclosed portfolio transactions. CCRs for single borrowers give investors an unbiased view of the inbound portfolio, and can be extended to monitoring of the collected portfolio.  In particular, investors can compare the credit distribution (see below) of current and proposed portfolios, in their own credit scales as well as the classic 21-category format for comparison with external quotes. The chart below shows a detailed comparison based on individual CCRs. (Red dotted lines show differences of more than one notch). Banks can leverage similar analysis based on detailed CCRs, but without the need to divulge individual entity ratings. Comparative credit distribution comparisons allow them to demonstrate the efficacy of their underwriting standards. For undisclosed transactions, banks can demonstrate how internal pool ratings compare with the market, again without divulging either entity specific detail or ratings linked to specific entities, providing a clear and tangible quantification of the efficacy of bank underwriting standards. Like for like comparison: whole portfolio Notch differences: High Yield portion The rich consensus dataset also supports ongoing portfolio monitoring, servicing and substitutions. Detailed CCRs allow investors to assess marginal changes to risk through additional transactions. For banks who provide ongoing portfolio / trade reporting, consensus data is an independent and regularly updated reference point covering the portfolio lifecycle from trade inception onwards. For a free portfolio risk report, and to learn more about how consensus default risk data is now being used every day in SRT transactions, contact us at info@creditbenchmark.com. Download Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report [1] These are based on the 12-month rolling cumulative Deterioration-Improvement Net (12mDIN) balance, which records all default probability changes across every credit category.  Some of these will filter through to transition matrices. [2] The Default Rate Index is the weighted sum of the long run S&P observed global default rates for each credit category.  The weights are the monthly credit distributions for each sector.  This index is an estimate of the observed default rate that would have been observed in each sector if the default rates by credit category had been aligned with the long run (40+ years) default rates observed and reported by S&P. ### February 2024 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. Credit Benchmark covers 10,576 Financial entities, 82% of which are not rated by a credit rating agency. Financials showed a very slight bias towards net credit deterioration last month. Banks Within the Bank category, North American Banks (of which we cover 276 entities; 54% of which are not publicly rated) showed the highest levels of deterioration last month, with a negative ratio of 1:1.9 improvements to deteriorations. Central Banks (99 entities; 94% unrated) followed closely, with a negative ratio of 1:1.7. The strongest performers of the group were Latin American Banks (202 entities; 52% unrated), with a positive ratio of 2 improvements to every deterioration. EMEA Banks (1,178 entities; 58% unrated) maintained credit neutrality last month, with an even ratio of 1:1. Intermediaries  Credit movement was fairly balanced for the Intermediaries, with CCP Members (1,124 entities; 57% unrated) coming off worst with a mildly negative ratio of 1:1.3 improvements to deteriorations. CCPs themselves (47 entities; 72% unrated) remained neutral with a 1:1 ratio, as did Broker Dealers (276 entities; 59% unrated). Prime Brokers (24 entities; 8% unrated) and Custodians and Sub Custodians (151 entities; 46% unrated) both showed positive credit movement, with ratios of 1.2:1 improvements to deteriorations. Buy Side Of the Buy Side firms, Sovereign Wealth Funds (37 entities; 92% unrated) were most positive, with a ratio of 2:1 improvements to deteriorations. All other groups were neutral or near-neutral; Mutual Funds (28,396 entities; 99% unrated) and Pension Funds (2,031 entities; 99% unrated) were slightly in the red with ratios of 1:1.1 improvements to deteriorations. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Credit Spotlight on Supply Chain Credit Risk and Geopolitics Global transportation firms face higher risk of default if geopolitical tensions persist. Supply chains have recovered from Covid, but key trade choke points face new risks. Global trade in goods runs at $25trn, and most of that passes through at least one of these points. Attacks on Suez-bound shipping have pushed global cargo firms to re-route around Africa, adding time and cost; and drought disruption (not confined to summer) in Panama and the Danube are now annual occurrences. And supply chain disruption is one factor undermining early rate cut hopes as Central Banks tackle persistent inflation pressures. Alternatives to shipping – road, rail and air – have their own issues, but are easier to re-route. Global transport volumes are forecast to double by 2050 so the quest for a robust and environmentally sustainable global supply system is becoming increasingly urgent. Future credit trends for global transportation firms can appear months in advance in Credit Benchmark’s Deterioration-Improvement Net (“DIN”) balance metric[1]. Balances above the line indicate a bias to higher default risks in borrower credit assessments. Consensus data already shows some of the effects of supply chain disruption and higher interest rates: the charts below show the DIN metrics for Credit Benchmark’s Global Marine Transportation index (comprising 294 constituents) and Global Transportation Services index (2808 constituents). Marine Transportation has seen a sustained bias to improvement over the past two years although this is fading; if trade disruption continues the balance is likely to shift towards deterioration and higher default risks. Transportation Services show a similar peak during Covid but the recovery has been much more muted; although any shift to land or air transportation is likely to partly offset any maritime-related issues. The next pair of charts show cumulative 12-month DINs for Credit Benchmark’s Global Railroads index (comprising 207 constituents) and North America / Europe Trucking index (371 constituents). For Railroad credit, recent years have been difficult with no immediate sign of recovery, partly because passenger rail travel and short-haul freight is relatively expensive compared with air and road alternatives. But credit quality for some railroad firms could improve if shipping disruptions persist – rail can be cost effective over longer distances and has the lowest carbon footprint in the goods transport segment. It is also a significant beneficiary of automation and AI – but with a hefty ongoing investment requirement. Trucking had a long negative credit streak both before and during Covid, and continues to give mixed signals after a year-long recovery in 2021/22. Trucking could benefit from shipping disruption – 40% of US trade with the rest of the world goes via the Panama canal and during trade flow peaks some of that might have to transit the US overland instead – spread across road and rail. Suez and Panama have an impact on trade flows, freight rates, as well as the broader economy. But so far, apart from higher costs and longer lead times, the global economy has absorbed these shocks. Credit Benchmark’s default rate projections for Marine Transportation predict a slight increase in default risk as the most probable outcome in 2024; the chart below left shows the likely range. The median default risk estimate for the past 12 months is 1.2%; this looks likely to rise to 1.3% but the pessimistic scenario shows an increase to 1.4% - 1.6% - a one-third jump in expected loan losses. But the chances of this happening are less than 10% on current trends and cycles. There is a reasonable chance (20%) of a drop in credit risk, although that would probably require reduced Middle East tension and a resurgent European economy. Our default rate projections for the US Oil & Gas sector are already optimistic (see chart above right, from the 2024 Default Risk Outlook on US Industries available here). If Middle East tension continues to deteriorate, self-sufficient US Oil companies will likely follow the optimistic credit scenario in 2024 with projected default rates in the Investment Grade zone. In the broader economy, the main effect of Suez bottlenecks will be felt in Western European and Turkish consumer goods sectors. But US Retailers have some dependence on both Suez and Panama for supplies; the chart below shows recent default risk trends for two Credit Benchmark US Retail indices. Apparel in particular has seen a sharp deterioration in recent months. Since the end of 2022, US Apparel Retail credit risk has increased by more than 25%, most of that in the past 4 months – which seems unusual against the backdrop of strong wage growth; and general retailers show a 10% increase over the same period. So supply issues may be a significant factor for apparel specifically, much of which is sourced in Asia. For detailed US Industry default rate projections for 2024 see the Default Risk Outlook. For a specialised view of a particular sector, get in touch at info@creditbenchmark.com. Download Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report [1] “Deterioration” is any default risk increase for any borrower in a sector universe; “Improvement” is any default risk decrease.  The Net balance is the difference between the two, as a percentage of the total number of borrowers in the sector.  This is plotted here as a 12-month rolling total which often shows clear cycles. A sustained deteriorating net balance shows up in higher projected default rates after about twelve months. ### February 2024 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-January, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Credit Benchmark covers 40,423 non-financial corporate firms, 93% of which are not rated by a credit rating agency. These Corporates showed improving credit quality last month, with an improvements to deteriorations ratio of 1.4:1. Financial firms (of which we cover 10,576, 82% of which are not publicly rated), showed a slight bias towards deterioration, with a ratio of 1:1.2. Industry Level Credit Movement: At the industry-level, Industrial firms (covering 19,502 entities, 97% unrated) were the best performers last month, with a positive ratio of 1.6:1 improvements to deteriorations. Consumer Services (covering 6,376 entities, 93% unrated) was the next best cohort, showing a positive ratio of 1.3:1. Net deterioration amongst the industries was mostly mild, with Technology (1,470 entities, 85% unrated) and Telecommunications (456 entities, 77% unrated) each showing a negative ratio of 1:1.2 improvements to deteriorations. The worst performer of the group was Health Care (1,404 entities, 89% unrated), with a negative ratio of 1:1.7. Sector Level Credit Movement: Of the sectors, Construction and Materials (3,290 entities, 97% unrated) and Travel & Leisure (1,691 entities, 93% unrated) came out on top with positive ratios of 1.6:1. Again, deterioration was mild, with UK Oil & Gas (262 entities, 96% unrated) and US Oil & Gas (471 entities, 67% unrated) at the bottom of the group with negative ratios of 1:1.5 improvements to deteriorations. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Credit Spotlight on US Commercial Real Estate Industrial & Office REITs likely to show largest increase in default risk this year. Home working continues to affect US Commercial Real Estate: NYCB results, Blackstone haircuts, Aozora losses. The IMF reports delinquency rates rising and prices falling faster than in previous cycles due to the speed and scale of monetary tightening over the past two years. The chart below compares current valuation trends against previous downturns. The IMF also highlight the $300bn “maturity wall” facing the Office and Retail segments over the next two years. Much of this is held by commercial banks or investors in CMBS. The charts below show recent default risk changes for Credit Benchmark's US Real Estate Investment & Services, Holding & Development companies, and the main REIT categories indices. There is a 25% increase in default risk for RE Investment and Holding companies, and a near 50% increase in the Industrial and Office REIT segment. And the latter probably understates the deterioration in Offices, especially across older properties. The chart below shows the net balance between deterioration and improvement (“monthly DIN”) in the Industrial & Office sector. Deterioration-Improvement Net Balance (DIN) - Industrial & Office REITs Based on these trends, we predict the projected default rate for the end of this year to show an increase of at least 30% from a very low base of 27 Bps (median over the past 12 months) to around 40 Bps by the end of this year – see the following chart. Projected 2024 Default Rate - Industrial & Office REITs In December 2023, the proportion of Industrial and Office REITs in the “c” category jumped from zero to 2%. If the “c” category continues to grow rapidly over the next few months, the end-2024 default rate could be significantly higher; the pessimistic scenario shows it rising to at least 70 Bps. The table below summarizes some key credit consensus metrics for the various segments of the US Commercial Real Estate market. Client vs CB Rating Comparison This shows that the 12m DIN for the Industrial & Office REIT index is more than 3 standard deviations above the long term mean; confirming that the current very low level of risk is likely to show a significant increase over the next 12 months. Most segments currently have above-average DIN metrics, with Real Estate Holding & Development, Real Estate Investment & Services, and Real Estate Services all around 2 standard deviations above the long term mean. Traditionally higher risk sectors, like Mortgage Finance, Mortgage REITs, Retail REITs and Specialty REITs are less than one standard deviation above the mean or else below; 2 standard deviations below in the case of Speciality REITs. In conclusion: Industrial & Office REITs are likely to show the largest % increase in default risk this year; traditional Real Estate Holding, Investment and Service Companies are also set to show significant increases. Download Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Credit Benchmark publishes 2024 Default Risk Outlook for US industries, predicting mid-year peak in default risks followed by credit recovery New York, January 23, 2024 – Credit Benchmark, the provider of global consensus ratings and analytics, today said that it predicts that default risks will continue to rise and peak by mid-2024 across US industries, as explained in its inaugural 2024 Default Risk Outlook. However, credit quality should recover in H2 2024, assuming a more accommodative monetary policy and barring any further escalation of geopolitical risks. Credit Benchmark’s new report covers 13 US industries, representing more than 13,000 companies and legal entities, 70% of which are not rated by a major credit rating agency. This significant coverage and diversified dataset allows Credit Benchmark to make unique and credible sector-specific default risk projections for 2024. All of Credit Benchmark’s data and projections are based on borrower probability-of-default estimates, which are aggregated from over 40 global banks, nearly half of which are G-SIBs (global systemically important banks), and anonymized. “If inflation continues to slow in 2024 and the Fed cuts rates as many expect, funding conditions will ease somewhat and most likely drive a recovery across the majority of US industries in the second half of the year,” says Michael Crumpler, CEO of Credit Benchmark. “However, there are many geopolitical risks – especially potential disruptions to supply chains – that could pose downsides to this outlook.” “In addition, the outcome of the US election later this year may affect industry-specific drivers,” says Mr Crumpler. “Our default rate projections also reveal important industry outliers,” explains Mr Crumpler. “The weakest performer is the US telecoms sector, which is set to record a rise in its default rate to 4.4% this year on the back of uncertainty over network battles and M&A. Moreover, default risk among US leveraged loans will also continue to rise in H1 but should peak below 5%. The best performer is the US oil & gas sector, which should continue its recent improvement with a further drop in its default rate to 0.7%.” Note to Editors: About Credit Benchmark Credit Benchmark provides Credit Consensus Ratings and Analytics that are derived from data and internal credit risk ratings contributed by more than 40 leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). The contributions are aggregated, anonymized, and published twice monthly in the form of unique Credit Consensus Ratings and Credit Indices. This means that Credit Benchmark is making the views of far more analysts publicly available than ever before. Covering over 100,000 entities, 90% of which are unrated by any other publicly available traditional ratings methods, Credit Benchmark’s credit risk data covers around 170 countries and close to 200 industries and sub-sectors worldwide. Credit Benchmark’s insights are trusted by a host of the largest financial institutions in the world, either to benchmark their own internal credit risk analysis against those of a global peer group, or simply to gain accurate credit risk views where none were previously available. Credit Benchmark was founded in 2015 and is headquartered in London, with offices in New York and Bangalore. For further information contact: Laura SavilleHead of Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### Preqin: US credit default risk ‘set to peak by mid-2024’ amid rate cut expectations Credit default risk in the US is set to peak by mid-2024 before beginning to decline in most sectors, with leveraged loans showing the highest projected default rate compared to 12 other US sectors, writes William Bennett-Lynch and Grant Murgatroyd for Preqin, citing Credit Benchmark's 2024 Default Risk Outlook. "The default risk outlook for US industries is largely tied to inflation expectations, with anticipated US Federal Reserve (Fed) rate cuts factored into the Credit Benchmark analysis. External geopolitical risks and economic malaise could still pose significant challenges to creditworthiness...Leveraged loans have the highest projected default rates of the 13 sectors analyzed in the report, and the sector is not expected to reach its turning point until the end of 2024 or 2025." Preqin, January 24, 2024. View original article (external link). ### Credit Benchmark says US oil & gas industry has most benign default risk outlook vs. other US sectors, as discussed in 2024 Default Risk Outlook report on 13 US industries New York, January 24, 2024 – Credit Benchmark, the provider of global credit consensus ratings and analytics, today said that the already low 1% default rate among US oil & gas companies is likely to drop further to 0.7% in 2024, positioning it as a positive outlier among US industries. “The benign default risk outlook for the US oil & gas industry has been driven by the war in Ukraine and exacerbated by instability in the Middle East, resulting in high energy prices, despite attempts to ramp up production globally,” says Michael Crumpler, CEO of Credit Benchmark. “We predict that more US oil & gas firms will move into the investment-grade category in 2024, swelling the ranks of the ‘a’ and ‘bbb’ rating categories.” “We also expect this benign credit trend in US oil & gas to continue regardless of the outcome of the US election later this year,” adds Mr Crumpler. US oil & gas is one of 13 US industries discussed in Credit Benchmark’s new 2024 Default Risk Outlook. While the US pharma industry also has a benign default risk outlook, Credit Benchmark predicts that most other US industries will record a slight rise in their default rate. However, the US telecoms sector is a negative outlier with the largest projected increase in default rates in 2024, followed by US consumer services and leveraged loans. According to Credit Benchmark’s new report, default risks are likely to continue to rise and then peak by mid-2024 across most US industries. However, credit quality should recover in H2 2024, assuming that the Fed adopts a more accommodative monetary policy and barring any further escalation of geopolitical risks. Credit Benchmark’s new report covers 13 US industries, representing around 13,000 entities, 70% of which are not rated by a credit rating agency. This significant coverage allows Credit Benchmark to make credible sector-specific default risk projections for 2024. All of Credit Benchmark’s data and projections are based on borrower probability-of-default estimates, which are aggregated from over 40 global banks, nearly half of which are GSIBs (Global Systemically Important Banks), and anonymized. Note to Editors: About Credit Benchmark Credit Benchmark provides Credit Consensus Ratings and Analytics that are derived from data and internal credit risk ratings contributed by more than 40 leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). The contributions are aggregated, anonymized, and published twice monthly in the form of unique Credit Consensus Ratings and Credit Indices. This means that Credit Benchmark is making the views of far more analysts publicly available than ever before. Covering over 100,000 entities, 90% of which are unrated by any other publicly available traditional ratings methods, Credit Benchmark’s credit risk data covers around 170 countries and close to 200 industries and sub-sectors worldwide. Credit Benchmark’s insights are trusted by a host of the largest financial institutions in the world, either to benchmark their own internal credit risk analysis against those of a global peer group, or simply to gain accurate credit risk views where none were previously available. Credit Benchmark was founded in 2015 and is headquartered in London, with offices in New York and Bangalore. For further information contact: Laura SavilleHead of Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### 2024 Default Risk Outlook: US Industries Download PDF: US Default Risk Outlook About this report Credit Benchmark’s inaugural Default Risk Outlook draws on an extensive database of over 100,000 unique Credit Consensus Ratings (CCRs). These CCRs represent the internal risk views of expert analysts at the world’s leading banks – a previously untapped source of risk intelligence. 90% of the entities with CCRs are not rated by a major credit rating agency, meaning these projections offer a new and significant capacity for analysing default risk. Although this report focuses on US Industries, the methodology can be applied to the broad and highly representative dataset of 100,000+ CCRs. The default projections can be customized for our clients to match their own classification schemas and align more accurately with their portfolios and exposures. Vigilant risk management is vital when navigating an unpredictable economic climate. With broader, deeper, and more frequent analytics than previously available, Credit Benchmark is now able to offer the market a comprehensive and differentiated view on default risks. If you would like a free and fully confidential analysis of the default risk projections of your own portfolio, we encourage you to get in touch here.  Table of Contents 2024 US Default Risk Landscape Default risks to peak by mid-2024 across most industries, with credit recovery possible if rate cuts go ahead Credit Benchmark’s projected default rate for 2024 Change (%) in the probability of default (PD) during 2023 Key TakeawaysWe predict that default^ risks will continue to rise and peak by mid-2024 across most sectors, except for technology and telecoms which will likely peak in late H2. Credit quality should generally recover in H2 2024 if rate cuts go ahead and barring further escalation of geopolitical risks.The oil & gas industry benefits from the most benign outlook for 2024, followed by the pharma industry.Risks are likely to rise modestly for consumer goods, industrials, basic materials, financial institutions.The largest projected increase in risk is likely for telecoms, consumer services, leveraged loans.Financial institutions and non-financial corporates show little change in default risk in 2024.Our Sectors to Watch section compares the shifting probabilities of default across peer sub-sectors.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Non-Financial Corporates* Default risks to rise slightly, peak by mid-2024 and ease thereafterCredit distribution by ratings category Projected 2024 default rate Monthly balance of deteriorations vs improvements / number of entities Distribution of entities across rating categories (%) Key TakeawaysWe predict that default^ risks for US corporates will rise minimally in 2024 and peak mid-year. Our range of projections indicate that a default level of 1.7% - 1.8%, up from 1.6% currently (as of 1/1/2024), is the most likely.A recovery for US corporates is possible in H2 2024 given that the current credit deterioration (as of 1/1/2024) is likely to dissipate after default risks have peaked. We expect fewer Fallen Angels¹ and improvements in creditworthiness signalled by buoyant stock prices and recovering profits.The proportion of borrowers in the “c” rating category will trend lower in 2024. This category has ballooned since mid-2022, suggesting that more defaults are likely in H1 2024 – followed by improvements in H2.Our aggregated consensus ratings cover 5,055 US non-financial corporates, 71% of which are not rated by a credit rating agency.* Covering all corporate sectors, including those discussed in this report, but excluding financial institutions.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector  credit breakdown as weights derived from contributed bank data.¹ Fallen angels are credits that have fallen from investment grade into the high-yield or speculative-grade category. Outlook for US Financial Institutions Post-Covid improving trend to stall on lower interest income, higher debt provisions12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Long-term projected observed default rate (ODR) Credit distribution by ratings category Key TakeawaysWe predict that the post-Covid improving trend among FIs will plateau in H1 2024 as interest income drops and loan-loss provisions increase. The outlook has been deteriorating since the SVB collapse last year, but we expect this to have dissipated by the end of 2024.This sector’s current low default^ rate is likely to increase slightly during 2024. The proportion of firms in the “c” rating category remains very low, but projections imply a small increase in the “b” category.Our range of projections shows no scope for a fall in the default rate. There is a small likelihood (10%) of a spike to 0.9%, but a default rate of 0.7% is the most likely in 2024.Our aggregated consensus ratings cover 2,378 financial institutions in the US, 79% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Oil & Gas Creditworthiness to improve slightly in 2024, with further drop in default rate12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Long-term projected observed default rate (ODR) Credit distribution by ratings category Key TakeawaysThe already low default^ rate among US oil & gas companies is likely to drop further in 2024 – a positive outlier among US industries. Our long-term projections show that a drop from the current 1% default rate (as of 1/1/2024) to 0.7% is the most likely scenario (40%+). There is only a small likelihood (10%) of an increase in defaults to 1.1%.We also predict that more US oil & gas firms will move into investment-grade territory in 2024, swelling the ranks of the “a” and “bbb” rating categories. This trend has been driven by the war in Ukraine, although producers may ramp up output in 2024.The benign outlook for US oil & gas will persist regardless of the outcome of the US election – but Middle East instability could affect credit trends.Our aggregated consensus ratings cover 458 oil & gas companies in the US, 67% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Industrials* Deterioration bias easing in 2024 but modest rise in default risk amid slower growth12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Projected default rate, rolling 12 months Credit distribution by ratings category Key TakeawaysOur central credit scenario is for the bellwether US industrial sector to stabilize in 2024 after a mixed 2023 during which deteriorations outnumbered improvements. However, our pessimistic scenario points to a possible continuation of the weakening trend until mid-2024.Our default^ risk projections point to a modest increase in 2024, with our central scenario positing an increase from 1.4% to 1.6%. Our pessimistic scenario projects a default rate of 1.8%+. Our range of projections imply no scope for a drop in risk in 2024 among US industrial companies.Our aggregated consensus ratings cover 1,238 industrial companies in the US, 77% of which are not rated by a credit rating agency.* Covering the manufacture of industrial goods and services, e.g., constructions materials, aerospace, electronic equipment and components, defense equipment, railroads, marine transportation, industrial machinery, commercial vehicles and trucks, etc.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Basic Materials* Modest rise in default risk in 2024 despite strong demand in some sub-sectors12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Projected default rate, rolling 12 months Credit distribution by ratings category Key TakeawaysWe predict a modest increase in default^ risk among the basic materials industry in the US in 2024. Our central scenario points to a rise in default risk from the current level of 1% (as of 1/1/2024) to 1.2%.The range of our projections is narrow at 1.1% to 1.3%, with our central scenario for risk positioned very close to our optimistic scenario. However, the 12-month rolling balance of deteriorations vs improvements could be close to the long-term maximum – ahead of the positive effect of alternative energy drivers (lithium and uranium).Our aggregated consensus ratings cover 378 basic materials companies in the US, 74% of which are not rated by a credit rating agency.* Covering the mining industries for aluminum, iron, steel, coal, gold platinum and precious metals, non-ferrous metals, as well as forestry  and paper products.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Consumer Goods Default risk to climb in 2024, with rise in proportion of high-yield borrowersLong-term projected observed default rate (ODR) Projected 2024 default rate Distribution of entities across rating categories (%) Credit distribution by ratings category Key TakeawaysWe predict a rise in default^ risk for the US consumer goods sector in 2024, even though our long-term default risk projections for the US consumer goods sector are mixed. Our range of projections cover a lower bound of 1.7% above the current 1.5% level (as of 1/1/2024), with a pessimistic projection at 2.1%.Our forecasts point to a continued rise in the proportion of US consumer goods companies in the “c” rating category in 2024, indicating that a spike in defaults is likely as the cost-of-living crisis continues to bite.Our aggregated consensus ratings cover 635 consumer goods companies in the US, 67% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Consumer Services Sharp increase in default risk likely in 2024 amid fall in discretionary spend12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Projected default rate, rolling 12-month Credit distribution by ratings category Key TakeawaysOur central scenario for the US consumer services sector points to a significant increase in risk, with the current level of 1.9% (as of 1/1/2024) projected to rise to 2.4% during 2024. Our pessimistic scenario points to a possible rise in the default^ rate to above 3%.The net balance of deteriorations in creditworthiness outnumbered improvements during 2023 but remains far below the long-term maximum. A further decline in discretionary spend could weigh on creditworthiness.Our aggregated consensus ratings cover 861 consumer services companies in the US, 70% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Technology Default risk to rise modestly in 2024 amid slowing tech investment12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Long-term projected observed default rate (ODR) Credit distribution by ratings category Key TakeawaysWe predict that the US technology sector will record a modest increase in default^ risk in 2024. Our central scenario projects a rise from the current high level of risk of 2.4% (as of 1/1/2024) to 2.6% during 2024, with a 20% likelihood of risk hitting 2.8% under our pessimistic scenario.The balance of deteriorations vs. improvements has been rising rapidly in recent years. We predict that this ratio will peak in 2024 before reaching a long-term maximum, implying that further downgrades lie ahead. Over the long term, both linear and non-linear projections suggest continued new highs in default risks.Our aggregated consensus ratings cover 432 technology companies in the US, 67% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Telecoms Significant increase in default risk given uncertainty over network battles and M&A12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Distribution of entities across rating categories (%) Credit distribution by ratings category Key TakeawaysWe predict a significant increase in default^ risk for the US telecoms sector in 2024. Our central scenario posits a spike in the already very high current level of 3.2% (as of 1/1/2024) to median 4.4% this year. The range of our long-term projections is skewed towards higher risk, with a small (10%) likelihood that it reaches 6.4% or more.There is a clear divergence in this sector, with a sharp rise in the proportion of borrowers in both the “c” and “a” rating categories, suggesting clear winners and losers. But the central trend is downwards, suggesting that the shakeout in telecoms may run its course this year.Our aggregated consensus ratings cover 92 US telecoms companies, 66% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Health Care Default risk to nudge up as sector’s share of GDP growth shrinksProjected default rate, rolling 12-month Projected 2024 default rate Distribution of entities across rating categories (%) Credit distribution by ratings category Key TakeawaysWe predict that the US healthcare sector will record a slight increase in default^ risk in 2024. According to our central scenario, the current high level of 2.2% (as of 1/1/2024) is projected to rise slightly to 2.3%.Overall, the range of our projections is skewed towards lower risk, with a level of 2.3%-2.4% most likely, and a small likelihood (10%) that risk levels may drop to 2%.The proportion of borrowers in the “bb” rating category has been falling in recent years, with a corresponding rise in the “b” category in particular.Our aggregated consensus ratings cover 447 US healthcare companies, 75% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Pharmaceuticals Minimal change in default risk masks company-specific differencesLong-term projected observed default rate (ODR) Projected 2024 default rate Distribution of entities across rating categories (%) Projected default rate, rolling 12 months Key TakeawaysOur outlook for default^ risks in the US pharma industry is stable, with our central scenario showing almost no change in risk between current levels (1/1/2024) and projections for 2024. Our long-term projections are skewed towards lower risk overall.Secular trends have had a mixed effect across the pharma industry. AI is shortening time to market for new drugs, but the beneficial effect of a wave of drugs coming off patent is fading. The positive effect of anti-obesity drugs is company-specific.The proportion of US pharma borrowers in the “c” rating category has been dropping, and the proportion in the “b” category has been trending up slightly.Our aggregated consensus ratings cover 86 US pharmaceutical companies, 71% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US REITs Stable outlook as sector recovers – but office/industrial segment still troubledMonthly balance of deteriorations vs improvements / number of entities Projected 2024 default rate Long-term projected observed default rate (ODR) Credit distribution by ratings category Key TakeawaysOur central scenario for US real estate investment trusts points to a small increase in default^ risk for 2024. The apparently stable outlook glosses over growing problems in some real estate subsectors.Our range of 2024 projections for this sector is skewed towards lower risk, with levels of 1.1%-1.3% most likely. But there is a likelihood of almost 20% that current levels of 0.9% (as of 1/1/2024) will increase to 1.5% or more in 2024.The net balance of deteriorations vs improvements shows recent patchy improvements, although the long-term linear default risk trend is still modestly higher.Our aggregated consensus ratings cover 209 US REITs, 58% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for US Leveraged Loans Risk levels to continue rising given HY concentration – but lower interest rates will help12-month balance of deteriorations vs improvements / number of entities Projected 2024 default rate Long-term projected observed default rate (ODR) Credit distribution by ratings category Key TakeawaysOur central scenario for the US leveraged loans sector shows a further increase in default^ risk from 4.6% to 4.9%. Our 2024 projections are generally skewed towards higher risk, with levels of 4.9% to 5.3% most likely. There is a small likelihood (<10%) of the default rate reaching 5.6%.Despite the deteriorating trend in 2023, this sector has remained more robust than the more pessimistic market projections. However, our projections indicate that the long-term negative credit trend will continue for most of 2024.The long-term trend in default rates is still on the rise, with no major turning points in sight yet.Our aggregated consensus ratings cover 852 US leveraged loans, 27% of which are not rated by a credit rating agency.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Selection of Sectors to Watch 2023 trends in probabilities of default (PD) across peer industries and sub-sectorsPharma outperformed Healthcare industry In Consumer Goods sector, household products underperformed home building Chemicals was a major laggard in the Basic Materials sector In the Consumer Goods industry, the Autos segment held up well Key TakeawaysDespite a high federal funds rate, US growth was strong in 2023 overall, with sector-specific factors determining how each sector fared. If inflation continues to slow in 2024, the expected rate cuts will ease funding conditions and drive a credit recovery in H2 – but significant geopolitical uncertainties, especially potential disruptions to supply chains, pose downsides to this outlook.Health care is set to continue underperforming pharma in 2024 due to staff shortages and the IRA impact.The higher cost of living is affecting household products, while construction will benefit from housing starts.The chemicals sub-sector is lagging the basic materials industry as global oversupply hits weak local demand.The autos sub-sector is holding up well, after gasoline and EV sales posted strong growth in 2023. Download PDF: Default Risk Outlook Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report Appendix Additional definitions and explanationsAll projections cover 2024 up until the end of December 2024.Segments of some industries are included in other larger industries (for example, parts of the consumer goods industry are included industrials), so the numbers of entities may overlap for some industries.The historic data set that we used for our projections is based only on derived metrics from one-year ex ante probability of default (“PD”) estimates contributed by major global banks to Credit Benchmark. No external micro- or macro-level data was used.The reported “Default Rate” is defined as a weighted average of S&P’s long-term observed default rates in each of the seven main rating categories (from “aaa” down to “c”), using the monthly sector credit breakdown as weights derived from contributed bank data.This gives an index of default risk combined across investment-grade and high-yield borrowers, and this index only changes when contributing banks amend the credit classification of borrowers. It is therefore directly linked to changes in transition rates, which can be tracked and potentially predicted via the deterioration vs improvement net balance, which records ALL movements in single-name PDs across all rating categories.Our projections are a combination of three types:The proportion of borrowers projected to be in the “c” category by the end of 2024. The majority of defaulting borrowers will transition from this category.The net balance of deteriorations vs improvements across all rating categories, projected by the end of 2024. This shows how rapidly the upper right triangle elements of the transition matrix are increasing in value, showing the potential scale of future rating category transitions, including jumps to default.Modelled default rate projected directly to end 2024.All projections follow monthly timestep paths up until the end of 2024.All projection types use multiple historic periods to give a range of future outcomes. Many of these give similar results, but some result in large outliers on either side of the distributionOptimistic and pessimistic projections based on 10th and 90th percentiles of projected paths. Our central scenario is based on 50th percentile. ### January 2024 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-November, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Corporates credit quality show a slight bias towards net credit improvement this month, with a ratio of 1.2:1. Financials are nearly balanced between improvement and deterioration this month, with a ratio of 1:1.1. Industry Level Credit Movement: Amongst the Industries, Telecommunications remain the worst performer this month, with a ratio of 2 deteriorations to every improvement. Utilities and Technology follow close behind with improving to deteriorating ratios of 1:1.4 and 1:1.3 respectively. Oil & Gas firms remain on top with a positive ratio of 1.7 improvements to each deterioration. Sector Level Credit Movement: Oil & Gas strength is also reflected at the sector level, with Canada Oil & Gas firms coming out strong with a 2.3:1 improvement to deterioration ratio. UK and US Oil & Gas firms also performed well with positive ratios of 1.6:1 and 1.5:1 respectively. Travel & Leisure firms also stand out with a bias towards credit improvement, with an improving to deteriorating ratio of 1.6:1. Construction & Materials follow close behind with an improving to deteriorating ratio of 1.5:1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### December 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been a negative month for the credit quality of Global Financial Counterparts categories, with some exceptions. Banks This month Globally Systemically Important Banks (GSIBs), North American Banks and Central Banks stand out with the strongest biases towards credit deterioration, with improving to deteriorating ratios of 1:3.3, 1:2.9 and 1:2.2 respectively.  Conversely, EMEA Banks have the strongest showing, with an improving to deteriorating ratio of 1.6:1. Intermediaries  Central Clearing Counterparts (CCPs) stand out with the strongest bias towards credit deterioration, with an improving to deteriorating ratio of 1:3. Custodians and Sub Custodians follow close behind with a 1:2 improvements to deteriorations ratio. CCP Members are the lone net positive performer this month, with 1.1:1 improvements to deteriorations. Buy Side Asset Managers and Pension Funds show a bias towards credit deterioration, both with an improving to deteriorating ratio of 1:1.5. Sovereign Wealth Funds leads with an improving to deteriorating ratio of 2:1.  The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### December 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-November, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Corporates credit quality show a bias towards net credit improvement this month, with a ration of 1.5:1. Financials are nearly balanced between improvement and deterioration this month, with a ratio of 1:1.1. Industry Level Credit Movement: Amongst the Industries, Telecommunications remain the worst performer this month, with a ratio of 1.4 deteriorations to every improvement. Utilities follow close behind with a 1:1.2 improvements to deteriorations ratio. All other industries on the monitor are biased towards net credit improvement this month. Oil & Gas firms remain on top with a positive ratio of 2 improvements to each deterioration. Sector Level Credit Movement: US Corporates stand out as the only sector with a bias towards credit deterioration this month, with an improving to deteriorating ratio of 1:1.7. All other sectors on the monitor are biased towards net credit improvement this month. Oil & Gas strength is also reflected at the sector level, with UK Oil & Gas firms coming out strong with a 3.3:1 improvement to deterioration ratio. US and Canada Oil & Gas firms also performed well with positive ratios of 1.2:1 and 3:1 respectively. Travel & Leisure firms also stand out with a bias towards credit improvement, with an improving to deteriorating ratio of 1.9:1. Construction & Materials follow close behind with an improving to deteriorating ratio of 1.8:1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### November 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been a mixed bag in terms of credit movement this month, across all Global Financial Counterpart categories. Banks Banks are dominated by negative credit movements this month. North American Banks and APAC Banks have the weakest showing, with improving to deteriorating ratios of 1:1.6. Conversely, Central Banks have the strongest showing, with an improving to deteriorating ratio of 1.6:1. Intermediaries  Broker Dealers stand out with the strongest bias towards credit improvement, with an improving to deteriorating ratio of 1.7:1. However, Custodians and Sub Custodians are in the red with a ratio of 1:1.4. Buy Side Buy Side Managers are wholly negative this month. On the other hand, Buy Side Owners are either positive or balanced. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### COP28: Climate Change Winners and Losers in the Default Risk Landscape Executive Summary 2023 has set multiple climate records. Polar ice and glacier thickness are at new lows, while droughts, wildfires, floods and landslides are at all-time highs. Climate change effects are being felt in every country and every industry. Global trade is being disrupted, land use patterns are shifting, people are migrating and their habitat is changing. Technology offers a huge range of potential solutions, and spiking prices for food, viable real estate, and primary resources are beginning to attract the necessary capital. The challenge to address climate change is essentially a race against time. In this report we look at various countries, industries and sectors that are positively or negatively affected by climate change. We review the distribution, dynamics and trends of default risk, and compare them with other stress (and success) indicators. Macro Overview: Based on the WEF estimate that climate change could cost 4% of global GDP by 2050, WEF believe that over 60 countries could have their credit ratings cut by 2030 as a direct result – highlighting the importance of decarbonisation. Sovereigns & Corporates: African governments and corporates have shown sustained credit deterioration, a likely consequence of climate change and political instability. Food Producers: Default risk is still rising in this segment given that the global deterioration in food producer credit is deteriorating across the globe. Fertilizer: This sector is improving as the Ukraine effect fades, with further gains possible. Oil & Gas vs. Renewable Energy: War has re-energized fossil fuel investment and exploitation, while default risks for renewables are rising due to higher costs, energy output volatility and withdrawals of subsidies. Travel, Hotels & Airlines: The post-Covid boom is continuing, with international tourism acting as the lifeblood of a growing number of economies. Like fossil fuel, it is unlikely to fade soon. Financial Institutions: This sector has so far experienced only minimal impact from climate change, with both banks and insurance companies remaining broadly stable. Any deterioration (e.g., among US banks) seems to be more closely linked to the effect of higher interest rates or commercial real estate issues. Bad debts, rising insurance claims, and a reluctance to cover growing climate risk areas could pose major future risks for these sectors – but innovation and accurate pricing of risks may offset these. Moreover, banks may potentially benefit from trading in financial mitigants to climate change. Commercial Real Estate: This sector is suffering, especially in urban centres, while agriculture and warehouses are benefitting. A glut of office space after Covid will be compounded by a reluctance to burn carbon for commutes or provide air-conditioning for large office blocks. Moreover, plans to convert these into vertical farms or residential spaces are costly. Technology: The creditworthiness of AI companies has been improving, and there are multiple AI-driven use cases that are focused on the technological challenges of solving for climate change. Quick Overview: Climate Change Basics Greenhouse gases (GHGs) – especially carbon dioxide and methane – are the main drivers of climate change. While sunlight penetrates these gases to enter the atmosphere, the resulting heat is trapped by GHGs, triggering various chain reactions that manifest as extreme weather events. From among these, drought is possibly the most consequential: if current trends continue then the world could run out of fresh (i.e., not salty) water very soon. This is not a new phenomenon; it was raised over 100 years ago. Possible solutions fall under the two broad headings of (1) reducing emissions and (2) capturing emissions and scrubbing GHGs from the atmosphere via greening and technology with tax/market incentives. On the supply side, emissions reductions involve shifting production to renewables via tax incentives and corporate ESG naming-and-shaming. On the demand side, reducing emissions requires scaling back consumption via market prices, carbon trading, tax incentives, altruism.1 Some of these solutions are already being implemented with varying levels of political and social support. The pace of implementation is likely to accelerate for the simple reason that current non-renewable sources will start to run out in about 50 years (except coal, which has over 100 years to go). But fresh water (only about 2.5% of the otherwise salty world total) is set to start running out in some areas in about 20 years, unless we collectively recycle waste water or find a cost-effective and sustainable method for mass desalinisation. Panic about climate change has resulted in some significant misallocations: electric vehicles do not burn fossil fuels directly, but power needs to be generated somewhere and somehow. The greater weight of electric cars vs traditional fuel-guzzling cars damages roads and structures. Also, EV batteries are fire-risks, and battery production needs rare minerals, especially lithium. Renewables – like wind and wave power – can be unreliable. The trade-off is a more volatile but less environmentally unfriendly energy source. And extreme weather due to climate change effects may increase that volatility. Russia’s invasion of Ukraine has revitalized the fossil fuel industry,2 and higher energy prices have transferred income to energy companies and fossil-fuel-rich nations. For Middle Eastern countries this is an opportunity to modernise and diversify their economies, but the resulting political realignments have opened some old and bitter wounds. Heated debates on this topic revolve around responsibility: should large fossil fuel producers – countries and corporates – take bigger steps to diversify their energy sources? The E in ESG has focused on corporate activity, but should consumers with the largest GHG footprint scale back? It has been estimated that if every human lived like an average G7 citizen, the emissions impact would be equivalent to the world population growing from its current 8bn to an unsustainable 100bn. Without major technological advances, climate change means that development for all is no longer an option. Adjustments will need to be seismic and market prices are already adjusting. All costs are rising because of wars, Covid, and de-globalisation. Climate change is also driving up prices for water, energy, home insurance, food prices, as well as for real estate in low-impact countries. A free market enthusiast might argue that these price adjustments will solve the problem; they will certainly bring windfall gains and losses. Free-market sceptics also see solutions, but they would need global taxation agreements to succeed. Despite some ingenious technological proposals,3 most scientists involved in these real projects agree that there is no substitute for decarbonization – i.e., produce less and capture emissions.4 But the environment has become fully politicized. The debate has moved far beyond climate denial: it is now about advanced vs developing world reparations and mass migration. Conflicts that are flaring up around the world – Ukraine, Israel, Sub-Saharan Africa – are partly driven by increasing competition for scarce resources. The good news from the IEA is that the world shift to clean energy is now unstoppable. The timing is the issue. Macro Overview An analysis by the World Economic Forum based on 135 countries suggests that climate change could cost 4% of global GDP by 2050. WEF estimate that over 60 countries could have their credit ratings cut by 2030 as a direct result. WEF analysis by region (see chart below) shows that low-income countries stand to lose a greater proportion of their GDP due to climate change, especially as a result of physical events. Source: World Economic Forum, S&P Global, World Bank South Asia is most exposed, followed at some distance by Central Asia, the Middle East (where the current energy price windfall gain may help) and most of Africa. The growing number of immigrants from the global south heading for north western Europe may partly be a symptom of the social and political instability caused by climate-related famine and disease – indeed, in the past two years there have been multiple military coups in  sub-Saharan Africa. Top producers of carbon dioxide and methane emissions are China, US, India and Russia. Russia and the US are proportionally much heavier polluters before allowing for any GHG offsets, although the US is not far behind the EU in the rate of its emission reduction. Country Per Capita Fossil CO2 Emissions Source: Statista If carbon capture is a key part of the solution then the existing carbon trading market could show exponential growth – which would benefit financial institutions and exchanges. Sovereigns & Macro Corporates Pre-COP28 meetings have exposed deep divisions between rich and poor countries. While COP27 in 2022 had some successes, many of the most adversely affected nations need far more financial help than has been promised and the pledged “loss and damage” funding may be at risk. Adverse climate change hits economic growth in multiple ways: for example, the Panama canal will halve the number of permitted sailings this winter due to drought-induced low water levels. Such widespread impacts on global trade bring fiscal strain, increasing political instability and net emigration from the worst-hit countries. The charts below show recent sovereign default risk trends. % Balances Between Improving and Deteriorating Companies Credit Trend: Sovereign & Central Banks Across all sovereigns, the bias is currently towards improvement, although the majority have experienced some negative trends over the past 12 months. Africa in particular has suffered, with a 15% increase in average default risk over the past year. Africa suffers disproportionately from climate change: it is responsible for less than 10% percent of global greenhouse gas emissions, and is least able to cope with the negative impacts of climate change. Credit Trend: Corporates Positive and negative impacts extend beyond sovereigns. The chart on the left shows that recent energy price spikes have been good for corporates in the Middle East, but corporates in Africa are mirroring the deterioration in sovereign default risk. Food Producers Climate change has made food more scarce and more expensive, but food consumption patterns and production practices are part of the problem. There are major regional variations: the US is one of the world’s largest beef producers, but modern farming techniques mean that beef from the US contributes significantly less to carbon emissions than, for example, South East Asia. Erratic weather, temperature shifts and rising sea levels are a growing threat to global food production, with food security exacerbated by more frequent armed conflicts and supply chain challenges. Prices for some food types have more than doubled in the past few years. Some companies in the food chain have recorded higher profits as a result, but most have struggled in the face of rising costs. The chart on the left covers a universe of 32 food producer credit indices, tracking the proportion with net credit upgrades. This proportion has been declining in recent months and currently sits well below the neutral 50% line – and it has been below this line for most of 2023. The next set of charts show geographic trends among food producers for 2023. The deterioration was particularly evident in Canada, UK/Europe and Africa. Credit Trend: Global, US, Canada, Latin America, UK, Europe, Asia and Africa Food Producers Fertilizers With climate change reducing arable acreage, there is increasing focus on higher food yields. Modern fertilizers are dependent on phosphorus, which is likely to run out in about 40 years. Alternative sources include seaweed, bonemeal and animal waste – each with their own carbon emissions footprint and cost profile. But as with fossil fuels, the Ukraine war has brought a spike in phosphorus-based fertilizer prices, boosting profits and credit. The following chart shows the trends in credit rating upgrades and downgrades as well as the aggregated probability of default (PD) for 13 fertilizer companies, including household names such as Mosaic Co, Nutrien Ltd, CF Industries and more. The chart shows a sustained improvement in creditworthiness from early 2022, although the second half of 2023 shows a deterioration and plateauing in the improving trend. Farmers have made some adjustments to reduce their dependence on Ukraine, but the negative effects have been significant (see Africa trends in the Sovereign and Macro Corporates section above – fertilizer and food issues are one of the main drivers). NB: The Fertilizer index plotted here is an example of portfolio metrics that Credit Benchmark can provide for bespoke company lists. Contact us for a Default Risk report on your own portfolio. Oil & Gas vs. Renewable Energy An ideal COP28 outcome would be for all countries to commit to net-zero and to implement it quickly. But transition is fraught with challenges, ranging from materials shortages for sustainable energy technology (such as lithium for car batteries, copper for various applications) and efficiency issues (such as with heat pumps). And in the meantime, populations still need to heat their homes and travel to work. Fossil fuel supplies are reliable, flexible and easily available; while renewables like solar, wind, hydro and even bio are at the mercy of the ever-changing weather. Even when renewables are cheaper, the volatility discount is a major obstacle to full transition. The Ukraine war has put a premium on energy security, which is now just as important as sustainability for many countries. Diversity in energy sources is increasingly important – not just to navigate the security-sustainability trade-off, but also to handle variations in yields from alternative energy sources. Research into superconductivity offers the prospect of a costless transfer of energy allowing those with a surplus to immediately supply those with a deficit. Despite the recent adverse trends, the current credit distribution (below left) shows that renewables companies are on average better credit risks than traditional oil & gas companies. Credit Distribution: Credit Trend: Renewables companies are clustered in the centre of the scale, with most firms in the bbb credit category. Oil & gas companies are more evenly split between bbb and bb. However, the renewables sector has a higher proportion of its entities in the risky c category. The chart on the right shows the Ukraine impact: while renewables benefit from better credit quality, recent credit trends have been pulling them in the opposite direction. Over the past two years, renewable credit risk has deteriorated by close to 20%, whilst traditional energy has improved by nearly 40% – creating a large gap between these two opposing groups of energy providers. Travel, Hotels & Airlines “Is your journey really necessary?” Probably not, but we all love to travel and so many economies are now dependent on tourism. The travel sector is facing a head-on collision between consumer-led demand and climate-constrained supply. Covid encouraged staycations and working-from-home reduced the global commute, and neither of these has fully reversed. But air passenger numbers are still growing, doubling in 2023 to 80% of their pre-Covid level. Source: BEIS GHG Reporting Conversion Factors 2019, Aviation Environment Federation Ltd As the chart on the left shows, aviation is the most carbon-intensive travel mode. If unmitigated, aviation emissions could more than double by 2050. Airlines are exploring sustainable aviation fuel, but this will push up costs. The era of high volumes and low ticket prices may be ending – with knock-on effects for aerospace and airport sectors. More broadly, the anti-tourism backlash is growing. NYC has banned AirBnB, more cities are imposing “tourist taxes”, while protests target second home owners and private jet users. Blogs describing the impact that cruise ships have on ocean pollution and GHG levels are accompanied by advertisements…for cruises. Improvements & Deteriorations: Travel, Hotels & Airlines, etc. The chart on the left shows that default risk in the airlines and hotels sector is decreasing, and they are the main driver of the broader improvement in the global travel and leisure sector. Financial Institutions Growing awareness of climate change led to an early boom in ESG-driven investment. However, this trend has slowed with concerns about financial risks, green-washing, disappointing recent investment returns (fossil fuels outperformed in recent years) as well as various limits to the scope for profit-driven private corporates to solve climate change without major shifts in consumer demand patterns. But bank regulators are addressing the more practical issue of physical transition risk – namely, how does climate change affect bank balance sheets? And if banks factor climate change into their lending decisions, commercial and retail credit availability could shrink dramatically in some sectors. Side effects may include the red-lining of mortgage availability in flood plains, businesses that cannot afford to relocate, and lender reluctance to make long-term loans. There is also a risk of a climate-related term premium, with long-dated finance potentially becoming more scarce as climate uncertainty grows. Credit Trend: Banks Consensus data on banks has been mixed, improving during Covid. But the chart on the left shows recent deterioration – especially in North America, albeit largely due to the SVB collapse. Climate change risks have so far not affected global bank credit. Over the past few decades, banks have proven to be highly innovative and may yet benefit from trading in financial mitigants to climate change. Carbon trading with certified physical implementation, climate change options, water trading – anything that can be hedged or brokered is potentially part of a solution. According to the World Bank, 23% of the world’s emissions are now covered by carbon credits, up from 5% in 2010. This is good progress, especially since a growing list of countries are adopting this approach. Insurance companies also face a growing climate challenge. Household and business claims for fire and flood damage and insurance rates are rising. The table above shows recent default risk changes for selected insurance credit indices across various geographies. (Positive % change in PD means increasing default risk.) Recent months show some modest credit deterioration in the life insurance sector, probably due to rising interest rates. NB: This is an example of a Credit Indices Dashboard, which can be tailored to bespoke indices. Contact Credit Benchmark for more details. Real Estate Commercial real estate has not recovered from the pandemic, and hybrid working looks like a permanent feature. Repurposing office blocks as residences or vertical farms is costly, and hollowed-out cities mean a lower municipal tax base. Warehouses are proliferating and growing in size as home deliveries eclipse bricks and mortar retail, while residential building will benefit from the 15-minute town concept. Land prices are likely to shift – with areas that are less affected by climate change likely to increase in value. This will produce windfall gains for some. Credit Trend: Real Estate Investment Trusts (REITs) *83% of Global REITs are US US REITs are under increasing pressure from stakeholders to invest in green properties, which are broadly defined as energy-efficient buildings that minimize the impact on the environment and human health. However, warning signs continue to flash in the US CRE market, with rising rent arrears and defaults. The office sector is worst affected by the persistence of hybrid working. The impact is concentrated in cities like tech-hub San Francisco, or more generally among older properties in cities like Washington DC and New York. However, it is these old offices that are the least eco-friendly, requiring the most water, fossil fuels, and other natural resources to support their daily operation. The chart on the left compares the PD (Bps) of Sep-21 vs. Sep-23 across US REITs credit indices. Over those two years, all US REITs credit indices show credit improvement, apart from industrial and office REITs and diversified REITs. US industrial and office REITs PD has deteriorated by a staggering 45%. Credit Distribution: Real Estate Investment Trusts (REITs) The current consensus credit distribution chart on the left shows that the majority of US REITs are investment grade, with over two-thirds in the a and bbb categories. US industrial and office REITs has a higher portion of entities in a and bbb than the main index, contributing to its current lower PD (Bps). Technology Technology is not clean. Discarded plastic, rare earth mining, lithium land grabs (e.g., Nevada), and the generation of energy to run the internet as well as billions of devices – all take their toll. The energy required to mint now orphaned NFTs is equivalent to 2000 homes or 3500 cars. But technology is likely to be critical in the race to solve climate change. AI is already being used to measure changes in biodiversity and is likely to play a major part in tracking the detailed impacts of climate change. With other use cases appearing exponentially, AI has triggered an investment frenzy. And despite concerns that it will consume the energy equivalent of a small European country, AI may more than pay for itself via better climate modelling, supply chain efficiency, pandemic management, maximising GHG capture, carbon and methane offset trading, and optimal renewable design. Credit Trend: AI vs. Technology Credit trends suggest that AI’s contribution will outweigh any costs. Indeed, since 2022 a significant gap has opened up with global AI firms showing a steady default risk improvement compared with broader technology companies. Download Please complete your details to download the full COP28: Climate Change Winners and Losers in the Default Risk Landscape whitepaper: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### November 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-October, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Corporates are balanced between improvement and deterioration this month. Financials are narrowly tipped towards net credit deterioration, with a ratio of 1:1.1. Industry Level Credit Movement: Amongst the Industries, Telecommunications are the worst performer this month, with a ratio of 1.6 deteriorations to every improvement. Basic Materials, Health Care and Utilities follow close behind each with a 1:1.3 improvements to deteriorations ratio. Oil & Gas firms have come out on top with a positive ratio of 1.5 improvements to each deterioration. Sector Level Credit Movement: The sectors show more variance in credit quality. Oil & Gas strength is also reflected at the sector level, with Canada Oil & Gas firms coming out strong with a 7.5:1 improvement to deterioration ratio. US and UK Oil & Gas firms also performed well with positive ratios of 2.5:1 and 1.6:1 respectively. Travel & Leisure firms also stand out with a bias towards credit improvement, with an improving to deteriorating ratio of 1.7:1. US Corporates continue to perform badly, with an improving to deteriorating ratio of 1:1.3. General Retailers are narrowly tipped towards net credit deterioration, with a ratio of 1:1.1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### “Basel Endgame”: Fixed Weight Fault Lines? Executive Summary Introduction Public vs. Private Credit Ratings in Current Bank Exposures (The Listed Security IG Waiver) US Sector PD Comparisons Default Risk Correlations and Volatilities Volatility of Market-Implied Measures vs. Real World Consensus Credit Value Adjustments: Real World Estimates Complement Market Measures Mean Reversion Conclusion Download Executive Summary The Basel “Endgame” proposals aim to reduce risk across the regulated US banking system. The 1,000+ page document is mainly focused on market and operational risk, but the credit risk sections propose the removal of internal rating models; leading to a significant increase in the collective capital requirement for the largest banks. This report uses default risk estimates from global banks to highlight potential fault lines embedded in the new rules. Key Findings Public and private US Corporates show near-identical default risk profiles – security listing rule looks arbitrary. S&P default data shows that each credit crisis has a different sector profile. Default risk volatilities as well as correlations between industries, sectors, and credit categories change over time. Market-based measures of credit risk are more volatile than bank analyst estimates. Consensus estimates cover many unrated private companies – essential for accurate xVA pricing. No evidence of material mean reversion in default risk estimates widely used by the global banking industry. The report draws on consensus default risk estimates from more than 20,000 analysts in 40+ banks globally (including 17 Global Systematically Important Banks (GSIBs)). These are updated twice-monthly, cover 100,000+ borrowers (most of them unrated by main credit rating agencies) plus 1,200 derived credit-tracking indices. This dataset is increasingly used by banks and regulators to manage credit portfolio risk and economic capital. Introduction Endgame rules use broad “exposure classes” with specific risk weights, rules and procedures for some categories. Part of the aim is to encourage lending in some areas (eg Real Estate with low LTV). A key example of the new exposure classes is the hybrid category “specialized lending”, which is also a possible bridge to the shadow banking sector (see below). As the chart shows, regulator concerns reflect a sustained deterioration in credit in this area over the past 5 years. A regulatory shift to fixed weights and exposure classes makes it easier to compare risk profiles across different banks, and – in theory – manage systemic risk. Public vs. Private Credit Ratings in Current Bank Exposures (The Listed Security IG Waiver) A positive feature of the latest proposals is the reduction in credit risk weights from 100% to 65% for investment grade1 corporates has a security issued on an exchange. This is a form of doubling down on market views of credit risk; if the instrument does not trade, then any bank view without a direct market input becomes irrelevant2. The chart below shows credit distributions for US corporates across public and private names. This implies that banks see no need to differentiate between traded and untraded: the distribution of consensus default risk estimates for Public and Private IG borrowers look almost identical. US Sector PD Comparisons The role of regulatory capital is to diversify risk and absorb losses that are typically heaviest during economic downturns, and fixed RWA weights imply that downturns have similar characteristics. The chart below shows which industry had the highest observed default rate in every year since 1981. Source: Standard & Poor’s Financial Services LLC. Some sectors – like Oil & Gas and Real Estate – tend to feature heavily in every default rate cluster. Other industries appear in clusters, suggesting that default rate spikes are partly industry-specific. Default Risk Correlations and Volatilities It is not just the sector mix that is problematic3. The “credit cycle” is not well-behaved: the timing and frequency of downturns is difficult to predict. In late 2022, defaults were expected to rise sharply by mid-2023 – but economies have generally proved to be far more resilient than many expected. Even the recent past shows major shifts in the pattern of default risk correlations. The matrices below show the pattern of correlations between US industries before, during and after Covid. Pre-Covid Covid (2020-21) Post-Covid Some correlations rose sharply during Covid; despite easing in the past two years they remain above the pre-Covid level. As correlations rise, scope for diversification narrows and systemic risk rises. The chart below shows the rolling 12m correlation between the US Corporate IG and HY indices. The correlation between default risk changes in Investment Grade (“IG”) and High Yield (“HY”) credit categories is also highly variable and at times may be lower (i.e. more diversifying) than between some sectors. These large shifts will mainly reflect “Risk On / Risk Off” position taking, but the next section shows that recent correlation patterns within and between these groups have become more nuanced. The next two charts show the detailed distribution of pairwise correlations (of default risk monthly changes) between industries in the IG and HY credit groups separately, as well as across the two groups. In the period 2018-21, the negative pairwise correlations are concentrated in the IG category and IG-HY cross category. The pairwise industry correlations between HY borrowers are mainly high and positive (HY subsets of industry indices mainly moved as one block, with industry effects being second order). The post-Covid period shows a significant number of negative pairwise correlations between the HY industry subsets. The IG-HY cross-category shows a large number of positive correlations, meaning that default risks for a significant number of IG and HY borrowers have been moving together. Default risk for IG and HY names often moves independently, but the patterns can shift dramatically, and correlations can quickly move from negative to strongly positive. This can have major impacts on systemic risk. The volatility of default risk changes is also fluid. The chart below shows the standard deviation of percentage changes in monthly default risk estimates for the IG and HY names in the US Corporate universe. This shows that while IG volatility has increased slightly in the post-Covid period, HY volatility has nearly halved. This may reflect some survivor bias after Covid – either due to many borrowers going bankrupt during Covid or banks becoming more selective in their lending choices. Volatility of Market-Implied Measures vs. Real World Consensus US Regulators take the view that market measures of credit risk are more likely to be accurate or at least unbiased compared with bank opinions or model outputs. The chart below shows the recent trend for bank views of High Yield credit risk and the corresponding OAS spread for HY bonds. Default Risk consensus estimates show 18% monthly volatility vs. 24% for the OAS, as a % of the average level in each case. Default Risk has been rising steadily but the OAS is at a similar level to 2018, despite higher volatility. NB: Both of these series will have an element of survivor bias; both will drop constituents that either default or upgrade. This does not imply that the consensus data is “more correct” but it suggests that the two forms of credit risk estimates – real world and market implied – can be combined to give a lower variance and more robust estimate. Credit Value Adjustments: Real World Estimates Complement Market Measures Many bank counterparts do not have an agency credit rating or associated CDS and also do not have any bonds or equities in issue. The cumulative default risk surface plotted below is based on corporate credit transition matrices and default risk estimates across the large consensus universe. This provides a robust and almost complete surface with low variance in estimates; this is also a useful foundation for estimating credit risk premia from market data. This approach allows banks to use market data for CVA pricing but also allows them to: Map single counterparts to specific credit categories (and if necessary to the correct country / industry / sector curve) Estimate the real world PD for the chosen term for a specific counterparty, and then adjust this by a more generic market risk premium if the detailed market data for a specific country / industry / sector is not available. This approach maximises the value of consensus data which extends well beyond the traded universe with the best practice of using market risk estimates for daily CVAs. The chart below shows the market equivalent for early October 2023. For US Corporates, market data also provides a nearly complete surface (the C-category is too sparse) and this can be extended – with gaps – to much longer maturities. However, for other countries and many domestic sectors the market data can be very patchy but consensus data may support transition matrices for some missing categories.  Mean Reversion Peer group datasets can display mean reversion – where contributors correct their own outlying default risk estimates to be closer to the group median, so that over time the dispersal in estimates reduces and there is no diversity of opinion. (It could be argued that a standardised approach to default risk estimation forces this outcome.) Regulators have frequently commented on what they see as the excessive divergences between bank credit estimates, but it could be argued that a healthy credit market needs some degree of divergence to facilitate competition. Credit risk is probabilistic, not deterministic; and many banks consciously adopt an outlying view of credit risk for a particular borrower. The next chart is based on cross sectional volatility (“dispersion”) i.e., the average range of estimates for single borrowers across the global financial and corporate universe. This shows that the average range size rises and falls over time, but the y-axis shows that the variation in the range is small compared to the actual average range level. This suggests that mean reversion has not, so far, been an issue in the contributed dataset. Another view of this metric is that a high value implies widespread uncertainty about individual firm credit ratings, probably around a key turning point; a low value implies a tight consensus and probably indicates that current trends will continue. This suggests that it is important for regulators to look at dispersal in the context of the current phase of the credit cycle. Conclusion Consensus default risk estimates, updated twice-monthly, cover 100,000+ borrowers (most of them unrated by agencies) plus 1,200 derived credit-tracking indices. The dataset provides unique insights based on robust, testable views of more than 20,000 analysts from 40+ banks globally, almost half of which are Global Systematically Important Banks (GSIBs). This dataset is increasingly used by banks to manage credit portfolio risk and economic capital. For regulators, it is a powerful complement4 to a purely rules-based approach to oversight, highlighting clusters of systemic risk as they arise and tracking the shifting scope for credit portfolio diversification. This paper demonstrates that: Public and private US Corporates that borrow from large global banks have near-identical default risk profiles. While there may be an existing selection bias within banks that favours higher quality private borrowers, it suggests that the security listing requirement for IG capital relief may be unnecessary or could provide false comfort. S&P default data shows that each credit crisis has a different sector profile. Default risk volatilities as well as correlations between industries, sectors, and credit categories change over time. Market-based measures of credit risk are likely to be more volatile than bank analyst estimates. Borrower default risk estimates from banks cover many private companies that do not have agency ratings – giving a more comprehensive view of default risk term structures and scope to calibrate a robust set of daily credit risk premium surfaces. There is no strong evidence of mean reversion in default risk estimates. Download Please complete your details to download the full “Basel Endgame”: Fixed Weight Fault Lines? Whitepaper: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### Webinar: Semi-Annual Client Forum Credit Benchmark's Semi-Annual Client Forum Webinar is a deep dive into the world of consensus credit risk data and analytics. This on-demand viewing covers the following topics: Company Update: Discover the latest developments and insights from Credit Benchmark. Use Cases for Consensus Data and Analytics: Explore the versatile applications of Credit Benchmark data, from portfolio monitoring to early warning indicator frameworks. Also, a look at credit indices for trend and correlation analysis, and a functional walk-through. New Product Demonstration: Get a first look at our newest products, designed to elevate your risk management. Special Guest - Bloomberg: Leveraging entity- and security-level consensus data within the Bloomberg terminal workflow.  Research Update: Data-driven insights on default outlook and sector correlations. Special Guest - Oliver Wyman: Learn from Oliver Wyman about how consensus data is being used for model build, calibration, and RWA optimization. Complete your details to access the webinar recording: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Access Webinar Recording ### Reuters: WeWork's troubles darken outlook for embattled office market Global office vacancies are surging to all-time highs and expected to climb, causing further troubles for co-working titan WeWork and darkening the outlook for the world's largest business hubs, writes Sinead Cruise for Reuters, citing research from Credit Benchmark. "Global lenders to UK real estate holding and development companies, which supplied credit risk assessments to data provider Credit Benchmark in October, said those firms were now 9% more likely to default than they estimated 12 months ago. U.S. industrial and office real estate investment trusts (REITs) were seen 35.8% more likely to default, versus expectations a year ago." Reuters, November 3, 2023. View original article (external link). ### Consensus Default Risk Analytics for Capital Trade Optimisation Significant Risk Transfer volumes continue to grow, and are dominated by synthetic transactions where the bank retains ownership of the underlying assets. Financial markets are most successful when there is transparency over risk and pricing, but full disclosure is not always possible for an SRT trade. This does not prevent deals, but it requires both sides of the transaction to balance risk and return across a range of dimensions. These include the geography, industry and credit category of the underlying borrowers, plus lower limits on the number of independent loans in the reference pool. Consensus default risk data is useful for most types of transactions to finesse risk and optimise returns. The diagram below is just one of the most common structures. Example: Using Consensus Default Risk estimates to optimise SRT transactions for both sides. Offered Asset Classes: North American, European and Asian Medium to Large Corporates (including some REITs), plus 10% in Latin American Corporates. Underlying borrowers undisclosed. The table below shows recent correlations between these asset classes, based on monthly % changes in default risks. Volatilities and Correlations Between Monthly Default Risk Changes, Past 18 Months Based on these estimates, the investor concludes that while the US Real Estate Funds appear to offer strong diversification (most of the correlations are negative) they have also been very volatile (2.4% per month, even higher than Latin American default risk volatility). If the investor also has a negative outlook for Real Estate Fund credit over the duration of the trade, they may reject this exposure or they may negotiate for specific LTV criteria and sub-sector exposures. Since credit consensus data supports more than 1,200 indices, this type of transaction can be further analysed; for example the North American portfolio can be analysed by country and industry / sector and the historic analysis period can be altered to suit the transaction duration and the expected credit environment. Even if borrower names are undisclosed, the large credit consensus coverage of more than 100,000 single names gives the investor an indication of the credit distribution across the sector as well as the range of default risk estimates making up each consensus estimate. For example, the chart below shows the credit distribution for US Telecoms: Credit Level: US Telecoms While some borrowers in the US Telecom sector are still in the a category, the majority are non-Investment Grade and the single largest group is the b category; while more than 5% are in the c category. This chart alone might prompt an investor to seek further finessing in the trade. In disclosed portfolio transactions, Credit Consensus Ratings (“CCRs”) for single borrowers provide investors with an unbiased view of the inbound portfolio and allows for monitoring of the collected portfolio. In particular, investors can compare the credit distribution (see below) of current and proposed portfolios, in their own credit scales as well as the classic 21-category format for comparison with external quotes. The chart below shows a detailed comparison based on individual CCRs. (Red dotted lines show differences of more than one notch). Client vs CB Rating Comparison Banks can leverage similar analysis based on detailed CCRs, but without the need to divulge individual entity ratings. Comparative credit distribution analysis allow them to demonstrate the efficacy of their underwriting standards. For undisclosed transactions, banks can demonstrate how internal pool ratings compare with the market, again without divulging either entity specific detail or ratings linked to specific entities, providing a clear and tangible quantification of the efficacy of bank underwriting standards. Like-for-Like Comparison: Whole Portfolio Notch Differences: High Yield Portion The rich consensus dataset also supports ongoing portfolio monitoring, servicing and substitutions. Detailed CCRs allow investors to assess marginal changes to risk through additional transactions. For banks who provide ongoing portfolio / trade reporting, consensus data is an independent and regularly updated reference point covering the portfolio lifecycle from trade inception onwards. Download Credit Benchmark can produce bespoke and confidential portfolio credit reports on request. To download this full research note, including appendix with sample portfolio credit report on United States High Yield Corporates, please complete your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### October 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-August, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Financials are balanced between improvement and deterioration this month. Corporates are narrowly tipped towards net credit deterioration, with a ratio of 1:1.2. Industry Level Credit Movement: Amongst the Industries, Health Care firms are the worst performer this month, with a ratio of 1.8 deteriorations to every improvement. Telecommunications follows close behind at 1:1.5 improvements to deteriorations. Oil & Gas firms have come out on top with a positive ratio of 1.4 improvements to each deterioration. Sector Level Credit Movement: The sectors show more variance in credit quality. Oil & Gas strength is also reflected at the sector level, with Canada Oil & Gas firms coming out strong with a 2.2:1 improvement to deterioration ratio. UK and US Oil & Gas firms also performed well with positive ratios of 1.3:1 and 1.2:1 respectively. Travel & Leisure firms also stand out with a bias towards credit improvement, with an improving to deteriorating ratio of 1.5:1. Of those that fared negatively, US Corporates are still the worst affected, with an improving to deteriorating ratio of 1:1.5. This trend was reflected across North America, with Canada Corporates showing a ratio of 1:1.2. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Default Rate Forecast for Q3 2024: US and UK Speculative Grade Corporates Executive Summary US Projections UK Projections Conclusion Download Executive Summary Key Findings Default rates for US and UK Speculative Grade bonds are expected to rise each quarter to a peak in Q3 2024 (S&P project Q2 2024). For US Speculative Grade, consensus credit data implies a mid-2024 median default rate of 4.4% (S&P projection recently revised up to 4.5% from current level of 3.2%)1. For UK Speculative Grade the median projection from consensus data is 3.65%, from an assumed current level of 2.8%. S&P forecast for Europe is 3.75% by Q2 2024, up from 3% in June 20232. US default rate distribution: 1 in 3 chance of default rate > 6%, and 20% chance of > 7% Small (sub-5%) chance of reaching 9% or higher (NB this is significantly above the current S&P pessimistic scenario of 6.5%). There is an estimated 1 in 6 chance that the default rate drops below 4%, and a sub-5% chance that it drops below the S&P optimistic scenario of below 2%. UK default rate distribution: 40% probability of 4% to 5% range (similar to US). Maximum projected default rate <7% (lower than the US). Lower bound likely to be 3%. J.P. Morgan CEO Jamie Dimon recently raised the specter of 7% US short rates in an interview on Bloomberg. This reflects the continued underlying pressures on inflation, and a more cautious outlook following some very mixed corporate results and rising interest rate costs. These factors have also prompted some upward revisions in corporate default risk projections from major agencies and banks.  S&P will report provisional Q3 default rates soon. The June 2023 default rate for US speculative grade (“High Yield”) corporate bonds is 3.2%[3] (+74Bps from 2.5% in March) – this is in line with the long run median rate from 1991-2022.  S&P now project this to hit 4.5% (revised up from 4.25%) by Q2 2024[4],[5]. They also project a pessimistic scenario where defaults hit 6.5% (revised up from 6.25%), and an optimistic scenario where they drop back to 2% (revised up from 1.75%.)  The equivalent consensus-based estimates reported here are derived from the Deterioration/Improvement Ratio (“DIR”) – a metric based on monthly credit risk estimates from 40+ banks globally covering thousands of issuers across a wide range of sectors. A DIR of 1 means that deteriorations and improvements are in balance. The median DIR is close to 1 over the period 2017-23, but the upper quartile has reached 2 at some points in the credit cycle and was close to 8 during the Covid crisis. The following chart shows the distribution of the US Corporate DIRs for Q2 and Q3 (Q3 provisional). Source: Credit Benchmark The DIR metric is very similar to the S&P Downgrade/Upgrade Ratio (“DUR”), which is closely correlated with aggregate default rates. However, the consensus-based DIR is more granular than the DUR because it captures deteriorations in credit quality that may precede a full notch downgrade, and it is based on a larger borrower universe. US Projections Based on a universe of more than 100 US Industry and Sector indices (covering around 5,000 Corporate borrowers) the chart below shows the proportion of those consensus credit indices with a DIR greater than 1 since 2017. This measure has a range of 0% (all DIRs below 1) to 100% (all DIRs above 1, i.e., all indices have more deteriorations than improvements across their constituents). The chart also shows the 12-month rolling default rate for S&P US Speculative Grade Corporate Bonds.  Sources: Credit Benchmark, Standard & Poor’s Inc[6]. The US DIR continues to rise steeply, consistent with the upward revisions from S&P. This metric currently stands at around 70%. The DIR series is positively correlated with the S&P default rate, although the various series diverge in some quarters[7]. Combining “signal” (the DIR / S&P correlation) with “noise” (the divergences) it is possible to simulate probable paths for US Speculative Grade / High Yield (“HY”) default rates out to Q3 2024. The chart below shows the simulation results. Sources: Credit Benchmark The most likely outcome for US speculative grade default rates is in the 4%-5% range, but a significant number of simulations are above 5%. Nearly half of all simulations are in these two categories. There is a 1 in 3 chance that the default rate is above 6%, a 20% chance of exceeding 7% and a small possibility (3%) - of reaching 9% or higher. This means that the upper tail of the simulation distribution is significantly above the current S&P pessimistic scenario of 6.5%. However, there is also a 1 in 6 chance that the default rate is less than 4%, and a 3% chance that it is less than 2%, aligned with the S&P optimistic scenario. UK Projections Compared with the US, actual default data for the UK is sparse due to a smaller number of rated issuers; and as a result, the historic default rate is more volatile[8]. The DIR universe is much larger, so it is a more robust metric for forecasting.  The UK DIR is plotted for here for 100 UK indices (covering more than 5,000 borrowers), in addition to US DIR and US HY Default Rate data. Sources: Credit Benchmark, Standard & Poor’s Inc[9]. The UK DIR series is more synchronized with the US series during and after Covid; but in recent months the two have diverged. Both show an increase during 2022, but the rate of increase in the UK slowed in 2023 and the latest data shows a decline. The chart below shows the range of possible default risk outcomes for the UK, with a narrower range reflecting the recent downward trend in UK DIR; this increases the chances of a lower peak in default rates compared with the US. Sources: Credit Benchmark The most likely outcome, with a more than 40% probability, is in the same 4% to 5% range as the US. However, the highest projected default rates are in the 6%-7% range with a 10% probability – lower than the US. Although there is a very small probability of a 2% default rate in the UK, 3% looks like a more realistic lower bound. Conclusion Various monetary support measures during and after Covid have held post-Covid default rates below the long run median. But interest rates have increased to levels that few predicted, and they look set to increase significantly above their long run median rates. Monetary tightening has had less immediate impact on economic growth than many feared, but the next twelve months are expected to be more difficult. Credit conditions are likely to stay tight, costs are likely to continue rising and growth is likely to slow across the G20 economies. Recent trends in consensus data suggest that corporate default rates will rise, but the trends are not clear cut. The UK, for example, shows some recent improvements in the DIR ratio and if these continue there is scope to revise the 2024 default rate down. The US DIR is on a much steeper trajectory so there is less scope for downward revisions. Download Credit Benchmark can produce bespoke and confidential portfolio credit reports on request. To download this full whitepaper, including appendix with sample portfolio credit report on United States High Yield Corporates, please complete your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper [1] The Ratings View: Sep 7, 2023 | S&P Global Ratings (spglobal.com) [2] Default, Transition, and Recovery: The European Speculative-Grade Corporate Default Rate Could Rise To 3.75% By June 2024 | S&P Global Ratings (spglobal.com) [3] Default, Transition, and Recovery: Quarterly Defaults Reach Highest Level Since 2020 | S&P Global Ratings (spglobal.com) [4] 101585931.pdf (spglobal.com), The Ratings View: Sep 7, 2023 | S&P Global Ratings (spglobal.com) [5] Default, Transition, and Recovery: Growing Strains Will Push The U.S. Speculative-Grade Corporate Default Rate To 4.25% By March 2024 | S&P Global Ratings (spglobal.com), The Ratings View: Sep 7, 2023 | S&P Global Ratings (spglobal.com [6] S&P 2022 Default and Transition Study for US Bonds; additional data from S&P quarterly press releases. [7] The rate of growth of the DIR metrics is likely to slow, since it is very rare for ALL indices to be deteriorating simultaneously. [8] UK Default, Transition, and Recovery: 2022 United Kingdom Corporate Default And Rating Transition Study | S&P Global Ratings (spglobal.com) [9] S&P 2022 Default and Transition Study for US Bonds; additional data from S&P quarterly press releases. ### Credit Benchmark’s Consensus Ratings Coverage Universe Hits 100,000 Milestone London, October 19, 2023 – Credit Benchmark (CB), provider of the world’s only independent, consensus-backed credit risk intelligence, has reached a significant milestone for its Credit Consensus Ratings (CCRs) by covering more than 100,000 entities around the world. Michael Crumpler, Chief Executive Officer at Credit Benchmark, said: “When we launched in May 2015, Credit Benchmark was only covering about 350 names, so we are very proud to have reached this significant 100,000 milestone. This growth is testament to the market’s desire for a new approach to thinking about credit risk and a differentiated product offering, which CB has been able to meet.” The 57% increase in coverage year on year is the result of several large banks joining Credit Benchmark’s service recently. CB is now partnering with more than 40 financial institutions globally including 17 Global Systemically Important Banks (GSIBs) representing more than $40tn in total assets. Credit Benchmark aggregates and anonymises the risk views from these banks, which are created, validated and monitored by more than 20,000 of the most respected credit risk analysts in the world.    More than 90% of the entities that CB covers are unrated by the major credit rating agencies and more than 90% are private companies. They include 48,000 corporates, 13,000 financial institutions, 38,000 funds and 2,000 government or other organisations spanning 156 countries. “I am confident that our growing dataset and enhanced analytical products will continue to help our clients more effectively and efficiently manage risk,” Crumpler added. About Credit Benchmark Credit Benchmark is a leading financial data analytics company founded in 2015 and headquartered in London with offices in New York and Bangalore. CB leverages the anonymized credit risk views from over 40 financial institutions globally, to provide the market with an unparalleled and unique suite of consensus risk data and analytics.  CB’s Credit Consensus Ratings now cover more than 100,000 entities globally across corporates, financial institutions, funds and governments, the vast majority of which are private and unrated. Additionally, CB has partnered with Bloomberg to offer rating assessments on over 133,000 bonds and loans, representing more than $30 trillion outstanding. Credit Benchmark also creates over 1,200 credit indices that help market practitioners better understand and navigate macro trends. CB’s data is trusted and relied on by myriad market participants to more effectively and efficiently manage risk. For further information contact: Damien FletcherStreets Consulting (Representing Credit Benchmark)damien.fletcher@streetsconsulting.comTelephone: +44 (0)7413 141 160 Laura SavilleHead of Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### October 2023 Financial Counterpart Monitor !-- wp:heading {"level":3} --> Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It is a positive month for the credit quality of Global Financial counterparts, with a handful of exceptions. Banks Banks are dominated by positive credit movements this month. Globally Systematically Important Banks (GSIBs) has the strongest showing, with an improving to deteriorating ratio of 6:1. North American Banks are the lone net negative performer this month, with 1:1.8 improvements to deteriorations. Intermediaries  This month the Intermediaries are mostly positive. Prime Brokers stand out with the strongest bias towards credit improvement, with improving to deteriorating ratios of 4:1. However, Central Clearing Counterparts (CCPs) are in the red with a ratio of two deteriorations to each improvement. Buy Side This month Buy Side are wholly positive. Pension Funds come out on top with an improving to deteriorating ratio of 2.2:1 The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### October 2023 Credit Outlook   Global Default Risk Rising But Some Sector Bright Spots     Table of Contents   Introduction Global Corporates vs. Global Financials vs. Global Sovereigns Industry and Sector Turning Points US Sector PD Comparisons Credit Volatility Leveraged Loans Food Producers Oil & Gas Sovereigns US Commercial Real Estate Portfolio Default Risk Report Conclusion Download   Introduction   Key Findings   Global Corporates vs. Global Financials vs. Global Sovereigns: Broad Negative Trends Continue Industry and Sector Turning Points: Many Sectors Showing Short Term Positive Bounces US Sector PD Comparisons: Beverages Are Largest Monthly Drop Credit Volatility: Equity VIX Up, Credit Volatility Down Leveraged Loans: Credit Downturn Undermines Positive Investment Return Food Producers: From Conflict to Climate Change; Africa Is Largest Impact Oil & Gas: Net Default Risk Improvement for Most Indices Sovereigns: Rising Sovereign Default Risk Mainly Driven by Africa US Commercial Real Estate: Major Risk to Shadow Banking Sector Portfolio Default Risk Report: Taiwan Semiconductor Customer Universe   Credit trends in 2023 have not (yet) been as damaging as expected. In early 2023, many commentators were pessimistic about the impact of sustained higher interest rates, projecting steep increases in corporate failures. For example, S&P expected US default rates to more than double from 1.6% to 3.75%, and a similar spike in Europe.   The bank consensus has been more subdued, although recent trends suggest more defaults in 2024. Household finances are under stress, but personal bankruptcies in the US and UK remain stable, albeit at high levels (they rose sharply 2014 – 2018). US Business Loan Delinquencies ticked up in Q2 this year but remain below the 5-year average. Monthly UK Corporate insolvency stats are very volatile, but do not show a clear upward trend.   Commercial real estate woes are a continuing problem for corporate owners, financial lenders and fund investors; this sector is the likely source of any further problems in second line and shadow bank sub-sectors. But it is worth noting that leveraged loans – which include a large slab of commercial real estate as collateral – have been surprisingly robust investments, despite steady credit deterioration.   Property is also at the core of problems in the Chinese financial system; with likely contagion into the real economy, as well as some risk to international property values if Chinese real estate investors try to raise liquidity from overseas markets.   Leisure industries are also feeling the intermittent chill of the El Nino summer along with the effect of wildfires on tourism and the fading of the post-Covid bounce.   Tech is seeing pockets of weakness in some chip markets although AI-focused chipmakers are caught up in the AI frenzy. And some less glamorous tech areas are also benefitting from the AI effect.   Food remains a major issue. War and weather are hitting production and supply chains, with no improvement likely anytime soon. The 2023 harvest in the Northern Hemisphere will probably disappoint, and credit data is confirming the major challenges in this industry. Higher food prices also undermine Central Banks’ attempts to tame inflation.   Middle East instability is pushing up fuel prices ahead of winter, adding to the $4trn post-Ukraine windfall for energy companies. Green investment policies are discouraging energy firms from major E&P investment, further intensifying the spot market squeeze. The “new normal” oil price floor may now be $80 per barrel.   Although the credit picture is mixed for Corporate and Financial sectors, the fundamental outlook for most Governments seems mainly negative. With the exception of a few energy-resource rich countries, most Sovereigns face a long list of issues including inflation-linked payroll costs, pressure for climate related investments and increased military spending, migrant crises, a spate of military coups in Africa, failing local governments, and growing losses on QE bond portfolios. But the consensus credit impact globally is so far limited, with only Africa showing a large and sustained decline. Apart from Africa, latest modest deteriorations include China, Brazil, Belgium and Estonia. And while the US may have averted a Federal shutdown for now, the risk of a Moody’s downgrade remains.     Global Corporates vs. Global Financials vs. Global Sovereigns   Broad Negative Trends Continue   The following charts show global trends for average PDs and % balances between improving and deteriorating companies, for the past 12 months.     Globally, Corporates, Financials and Sovereigns all show negative credit outlooks (i.e. deteriorations outnumber improvements); for Financials this is the ninth month without a net positive.   Industry and Sector Turning Points   Many Sectors Showing Short Term Positive Bounces   The lists below show detailed global industries and sectors with recent possible credit trend turning points. These have either started to show a net bias to deterioration after a run of positives, or vice versa.   Positive Turning Point: Previous 3M Negative, Current 1M Improving Global Technology Hardware and Equipment Global Computer Hardware Global Mobile Telecommunications Global Gas Distribution Global Banks Global Pension Fund Global NPO or Foundation Global Social Work and Charities Asia Construction and Materials Asia Heavy Construction Asia Utilities Asia Electricity Asia Conventional Electricity Asia Specialty Finance Hong Kong Banks Singapore Consumer Goods Singapore Industrial Suppliers Europe Industrial Suppliers Europe Technology Hardware and Equipment Europe Gas Distribution Europe Financial Services Europe Social Work and Charities Latin America Financials Chile Basic Materials North America Oil and Gas North America Technology North America Technology Hardware and Equipment North America Computer Hardware North America Alternative Electricity North America Asset Managers North America Pension Fund North America Real Estate Fund Canada Basic Materials Canada Technology Mexico Corporates Mexico Industrials United States Industrial Metals and Mining United States Iron and Steel United States Auto Parts United States Large Industrials United States Construction and Materials United States Large Technology United States Technology Hardware and Equipment United States Computer Hardware Pacific Mutual Fund Australia Mutual Fund Negative Turning Point: Previous 3M Improving, Current 1M Negative Asia Consumer Services EU Large Oil and Gas Netherlands Consumer Goods Netherlands Oil and Gas Netherlands Oil and Gas Producers North America Retail REITs Mexico Investment Services United States Hotels United States Retail REITs Pacific Corporates   These trend shifts are spread across diverse sectors and this month positives outnumber negatives by more than 4 to 1. Some of the positives look like a pause in a long string of negatives; it will be important to see how many of these are sustained in coming months.   Technology features heavily in the positive turning point column (left), across US, Canada and Globally. Industrials also appear in the positive turning point column.   The UK shows no actual turning points this month, all sectors show continuation of previous trends.   Despite this long list of bouncing sectors, the previous section showed that global average default risks continue to rise.   The charts below show highlights from the Industry and Sector Turning Points in the previous table – these are based on the % of improving vs. deteriorating credit estimates across each sector universe.   Positive Turning Point     Telecomms regularly feature in these lists, both positive and negative. Global user saturation, slow revenue growth and low margins, plus the game-changing impact of satellite technology are persistent negatives; but the industry continues to defy some of the more pessimistic assessments.   As the satellite network grows and technology improves, there is a possibility of a revolution in the telecom and handset segments. The timing is still uncertain but there are signs of a disruptive free-for-all on the horizon – so default risks estimates are likely to remain volatile.   Negative Turning Point     Hotels stand out; the sector has been heading towards negative territory for some time, despite a growing number of Air BnB bans (NYC is the latest). Heavy post-Covid debt loads and a difficult summer season (El Nino, wildfires, flight disruptions) mean that further negatives are likely.   US Sector PD Comparisons   Beverages Are Largest Monthly Drop   With economies and markets giving mixed signals, there is a lot of uncertainty about 2023 default risks. The table below compares average consensus default probabilities for a range of US sectors.     Insurance and Funds – apart from Hedge Funds – remain very low risk. Travel & Leisure, Hedge Funds, Software, and Fixed Line Telecoms are highest in the 80 -120 Bps range. The mid-range includes Mining, Leisure Goods and Media.   Beverages stand out as the largest monthly drop – reflecting the poor summer. Other large sector increases this month include Support Services, Leisure Goods, Personal Goods and Fixed Line Telecoms. Improvements include Life Insurance, Pension Fund and Aerospace & Defence.   The charts below show recent trends for US, North America and Global Beverages and Life Insurance, plus default risk distributions.   Beverages Credit Trends   Life Insurance Credit Trends Beverages Credit Distribution   Life Insurance Credit Distribution   Credit Volatility   Equity VIX Up, Credit Volatility Down   VIX The chart below shows percentiles for credit index 6-month rolling volatility. For approximately 1,200 indices, rolling volatility shows the speed and scale of PD changes; these can give advance warning of changes in transition rates. The percentiles plotted here are the most sensitive to turning points in PD volatility. Sources: Credit Benchmark, CBOE / St. Louis Fed.   Across the CB index universe, all percentiles are turning down this month. The Equity VIX was stable at a near all-time low the previous 3 months but has ticked up in the latest month.   Dispersion The next chart is based on cross sectional volatility (“dispersion”) i.e., the average range of estimates for single name estimates. (A high value implies widespread uncertainty about individual firm credit ratings, probably around a key turning point; a low value implies a tight consensus and probably indicates that current trends will continue.)     This shows a trend decline[1] since the start of the pandemic; latest data shows a significant uptick. If dispersion continues to rise it will indicate that the consensus is beginning to fray - rising uncertainty about default risk may be an early indicator of a spike in defaults in some high risk sectors.   [1] The actual plotted range is small (about 4% of the average value). Changes in dispersion are more marked at the single name level – for example, when a legal entity is downgraded, the range of PD estimates usually increases.   Leveraged Loans   Credit Downturn Undermines Positive Investment Return   The chart below plots the credit trend of the Credit Benchmark Leveraged Loan Index, made up of 598 issuers in the Credit Suisse Leveraged Loan Index.   The credit index tracked the Credit Suisse Leveraged Loan Total Return in 2021 to early 2022. However, credit has deteriorated by over 8% in the past year while total return is up nearly 9%, highlighting a difference in total return and credit outlook.     The widening gap suggests that investors believe that any impairment risks are more than covered by collateral. Given the continued weakness in commercial property, some loans may be much riskier than others. Regulators have also highlighted leveraged loan exposure as an area of concern.   The current 7-category credit distribution chart, below, shows that well over 50% of the 598 issuers in the Credit Suisse Index are rated b; 4% are rated IG.     Food Producers   From Conflict to Climate Change; Africa Is Largest Impact   There are many threats to global food production ranging from armed conflicts and supply chain disruption to climate change. Erratic weather, temperature shifts and rising sea levels are a growing threat to global food production.   The chart below covers a universe of 30 Food Producer credit indices, tracking the proportion with net credit upgrades. This has been declining in recent months and currently sits well below the neutral 50% line.     The next set of charts show how different countriy and region Food Producer credit indices have changed over the past year. Canada, UK/Europe and Africa stand out with particularly marked deteriorations.   Global, US, Canada, Latin America, UK, Europe, Asia and Africa Food Producers Credit Trend     Oil & Gas   Net Default Risk Improvement for Most Indices   Although climate change is dominating the news, crude oil production around the world is up. At the same time, gas prices are at their highest level in 11 months as Russia continues to weaponize energy ahead of winter; Saudi Arabia shows no appetite to provide any offset. This is an obvious headache for Central Banks looking for scope to stabilize or even cut short rates.   The following charts cover a universe of about 65 Oil & Gas credit indices, tracking the proportion with net credit upgrades. This has been increasing in recent months and currently sits above the neutral 50% line. Only about 30% of Oil & Gas credit indices show net credit deterioration.     The charts below are based on the % of improving vs. deteriorating default risk estimates in each Oil & Gas country/region credit index.   Global and EU remain positive for another month. The US is still negative, now in its 5th month of deteriorations outnumbering improvements; but the net balance is now much closer to neutral. The UK is flip-flopping while a ramp up in North Sea E&P becomes a major political issue.     Ahead of COP 28, Credit Benchmark will be publishing a detailed look at the impact of climate change on credit across the global economy.   Sovereigns   Rising Sovereign Default Risk Mainly Driven by Africa   The chart below shows recent trends in Sovereign risk for various regions.     Deteriorating Sovereign credit is mainly driven by Africa, with a 20% increase in average risk over the past year. The Middle East has benefitted from high energy prices in 2023 but is turning down in the latest month; Latin America is also turning down in the latest month, whilst Asia is stable. Specific deteriorations in recent months include China (and Brazil).   A US Government shutdown may have been averted for now, but any further brinksmanship will overshadow Sovereign credit globally.   US Commercial Real Estate   Major Risk to Shadow Banking Sector   Commercial Real Estate woes, especially in the US, are front page news. Ecess capacity, new eco standards, Covid and WFH are all driving structural shifts in demand and supply. While US banks still provide more than half of US commercial real estate debt financing, the non-bank and “shadow banking” sectors are involved in either direct lending or in exposure to property as collateral. As all lenders shrink their balance sheets there is a risk of a doom-loop scenario where falling prices trigger distressed collateral sales.   The consensus credit distribution chart below shows that the majority of US REITs are investment grade, with over two-thirds in the a and bbb categories. The exception is Mortgage REITs, representing secured CRE loans. The majority are in the bb category and 40% are in single b. Retail REITS are generally high quality but just under 10% are in the c category – i.e. significant risk of default.     The next chart shows recent credit trends for these sectors.     In the past year, the standout worst performer is the combined Industrial & Office category, with a 12M credit deterioration of over 35%. Mortgage REITs have also performed badly.   Portfolio Default Risk Report   Taiwan Semiconductor Customer Universe   Taiwan Semiconductor Manufacturing Co Ltd (TSMC) may postpone its planned production of 2nm chips due to a global semiconductor demand slowdown. In addition, periodic concerns about possible Chinese aggression have led the firm to make major investments in other parts of South East Asia, most recently in Japan.   The below chart shows the current credit distribution of the customers of TSMC, who would be most at risk from any supply interruptions.     Although the majority of TSMC customers are investment grade, any operational issues at TSMC are likely to trigger knock-on effects for the companies listed here.   Credit Benchmark can provide a full Portfolio Credit Report on customers and/or suppliers of individual companies. Contact us to find out more.   Conclusion   The overall credit picture for 2023 YTD has been more benign than many feared, but global credit indices are still trending towards modest deterioration. This includes sovereigns, although this is mainly driven by Africa, China, and Brazil.   Credit data shows a mix of serious stress (food, leveraged loans) alongside some surprising buoyancy in energy, some tech, and a long list of previously declining sectors that are at least pausing or even turning decisively better.   However, default rates in 2024 will probably exceed the final scores for 2023, and the ongoing global property shakeout will continue to cause new casualties. Inflation has not been tamed, with higher energy and food prices in Q4 curbing any optimism about early rate cuts; and Jamie Dimon at JP Morgan has even raised the spectre of a 7% short rate…     Download   Please complete your details to download the full October 2023 Credit Outlook : First Name (required) Last Name (required) Company (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Monthly Credit Outlook ### Battle Ready for Basel III Endgame Banks will be forced to change their capital allocation strategies to comply with new calculation methods under Basel III Endgame. Understanding how these changes will impact securities finance and broader capital market transactions is crucial for beneficial owners and the future risk/return of their programs. Credit Benchmark's Mark Faulkner sits down with Brooke Gillman of eSecLending and Andrew Dyson of ISLA to better understand how the buyside can prepare for the pending market transformation. This is a 2-part podcast. Listen to Part 1 HERE. Listen to Part 2 HERE. Papers mentioned in the podcast: Prudential Banking Rules: Explanatory Note – ISLA (islaemea.org) Something Better Change: Securities Lending Indemnification is Unsustainable in Its Current Form – Credit Benchmark EU Capital Rules to Increase Buyside Trading Costs – Credit Benchmark ### September 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. Global Financials have seen a mixed bag in terms of credit movement this month across counterpart categories. Banks Banks have been dominated by negative credit movements this month. North American Banks, APAC Banks and Latin American Banks stand out with the strongest bias towards credit deterioration, with improving to deteriorating ratios of 1:1.7, 1:1.5 and 1:1.4 respectively. EMEA Banks were the lone net positive performer this month, at 1.3:1 improvements to deteriorations. Intermediaries  This month the Intermediaries were wholly positive. Broker Dealers and Prime Brokers stand out with the strongest bias towards credit improvement, with improving to deteriorating ratios of 2.7:1 and 2.3:1 respectively. Buy Side Insurance Companies show a bias towards credit improvement, with improving to deteriorating ratio of 1.3:1. Sovereign Wealth Funds came in at neutral. The rest show a bias towards credit deterioration. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Monthly Credit Outlook: September 2023 Some Sectors Resilient Despite Higher Rates Introduction Key Findings Global Corporates vs. Global Financials vs. Global Sovereigns: Corporates Tick Up Industry and Sector Turning Points: Positives Outnumber Negatives US Sector PD Comparisons: Leisure Goods Shows Largest Monthly Drop Credit Volatility: Equity VIX Up, Credit Volatility Plateauing Leveraged Loans: Gap Between Index Value and Credit Downturn Continues to Widen Artificial Intelligence: Computer Services An Overlooked Beneficiary Climate Change, Record Temperatures & Wildfires: Negative Impact on Insurance Spreading US Corporate Default Rate Projections: Central Case 4% By Mid 2024, Small Risk of 7% Or More. The global economy is still giving mixed signals. US growth is strong, reflected in a tech-driven stock market boom. But China is grappling with increasing real estate problems that now threaten its banking sector and could hit its Asian neighbours. UK growth is holding up and recent data revisions have been positive, but the EU remains sluggish, while Russia has devalued the rouble. The Middle East and India look more robust. However, most Central Banks have been quick to pour cold water on any imminent rate-cut hopes, citing stubborn inflation. Some of the gloomier forecasts from early 2023 have been abandoned, and many sectors are seeing credit improvements, But Moody’s and S&P have downgraded a range of second tier and trust banks in the US, partly reflecting looming problems with real estate loans – a growing issue for many economies. Climate change continues to wreak havoc. Some of the largest wildfires ever recorded are still burning in Southern European scrubland and North American forests. Heavy rain and high winds, exacerbated by El Niño, have caused widespread damage in mountainous and coastal regions globally. Freak weather incidents have disrupted various cities around the world. This is likely to hit food prices, insurance companies, and travel firms. These trends are reflected in the latest credit consensus data. In this month’s report, we cover the usual macro features and sector trends, but also put the spotlight on AI, Climate change, and US Corporate default rate forecasts. Global Corporates vs. Global Financials vs. Global Sovereigns Corporates Tick Up The following charts show global trends for average PDs and % balances between improving and deteriorating companies, for the past 12 months. Global Corporates have now ticked up for the second time in 8 months. Financials and Sovereigns continue to show negative credit trends; for Financials this is the eighth consecutive negative month. China’s property woes are likely to have an impact on its banking sector and beyond; the chart below shows the striking divergence between Financial Industry credit risks in China vs. India over the past year. (Although it is worth noting the sharp deterioration in India this month). Industry and Sector Turning Points Positives Outnumber Negatives The lists below shows detailed global industries and sectors that may be at turning points. These have either started to show negative balances after a run of positives, or vice versa. Positive Turning Point: Previous 3M Negative, Current 1M Improving Global Basic Materials Global Commodity Chemicals Global Industrial Metals and Mining Global Iron and Steel Global Construction and Materials Global Building Materials and Fixtures Global Industrial Engineering Global Software and Computer Services Global Computer Services Global Software Global Telecommunications Global Fixed Line Telecommunications Africa Corporates Africa Construction and Materials South Africa Corporates Asia Construction and Materials Hong Kong Corporates Hong Kong Industrials Europe Distillers and Vintners Europe Farming, Fishing and Plantations Europe Durable Household Products EU Banks United Kingdom Commodity Chemicals United Kingdom Consumer Goods United Kingdom Food Producers United Kingdom Farming, Fishing and Plantations United Kingdom Industrial Machinery United Kingdom Software and Computer Services United Kingdom Computer Services North America Broadline Retailers North America Building Materials and Fixtures North America Industrial Engineering North America Technology North America Computer Services North America Real Estate Investment and Services North America Real Estate Holding and Development Canada Corporates Canada Consumer Goods Canada Consumer Services United States Top 500 (Consumer Goods) United States Technology United States Real Estate Investment and Services United States Real Estate Services Negative Turning Point: Previous 3M Improving, Current 1M Negative EU Large Basic Materials EU Specialty Chemicals Europe Specialty Chemicals EU Consumer Goods EU Large Consumer Goods Europe Automobiles EU Consumer Services EU Specialty Retailers Europe Consumer Finance Europe Property and Casualty Insurance United Kingdom Automobiles and Parts United Kingdom Automobiles United Kingdom Travel and Leisure United Kingdom Hotels United Kingdom Consumer Finance United Kingdom Specialty Finance United Kingdom Nonlife Insurance United Kingdom Property and Casualty Insurance Middle East Banks North America Industrial Transportation These trend shifts are spread across diverse sectors and this month there are twice as many positive turning points than negative turning points. Computer Services still features heavily in the positive turning point column (left), across North America, UK and Globally. Industrial sectors also regularly appear in the positive turning point column. EU and UK feature heavily in the negative turning point column (right). Property and Casualty Insurance across UK and Europe is also in the negative column, possibly partly due to the growing impact of climate change related claims. The charts below show highlights from the Industry and Sector Turning Points in the previous table – these are based on the % of improving vs. deteriorating credit estimates across each sector universe. Positive Turning Point Negative Turning Point US Sector PD Comparisons Leisure Goods Is Largest Monthly Drop With economies and markets giving mixed signals, there is a lot of uncertainty about 2023 default rates. The table below compares average consensus default probabilities for a range of US sectors. Insurance and Funds – apart from Hedge Funds – are very low risk. Travel & Leisure, Hedge Funds, Software, and Fixed Line Telecomms are highest in the 80 -120 Bps range. The mid-range includes Leisure Goods and Media. Large sector increases this month include Leisure Goods, Forestry & Paper and Pharmaceuticals & Biotechnology. Improvements include General Industrials and Mining. Credit Volatility Equity VIX Up, Credit Volatility Plateauing The chart below shows percentiles for credit index 6-month rolling volatility. For approximately 1,200 indices, rolling volatility shows the speed and scale of PD changes; these can give advance warning of changes in transition rates. The percentiles plotted here are the most sensitive to turning points in PD volatility. Sources: Credit Benchmark, CBOE / St. Louis Fed. Across the CB index universe, all percentiles are plateauing this month. However, the Equity VIX is starting to creep up once again. The next chart is based on cross sectional volatility (“dispersion”) i.e., the average range of estimates for single name estimates. (A high value implies widespread uncertainty about individual firm credit ratings, probably around a key turning point; a low value implies a tight consensus and probably indicates that current trends will continue.) This shows a trend decline[1] since the start of the pandemic; latest data shows a strong down-tick. If dispersion continues to fall it will indicate growing consensus around credit risk opinions. [1] The actual plotted range is small (about 4% of the average value). Changes in dispersion are more marked at the single name level – for example, when a legal entity is downgraded, the range of PD estimates usually increases. Leveraged Loans Gap Between Index Value and Credit Downturn Continues to Widen The FDIC have highlighted the risks that Leveraged Lending poses for the banking sector in their 2023 Risk Review. They report that default rates are rising, although they are not expected to reach previous market stress peak levels. (For consensus-based Leveraged Loan default rate projections, see our recent white paper). The chart below plots the credit trend of the Credit Benchmark Leveraged Loan Index, made up of 554 issuers in the Credit Suisse Leveraged Loan Index. The credit index tracked the Credit Suisse Leveraged Loan Total Return in 2021 to early 2022. However, credit has deteriorated by nearly 8% in the past year while total return is up approximately 9% - the gap between investment performance and credit continues to grow. Artificial Intelligence Computer Services An Overlooked Beneficiary The Artificial Intelligence (AI) gold rush is driving mini-bull markets in silicon chips and relevant stock prices, but some recent large deals (many led by Microsoft) are aimed at the apparently mundane area of cloud infrastructure and server capacity, which are likely to be a key foundation for AI success. With exponential growth in real world applications from healthcare to industrial decarbonisation, AI is now driving credit improvements in a growing list of tech sub-sectors. The following charts show the net balance between improving and deteriorating companies in the Computer Services sector across various geographies. The strong negative trend in Global Computer Services reached a low in Q1 this year; negatives have continued until this month, with a very slight positive. The EU is the largest contributor to this. Climate Change, Record Temperatures and Wildfires Insurance Sector Sees More Negatives Temperature records and wildfires rage on in Europe and around the Globe. The insurance industry faces a lengthening list of claims as homes and businesses are devastated. Insurance rates are rising as capacity drops – partly due to rising interest rates – but the eventual scale of climate-linked losses remains unknown. It is also not yet clear where the losses will eventually be absorbed – non-life insurers, reinsurers, policyholders or governments? The following chart shows 1Y credit trends for Property and Casualty Insurance sector in US, Europe, Bermuda (a major Reinsurance centre) as well as the wider Global Financials index. The charts below show the net balance between improving and deteriorating Property & Casualty Insurance companies within for Canada, US, EU and UK. These all show recent deterioration, suggesting further negative credit movements in coming months. US Corporate Default Rate Projections Central Case 4% By Mid 2024, Small Risk of 7% Or More. The recent Moody’s and S&P downgrades of US Banks have highlighted the spreading impact of higher interest rates. Banks that relied on very low cost financing are now having to compete for deposits; higher funding rates are likely to hit loan volumes with knock-on effects to the wider economy. As a result, default rates are trending up and likely to rise further over the next 12 months. S&P reported a provisional June 2023 default rate for US speculative grade (“High Yield”) corporate bonds of 3.24% (a significant increase from the March rate of 2.5%) and are currently projecting 4.25% by mid 2024. Their pessimistic scenario could see default rates hit 6.25%. As the chart below shows, consensus data implies a broadly equivalent rate in the range of 3.3% to 5%, with a median of 4%. But simulations based on the relationship between S&P default data and bank-sourced consensus estimates suggest a significant chance of the rate reaching 7% or more by Q2 2024. The key consensus metric is the Deterioration/Improvement Ratio (“DIR”) – similar to S&P’s Downgrade/Upgrade ratio but based on a wider universe that included unrated borrowers, and updated every two weeks. As the chart below shows, both series are strongly correlated with observed default rates. The recent white paper on this topic (which includes detailed analysis of S&P annual default data) is available on our website. Conclusion Stubborn inflation expectations and higher interest rates are the main issue. Some rate hikes have only started to work their way through the system, and the effects are being seen in tightening corporate credit, lower mortgage approvals, competition for deposits and higher food prices. Defaults are likely to rise as a result. Real estate problems are spreading: troubles in China (and some high profile bankruptcies) mirror the stress in US Commercial Real Estate reported earlier this quarter. House prices are dropping, and associated securitisations are expected to show some stress. But some economies are proving to be much more robust than expected at the start of 2023. Sectors showing a turn towards positive credit now hugely outnumber those turning negative (after some steep declines in H1), and credit volatility has stabilised despite an uptick in the Equity VIX. The AI boom is driving credit improvements in some unexpected corners of the tech industry. Even the growth impact of widespread extreme weather events is less than many would have expected. The impact will be felt in Travel/Leisure and Insurance – it is not yet clear who will carry most of the cost but insurance credit risks look likely to rise. So, 2023 is turning out to be better than many expected, but specific sectors are likely to see more problems before they stabilise and the world economy does not yet have a clear path out of the inflation / interest rate squeeze. Download Please complete your details to download the full Monthly Credit Outlook : First Name (required) Last Name (required) Company (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Monthly Credit Outlook ### September 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-August, based on the final and complete set of the contributed credit risk estimates from ~40 global financial institutions. Financials and Corporates are very close to being balanced between improvement and deterioration this month. Financials are very narrowly tipped towards net credit deterioration, with a ratio of 1:1.1. Corporates are slightly tipped in the opposite direction, with an improving to deteriorating ratio of 1.1:1. Industry Level Credit Movement: Amongst the Industries, Technology firms are the worst performer this month, with a ratio of 1.5 deteriorations to every improvement. Heath Care follows close behind at 1:1.4 improvements to deteriorations. Most of the Industries are close to balance this month, though Consumer Goods firms have come out on top with a positive ratio of 1.4 improvements to each deterioration. Sector Level Credit Movement: The sectors show more variance in credit quality, with Canada Oil & Gas firms coming out strong with a 3:1 improvement to deterioration ratio. UK Oil & Gas firms also performed well with a positive ratio of 1.9:1. Travel and Leisure firms are not far behind at 1.6:1. Of those that fared negatively, US Corporates are the worst affected, with an improving to deteriorating ratio of 1:1.3. This trend was reflected across North America, with Canada Corporates and US Oil & Gas both showing a ratio of 1:1.2. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### August 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-July, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Both Financials and Corporates credit quality show a bias towards net credit deterioration this month, with negative ratios of 1.1 and 1.4 deteriorations to each improvement respectively. Industry Level: Oil & Gas is the only industry showing a bias towards improvement, with a positive ratio of 1.1 improvements to each deterioration. Basic Materials stands out with a negative ratio of 2.3 deteriorations to each improvement, followed by Utilities with an improving to deteriorating ratio of 1:1.7.  Sector Level: Oil & Gas strength is also reflected at the sector level, with US and Canada firms showing positive ratios. Travel & Leisure companies continue to perform well, with 1.9 improvements to every deterioration. Construction & Materials stand out with a bias towards credit deterioration, with an improving to deteriorating ratio of 1:1.4. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Default Rate Forecast 2023/24: US Speculative Grade Borrowers and US Leveraged Loans Executive Summary US Speculative Grade (“High Yield”) Corporate Bond Default Rates Leveraged Loans Background: High Yield / Speculative Grade Bond Default Rate Patterns in Historic S&P Data Download Executive Summary Key Findings Default rates for US Speculative Grade bonds and Leveraged Loans are rising, expected to peak in Q2 2024. Credit Consensus estimates are based on twice monthly DIR (Deterioration/Improvement Ratio) covering thousands of issuers across a wide range of sectors. Credit Consensus data implies 12-month rolling Q2 2024 median default rates of 4% for Speculative Grade, and 2.5% for Leveraged Loans. 25% chance of 5% or more for Speculative Grade, 3.2% or more for Leveraged Loans. 10% chance of 6%+ for Speculative Grade, 3.5% for Leveraged Loans. Worst-case (similar to 2008/9) highly unlikely but would mean 9% for Speculative Grade and 5%+ for Leveraged Loans. The recent Moody’s downgrades and review announcements for 16 US banks have come as a wake-up call to investors.  The downgrades included a number of Trust banks, usually one of the lower risk segments in the financial sector. The issue is higher interest rates: Trust banks have been heavily dependent on low-cost finance, and depositors are now becoming much more active in moving cash balances.  It highlights a broader issue – competition for funding is rising rapidly.  As a result, credit default rates are trending up, and likely to rise further over the next 12 months. S&P report a provisional June 2023 default rate for US speculative grade (“High Yield”) corporate bonds of 3.24% (up a hefty 74Bps from 2.5% in March), and this is currently projected to hit 4.25% by Q2 2024. They also project a pessimistic scenario where defaults hit 6.25%, and an optimistic scenario where they drop back to 1.75%. The June increase is above the recent trend, so it is possible that all the S&P 2024 projections – optimistic, median and pessimistic – may be revised upwards in the second half of this year. Credit Consensus Ratings[1] imply a broadly equivalent mid-2024 default rate in the range of 3.3% to 5.0%. The median projection is 4.0%, but the default rate could plausibly reach 7% or more. For Leveraged Loans, the median forecast for mid-2024 is 2.4%, with an interquartile range of 2.1% to 3.2%; but there is a small chance that they exceed 5%. These estimates are derived from the Deterioration/Improvement Ratio (“DIR”) – a metric based on monthly credit risk estimates from banks covering thousands of issuers across a wide range of sectors. This metric is very similar to the S&P Downgrade/Upgrade Ratio (“DUR”). This and other S&P metrics are described in detail in the final section, which shows that every peak in default rates has its own unique characteristics, but that the overall DUR is closely correlated with aggregate default rates. However, the consensus-based DIR is more granular than the DUR because it captures deteriorations in credit quality that may precede a full notch downgrade, and it is based on a larger borrower universe. US Speculative Grade (“High Yield”) Corporate Bond Default Rates The chart below shows the DIR range for more than 100 US credit indices since 2017, along with the 12-month rolling S&P US Speculative Grade Corporate Bond default rate. Sources: Credit Benchmark, Standard & Poor’s Inc[2]. This shows that the median DIR is close to 1, (i.e., deteriorations and improvements are in balance). The upper quartile has reached 2 at some points in the credit cycle – i.e., deteriorations outnumber improvements in the ratio of 2:1. The ratio was close to 8 during the Covid crisis. The next chart shows a related metric, the proportion of credit consensus indices with a DIR greater than 1. This measure has a range of 0% (all DIRs below 1) to 100% (all DIRs above 1, i.e., all show a balance to deterioration). It is plotted for all sector indices globally as well as for US indices specifically. Sources: Credit Benchmark, Standard & Poor’s Inc The chart shows that this metric currently stands at slightly over 50% for global indices and nearly 70% for US indices.  Both measures have been climbing steeply in recent quarters, and the sharp Q2 increase in defaults provisionally reported by S&P is consistent with this.  As both charts show, DIR metrics are highly correlated with the S&P default rate - although the various series diverge in some quarters[3]. Combining the “signal” (the DIR / S&P correlation) with the “noise” (the divergences) it is possible to extrapolate the likely path of US Speculative Grade / High Yield (“HY”) default rates, as well as the best case and worst-case probabilities. The next chart plots the likely (smoothed) trend and optimistic/pessimistic distribution for the US HY default rate. The numbers to the right of the bars are the corresponding percentiles for each simulated default rate. Source: Credit Benchmark Current trends in consensus DIR metrics imply that the default rate is likely to climb to 4% but there is a significant chance (25%) that it exceeds the S&P projections of 4.25% and a 10% chance of exceeding 6%. There is a 5% chance of it reaching the 7% - 9% range, and a 1% chance of hitting 9% or more.  There is also a 25% chance that the default rate is better than the central projection, peaking at 3.3%; with a 10% chance of stabilizing at 2.9% by mid-2024. There is a less than 1% chance that it will drop below 2%. These projections suggest that the default rate is most likely to be slightly lower (4%) than the S&P forecast of 4.25%; but there is a 1 in 4 chance of at least matching the S&P projection, and a 10% chance of exceeding it. Based on the current behavior of credit consensus estimates, there is very little chance of the S&P optimistic scenario where default rates dip below 2% by 2024. However, default rates are notoriously difficult to predict because even in downturns defaults are sparse, and usually sector- or segment- specific.  Since credit consensus data includes large numbers of unrated issuers, it reflects the state of the wider economy, including the credit dynamics of some of the larger SMEs. So, projections from this dataset run the risk that they overstate the worst-case default rate for the S&P rated universe but may give an accurate picture of the wider economy default rate. Leveraged Loans According to LCD, the 10-year default rate average for US Leveraged Loans is 1.57%. The latest 12m rolling average is 1.86%, a steep increase from 1.58% in May and 1.31% in April. S&P expect the rate to hit 2.5% in March 2024.  (It is worth noting that these are 12-month trailing numbers – some reports use annualized 3-month estimates which results in a much more volatile series with some very high peaks.) The relationship between credit consensus metrics and US Leveraged Loan default rates is similar to the S&P speculative default rate discussed previously. The projections reported in this section are based on a subset of 540 Leveraged Loan issuers (rather than loans) that are all constituents of the Credit Suisse Leveraged Loan Index. However, as the chart below shows, the projected outcomes are much narrower. Source: Credit Benchmark The median projected default rate for leveraged issuers is 2.5%, with an interquartile range of 2.1% to 3.2%. There is a 10% chance of 3.5% or more – close to double the long run average. There is also a very low probability – but high impact – worst case of 5.3% - more than triple the long run average. Background: High Yield / Speculative Grade Bond Default Rate Patterns in Historic S&P Data With higher interest rates and stubborn core inflation, all major rating agencies are forecasting higher default rates by the end of 2023 and into 2024. Multiple research papers by major agencies show that – in large samples – credit ratings are a good predictor of future default rates.  The chart below uses the S&P default study to plot the regional breakdown of default waves since 1996. Source: Standard & Poor’s Financial Services LLC. Default spikes are highly correlated across regions, and the correlation seems to be rising although the peaks are lower in recent waves. The next chart shows the most recent credit category preceding a default. Source: Standard & Poor’s Financial Services LLC. Reassuringly, most defaults occur in companies that were previously in the C categories, and the proportion has been increasing in recent years.  S&P also report that multiple downgrades precede an actual company default, so it makes sense to use their downgrades / upgrades ratio (“DUR”) to predict default rates. The two series are plotted below. Source: Standard & Poor’s Financial Services LLC. While actual defaults are rare, they are often clustered during economic downturns, and the next chart shows the sector breakdown of these spikes. Source: Standard & Poor’s Financial Services LLC. Some sectors – like Oil & Gas and Real Estate – tend to feature heavily in every default rate cluster. But the detail of each cluster seems to be unique; the spike around 2000 is particularly diverse. In conclusion: defaults are clustered in time, and these clusters are correlated across regions.  Most defaults are in companies in the c-category, but the sector split of each default cluster is less predictable.  The downgrade/upgrade ratio is strongly correlated with the default rate; so, any metric which is a leading indicator of the DUR can also be a leading indicator of default rates.  Credit Consensus data is based on issuers, rather than bonds; the equivalent metric – the DIR – is more granular, based on a large universe (with many unrated issuers) and is published every two weeks. It is also correlated with the S&P default rate (although the correlation is slightly lower than for the DUR), but it will be a valuable complementary metric as economies continue to be buffeted by high levels of economic uncertainty. Download Please complete your details to download the whitepaper: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper [1] Based on internal ratings provided by approx. 40 global banks. [2] S&P 2022 Default and Transition Study for US Bonds; additional data from S&P quarterly press releases. [3] The rate of growth of the DIR metrics is likely to slow, since it is very rare for ALL indices to be deteriorating simultaneously. ### August 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been a mixed bag in terms of credit movement this month, across all Global Financial Counterpart categories. Banks North American Banks and Latin American Banks stand out with the strongest bias towards credit deterioration, with improving to deteriorating ratios of 1:4.6 and 1:3.7 respectively. On the other hand, Central Banks show a strong bias towards credit improvement, with an improving to deteriorating ratio of 3:1. Intermediaries  Broker Dealers and Custodians and Sub Custodians both show more instances of deterioration than improvement this month. Prime Brokers come out on top with an improving to deteriorating ratio of 2:1, whilst Central Clearing Counterparts (CCP) show no instances of deterioration. Buy Side Asset Managers and Pension Funds show a bias towards credit deterioration, with improving to deteriorating ratios of 1:1.3 and 1:1.8 respectively. The rest show a bias towards credit improvement, with Sovereign Wealth Funds leading with an improving to deteriorating ratio of 4:1.  The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Monthly Credit Outlook: August 2023 Global Corporates, Financials and Sovereigns Trends Still Negative Table of ContentsIntroductionGlobal Corporates vs. Global Financials vs. Global SovereignsIndustry and Sector Turning PointsUS Sector PD ComparisonsCredit VolatilityLeveraged LoansEconomic Growth in ChinaFood ProducersClimate Change, Record Temperatures and WildfiresUS Mortgage FinanceConclusionDownload Introduction Key Findings Global Corporates vs. Global Financials vs. Global Sovereigns: Trends Still Negative Industry and Sector Turning Points: Negatives Outnumber Positives US Sector PD Comparisons: US Aerospace & Defense Is Largest Monthly Drop Credit Volatility: Equity VIX Down, Credit Volatility Still Ticking Up Leveraged Loans: Gap Between Index Value and Credit Downturn Economic Growth in China: Asia Corporates in the Red for Two Consecutive Months, China Falters Food Production: Net Deterioration for Majority of Food Producers Climate Change, Record Temperatures & Wildfires: Negative Impact on Insurance & Airlines US Mortgage Finance: Sustained Net Deterioration The US downgrade by Fitch to AA+ highlights the political and fiscal challenges facing most Governments as they grapple with post-Covid higher inflation and slower growth. Current global economic data is mixed – growth is stronger than the gloomiest predictions, but slowing in many economies. The current bout of global inflation is like a partly contained wildfire – still smouldering in one country, then flaming up somewhere else. The Ukraine war shock has dropped from annual comparisons, but core rates look stubbornly high and various countries – including the US – could see headline inflation tick up again. Most central banks are giving versions of the same message: inflation has not been tamed and “higher for longer” interest rates are the main policy tool. Bad news for highly leveraged companies, good news for savers turned spenders who may now be key drivers of global economic growth. Data from China shows major commercial property-driven downturn, while US Office property is top of the real estate distressed debt list (over $60bn of loans, according to Cushman & Wakefield). The expiry of the Black Sea Grain Deal is bad news for food and fertilizer prices, already destabilized by El Nino, record heat in the Northern Hemisphere and extreme weather events globally. Insolvencies are rising as higher rates and supply chain issues take their toll. Consensus credit data shows modest but sustained deterioration, in contrast with bullish equity markets and unfazed credit spreads. This month’s report includes special sections on China, Food, and the wider impact of climate change. Macro credit trends and industry / sector turning points indicate a continued negative bias, and credit volatility is still creeping up. The regular leveraged loan section shows a widening gap between still positive investment returns and deteriorating credit. Global Corporates vs. Global Financials vs. Global Sovereigns Trends Still Negative The following charts show global trends for average Probability of Default (PDs) and % balances between improving and deteriorating companies, for the past 12 months. Globally, Corporates, Financials and Sovereigns all continue to deteriorate; for Financials this is the seventh consecutive month of negative credit outlook. Industry and Sector Turning Points Negatives Outnumber Positives The lists below shows detailed global industries and sectors that may be at turning points. These have either started to show negative balances after a run of positives, or vice versa. Positive Turning Point: Previous 3M Negative, Current 1M Improving Australia Financial Services Australia Financials EU Support Services Europe Computer Services Europe Construction and Materials Europe Home Construction Europe Household Goods and Home Construction France Consumer Services Global Drug Retailers Global General Industrials Global Household Goods and Home Construction Global Mutual Fund Global NPO or Foundation Netherlands Mutual Fund North America General Industrials North America Household Goods and Home Construction North America Software North America Software and Computer Services North America Specialty Retailers Pacific Financial Services Pacific Financials United Kingdom General Industrials United Kingdom Heavy Construction United Kingdom Home Construction United Kingdom Large Financials United Kingdom NPO Foundation United States General Retailers United States Publishing United States Software United States Software and Computer Services United States Specialized Consumer Services United States Specialty Retailers Negative Turning Point: Previous 3M Improving, Current 1M Negative Asia Automobiles Asia Automobiles and Parts Asia Consumer Finance Asia Financial Services Asia General Retailers Asia Industrials Asia Specialty Retailers Canada Automobiles Canada Automobiles and Parts Canada Chemicals Canada Gas, Water and Multi-utilities Canada Nonlife Insurance Canada Property and Casualty Insurance China Automobiles and Parts China Consumer Goods EU Pharmaceuticals Europe Conventional Electricity Europe Health Care Europe Nondurable Household Products Europe Pharmaceuticals and Biotechnology Europe Travel and Tourism France Corporates Global Automobiles Global Consumer Finance India Financials Ireland Financial Services North America Automobiles North America Trucking Singapore Industrials Thailand Financials United Kingdom Conventional Electricity United Kingdom Electricity United Kingdom Fixed Line Telecommunications United Kingdom Health Care United Kingdom Integrated Oil and Gas United Kingdom Large Telecommunications United Kingdom Large Utilities United Kingdom Oil and Gas Producers United Kingdom Travel and Tourism United Kingdom Utilities United States Automobiles United States Industrial Transportation United States Pension Fund United States Trucking These trend shifts are spread across diverse sectors and this month there are more negative turning points than positive turning points. Industrials and Construction feature heavily in the positive turning point list (top), across Europe, UK, North America and Globally. Software and Computer Services also appear in the positive turning point column, especially in the US and North America. Autos feature heavily in the negative turning point list (bottom), across Asia, Canada, US and Globally. China Autos and Consumer Goods are also in the negative column, reflecting a stream of recent negative economic data. Europe Travel & Tourism and Canada Property & Casualty Insurance appear in the negative turning point column, possibly partly due to the growing impact of climate change related claims. The following charts show highlights from the Industry and Sector Turning Points lists – these are based on the % of improving vs. deteriorating credit estimates across each sector universe. Positive Turning Point Negative Turning Point US Sector PD Comparisons US Aerospace & Defense Is Largest Monthly Drop With economies and markets giving mixed signals, there is a lot of uncertainty about 2023 default rates. The table below compares average consensus default probabilities for a range of US sectors. Insurance and Funds – apart from Hedge Funds – are very low risk. Travel & Leisure, Hedge Funds, Software, and Fixed Line Telecomms are highest in the 80 -120 Bps range. The mid-range includes Mining, Leisure Goods and Media. Large sector increases this month include Aerospace & Defense, Support Services, Technology Hardware & Equipment, Personal Goods and Chemicals. Improvements include Travel & Leisure, Mining and Beverages. Credit Volatility Equity VIX Down, Credit Volatility Still Ticking Up VIX The following chart shows percentiles for credit index 6-month rolling volatility. For approximately 1,200 indices, rolling volatility shows the speed and scale of PD changes; these can give advance warning of changes in transition rates. The percentiles plotted here are the most sensitive to turning points in PD volatility. Sources: Credit Benchmark, CBOE / St. Louis Fed. Across the CB index universe, all percentiles are continuing to move up this month – the first time in nearly a year that volatility has risen for two consecutive months. However, the Equity VIX has dipped to its lowest level since 2020. Dispersion The next chart is based on cross sectional volatility (“dispersion”) i.e., the average range of estimates for single name estimates. (A high value implies widespread uncertainty about individual firm credit ratings, probably around a key turning point; a low value implies a tight consensus and probably indicates that current trends will continue.) This again shows a trend decline[1] since the start of the pandemic, consistent with the drop in rolling volatility plotted above; but latest data shows an uptick. The next few months will be critical; if dispersion continues to rise it will indicate growing uncertainty about credit risk, suggesting a higher future default rate. [1] The actual plotted range is small (about 4% of the average value). Changes in dispersion are more marked at the single name level – for example, when a legal entity is downgraded, the range of PD estimates usually increases. Leveraged Loans Gap Between Index Value and Credit Downturn The chart below plots the credit trend of the Credit Benchmark Leveraged Loan Index, made up of 563 issuers in the Credit Suisse Leveraged Loan Index. The credit index tracked the Credit Suisse Leveraged Loan Total Return in 2021 to early 2022. However, credit has deteriorated by approximately 8% in the past year while total return is up nearly 6%. Economic Growth in China Asia Corporates in the Red for Two Consecutive Months, China Falters Asia Corporates have now posted two consecutive months where companies showing credit deterioration outnumber improvements. The chart below shows the % net balance; the latest month shows a deeper move into the red. Across Asian credit indices, there are currently no positive turning points. Those with negative turning points are listed below: Asia Automobiles and Parts Asia Automobiles Asia General Retailers Asia Specialty Retailers Asia Industrials Asia Financial Services Asia Consumer Finance Economic growth in China slowed in the second quarter, and current forecasts for the full year are likely to be revised down. While most of the world grapples with inflation, the main risk in China is deflation while youth unemployment reaches record highs. The following charts highlight two sectors – Autos and Consumer Goods. China may be the world’s second-largest automotive exporter, but post-Covid headwinds are taking their toll: the China Automobile and Parts credit outlook is now turning negative with 8% more China Automobiles and Parts companies showing deterioration than improvement. China Consumer Goods have also posted a negative turning point as Chinese retail sales growth slows. Food Producers Net Deterioration for Majority of Food Producers Following the Russian withdrawal from the Black Sea Grain Deal, food and fertilizer prices – already grappling with supply issues - are expected to spike further. The following chart covers a universe of approximately 32 Food Producers credit indices, tracking the proportion with net credit upgrades. This remains well below the neutral 50% line. The chart below shows the current Food Producers credit indices split between Net Deterioration, Balanced, and Net Improvement. The majority (62.5%) of Food Producers indices are showing a Net Deterioration credit outlook. Climate Change, Record Temperatures and Wildfires Negative Impact on Insurance & Airlines Insurance Impact Temperature records are being shattered across Europe as well as the Globe. The insurance industry faces a lengthening list of claims as homes and businesses are devastated. Insurance rates are rising as capacity drops – partly due to rising interest rates - but the eventual scale of climate-linked losses remains unknown. The following chart shows 1Y credit trends for the Property and Casualty Insurance sector in Canada, US, UK and the EU. The chart below is based on the net balance between improving and deteriorating companies within the Canada Property and Casualty Insurance Credit Benchmark Index. The Canada Property and Casualty Insurance sector has turned negative for the first time in nearly a year – and other countries and regions are expected to follow. Airlines Impact Share prices of European holiday airlines have been hit by European wildfires with cancelled flights, tourist evacuations, and holiday plans thrown into disarray. The following chart shows that the net proportion of companies with credit improvement in the European Airlines index has been steadily decreasing for the last 4-months. The current 7-category credit distribution chart, below, shows that over 50% of European Airline companies are rated bb or lower. In general, Europe Travel and Tourism is suffering. The following chart shows the first negative credit outlook since Dec-22. The below chart shows that currently 80% of European Travel and Tourism companies are rated high yield. US Mortgage Finance Sustained Net Deterioration The US housing market faces a long recovery from the steep increase in mortgage rates over the past year. The following chart is based on the net balance between improving and deteriorating companies within the US Mortgage Finance Credit Benchmark Index. US Mortgage Finance companies have posted a fifth consecutive month of net deterioration. The balance is currently 3.3%, but the chart below shows that the US Mortgage Finance credit index has deteriorated by approximately 9% in the past 2-years. The following chart compares US Mortgage Finance with US Financials generally; the mortgage sector has a higher proportion of entities in bb and b credit categories. (The aa segment is Federal Home Loan providers). Conclusion Global credit trends continue to be negative. Interest rate cuts seem unlikely this year, but real interest rates are arguably still low unless inflation shows a sustained global drop. Leveraged firms are feeling the credit pain, and loan providers are suffering from a drop in volumes. Major banks have seen windfalls from higher loan rates that have not been passed on to savers, but specialised lenders are finding the new environment more difficult. Insurers are benefitting from higher underwriting rates but they face growing and uncertain climate-related losses. Climate change and the continued war in Ukraine are weighing heavily on Food sector credit. China’s cooling property market has hit the wider economy and is now affecting the rest of Asia. Download Please complete your details to download the full Monthly Credit Outlook : First Name (required) Last Name (required) Company (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Monthly Credit Outlook ### Reuters: Commercial real estate investors risk painful losses in post-COVID world Commercial real estate investors and lenders are facing mounting losses if societal habits have changed for good in a post-COVID world, writes Sinead Cruise, Lucy Raitano and Lewis Jackson for Reuters, citing research from Credit Benchmark. While tricky economic conditions are not unfamiliar to seasoned commercial property investors, changing routines around online shopping and working from home may see a permanent surplus of buildings in major cities like London, Los Angeles and New York. "Global lenders to U.S. industrial and office real estate investment trusts (REITs), who supplied credit risk assessments to data provider Credit Benchmark in July, said firms in the sector were now 17.9% more likely to default on debt than they estimated six months ago. Borrowers in the UK real estate holding & development category were 4% more likely to default." Reuters, July 31, 2023. View original article (external link). ### July 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been another negative month for the credit quality of Global Financial Counterparts, with few exceptions. Amongst the Banks, only APAC Banks came in at neutral, with the rest biased towards credit deterioration this month. North American Banks and Latin American Banks stand out with the strongest bias towards credit deterioration, with improving to deteriorating ratios of 1:2.3 and 1:2 respectively. Intermediaries performed a little better. Broker Dealers came out on top with an improving to deteriorating ratio of 1.3:1. Prime Brokers were the most in the red with a ratio of 2 deteriorations to every improvement. Amongst the Buy Side, Asset Managers and Mutual Funds showed a bias towards credit deterioration, both with improving to deteriorating ratio of 1:1.6. The only example of positive movement was seen in Insurance Companies, with an improving to deteriorating ratio of 1.2:1.  The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Credit Benchmark Appoints Michael Crumpler as Chief Executive Officer London and New York, July 18, 2023 – Credit Benchmark, a global leader in the credit risk data and analytics space, has announced the appointment of Michael Crumpler as Chief Executive Officer. Donal Smith, current CEO and Co-Founder, will be remaining on in his capacity as Executive Chairman working alongside Michael and the executive team. Michael’s primary focus will be to guide Credit Benchmark through its next phase of growth by expanding its global client footprint in key strategic markets and further solidifying the company’s position as the provider of choice for unique and compelling credit risk products across capital markets.  He will also be focused on building-out Credit Benchmark’s analytics and product functions in order to provide world-class solutions that will allow clients to more efficiently and effectively manage risk. Michael Crumpler said: “I’m honoured to be appointed CEO and am grateful for the opportunity to lead Credit Benchmark through its next exciting chapter of expansion. We have such an incredible concept, a very talented team and a real opportunity to become an industry-standard across capital markets.” “We have grown so much since I joined in late 2016 and I’m confident with the right focus and execution, we will be able to grow our business across our core markets, expand our efforts in new segments and continue to leverage emerging technologies such as AI to deliver best in class analytics for our clients.” Donal Smith, Co-Founder and Executive Chairman said:  “We are delighted that Michael has accepted the role of CEO. His vast experience and detailed knowledge of our customers and his experience in building Credit Benchmark made him the perfect choice for this position.” Michael Crumpler joined Credit Benchmark in 2016 and has served in several key executive roles including most recently as Chief Operating Officer (COO) and Head of Risk.  He is also a member of the Executive Committee.  He has been instrumental in growing the client base, which now includes a global network of more than 40 financial institutions, including 17 Global Systematically Important Banks (G-SIBs). As COO he helped drive 25% revenue growth, identified and developed key new market segments and delivered world-class customer retention rates.  He has also helped to lead key initiatives across marketing, analytics and research and oversaw key strategic third-party partnerships, namely with Bloomberg. Michael previously worked at Goldman Sachs in the Credit Risk Management & Advisory Group, covering a diverse portfolio of entities across the natural resources and public finance sectors.  He spent more than a decade in other credit risk and banking roles at Barclays, Dexia and Moody’s Investors Service, focused primarily on energy, infrastructure and public finance. Michael holds a Master of International Affairs from Columbia University’s School of International and Public Affairs and a Bachelor of English Literature from the University of North Carolina at Chapel Hill. He lives in New York with his wife and two children. About Credit Benchmark With data based on the views of more than 20,000 of the market’s most respected, reliable and regulated credit risk analysts, Credit Benchmark provides unique Credit Consensus Ratings and Aggregate Analytics. More than 40 financial institutions, including 17 of the world’s largest Global Systemically Important Banks (G-SIBs) contribute their internal credit risk ratings to Credit Benchmark, which then anonymises and aggregates all the data, to make the views of far more analysts publicly available than ever before. Covering over 80,000 entities, 90% of which are unrated by any other publicly available traditional ratings methods, Credit Benchmark’s credit risk data spans the US, Continental Europe, Switzerland, the UK, Japan, Canada, Australia and South Africa. Credit Benchmark’s insights are trusted by the Bank of England, HM Treasury and a host of the largest financial institutions in the world, either to benchmark their own internal credit risk analysis against those of a global peer group, or to simply gain accurate credit risk views where none were previously available. Media Contact information Damien Fletcher / Andrew DunnStreets Consulting (Representing Credit Benchmark)damien.fletcher@streetsconsulting.com; andrew.dunn@streetsconsulting.com Telephone: +44 020 7073 2649 Laura SavilleHead of Marketinglaura.saville@creditbenchmark.comTelephone: +44 020 7099 4322 ### July 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-June, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Both Financials and Corporates credit quality show a bias towards net credit deterioration this month, with negative ratios of 1.2 and 1.1 deteriorations to each improvement respectively. Amongst the industries, the top performer is once again Oil & Gas, with a positive ratio of 1.3 improvements to each deterioration. Consumer Services is the only other industry to show net credit improvement this month. Basic Materials and Technology stand out with negative ratios of 1.6 deteriorations to each improvement. Oil & Gas strength is also reflected at the sector level, with UK and Canada firms showing positive ratios. Travel & Leisure companies continue to perform well, with 1.8 improvements to every deterioration. Construction & Materials stand out with a bias towards credit deterioration, with an improving to deteriorating ratio of 1:1.5. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Quarterly Credit Outlook Q3 2023 Growth Holding Up but Storm Clouds Gathering Table of Contents Introduction 1. Global Roundup 2. Industry and Sector Turning Points 3. US Sector PD Comparisons 4. Credit Index Volatility 5. CB Leveraged Loan Universe 6. Water 7. Food, Beverages & Farming 8. US Commercial Real Estate 9. Transition Matrices 10. Correlation Matrices Introduction Key Findings: Global Roundup: More Credit Indices Show Upgrade Bias Industry and Sector Turning Points: Recovery in Personal Goods and Clothing & Accessories US Sector Comparisons: Travel & Leisure Largest Improvement, Fixed Line Telecomms Largest Deterioration Credit Index Volatility: Equity and Credit Volatility Ticking Up – Downgrades Coming? CB Leveraged Loan Universe: Improving After Long Credit Trend Decline Water: UK Water Sector Credit Has Been Deteriorating Since 2019 Food, Beverages & Farming: Declining US Commercial Real Estate: Industrial & Office Worst Performer Transition Matrices: Skewed Bias to Upgrades Correlation Matrices: North America and UK Decouple From Continental Europe and Asia Suggesting Increased Scope for Portfolio Diversification Are storm clouds still gathering? Some major economies have been surprisingly buoyant in the past quarter making some of the gloomier credit forecasts look premature. Despite continued rate hikes, economic growth numbers remain robust especially in North America, the UK, and countries with major energy producing sectors. While recent US CPI numbers look promising, core inflation rates are likely to be stubbornly high; the Fed may have paused but further hikes cannot be ruled out. In Continental Europe, the impact of the Ukraine war continues to cast a shadow; stalled growth has been the price of lower inflation. Other major economies may also struggle to slay the inflation dragon for good without recession. The full impact of rate hikes has been delayed by staggered loan rate resets; some sectors will be hit harder than others. This summer is likely to bring further challenges: El Nino is expected to set new weather records, and the effects of climate change are becoming obvious in a growing list of countries. Africa (also suffering a Ukraine linked fertilizer shortage) has been on the environmental frontline for years, but Southern Europe and the Southern US are now suffering annual droughts. Wildfires are earlier, larger, more frequent and more widespread; New York’s recent smoke haze originated in Canada. Food production and river-based transport now face regular disruption, and water shortages are becoming the new normal. These problems are driving climate-linked technology research; and shifting global consumer attitudes may start to free up capital needed to turn innovation into climate-tackling investment. Higher interest rates are key in the fight against inflation, but they also encourage saving to finance technological change. Consensus data shows that many sectors with a marked deterioration in Q1 have stabilised in Q2, while transitions only show a balance to downgrades in the crossover credit categories. This may be the calm before the storm, but the consensus has been broadly correct so far – the worst-case predictions for default rates have yet to materialise. The commercial real estate sector – discussed in this report – is shifting focus away from office and retail towards industrial and warehousing, consistent with shorter supply chains and hybrid working. The sector is beginning to adapt to the new real estate landscape. Leveraged Loans – also covered here – have been a major area of concern in 2023. Consensus data shows a marked credit deterioration, but this may have run its course for now. Many leveraged companies continue to successfully refinance and the appetite for securitised assets – at the right price – remains, but volumes are expected to trend lower. The US Government’s flirtation with default has again stretched the definition of “high risk” in credit markets, causing some investors to seek new forms of diversification. Related to this, credit index correlations reported here show that Asian and Continental Europe credit indices are diverging from the UK and North America – so there may be more scope for credit portfolio diversification. Diversifying credit risk is likely to be become increasingly important if storm clouds continue to gather. Some of these appear in this report, including an uptick in credit volatility after a prolonged downtrend and – as the chartbook at the end of this report shows – ominously negative trends developing in Farming, Fishing, and Food Production. 1. Global Roundup: More Credit Indices Show Upgrade Bias The chart below covers a universe of approximately 1,200 credit indices, tracking the proportion showing net credit upgrades. The 2022-Q3 steep decline in the proportion of indices showing net credit upgrades slowed in 2023-Q1. The latest month shows an increase in the proportion of indices showing net credit upgrades; more than 40% of indices are currently biased to upgrades in 2023-Q2. The charts below show details for index types and regions. Upper charts show the proportion of indices upgrading over time. Lower charts show the current split between downgrades, no change, and upgrades. All Corporates Financials Funds Europe North America Asia Africa Apart from Asia and Funds, the main regions and borrower types are all trending up. Financials show a higher proportion of stable indices than Corporates; the latter show more movement, roughly balanced between upgrades and downgrades. The proportion of Europe indices showing net credit upgrades increased in the latest month; North America is on its second month of incline, whilst Africa is on its third. Asia decline continues. 2. Industry and Sector Turning Points: Recovery in Personal Goods and Clothing & Accessories The table below shows detailed global industries and sectors that may be at turning points. These have either started to show negative balances after a run of positives, or vice versa. Dec-22 to Feb-23 all positive CCIs, Mar-23 to May-23 at least 1 negative CCI: Pharmaceuticals Support Services Dec-22 to Feb-23 all negative CCIs, Mar-23 to May-23 at least 1 positive CCI: Clothing & Accessories Commodity Chemicals Hedge Fund Media Personal Goods Railroads Real Estate Investment & Services Real Estate Investment Trusts Real Estate Services There are more Global indices in the right column than the left. These trend shifts are spread across diverse sectors. The charts below are based on the net balance between upgrades and downgrades which forms the Credit Consensus Indicator (CCI[1]). The plotted indices are examples of some of the global industries and sectors listed above. The Global industries and sectors below are some of the key ones to watch. They have all had a run of multiple consecutive months of net deterioration, but the trend is slowing and approaching positive territory, or vice versa. 3. US Sector PD Comparisons: Travel & Leisure Largest Improvement, Fixed Line Telecomms Largest Deterioration With economies and markets giving mixed signals, there is a lot of uncertainty about 2023 default rates. The table below compares average consensus default probabilities for a range of US sectors. Insurance and Funds – apart from Hedge Funds – are very low risk. Travel & Leisure, Hedge Funds, Software, and Fixed Line Telecomms are highest in the 80 -120 Bps range. The mid-range includes Mining, Leisure Goods, Media and Support Services. Large sector increases this quarter includes Leisure Goods, Fixed Line Telecomms (always a volatile sector), Household Goods, and Electronic & Electrical Equipment. Improvements include Travel & Leisure (cf. Leisure Goods), Industrial Transportation, Forestry & Paper, and Automobiles & Parts. The second half of 2023 could show deteriorating balance sheets and liquidity problems in some sectors, and the main credit rating agencies are forecasting steep increases in default rates. Consensus data derived volatility and trend metrics will also give a strong and detailed indication of future downgrades or default rates. 4. Credit Index Volatility: Equity and Credit Volatility Ticking Up – Downgrades Coming? The chart below shows percentiles for credit index 6-month rolling volatility. For approximately 1,200 indices, rolling volatility shows the speed and scale of PD changes; these can give advance warning of changes in transition rates. The percentiles plotted here are the most sensitive to turning points in PD volatility. Sources: Credit Benchmark, CBOE / St. Louis Fed. Across the CB index universe, all percentiles have – along with the equity VIX - ticked up this month, after multiple months of decline. The next chart is based on cross sectional volatility (“dispersion”) i.e., the average range of estimates for single name estimates. A high value implies widespread uncertainty about individual firm credit ratings, probably around a key turning point; a low value implies a tight consensus and probably indicates that current trends will continue. This metric shows a trend decline[2] since the start of the pandemic, consistent with the drop in rolling volatility plotted above, but it is above its low and has been volatile in recent months. 5. CB Leveraged Loan Universe: Improving After Long Trend Decline The CB Leverage Loan universe now covers about 4,300 issuers (54% North America, 44% Europe). The charts below show the latest trends. The latest credit trend shows an improvement in average risk. However, the credit distribution has shifted to the right in the last 3 months, with more issuers in the b and c categories. 6. Water: UK Water Sector Credit Has Been Deteriorating Since Before Covid Cash flow problems at Thames Water have highlighted the range of challenges facing the sector. Crumbling infrastructure, high inflation linked debt, rising interest rates and tougher regulation are all questioning the Leveraged model that has been used to boost returns by infrastructure investors over the past few years. The charts below show consensus ratings for Global Utilities in a sustained decline, but the deterioration in UK Water companies is significantly greater. Historic Credit Trend (Jan-16 to Current) Current Credit Distribution The chart on the right shows that – despite this long-term underperformance – UK water companies have better credit risks than a typical global utility. But UK water company groups fall into distinct categories: Statutory Corporations like Scottish Water, which are effectively publicly owned. Publicly traded companies like Severn Trent. Privately held companies whose owners include major, diversified infrastructure firms, long term holders like pension funds, and dedicated infrastructure funds with multiple retail investors. Examples include Northumbrian Water and South Staffordshire Water. Privately held companies with (possibly offshore) “Holding Company” majority ownership parents whose sole purpose is to invest in their water utility subsidiaries. Examples include Thames Water, Wessex Water, and South West Water owned by Kemble, Pennon and YTL respectively. In some of these cases the operating companies may also have their own diverse investors. The next chart shows average consensus credit risk for these four types of firms, based on a UK consensus universe of 39 parent, holding and operating legal entities. “Holding Company” structures have the highest risk (averaged across parents and subsidiaries), slightly above those with a more traditional investor base. Companies with ready access to equity funding are much lower, while those with implicit Government guarantees are unsurprisingly the lowest. 7. Food, Beverages & Farming: Declining Summer in the Northern Hemisphere now brings an annual round of heat records and various extreme weather episodes. Drought, fires, fertilizer shortages, supply chain issues, and changing consumer tastes (and budgets) are putting increasing pressure on the agriculture and forestry subsectors. The impact of climate change has been exacerbated by the Ukraine war, and the temporary ceasefire (Black Sea Grain Initiative) that allows Ukraine to continue to export fertilizer and grain is set to expire on 17th July. These issues are now hitting credit risk in the “4Fs”: Food, Farming, Fishing, and Forestry. Consensus data shows a modest but consistent impact in these and related subsectors. Global Farming, Fishing & Plantations, Beverages and Forestry & Paper credit indices all show a deterioration this month. The downward trend in Farming, Fishing & Plantations started in Q4 of last year. If current climate records continue to be broken, and with no immediate end in sight for the Ukraine war, further deterioration is likely in coming months. 8. US Commercial Real Estate: Industrial & Office Worst Performer Warning signs continue to flash in the $5.5trn US Commercial Real Estate (“CRE”) market, with rising rent arrears and defaults, plus sales of some properties and real estate loans at steep discounts. The latter now extends to performing loans as lenders and investors anticipate widening problems. Office sectors are worst affected by the persistence of hybrid working, with a Knight Frank survey reporting that most large firms are cutting office space. Retail is another casualty of work-from-home; already heavily indebted malls and former flagship stores are struggling with lack of footfall. There are knock-on effects: municipal revenues will be hit by a shrinking property and sales tax base; the CMBS market is likely to see lower volumes and falling prices; and banks may struggle to liquidate property collateral for broader corporate (i.e., non-real estate) loans if those also turn sour. Most of these problems are concentrated in cities like tech-hub San Francisco, or more generally in older properties in cities like Washington DC and New York. And there are also opportunities: demand for storage and warehousing space is growing. Industrial property demand in some locations is benefiting from onshoring as companies bring manufacturing home and hold more manufacturing inventory. Second-tier office sites are being converted to residences. The S&P US REIT index reflects some of these issues, down 12% over the past year (vs. S&P 500 +3%). And real estate funds have explicit “gates” to manage withdrawals and avoid a property market overhang. So far, the adjustment has been modest. The consensus credit distribution chart below shows that the majority of US REITs are investment grade, with around two-thirds in the a and bbb categories. The exception is Mortgage REITs, representing secured CRE loans. The majority are in the bb category and 40% are in single b. Retail REITS are generally high quality but just under 10% are in the c category – i.e., significant risk of default. Source: Credit Benchmark (based on 182 issuers) The next chart shows recent credit trends for these sectors. In the past two years, the main index shows a credit risk improvement of 10%, now flattening. US Retail has been even stronger, particularly after Covid lockdowns ended. Mortgage REITs have underperformed, giving up all their post-Covid gains. The worst performer is the combined Industrial & Office category, with a 12M credit deterioration of 10%. This suggests that any Industrial improvements have been more than weighed down by problems in the Office sector. The next set of 4 charts plot the 2-year Credit Consensus Indicators (CCIs). The US REIT universe actually turned positive this month after being in net downgrade territory for most of the past year. Industrial and Office shows the largest downgrade bias in this period, although the pace has recently eased. Retail shows a positive credit outlook in the latest month, but Mortgage REITs are mired in downgrades with only brief moments of modest respite. 9. Transition Matrices: Skewed Bias to Upgrades Global Corporates Global Financials Transition Matrices can be slow to adjust when credit conditions are changing rapidly. Both categories of borrowers still show a very skewed bias to upgrades; Global Financials have 31.6% upgrades vs. just 10.6% downgrades; a ratio of ~3:1. Global Corporates have a similar ratio with 31.3% upgrades vs. 13.6% downgrades. However, the majority of these upgrades are within the High Yield categories. In Investment Grade, both Corporates and Financials, show a more balanced position: 5.2% upgrades vs. 5.0% downgrades for Corporates and 5.7% upgrades vs. 5.1% downgrades for Financials. In the crossover category, Corporates are skewed to downgrades (5.8% vs. 7.4% downgrades) and Financials are biased to upgrades (7.3% vs 4.6% downgrades). In the second half of 2023, the “Downgrade Triangle” (the upper right) is likely to dominate. 10. Correlation Matrices: North America and UK Decouple From Continental Europe and Asia Suggesting Increased Scope for Portfolio Diversification The matrices below are based on credit index changes for the past 12 months. Post-Covid correlations are still low and, in many cases, slightly negative. Continental European and Asian indices show some surprisingly high correlations, while North America and the UK currently form a separate block. This is consistent with the more robust economic news from the latter economies. Corporate Credit Correlations by Geography Credit Correlations by Industry To download the full Quarterly Credit Outlook Q3 2023 whitepaper, including a CCI Chartbook appendix, please complete your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Quarterly Credit Outlook [1] The CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. [2] The actual plotted range is small (about 4% of the average value). Changes in dispersion are more marked at the single name level – for example, when a legal entity is downgraded, the range of PD estimates usually increases. ### July Credit Movement Indicators (CMIs) – US, UK & EU Industrials Credit Benchmark have released the July Credit Movement Indicators (CMIs). The CMI is an index of forward-looking credit opinions for US, UK & EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CMI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Industrials. UK Industrials end their run of seven consecutive months of negative credit outlook. US Industrials return to net deterioration. EU Industrials show a neutral credit outlook. US Industrials: Net Deterioration Returns US Industrial companies return to net deterioration, after one month of positive credit outlook. In the latest month, 1.1% more US Industrial companies are showing deterioration than improvement - a change in outlook from last month. Latest US Industrial production increases YoY; US Manufacturing PMI is 46.3, a six-month low. UK Industrials: Net Improvement Returns UK Industrial companies end their run of seven consecutive months of negative credit outlook. In the latest month, 1.2% more UK Industrial companies are showing improvement than deterioration - a change in outlook from last month. Latest UK Industrial production drops YoY; UK Manufacturing PMI is 46.5, a six-month low. EU Industrials: Net Improvement Short-lived EU Industrial companies show a neutral credit outlook. In the latest month, the percentage of EU Industrial companies showing improvement or deterioration is balanced. Latest Euro Area Industrial production increases YoY; Eurozone Manufacturing PMI is 43.4, the sharpest deterioration since May-20. To download the full CMI tear sheets for US, UK & EU Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CMIs Now ### July Credit Movement Indicators (CMIs) – US, UK & EU Oil & Gas Credit Benchmark have released the June Credit Movement Indicators (CMIs). The CMI is an index of forward-looking credit opinions for US, UK & EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CMI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. US and EU Oil & Gas both maintain a negative credit outlook for a consecutive month. UK Oil & Gas show recent instability in their collective credit outlook. US Oil & Gas: Net Deterioration Persists US Oil & Gas companies maintain a negative credit outlook for a consecutive month. In the latest month, 0.5% more US Oil & Gas companies are showing deterioration than improvement - the same as last month. Latest US Crude Oil Production shows increases; US natural gas futures are fluctuating. UK Oil & Gas: Ups and Downs UK Oil & Gas companies show recent instability in their collective credit outlook. In the latest month, 3.4% more UK Oil & Gas companies are showing improvement than deterioration - a change in outlook from last month. Latest UK Crude Oil Production shows increases; UK natural gas futures fall again, extending the decline. EU Oil & Gas: Net Deterioration Continues EU Oil & Gas companies maintain a negative credit outlook for a consecutive month. In the latest month, 1.2% more EU Oil & Gas companies are showing deterioration than improvement - an improvement from last month. Latest Europe Crude Oil Production shows increases; Europe natural gas futures decline from the two-month high. .. To download the full CMI tear sheet for US, UK & EU Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### June Credit Consensus Indicators (CCIs) – US, UK & EU Consumer Services Credit Benchmark have released the June Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Consumer Services based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Services. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Services consists of sectors Media, Retail, and Travel & Leisure. EU Consumer Services maintain a positive credit outlook for three consecutive months. US Consumer Services maintain a negative credit outlook for five consecutive months. UK Consumer Services return to negative credit outlook. US Consumer Services: Net Deterioration Trend Continues US Consumer Services firms maintain a negative credit outlook for five consecutive months. US Consumer Services CCI score this month is 49.3, an improvement from last month’s CCI of 48.0. Latest US Consumer Confidence Indicator shows a month-over-month decrease. UK Consumer Services: Net Deterioration Returns UK Consumer Services firms return to net deterioration, after three months of positive credit outlook. UK Consumer Services CCI score this month is 49.4, a decrease from last month’s CCI of 50.8. Latest UK Consumer Confidence Indicator rises again, improving for the fifth consecutive month. EU Consumer Services: Net Improvement Trend Forms EU Consumer Services firms maintain a positive credit outlook for three consecutive months. EU Consumer Services CCI score this month is 52.5, a decrease from last month’s CCI of 56.6. Latest EU Consumer Confidence Indicator shows a month-over-month increase. To download the full CCI tear sheets for US, UK & EU Consumer Services, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### June Credit Consensus Indicators (CCIs) – US, UK & EU Consumer Goods Credit Benchmark have released the June Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Consumer Goods based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Goods. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Goods consists of sectors Automobiles & Parts, Food & Beverage, and Personal & Household Goods. US Consumer Goods register a ninth consecutive instance of a negative CCI this month. UK Consumer Goods net deterioration returns. EU Consumer Goods show recent instability in their collective credit balance. US Consumer Goods: Net Deterioration Trend Continues US Consumer Goods firms maintain a negative credit outlook for nine consecutive months. US Consumer Goods CCI score this month is 49.8, an improvement from last month’s CCI of 48.1. Latest US retail sales show an unexpected rise. The data signals consumer spending remains resilient, despite higher inflation and interest rates. UK Consumer Goods: Net Deterioration Returns UK Consumer Goods firms return to net deterioration, after two months of positive credit outlook. UK Consumer Goods CCI score this month is 49.0, a decrease from last month’s CCI of 51.2. Latest UK retail sales show a rise from a month earlier, surpassing market expectations. EU Consumer Goods: Net Improvement Returns EU Consumer Goods firms show recent instability in their collective credit outlook. EU Consumer Goods CCI score this month is 53.1, a significant improvement from last month’s CCI of 49.2. Latest Euro Area retail sales show no change, falling short of market expectations. To download the full CCI tear sheets for US, UK & EU Consumer Goods, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Leverage Loans: Morningstar LSTA and Issuer Consensus Credit Index Download PDF After 15 years of steady growth, the $1.4trn Leveraged (and often “Cov-Lite”) Loan market is adjusting to higher interest rates. The 100 constituents of the Morningstar LSTA index cover $300bn of outstanding loans. After a drop in 2022, the 2023 total return (TR) of YTD 4.2% is above the long run average. The chart below plots cumulative changes in the LSTA TR index against issuer credit risk for broader1 corporate (top) and financial (bottom) universes, since Jan-2021. The global corporate and financial credit indices are included for comparison. In recent months, Leveraged Loan issuer credit has deteriorated faster than their broader credit indices, after both posted steady improvements in 2021 and 2022. Over the same period, the LSTA index has risen 10%, given up all those gains in Q3 2022, but has now exceeded its previous peak. The total return index is much more volatile than the issuer credit indices; the latter usually change slowly with fewer but significant turning points. After a stellar performance over the past 12 months, the Leveraged Loan total return index is diverging from its respective credit indices. If consensus credit risk continues to deteriorate, it might prompt investors to review their portfolio choices. 1 The Credit Benchmark Leveraged Loan universe covers more than 4000 issuers of Leveraged Loans, in multiple regions and industries, both public and private. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### June 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-May, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Financials credit quality showed a bias towards net credit deterioration this month, with a negative ratio of 1.2 deteriorations to each improvement. Corporates showed a neutral ratio of 1:1 improvements to deteriorations. Amongst the industries, the top performer was once again Oil & Gas, with a positive ratio of 1.5 improvements to each deterioration. Utilities, Industrials and Consumer Goods also showed a bias towards credit improvement. Telecommunications stands out with a negative ratio of 2.6 deteriorations to each improvement. Oil & Gas credit strength was also reflected at the sector level, with US, Canada and UK firms showing positive ratios. Travel & Leisure companies continue to perform well, with 1.9 improvements to every deterioration. Canada Corporates showed a bias towards credit deterioration, with an improving to deteriorating ratio of 1:1.2. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### June 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been a negative month for the credit quality of Global Financial Counterparts, with few exceptions. APAC Banks and Central Banks both showed a bias towards credit improvement this month, with improving to deteriorating ratios of 1.6:1 and 1.3:1 respectively. On the other hand, Latin American Banks were overwhelmingly negative, with a ratio of 1:5. North American Banks and Global Banks followed closely behind with ratios of 1:3.8 and 1:1.3 respectively. EMEA Banks and Globally Systematically Important Banks (GSIBs) came in at neutral. The Intermediaries were wholly negative this month. Prime Brokers were the most in the red with a ratio of 6 deteriorations to every improvement. Amongst the Buy Side, Mutual Funds showed a bias towards credit deterioration, with improving to deteriorating ratio of 1:2.6. Asset Managers followed with an improving to deteriorating ratio of 1:1.7. Sovereign Wealth Funds came in at neutral. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### US Commercial Real Estate Download PDF Warning signs continue to flash in the $5.5trn US Commercial Real Estate (“CRE”) market, with rising rent arrears and defaults, plus sales of some properties and real estate loans at steep discounts. The latter now extends to performing loans as lenders and investors anticipate widening problems. Office sectors are worst affected by the persistence of hybrid working, with a Knight Frank survey reporting that most large firms are cutting office space. Retail is another casualty of work-from-home; already heavily indebted malls and former flagship stores are struggling with lack of footfall. There are knock-on effects: municipal revenues will be hit by a shrinking property and sales tax base; the CMBS market is likely to see lower volumes and falling prices; and banks may struggle to liquidate property collateral for broader corporate (i.e. non-real estate) loans if those also turn sour. Most of these problems are concentrated in cities like tech-hub San Francisco, or more generally in older properties in cities like Washington DC and New York. And there are also opportunities: demand for storage and warehousing space is growing. Industrial property demand in some locations is benefiting from onshoring as companies bring manufacturing home and hold more manufacturing inventory. Second-tier office sites are being converted to residences. The S&P US REIT index reflects some of these issues, down 12% over the past year (vs. S&P 500 +3%). And real estate funds have explicit “gates” to manage withdrawals and avoid a property market overhang. So far, the adjustment has been modest. The consensus credit distribution chart below shows that the majority of US REITs are investment grade, with around two-thirds in the a and bbb categories. The exception is Mortgage REITs, representing secured CRE loans. The majority are in the bb category and 40% are in single b. Retail REITS are generally high quality but just under 10% are in the c category – i.e. significant risk of default. Source: Credit Benchmark (based on 182 issuers) The next chart shows recent credit trends for these sectors. In the past two years, the main index shows a credit risk improvement of 10%, now flattening. US Retail has been even stronger, particularly after Covid lockdowns ended. Mortgage REITs have underperformed, giving up all their post-Covid gains. The worst performer is the combined Industrial & Office category, with a 12M credit deterioration of 10%. This suggests that any Industrial improvements have been more than weighed down by problems in the Office sector. The next set of 4 charts plot the 2-year Credit Consensus Indicators (“CCIs”1). The US REIT universe actually turned positive this month after being in net downgrade territory for most of the past year. Industrial and Office shows the largest downgrade bias in this period, although the pace has recently eased, and is currently positive. Retail also shows a positive credit outlook in the latest month, but Mortgage REITs are mired in downgrades with only brief moments of modest respite. 1 The CCI tracks the monthly net level of credit upgrades / downgrades for a given sector, based on the combined risk views of expert credit analysts at over 40 global banks. A CCI score of 50 indicates an equal number of upgrades and downgrades; over 50 is improvement; under 50 is deterioration. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### June Credit Consensus Indicators (CCIs) – US, UK & EU Oil & Gas Credit Benchmark have released the June Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Oil & Gas end their run of eight consecutive months of positive credit outlook. UK Oil & Gas return to negative credit outlook. EU Oil & Gas show recent instability in their collective credit balance. US Oil & Gas: Net Improvement Trend Ends US Oil & Gas firms end their run of eight consecutive months of positive credit outlook. US Oil & Gas CCI score this month is 49.8, a slight decrease from last month’s CCI of 50.2. Latest US Crude Oil Production shows increases; US natural gas futures fall after weather kept demand for the fuel low. UK Oil & Gas: Net Improvement Short-lived UK Oil & Gas firms return to negative credit outlook. UK Oil & Gas CCI score this month is 48.1, a decrease from last month’s CCI of 51.0. Latest UK Crude Oil Production shows increases; UK natural gas futures fall, as investors evaluate the balance between reduced demand and potential supply risks. EU Oil & Gas: Net Deterioration Returns EU Oil & Gas firms show recent instability in their collective credit balance. EU Oil & Gas CCI score this month is 44.1, a significant decrease from last month’s CCI of 54.7. Latest Europe Crude Oil Production shows increases; Europe natural gas futures fall after recent rally. .. To download the full CCI tear sheets for US, UK & EU Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### June Credit Consensus Indicators (CCIs) – US, UK & EU Industrials Credit Benchmark have released the June Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Industrials return to net improvement. UK Industrials haven’t shown a positive credit outlook for seven consecutive months. EU Industrials net improvement trend slows. US Industrials: Net Improvement Returns US Industrial firms return to net improvement, after two months of negative credit outlook. US Industrials CCI score this month is 50.5, an improvement from last month’s CCI of 48.6. Latest US Industrial production increases 0.2% YoY; US Manufacturing PMI is 48.4, input costs fall for the first time since May 2020. UK Industrials: Net Deterioration Worsens UK Industrial firms haven’t shown a positive credit outlook for seven consecutive months. UK Industrials CCI score this month is 48.5, a decrease from last month’s CCI of 49.9. Latest UK Industrial production drops 2% YoY; UK Manufacturing PMI is 46.9, average input prices fall for the first time in three-and-a-half years. EU Industrials: Net Improvement Trend Slows EU Industrial firms maintain a positive credit outlook for twenty-one consecutive months. However, the trend is slowing. EU Industrials CCI score this month is 50.2, the same as last month. Latest Euro Area Industrial production drops by 1.4% YoY; Eurozone Manufacturing PMI is 44.8, signalling a further decline in the health of the bloc’s manufacturing sector. To download the full CCI tear sheets for US, UK & EU Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Monthly Credit Outlook: June 2023 Download PDF Global Corporates, Financials and Sovereigns All Net Downgrades Key Findings: Global Corporates vs. Global Financials vs. Global Sovereigns: All Net Downgrades, Modest Risk Rise Likely Soon Industry and Sector Turning Points: Funds, Real Estate and Electricity Turning Positive; EU and Oil & Gas Negative US Sector PD Comparisons: US Fixed Line Telecomms Is Largest Monthly Drop Credit Volatility: Various Percentiles Continue to Drop, Along With the Equity VIX Leveraged Loans: Global, US and UK Corporates Deteriorating, UK and Now Global Financials Improving Sovereign PD vs. Ratio of Financial to Corporate PD: Financial Sector Strength Relies on Government Credit US Regional Banks: Prolonged Deterioration Setting In? US Retail: US General Retailers Credit and Equity Is Down Introduction The world economy is still grappling with inflation and rising interest rates, partly driven by public sector pandemic debts. Private personal debt has also ballooned during the easy money era, fostering a large, unregulated shadow banking industry. While some corporates have emerged from the QE period with strong balance sheets, others have growing debts as consumer spending has dropped and existing supply chains have shifted or weakened. Mainstream banks expect to see delinquency rates rise, although these are likely to be concentrated in the consumer and SME sectors. The US debt ceiling is an arbitrary boundary, but the recent near-default is a symptom of the dilemma facing the global economy: how to attract savings to fund desperately needed investment in infrastructure, re-engineered supply chains and climate-friendly technology, while keeping the consumer-led economy functioning to provide a tax base. Current inflation is not just a reaction to the Ukraine war; it reflects the end of globalisation, debt and supply chain disruption due to Covid, and the increasing impact of climate change on food production, transport and lifestyles. “Higher for longer” interest rates may become a permanent fixture. But despite the pre-hike warnings of doom, many economies have shrugged off higher rates. It is clear that consumers have adjusted by rationing luxuries, house prices have stalled, SME defaults are rising, and corporate earnings have had some disappointments, but the predicted deep recession has not materialised. The IMF has just upgraded UK growth forecasts. By contrast, growth is lacklustre in France and especially Germany; but inflation there is also dropping; giving some hope that inflation can be tamed. Perhaps the real pain of mortgage resets and AI-driven layoffs has yet to bite, but there is surprising buoyancy in some sectors. From a credit perspective, some areas that have seen the largest deteriorations are now turning positive. This month’s outlook covers the regular topics of industry and sector trends and turning points. It also updates the US Regional Bank index and features reports on US Consumer subsectors as well as the relationship between Sovereign risk and the Financial / Corporate risk ratio. Global Corporates vs. Global Financials vs. Global Sovereigns All Net Downgrades, Modest Risk Rise Likely Soon The following charts show global trends for average Probability of Default (PDs) and their 2-year Credit Consensus Indicators (CCIs)1. Globally, Sovereign PDs return to deterioration. Corporates continue to deteriorate whilst Financials show an uptick. But downgrades slightly outnumber upgrades for all three, suggesting that modest PD increases could be on the horizon. Industry and Sector Turning Points Funds, Real Estate and Electricity Turning Positive; EU and Oil & Gas Negative The lists below shows detailed global industries and sectors that may be at turning points. These have either started to show negative balances after a run of positives, or vice versa. Positive Turning Point:Previous 3M Negative, Current 1M Improving1. Africa Utilities2. Canada Mutual Fund3. EU Investment Services4. Europe Conventional Electricity5. Europe Electricity6. Europe Real Estate Holding & Development7. Europe Real Estate Holding & Development8. Europe Specialty Chemicals9. Global Food Producers10. Global Private Equity Fund11. Global Real Estate Investment & Services12. Global Real Estate Services13. Global Software14. Ireland Technology15. Italy Mutual Fund16. Luxembourg Consumer Goods17. Luxembourg Corporates18. Mexico Consumer Goods19. North America Food Producers20. North America Food Products21. North America Heavy Construction22. North America Hedge Fund23. North America Mutual Fund24. North America Specialty Retailers25. South Africa Industrial Transportation26. South Africa Transportation Services27. UK Conventional Electricity28. UK Electricity29. UK Financials30. UK Large Utilities31. UK Pension Fund32. UK Real Estate Holding & Development33. UK Real Estate Investment & Services34. UK Utilities35. US Heavy Construction36. US Hedge Fund37. US Mutual Fund Negative Turning Point:Previous 3M Improving, Current 1M Negative1. Africa Consumer Services2. Africa General Retailers3. Africa Nonferrous Metals4. EU Gas, Water & Multi-utilities5. EU Large Industrials6. EU Large Utilities7. EU Media8. EU Multi-utilities9. EU Utilities10. Europe Beverages11. Europe Consumer Services12. Europe Distillers & Vintners13. Europe Distillers & Vintners14. Global Oil & Gas15. Middle East Corporates16. Netherlands Oil & Gas Producers17. North America Commercial Vehicles & Trucks18. North America Recreational Services19. South Africa Consumer Services20. UK Consumer Services21. UK Large Consumer Goods22. UK Large Consumer Services23. UK Specialty Retailers24. UK Transportation Services25. US Oil & Gas26. US Oil Equipment, Services & Distribution27. US Recreational Services28. Spain Utilities These trend shifts are spread across diverse sectors. Funds feature heavily in the positive turning point column (left), in particular Mutual and Hedge Funds across US, Canada and Globally. Global, Europe and UK Real Estate also appear in the positive turning point column. UK and Europe Electricity return to positive credit outlook. However, US and Global Oil & Gas appear in the negative turning point column (right). Industrial sectors – in the UK and EU – are also in the negative column. The following charts are based on the net balance between upgrades and downgrades which forms the Credit Consensus Indicator (CCI). The plotted indices are examples of some of the Industry and Sector Turning Points listed above. Positive Turning Point: Negative Turning Point: US Sector PD Comparisons US Fixed Line Telecomms Is Largest Monthly Drop With economies and markets giving mixed signals, there is a lot of uncertainty about 2023 default rates. The table below compares average consensus default probabilities for a range of US sectors. Insurance and Funds – apart from Hedge Funds – are very low risk. Travel & Leisure, Hedge Funds, Software, and Fixed Line Telecomms are highest in the 80 -120 Bps range. The mid-range includes Mining, Leisure Goods and Media. Large sector increases this month include (always volatile) Fixed Line Telecomms, Leisure Goods and Mining. Improvements include Travel & Leisure, Forestry & Paper and Beverages. In coming months, volatility metrics for these industries and sectors in each region will give a strong indication of future downgrades or default rates. Credit Volatility Various Percentiles Continue to Drop, Along With the Equity VIX The following chart shows percentiles for credit index 6-month rolling volatility. For approximately 1,200 indices, rolling volatility shows the speed and scale of PD changes; these can give advance warning of changes in transition rates. The percentiles plotted here are the most sensitive to turning points in PD volatility. Source: Credit Benchmark, CBOE, St Louise Fed. Across the CB index universe, the majority of percentiles continue to drop, along with the Equity VIX, but two have ticked up. Subdued volatility is consistent with the surprising resilience of many economies despite higher interest rates. The latest concern is the global shadow banking sector; “buy now pay later” has supported consumer spending but could mean that credit issues will emerge in consumer-facing sectors. The next chart is based on cross sectional volatility (“dispersion”) i.e. the average range of estimates for single name estimates: This again shows a trend decline2 since the start of the pandemic, consistent with the drop in rolling volatility plotted above. Leveraged Loans Global, US and UK Corporates Deteriorating, UK and Now Global Financials Improving Leveraged Loans (LL) have growing issuance challenges as CLO managers – the main buyers of the $1.4trn asset class – face rising funding costs. This does not immediately affect LL credit risk but it could shut out some new (and usually more creditworthy) borrowers. The following charts are based on a universe of 4,000+ Leveraged Loan issuers. The credit trends of these Leverage Loan issuers are being compared with their respective Credit Benchmark industry index. Global Financials Global Corporates United Kingdom Financials United Kingdom Corporates United States Financials United States Corporates The main UK LL indices continue to buck the Global trend, with the Financial and Corporate indices outperforming the equivalent main UK indices; the UK Financials LL index is actually slightly up. US Financials have been the worst performer of this group of 6, both US Financials and Corporates continue to decline. Global Corporates and especially Global Financials continue to underperform the main (non-LL) index, but Global Financials show an untick in the latest month. Various industry and sector Leveraged Loan indices are available on request. Sovereign PD vs. Ratio of Financial to Corporate PD Financial Sector Strength Relies on Government Credit The IMF report that post-Covid growth has helped shrink public debt to GDP ratios in major economies (except China), but forecast a trend increase from 2024. Actual debt levels continue to rise; stubborn inflation due to supply chain damage, labour shortages and the Ukraine war have pushed up long term debt funding costs despite sustained global short rate hikes. The US Debt Ceiling drama is partly a symptom of a growing debt overhang, and Q1 US Bank failures are a reminder that a robust banking system needs a well-financed Government. Growing concerns about shadow banking means that corporates are not immune to credit problems. A recent paper highlights links between Sovereign default risk and the global financial system. The authors state: “…a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk…spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds.” Various other studies have looked at the two-way links between Public and Private default risks. As a credible lender of last resort, Sovereign ratings need to be stronger than their domestic financial sector. (They typically are, with a few exceptions like Turkey.) If the financial sector of a country runs into problems, then domestic corporate borrowers are likely to face higher funding costs from international lenders. Conversely, a struggling corporate sector undermines the fiscal base and ultimately the Sovereign rating. The following chart plots the current relationship between consensus Sovereign credit risk and the Financial / Corporate credit risk ratio, for a large cross section of countries. The ratio of Financial to Corporate PDs is used to filter out small samples and to adjust for the global spread effect mentioned earlier. Countries in the upper left quadrant either have a Financial PD below trend, a Corporate PD above trend, or a Sovereign PD above trend. The Sovereign PD for Egypt, for example, may be too high, the Financial PD too low, or the Corporate rating too high. Countries in the bottom right quadrant are in the opposite group – so for example the Financial PD for Australia may be too high given the Sovereign and Corporate risk ratings. For Australia the x-axis value is below 1. This means that along with other strong global economies like Germany, USA and UK, Australia has a Financial PD that is less than the Corporate PD. Comparison with similar economies may shed more light on these anomalies, but the core messages are clear: (1) the credit rating of a country’s financial system is heavily influenced by the credit rating of the Sovereign, and (2) in countries with the strongest credit, the Financial sector is stronger than the Corporate sector. US Regional Banks Prolonged Deterioration Setting In? There have been fresh concerns about the US Regional Banking industry, including rumours of short selling bans. The Credit Benchmark US Regional Banks index (105 constituents) below shows a major deterioration in the past two months with the latest month showing only downgrades. And coming after last month’s large net negative, this may be the beginning of a sustained downtrend. More generally, the US Financial sector has been overall stable in recent months. The charts below show 1Y credit trends and current credit distributions for US Financials, Financial Services and Banks indices. Credit Trend Credit Distribution US Financial Services have kept pace with the broader US Financials index, but US Banks broke away from the pack in Mar-23 as regional bank worries spread across the broader sector. However, ~90% of US Banks are still in IG credit categories. US Retail US General Retailers Credit and Equity Is Down With growing concerns about shadow banking and consumer credit, it is useful to compare recent equity and credit trends for consumer-facing sectors. Within the S&P500 indices, Casinos and Gaming are the best performers, up 22% YTD. Internet & Direct Marketing is up 17% while Consumer Discretionary Retail is close behind, up 16%. Apparel, General Merchandise and Speciality Stores are all down by a few percent. However, US Apparel Retailers show the largest credit improvement in the retail sector, followed by Restaurants and Bars. General and Specialized Consumer Services both also show credit improvement. In contrast with a stellar equity performance, US Gambling shows a modest credit deterioration of about 5%. Sectors with credit in line with their equity performance are General, Speciality and Broadline retailers – all negative, with the latter down nearly 20%. The following charts show credit trends for various US Retail sectors. Conclusion Consensus Credit volatility has been subdued in recent months, and credit trends shown here suggest that major economies have avoided the worst-case scenarios for H1 2023, corroborated by stronger economic numbers from the UK and US. However, the US debt deal will curb spending and UK interest rate hikes have not yet fully hit most mortgage holders, so H2 may be choppier, while the EU growth is still adjusting to the Ukraine war and ECB hikes. And there are clear signs of deterioration in specific US sectors, such as Oil & Gas (before the latest OPEC move), Regional Banks, Retail and Leveraged Loans (especially Financials). Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 80,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ 1The CCI tracks the monthly net level of credit upgrades / downgrades for a given sector, based on the combined risk views of expert credit analysts at over 40 global banks. A CCI score of 50 indicates an equal number of upgrades and downgrades; over 50 is improvement; under 50 is deterioration. 2The actual plotted range is small (about 4% of the average value). Changes in dispersion are more marked at the single name level – for example, when a legal entity is downgraded, the range of PD estimates usually increases. ### Sovereign, Financial and Corporate Default Risks Download PDF The IMF report that post-Covid growth has helped shrink public debt to GDP ratios in major economies (except China), but forecast a trend increase from 2024. Actual debt levels continue to rise; stubborn inflation due to supply chain damage, labour shortages and the Ukraine war have pushed up long term debt funding costs despite sustained global short rate hikes. The US Debt Ceiling drama is partly a symptom of a growing debt overhang, and Q1 US Bank failures are a reminder that a robust banking system needs a well-financed Government. Growing concerns about shadow banking means that corporates are not immune to credit problems. A recent paper highlights links between Sovereign default risk and the global financial system. The authors state: “…a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk…spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds.” Various other studies have looked at the two-way links between Public and Private default risks. As a credible lender of last resort, Sovereign ratings need to be stronger than their domestic financial sector. (They typically are, with a few exceptions like Turkey.) If the financial sector of a country runs into problems, then domestic corporate borrowers are likely to face higher funding costs from international lenders. Conversely, a struggling corporate sector undermines the fiscal base and ultimately the Sovereign rating. The chart below plots the current relationship between consensus Sovereign credit risk and the Financial / Corporate credit risk ratio, for a large cross section of countries. The ratio of Financial to Corporate PDs is used to filter out small samples and to adjust for the global spread effect mentioned earlier. Countries in the upper left quadrant either have a Financial PD below trend, a Corporate PD above trend, or a Sovereign PD above trend. The Sovereign PD for Egypt, for example, may be too high, the Financial PD too low, or the Corporate rating too high. Countries in the bottom right quadrant are in the opposite group – so for example the Financial PD for Australia may be too high given the Sovereign and Corporate risk ratings. For Australia the x-axis value is below 1. This means that along with other strong global economies like Germany, USA and UK, Australia has a Financial PD that is less than the Corporate PD. Comparison with similar economies may shed more light on these anomalies, but the core messages are clear: (1) the credit rating of a country’s financial system is heavily influenced by the credit rating of the Sovereign, and (2) in countries with the strongest credit, the Financial sector is stronger than the Corporate sector. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### May Credit Consensus Indicators (CCIs) – US, UK & EU Consumer Services Credit Benchmark have released the May Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Consumer Services based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Services. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Services consists of sectors Media, Retail, and Travel & Leisure. Both UK and EU Consumer Services show a positive credit outlook this month; US Consumer Services maintain a negative credit outlook for four consecutive months. US Consumer Services: Net Deterioration Trend Continues US Consumer Services firms maintain a negative credit outlook for four consecutive months. US Consumer Services CCI score this month is 48.0, a decrease from last month’s CCI of 49.3. Latest US Consumer Confidence Indicator shows a month-over-month decrease. UK Consumer Services: Net Improvement Trend Forms UK Consumer Services firms maintain a positive credit outlook for three consecutive months. UK Consumer Services CCI score this month is 50.9, a slight deterioration from last month’s CCI of 51.8. Latest UK Consumer Confidence Indicator rises to its highest level since February 2022. EU Consumer Services: Net Improvement Continues EU Consumer Services firms continue to show a positive credit outlook. EU Consumer Services CCI score this month is 56.8, a modest improvement from last month’s CCI of 54.0. Latest EU Consumer Confidence Indicator shows a month-over-month increase. To download the full CCI tear sheets for US, UK & EU Consumer Services, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### AI: Disruption Now, Efficiency Later Download PDF Goldman Sachs forecast an AI benefit of 7% pa growth in Global GDP – and with powerful innovations appearing almost daily, this seems possible. But The Economist quotes Robert Solow who in 1987 said the computer age is …“everywhere except for the productivity statistics”. They also suggest that equity markets are unconvinced – a basket of “Implementing or Pursuing AI technology” firms has underperformed the MSCI World index by more than 20% in the past year. In credit terms, the Credit Benchmark universe of around 70 AI-focused or AI-driven companies is keeping pace with Global Corporates, while Software and Hardware have slipped behind, with Software showing a steep decline in Q1 2023 months. Latest data show across the board technology credit improvements, led by AI companies. The Economist AI basket underperformance suggests immediate earnings growth will be elusive, but credit data suggests that AI firms have stronger prospective balance sheets than tech companies generally. Generative AI is profoundly disruptive – huge opportunities for some, existential threats for other, and Big Tech sees it as a winner-takes-all arms race. Some roles, like teaching, copywriting, customer support and even song writing are at immediate risk; but scope for self-replicating malicious software, DIY legal documents and new forms of spam could bury some of the compensating benefits. AI may both free up and absorb time – the latest GPT release includes plagiarism detection, an AI solution to a problem that AI created. Large-language model AI is only part of the picture; forms of AI for data analysis has been in use for years, but as technology develops it is likely that combined language and data models will provide the same functions as doctors, engineers, and scientists. Markets may be sceptical, but consensus credit trends support the idea that if AI frees up more resource in some fundamental areas, then Goldman’s projections may be achievable. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### May Credit Consensus Indicators (CCIs) – US, UK & EU Consumer Goods Credit Benchmark have released the May Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Consumer Goods based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Goods. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Goods consists of sectors Automobiles & Parts, Food & Beverage, and Personal & Household Goods. US Consumer Goods register an eighth consecutive instance of a negative CCI this month. UK Consumer Goods net improvement continues. EU Consumer Goods show recent instability in their collective credit balance. US Consumer Goods: Net Deterioration Trend Continues US Consumer Goods firms maintain a negative credit balance for eight consecutive months. US Consumer Goods CCI score this month is 48.0, a slight improvement from last month’s CCI of 47.6. Latest US retail sales rebound from two consecutive months of declines, but well below market forecasts. UK Consumer Goods: Net Improvement Continues UK Consumer Goods firms continue to show a positive credit balance. UK Consumer Goods CCI score this month is 51.2, an improvement from last month’s CCI of 50.1. Latest UK retail sales show a decrease from a month earlier. EU Consumer Goods: Net Deterioration Returns EU Consumer Goods firms show recent instability in their collective credit balance. EU Consumer Goods CCI score this month is 49.2, a decrease from last month’s CCI of 52.3 and a return to net deterioration. Latest Euro Area retail sales continue to show decline. To download the full CCI tear sheets for US, UK & EU Consumer Goods, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### May Credit Consensus Indicators (CCIs) – US, UK & EU Oil & Gas Credit Benchmark have released the May Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Oil & Gas have maintained positive credit balance for eight consecutive months. UK Oil & Gas return to positive credit balance this month. EU Oil & Gas have experienced recent instability in their collective credit balance. US Oil & Gas: Net Improvement Trend Continues US Oil & Gas firms maintain a positive credit balance for eight consecutive months. US Oil & Gas CCI score this month is 50.2, a decrease from last month’s CCI of 53.5. Latest US Crude Oil Production shows increases. US natural gas futures are set for a weekly gain due to a decrease in output and projections of higher demand over the next two weeks. UK Oil & Gas: Net Improvement Returns UK Oil & Gas firms return to positive credit balance. UK Oil & Gas CCI score this month is 51.0, a significant improvement from last month’s CCI of 44.2. Latest UK Crude Oil Production shows decreases. UK natural gas futures down 90% from last year’s peak. EU Oil & Gas: Net Deterioration Short-lived EU Oil & Gas firms show recent instability in their collective credit balance. EU Oil & Gas CCI score this month is 54.8, a significant improvement from last month’s CCI of 48.9. Latest Europe Crude Oil Production shows decreases. Europe natural gas futures continue their decline. .. To download the full CCI tear sheets for US, UK & EU Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### May 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-April, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Financials credit quality showed a bias towards net credit deterioration this month, with a negative ratio of 1.4 deteriorations to each improvement. Corporates showed a neutral ratio of 1:1 improvements to deteriorations. Amongst the industries, the top performer was once again Oil & Gas, with a positive ratio of 1.8 improvements to each deterioration. Utilities and Consumer Services were the only other industries that also showed a bias towards credit improvement, with improving to deteriorating ratios of 1.6 and 1.1 respectively. Technology stands out with a negative ratio of 2 deteriorations to each improvement. Oil & Gas credit strength was also reflected at the sector level, with US and UK firms both showing high positive ratios. Conversely, Canada Oil & Gas stands out with a negative ratio of 1.4 deteriorations to each improvement. Travel & Leisure companies continue to perform well, with 2.3 improvements to every deterioration. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### May 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been a negative month for the credit quality of Global Financial Counterparts, with very few exceptions. Amongst the banks, APAC Banks came in at neutral and all others showed a bias towards credit deterioration. Globally Systematically Important Banks (GSIBs) had the weakest showing, with an improving to deteriorating ratio of 1:4. North America Banks followed with an improving to deteriorating ratio of 1:2.3. The Intermediaries also showed majority instances of deterioration this month. Central Clearing Counterparts (CCP) and Prime Brokers came in at neutral and all others showed a bias towards credit deterioration. Custodians and Sub Custodians were negative this month, with a negative ratio of 1:2.1. Amongst the Buy Side, Asset Managers showed a bias towards credit deterioration, with improving to deteriorating ratio of 1:4.4. Mutual Funds followed with an improving to deteriorating ratio of 1:3.7. Pension Funds were the lone net positive performer this month, at 1.3:1 improvements to deteriorations. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### May Credit Consensus Indicators (CCIs) – US, UK & EU Industrials Credit Benchmark have released the May Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Industrials continue to show a negative credit balance. UK Industrials return to net deterioration. EU Industrials maintain a positive credit balance for twenty consecutive months. US Industrials: Net Deterioration Continues US Industrial firms continue to show a negative credit balance. US Industrials CCI score this month is 48.5, a slight improvement from last month’s CCI of 48.0. Latest US Industrial production increases 0.5% YoY, the least in two years; US Manufacturing PMI is 50.2. Funding for 27 small shipyards in 20 US states is announced to help increase productivity and create jobs. UK Industrials: Net Deterioration Returns UK Industrial firms return to net deterioration, after ended their trend of net deterioration last month. UK Industrials CCI score this month is 49.9, a slight decrease from last month’s neutral CCI. Latest UK Industrial production fell 3.1% YoY; UK Manufacturing PMI downturn continues for nine consecutive months. Network Rail has insufficient funds to maintain the UK’s railway infrastructure. EU Industrials: Net Improvement Trend Slows EU Industrial firms maintain a positive credit balance for twenty consecutive months. However, the trend is slowing. EU Industrials CCI score this month is 50.4, a decrease from last month’s CCI of 51.1. Latest Euro Area Industrial production rose by 2.0% YoY; Eurozone Manufacturing PMI is 45.8, worst performance since May-20. EU pledges €500 Million to boost ammunition output in Europe. To download the full CCI tear sheets for US, UK & EU Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Monthly Credit Outlook: May 2023 Download PDF Real estate, leveraged loans continue to decline Key Findings: Introduction: Global REITs continue to decline Global Corporates vs. Global Financials vs. Global Sovereigns: Sovereign PDs have started to recover Industry and Sector Turning Points: UK, Canada now positive; EU, Asia turn negative Credit Volatility: Still subdued but recent decline may be bottoming out US Sector PD Comparisons: US Leisure Goods is largest monthly drop Leveraged Loans: Underperforming broader credit indices and further decline likely; UK bucks the trend Technology & AI: Hardware outperforms Software, AI running out of steam? Credit Consensus Ratings, CDS and CVAs: Filling CVA data gaps as CDS trading volumes drop Transition Matrices: COVID-recovery upgrades dominate High Yield; H2 2023 likely to see a swing to downgrades Introduction Global REITs continue to decline Q1 hopes of rapid rate cuts have faded; “higher for longer” seems necessary to avoid the long-term damage caused by entrenched inflation. Price data is giving mixed signals: oil prices +11% last month, but global food prices down about 2% in March. There are many local variations; recent UK inflation numbers reflected higher imported food prices but lower end-user energy costs; Eurozone inflation also looks stubbornly high. So far this year, at least 45 countries have hiked, but real rates are still mainly negative (China, Brazil and Mexico are notable exceptions with rates above current inflation; Brazil is the most hawkish of the trio). China is on track to return to normal growth levels this year. The Economist reports on the robust post-COVID US economy, stronger than most G20 nations. Provided the US avoids a debt-ceiling stand-off at the end of this month, the main risk to US growth is a new regional bank crisis. While SVB and First Republic may not be the last of the tech-focused regional banks to fail, they were probably the largest. Commercial real estate is a bigger issue for banks across the developed economies. REIT credit consensus indices show steady declines since the end of Q3 2022. Geopolitics remain tense; the prospect of a new Belarus front in the Ukraine war, and rumoured North Sea sabotage overshadow European business confidence, despite China’s attempts to act as a mediator. This month’s Credit Outlook covers broad credit indices, sector turning points, credit volatility and default rate projections, as well as trends in the expanding Credit Benchmark Leveraged Loan universe. In addition, there are sections on interest rate cycles and Sovereign credit risk, credit trends in the AI sector, CVA calibration in the face of declining CDS liquidity, and the use of consensus transition matrices to estimate PD term structures. Global Corporates vs. Global Financials vs. Global Sovereigns Sovereign PDs have started to recover The following charts show global trends for average Probability of Default (PDs) and their 2-year Credit Consensus Indicators (CCIs)1. Globally, Sovereign PDs have started to recover after a prolonged deterioration vs. Corporates and Financials, and the CCI has turned positive once again. Corporates and Financials credit indicators are biased towards downgrades. Industry and Sector Turning Points UK, Canada now positive; EU, Asia turn negative The lists below shows detailed global industries and sectors that may be at turning points. These have either started to show negative balances after a run of positives, or vice versa. Positive Turning Point:Previous 3M Negative, Current 1M Improving1. Africa Industrial Transportation2. Asia Heavy Construction3. Asia Pension Fund4. Canada Construction & Materials5. Canada Farming, Fishing & Plantations6. Canada Industrials7. Canada Transportation Services8. Europe Auto Parts9. Europe Furnishings10. Europe Health Care Providers11. Europe Nondurable Household Products12. Europe Railroads13. Europe Real Estate Services14. Global Commodity Chemicals15. Global Furnishings16. Global Gas Distribution17. Global Railroads18. Latin America Utilities19. North America Building Materials & Fixtures20. North America Construction & Materials21. Switzerland Consumer Goods22. UK Auto Parts23. UK Forestry & Paper24. UK Furnishings25. UK Health Care Equipment & Services26. UK Health Care Providers27. UK Industrial Engineering28. UK Industrial Machinery29. UK Large Industrials30. US Building Materials & Fixtures31. US Farming, Fishing & Plantations32. US Restaurants & Bars Negative Turning Point:Previous 3M Improving, Current 1M Negative1. Africa Specialty Retailers2. Asia Basic Materials3. Asia Industrial Engineering4. Asia Technology5. Asia Technology Hardware & Equipment6. EU Asset Managers7. EU Industrial Machinery8. EU Large Technology9. Global Coal10. Global Pharmaceuticals11. Ireland Industrials12. Mexico Corporates13. Mexico Industrials14. North America Oil Equipment, Services & Distribution15. North America Pharmaceuticals16. North America Pipelines17. South Africa General Retailers18. South Africa Specialty Retailers19. US Pipelines These trend shifts are spread across diverse sectors. After early deterioration, the UK features heavily in the positive turning point list (in green), in particular Industrials industries and sectors. The UK upturn is also driving the broader Europe indices higher. Canada is also turning positive across multiple industries. However, EU Industrials and Technology now appear in the negative turning point list (in red), along with some Asian indices. Pharmaceuticals – in North America and Global – are also in the negative list. The following charts are based on the net balance between upgrades and downgrades which forms the Credit Consensus Indicator (CCI). The plotted indices are examples of some of the Industry and Sector Turning Points listed above. Positive Turning Point: Negative Turning Point: Credit Volatility Still subdued but recent decline may be bottoming out The following chart shows percentiles for credit index 6-month rolling volatility. For approximately 1,200 indices, rolling volatility shows the speed and scale of PD changes; these can give advance warning of changes in transition rates. The percentiles plotted here are the most sensitive to turning points in PD volatility. Source: Credit Benchmark, CBOE, St Louise Fed. Based on these percentiles, credit volatility is back to Q2 2022 levels after climbing steadily in the second half of last year. The various percentiles continue to drop and the Equity VIX is also subdued. US Sector PD Comparisons US Leisure Goods is largest monthly drop With economies and markets giving mixed signals, there is a lot of uncertainty about 2023 default rates. The following charts compares average consensus default probabilities for a range of US sectors. Financials and Funds – apart from Hedge Funds – are very low risk. Travel & Leisure, Software, and Fixed Line Telecomms are highest in the 80 -120 Bps range. The mid range includes Mining, Leisure Goods, Media, Construction and Support Services. Large sector increases this month include Personal, Household and Leisure Goods, Home Construction, Electronic & Electrical Equipment, Health Care Equipment & Services, Food Producers, Fixed Line Telecomms, Retailers, Media, Industrial Engineering and Software & Computer Services. Improvements include Automobiles & Parts, Travel & Leisure, Pharma, Mining and Real Estate Investment & Services. These trends are broadly consistent with retrenching consumer and the impact of higher interest rates on the housing and construction sectors. The improvement for autos is a surprise, but auto supply shortages may mean that pent up demand is only now being met. In coming months, volatility metrics for these industries and sectors in each region will give a strong indication of future downgrades or default rates. Leveraged Loans Underperforming broader credit indices and further decline likely; UK bucks the trend After years of reliable growth, the leveraged loan market faces rising rate headwinds, and recent legal issues may increase the sector risk premium. The following charts are based on a universe of 4,000+ Leveraged Loan issuers. The credit trends of these Leverage Loan issuers are being compared with their respective Credit Benchmark index. Global Financials Global Corporates United Kingdom Financials United Kingdom Corporates United States Financials United States Corporates In Q2 and Q3 of 2022, many Leveraged Loan credit indices performed better than their respective Credit Benchmark index. Recent data is more mixed; Leveraged Loan credit indices are becoming more volatile and some – e.g. US Financials – are now underperforming their broader peer group. Global Corporates have also been underperforming the main index, since late 2022, while Global Financials began to decline in Q3 2022. However, UK Leverage Loan Financials and Corporates indices show significant improvement in the most recent month, while the broader indices continue to decline. Technology & AI Hardware outperforms Software, AI running out of steam? The charts below show the 2Y credit trend and current distribution of Global Technology Hardware & Equipment and Global Software & Computer Services. 2Y Credit Trend Current Credit Distribution The distribution chart on the right shows that over 65% of the Software entities are already High Yield, while the majority (58%) of Hardware companies are Investment Grade, mainly bbb. Hardware & Equipment and Software & Computer Services credit trends both show further decline this month. After a difficult 12 months for the technology sector, the AI “arms race” now dominates the outlook. The following chart shows upgrade / downgrade and PD trends for a selected list of 104 mainly US-based AI companies. After a long period of significant credit improvement (25% between March 2021 and March 2022), the AI universe has been stable for the past year. Credit Consensus Ratings, CDS and CVAs Filling CVA data gaps as CDS trading volumes drop Credit Consensus data complements CDS data in a number of ways: Credit Consensus Ratings can be used for counterparts with no corresponding traded CDS. Large sample approaches shown here reduce the impact of single name CDS price volatility. Bank estimates are unaffected by illiquidity and one-off trades. Credit Value Adjustments (CVAs) aim to compensate for the risk of a swap counterpart defaulting before transaction maturity. CVAs are calibrated to risk-neutral Probability of Default (PD) estimates, and these are usually derived from Credit Default Swap (CDS) prices for various maturities. However, CDS market coverage is narrowing, and individual CDS are often illiquid, volatile and subject to a range of distortions. For example, the March 2023 spike in Deutsche Bank CDS prices was mainly driven by one small trade. Credit Consensus risk estimates (used in bank risk capital calculations) are real-world one-year expected default frequencies, updated every two weeks. The following chart shows how real-world and risk-neutral estimates are linked. The fitted line is a benchmark for the daily PD / “synthetic” CDS price relationship. As risk premiums shift, the fitted line will rotate clockwise (lower credit risk premium) or anti-clockwise (higher premium). Source: Bloomberg, Credit Benchmark This plots February real world 1-year PDs (credit category midpoints) and late February 2023 5-year Senior CDS prices (log scales), for around 500 Corporates and Financials.PDs and CDS prices are averaged by credit category. Min and Max markers show the range of individual CDS prices in each category2, with the issue count in grey. With an assumed recovery rate, market implied PDs can be calculated for each point on this graph. The difference between market implied and real world PD is the risk premium in PD basis points for each credit category. Other maturities can be plotted if CDS price data is available. From initial dataset covering issuer PDs and their associated traded CDS prices, it is possible for risk managers to estimate “Synthetic” CDS prices – and CVAs – for counterparts with no agency rating, no CDS and even no bonds. 1-year Transition Matrices COVID-recovery upgrades dominate High Yield; H2 2023 likely to see a swing to downgrades The Credit Consensus database now offers a large set of credit transition matrices covering various industries, geographies and timeframes3. Combined with credit volatility metrics, transition matrices can be used to project future upgrade / downgrade and default rates. The tables below show latest 1-year transition matrices for Global Corporates and Financials. Transition Matrices: Global Corporates and Financials Global Corporates Global Financials Both categories of borrowers still show a very skewed bias to upgrades in the past 12 months; recovery from COVID outweighed the impact of the Ukraine invasion and rising interest rates. However, the majority of these upgrades are within the High Yield categories. Corporates show higher downgrade rates than Financials. If credit volatility increases and high rates persist, the “Downgrade Triangle” (the upper right) is likely to dominate. Transition matrices can also be used to estimate PD term structures as a basis for CVAs. According to BIS guidelines, this approach needs the addition of a credit risk premium (e.g. estimated using the data in the previous CDS chart) to give market implied term structures for a range of countries and sectors. Credit Benchmark can supply Transition Matrices for 350+ issuer industries and geographies, as well as for bespoke portfolios. To request a bespoke Transition Matrix on your portfolio, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ 1The CCI tracks the monthly net level of credit upgrades / downgrades for a given sector, based on the combined risk views of expert credit analysts at over 40 global banks. A CCI score of 50 indicates an equal number of upgrades and downgrades; over 50 is improvement; under 50 is deterioration. 2Individual CDS within each category show wide price variation, reflecting differences in assumed recovery rates and liquidity in the relevant reference bond. 3Credit Benchmark can supply Transition matrices for 350+ issuer industries and geographies, as well as for bespoke portfolios. ### April Credit Consensus Indicators (CCIs) – US, UK & EU Consumer Goods Credit Benchmark have released the April Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Consumer Goods based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Goods. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Goods consists of sectors Automobiles & Parts, Food & Beverage, and Personal & Household Goods. UK Consumer Goods have experienced recent instability in their collective credit balance. US Consumer Goods register a seventh consecutive instance of a negative CCI this month. EU Consumer Goods return to net improvement. US Consumer Goods: Net Deterioration Trend Continues US Consumer Goods firms register a seventh consecutive instance of a negative CCI this month. US Consumer Goods CCI score this month is 47.6, a slight deterioration from last month’s CCI of 48.9. The US has increased its annual imports of “cellphones and other household goods” from China approximately 27.7%. UK Consumer Goods: Ups and Downs UK Consumer Goods firms have experienced recent instability in their collective credit balance. UK Consumer Goods CCI score this month is 50.2, an increase from last month’s CCI of 49 and a return to net improvement. UK inflation fell by less than expected in March, as households came under pressure from food and drink prices soaring. EU Consumer Goods: Net Improvement Returns EU Consumer Goods firms return to net improvement, after one month of net deterioration. EU Consumer Goods CCI score this month is 51.9, a significant increase from last month’s CCI of 47.7 and a return to net improvement. EU passenger car sales up 28.8% to over 1 million units in March. To download the full CCI tear sheets for US, UK & EU Consumer Goods, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Consensus Credit Ratings, CDS and CVAs Download PDF Consensus credit estimates combined with market CDS data can complement and extend existing CVA calibration. Credit Value Adjustments (CVAs) aim to compensate for the risk of a swap counterpart defaulting before transaction maturity. CVAs are calibrated to risk-neutral Probability of Default (PD) estimates, and these are usually derived from Credit Default Swap (CDS) prices for various maturities. However, CDS market coverage is narrowing, and individual CDS are often illiquid, volatile and subject to a range of distortions. For example, the March 2023 spike in Deutsche Bank CDS prices was mainly driven by one small trade. Consensus credit risk estimates (used in bank risk capital calculations) are real-world one-year expected default frequencies, updated every two weeks. The chart below shows how real-world and risk-neutral estimates are linked. The fitted line is a benchmark for the daily PD / “synthetic” CDS price relationship. As risk premiums shift, the fitted line will rotate clockwise (lower credit risk premium) or anti-clockwise (higher premium). Sources: Bloomberg, Credit Benchmark This plots February 2023 real world 1-year PDs (credit category midpoints) and late February 2023 5-year Senior CDS prices (log scales), for around 500 Corporates and Financials. PDs and CDS prices are averaged by credit category. Min and Max markers show the range of individual CDS prices in each category1, with the issue count in grey. With a fixed assumption for recovery rate, market implied PDs can be calculated for each point on this graph. The difference between market implied and real world PD is the risk premium in PD basis points for each credit category. Other maturities can be plotted if CDS price data is available. From initial dataset covering issuer PDs and their associated traded CDS prices, it is possible for risk managers to estimate “Synthetic” CDS prices – and CVAs – for counterparts with no agency rating, no CDS and even no bonds. Extension to term structures: the previous chart links the 1-year PD directly with the 5-year CDS price; this can be done for other maturities, but CDS pricing data may be sparse. As an alternative, Term Structures can be generated from a Transition Matrix (TM). Transition Matrices derived from consensus data can be used to extrapolate one-year default risk estimates to a full term structure of longer maturities. Adding a credit risk premium (e.g. estimated using the data in the previous chart) converts this to a market implied term structure. Credit Benchmark can supply Transition matrices for 350+ issuer industries and geographies, as well as for bespoke portfolios. Consensus credit data complements CDS data in a number of ways: Consensus credit ratings can be used for counterparts with no corresponding traded CDS. Large sample approaches shown here reduce the impact of single name CDS price volatility. Bank estimates are unaffected by illiquidity and one-off trades. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ 1 Individual CDS within each category show wide price variation, reflecting differences in assumed recovery rates and liquidity in the relevant reference bond. ### April Credit Consensus Indicators (CCIs) – US, UK & EU Consumer Services Credit Benchmark have released the April Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Consumer Services based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Services. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Services consists of sectors Media, Retail, and Travel & Leisure. UK Consumer Services registered another positive CCI this month. US Consumer Services net deterioration continues. EU Consumer Services have experienced recent instability in their collective credit balance. US Consumer Services: Net Deterioration Continues The deteriorating trend for US Consumer Services firms continues, with a third month of negative credit balance. US Consumer Services CCI score this month is 49.3, an improvement from last month’s CCI of 47.4. No-frills US retailers step up investment to attract middle-income shoppers in search of cheaper groceries. UK Consumer Services: Net Improvement Continues UK Consumer Services firms have registered another positive CCI this month. UK Consumer Services CCI score this month is 51.8, an increase from last month’s CCI of 50.6. The UK aviation sector expects growth in demand for flying to slow in the coming decades because of higher ticket prices, as the industry turns to expensive new technologies to try to cut its carbon emissions. EU Consumer Services: Ups and Downs EU Consumer Services firms have experienced recent instability in their collective credit balance. EU Consumer Services CCI score this month is 54.1, a modest improvement from last month’s CCI of 48.4. Food prices are soaring, particularly in Europe, as producers and retailers try to maintain or increase their margins. To download the full CCI tear sheets for US, UK & EU Consumer Services, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### April 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been a positive month for the credit quality of Global Financial counterparts, with a handful of exceptions. Amongst the banks, Central Banks had the strongest showing, with an improving to deteriorating ratio of 2:1. North America Banks closely followed with an improving to deteriorating ratio of 1.9:1. Globally Systematically Important Banks (GSIBs), Global and EMEA Banks all also showed a bias towards credit improvement. On the other hand, Latin America Banks showed a strong bias towards credit deterioration, with an improving to deteriorating ratio of 1:6. APAC Banks came in at neutral. The Intermediaries showed more instances of improvement than deterioration this month. Broker Dealers came out on top with an improving to deteriorating ratio of 1.7:1, closely followed by CCP Members and Prime Brokers. Custodians and Sub Custodians were the only group with net deterioration, with a ratio of 2 deteriorations to every improvement. Amongst the Buy Side, Asset Managers and Insurance Companies came in at neutral this month. Mutual Funds and Pension Funds showed a bias towards credit deterioration, both with improving to deteriorating ratios of 1:1.2. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Quarterly Credit Outlook Q1 2023 Table of Contents Introduction 1. Global Roundup 2. Industry and Sector Turning Points 3. Industries and Sectors to Watch 4. US Regional Banking 5. Specialized Finance 6. CB Leveraged Loan Universe 7. Credit Index Volatility 8. Transition Matrices Introduction Post-COVID recovery over; latest data suggests gradual but broad decline. Global REITs, Mutual Funds and Hedge Funds: 4 negative months in a row. US Banks, Insurance, Asset Managers: String of recent negatives paused. US Technology still suffering, Telecomms have returned to net deterioration. US regional banking: Broad deterioration - expect consolidations, more failures. Global non-bank finance: Specialized Lending turns down. CB Leveraged Loan Universe: Downgrades continue but pace slows. Credit Index Volatility: Tracking Equity VIX Lower as Soft-Landing Hopes Return. Global Transitions: Upgrades bias of past 6 months likely to disappear. The credit optimism of early 2023 has faded as higher interest rates bite. Hopes for a soft landing centred on slowing inflation and an end to rate hikes, but the growing impact of current interest rate levels has blindsided markets: depositor fright at Treasury bond losses pushed 40-year-old Silicon Valley Bank into insolvency in 40 hours. Mark-to-market interest-sensitive losses for the global banking system may be in the low $trillions[1]. Post-2008 regulations established a safer group of global banking giants, but created a fertile environment for an enormous shadow banking industry which now includes insurance companies, various funds (hedge, mutual, pension, private equity, venture capital, sovereign wealth, ETFs, CLOs) and speciality lenders; plus the entire crypto industry which, at its peak, issued nearly 23,000 mini-currencies, some with their own exchanges and quasi-banks. As interest payments have risen and resets loom, the shadow banking ecosystem has buckled; leaving some participants stuck with illiquid and possibly valueless assets. A flight to quality by depositors has hit smaller traditional banks hard, and more industry consolidation seems inevitable. The financial sector is globally connected so problems can be highly contagious. Compared with 2008, Governments are now more prepared to follow Kindleberger’s advice[2] – ensuring system liquidity to allow an orderly de-leveraging. But Credit Suisse shows that even the largest, well-regulated banks are not immune – traditional corporate borrowers face higher rates, less credit availability, tougher loan to value terms and difficult rollovers. If business defaults keep rising, more bank capital is needed to absorb the shocks. Swap markets increasingly expect an end to Fed hikes and even a rate cut this year. But the Fed may be trying to avoid that through the Bank Term Funding Programme (“BTFP”) that underwrites redemption values for high quality bonds held by banks for a year. Other Central Banks may adopt a similar approach if necessary. The ECB claim that banking system stability is possible without abandoning the fight against inflation – code for further rate hikes even if their banks spend some time on state life support. The Economist summarizes the policy dilemma: “Alongside this generosity [i.e. the BTFP] lies an uncomfortable truth. To squeeze inflation out of the economy, the Fed needs to make lenders nervous, loans expensive, and businesses risk-averse.” In addition to the usual global corporate roundup, this report puts a major focus on credit risks in the global financial sector, including some insight into the usually opaque shadow banking system. It also includes a CCI chartbook showing upgrade/downgrade balances for selected Credit Benchmark credit indices. 1. Global Roundup: Post-COVID Recovery Over; Downturn Slight but Broadly Based. The chart below covers a universe of approximately 1,200 credit indices. The proportion showing net credit upgrades has dropped sharply in recent months – less than a third of indices are currently biased to upgrades. While the post-COVID recovery is clearly over; the % changes in default risk are still modest. But this highlights the unusual breadth of the shift towards downgrades. The charts below show details for index types and regions. Upper charts show the proportion of indices upgrading over time. Lower charts show the current split between downgrades, no change, and upgrades. All Corporates Financials Funds Europe North America Asia Africa The trend is down for all of these, apart from Funds (more than a third of indices are currently biased to upgrades) and Financials. Financials show a higher proportion of stable indices than Corporates; Corporates have swung the balance between upgrading and downgrading indices to downgrades after a couple of stable months. Europe is declining off a relatively high base; North America is on its fourth month of declines. Asia returns to decline; Africa has been flagged up since Q4 2022 and shows another drop this month. 2. Industry and Sector Turning Points: Negatives Outweigh Positives The table below shows detailed global industries and sectors that may be at turning points. These have either started to show negative balances after a run of positives, or vice versa. Sep-22 to Nov-22 all positive CCIs, Dec-22 to Feb-23 at least 1 negative CCI: Basic Materials Chemicals Consumer Finance Corporates Electronic & Electrical Equipment Electronic Equipment General Retailers Industrial Suppliers Industrial Transportation Industrials Integrated Oil & Gas Media Media Agencies Oil Equipment, Services & Distribution Platinum & Precious Metals Private Equity Fund Real Estate Fund Specialty Chemicals Transportation Services Venture Capital Fund Sep-22 to Nov-22 all negative CCIs, Dec-22 to Feb-23 at least 1 positive CCI: Food & Drug Retailers Gold Mining Pharmaceuticals & Biotechnology Sovereign & Central Banks Sovereign Government Sovereigns Tobacco There are more than twice as many Global indices in the left column. These trend shifts are spread across diverse sectors: Basic Materials, Oil/Gas, Consumer, and various Financials and Funds – including Venture Capital and Private Equity.   3. Industries and Sectors to Watch Global REITs, Mutual Funds and Hedge Funds The below industries and sectors have all had a run of multiple consecutive months of net deterioration[3]. Problems in the commercial real estate sector are well known and many of the consensus credit subsector indices are now heading down (starting with Industrial and Office in late 2022). Equity volatility and interest rate risks have not surprisingly hit Hedge Funds, but Mutual Funds are usually credit-stable. LDI issues in the UK, possibly illiquid holdings, and general outflows have all contributed to modest re-assessment. US Financials (Banks, Insurance, Asset Managers) These show multiple months of recent deteriorations ahead of this month’s volatility, but with a pause in the latest data for US Banks and Asset Management. Banking issues are covered in detail in this report, but there are concerns that financial volatility and credit issues may also affect insurance companies. Insurance companies (and pension funds) have the advantage of being able to take a long-term view, but they are not immune to industry issues. US Technology US Technology is still suffering, especially the larger listed firms, and Telecomms have returned to significant net deterioration. Technology sector layoffs continue while start-ups now face the prospect of a funding crunch in coming months if credit remains tight for their backers. Credit downgrades have been concentrated in some of the largest firms, mainly those with a major social media or online presence. Investment in climate technology is growing rapidly (key priority in the 2024 US Budget) so the tech sector may start to show some divergent credit trends. Telecomms took a major hit after COVID lockdowns ended; after the recent pause latest data shows risk of further bad news. 4. US Regional Banking: Expect Consolidations and Even Some Failures The BTFP effectively allows the lender of last resort to offer a classic banking service – maturity transformation – to commercial lenders; provided those lenders have collateral with low or no credit risk. They can borrow against the par value (and pay interest) while they re-establish their depositor base. But many banks do not have that type of collateral and have increasingly nervous depositors. And the US banking system has nearly 5,000 banks in the FDIC system - many of them small and local, often specialising in one sector (e.g., agriculture)[4]. The charts show that less than half of the Credit Benchmark universe of 102 Regional Banks are rated by S&P, and only 26 are listed. The Credit Benchmark US Regional Banks index (102 constituents) below shows the credit distribution shifting to the right, (i.e., cumulative downgrades) in the past 6 months: Regional bank solvency is likely to suffer from a flight to quality as depositors abandon smaller, less regulated, less well capitalised banks – relatively good for GSIBs. SVB may also be the tip of a larger bank risk iceberg – as rates rise and liquidity tightens, defaults will climb; even the largest banks need to reserve against those, and they need to raise capital more widely. At the very least, this means cash calls and rights issues – negative for share prices. 5. Specialized Finance: Improvements Fading, Specialized Lending Dips The non-bank funding sector is estimated to be as much as 30% of the overall financial system. The charts below show some sub-sector trends. The improving trends that began in August 2022 have now run their course, but tighter credit has had little impact on average default risks; the only area that shows a recent downturn is Specialized Lending. The SVB collapse and the crackdown on crypto markets may bring opportunities, but some contagion is also likely – these effects may play out very differently for individual firms in these subsectors depending on their individual exposures and access to spare funds. 6. CB Leveraged Loan Universe: Recent Jump in Downgrades, Now Easing; Flight to Quality Possible The Credit Benchmark Leverage Loan universe now covers about 1,200 issuers (69% North America, 29% Europe). The charts below show the latest trends. The average PD shows a drop this quarter, driven by a large number of downgrades at the end of the year. The bias to downgrades continued into Q1 2023. The credit distribution has shifted in recent months – there are more issuers in the c category, but also more in the bbb groups. This suggests that – like some other sectors covered in this quarterly – there may be two tiers emerging. Stronger issuers will see upgrades, weaker issuers may have to withdraw. 7. Credit Index Volatility: Tracking Equity VIX Lower as Soft-Landing Hopes Return The chart below shows percentiles for credit index 6-month rolling volatility. For more than 1,200 indices, rolling volatility shows the speed and scale of PD changes; these can give advance warning of changes in transition rates. The percentiles plotted here are the most sensitive to turning points in PD volatility. The equity VIX is from the St. Louis Fed. Sources: Credit Benchmark, CBOE / St. Louis Fed. Based on these percentiles, credit volatility is back to Q2 2022 levels after climbing steadily in the second half of last year. This is consistent with a “soft-landing” and expectations that the Fed will pause rate hikes soon and could even cut rates this year (despite the Fed’s continued hawkish rhetoric). March equity VIX peaked at more than 30%, but started and finished the month at about 20%. Recent issues in the banking sector will likely feed into financial credit volatility in coming months, but until those issues lead to a sustained contraction in bank lending, broader credit volatility is likely to remain subdued. 8. Transition Matrices: Global Corporates and Financials: Upgrades Bias of Past 6 Months Likely to Disappear Global Corporates Global Financials Both categories of borrowers show a very skewed bias to upgrades; Global Corporates have 44.6% upgrades vs. just 14% downgrades; a ratio of 3:1. Global Financials have an almost identical ratio with 28.9% upgrades vs 9.3% upgrades. However, the majority of these upgrades are within the High Yield categories. For Investment Grade, Corporates are balanced (4.4% upgrades vs. 4.6% downgrades) while Financials show 5.4% upgrades vs. 3.8% downgrades. In the crossover category, Corporates are skewed to downgrades (8.5% vs. 5.6% downgrades) and Financials are biased to upgrades (6.2% vs 4.7% downgrades). As 2023 unfolds, the “Downgrade Triangle” (the upper right) is likely to dominate. To download the full Quarterly Credit Outlook Q1 2023 whitepaper, including a CCI Chartbook appendix, please complete your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Workbook [1] “The prop-up job”, The Economist, March 18th 2023 [2] “Manias, Panics and Crashes”, 1978, Charles P. Kindleberger [3] The CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. [4] Silicon Valley Bank – officially “regional” – was the 16th largest in the US before being acquired. It is the latest casualty of the Fed assault on inflation[1]. Regulated as a regional bank, it certainly specialised in one sector – tech – but with a global reach. With assets of less than $250bn, they benefited from looser regulation and built a loan portfolio of start-ups with limited assets, patchy cash flows, and no profits. Customers included Biotech, Fintech, Crypto and even California wineries. COVID and war put many venture capital projects on hold, so SVB had excess deposits which it invested in medium maturity US Treasuries. If the Fed pivoted and interest rates dropped, SVB would profit; but rates rose – the classic banking trap of borrowing short and lending long. In the same week that SVB were shut down, two crypto banks closed – Silvergate (voluntary) and Signature (FDIC), both due to bank runs and similar duration mismatches in Treasuries. SVB’s loan book was also squeezed by a tech recession that has brought layoffs to Amazon, Meta, Twitter etc. ### April 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-March, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Both Financials and Corporates credit quality showed a bias towards net credit improvement this month, with a positive ratio of 1.1 improvements to each deterioration. Amongst the industries, the top performer was once again Oil & Gas, with a positive ratio of 1.6 improvements to each deterioration. Basic Materials and Consumer Services were the next strongest, with positive ratios of 1.3:1 and 1.2:1 respectively. Health Care and Telecommunications both stand out with a negative ratio of 1.5 deteriorations to each improvement. Utilities, Technology and Consumer Goods also showed a bias toward credit deterioration. At the sector level, US Oil & Gas stands out with a positive ratio of 3.4 improvements to each deterioration. Conversely, UK Oil & Gas stands out with a negative ratio of 2.2 deteriorations to each improvement. Travel & Leisure firms continue to reap the benefits of a resurgence of personal and business travel bookings, with a positive ratio of 1.5 improvements to each deterioration. Canada Corporates showed a bias towards credit deterioration, with an improving to deteriorating ratio of 1:1.7. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### April Credit Consensus Indicators (CCIs) – US, UK & EU Industrials Credit Benchmark have released the April Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Industrial firms return to negative credit balance this month. UK Industrial firms ended their trend of net deterioration, with a neutral credit quality score. EU Industrial firms continue their run of positive credit movement. US Industrials: Return to Net Deterioration US Industrial firms have experienced recent instability in their collective credit balance. The US Industrials CCI score this month is 48.0, a decrease from last month’s CCI of 50.5. Lawmakers aim to train more truck drivers, ease supply chain issues through bipartisan bill. UK Industrials: Neutral UK Industrial firms ended their trend of net deterioration this month. The UK Industrials CCI score this month is 50, suggesting neutral credit quality. UK construction activity eases amid steep drop in housing demand EU Industrials: Trend of Net Improvement Continues EU Industrial firms have registered another positive CCI for this month, which is the nineteenth consecutive instance of a positive score. The EU Industrials CCI score this month is 51.1, the same score as last month. German rocket maker Isar Aerospace raises $165m Series C — 2023’s biggest spacetech round globally so far. To download the full CCI tear sheets for US, UK & EU Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### April Credit Consensus Indicators (CCIs) – US, UK & EU Oil & Gas Credit Benchmark have released the April Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK & EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Oil & Gas have maintained positive credit balance for seven consecutive month. UK Oil & Gas return to negative credit balance this month. EU Oil & Gas have experienced recent instability in their collective credit balance. US Oil & Gas: Improvement Trend Continues US Oil & Gas firms have maintained positive credit balance for seven consecutive month. This month, the US Oil & Gas CCI score is 53.5, an improvement from last month’s CCI of 50.7. US regulator vows ‘aggressive’ crackdown on oil and gas methane leaks. UK Oil & Gas: Net Deterioration Returns UK Oil & Gas firms return to negative credit balance this month. The UK Oil & Gas CCI score is 44.1 this month, a significant decrease from last month’s CCI of 52.7. UK Oil & Gas revenue boosted by rising oil prices. EU Oil & Gas: Net Improvement Short-lived EU Oil & Gas firms have experienced recent instability in their collective credit balance. The EU Oil & Gas CCI score is 48.9 this month, a significant decrease from last month’s CCI of 55.7. The Net-Zero Industry Act brings key elements to the table to ensure Europe follows through on its climate ambitions. .. To download the full CCI tear sheets for US, UK & EU Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Data at a Glance: US and EU Banks Download PDF Recent bank failures and mergers have uncovered transatlantic tensions in the global banking sector.The below charts show credit distributions for 209 US and 374 EU banks, plus recent trends. US and EU Banks: Credit Distribution US Banks have higher proportions of Investment Grade consensus ratings across all credit categories. However, apart from last month’s uptick, average default risk in the US deteriorated for much of H2 2022 ahead of recent volatility. EU default risk has been steadily improving and recent months have favoured upgrades. EU Banks: 12M Trend US Banks: 12M Trend Credit Benchmark data is updated every two weeks. End-February data flash update is now available. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Credit Portfolio Risk: Consensus Data Fills in the Blanks Download PDF Table of Contents 1. Introduction 2. Credit Risk Portfolio Framework: Overview 3. Extension to Multiple Indices 4. Transaction Analysis 5. Portfolio Optimization 6. Conclusion 7. Credit Index Portfolio Risk - Worked Example 1. Introduction Global debt is mainly held in credit portfolios by banks, insurance companies, investors, private companies, as well as some governments. These investors make extensive use of credit agency ratings and market-driven risk models. Other segments are faced with less visibility: large corporates need credit portfolio management to handle often unrated supplier or customer default risk. And the growing risk-sharing business – where one financial institution agrees to underwrite the credit risk of another – is also portfolio based. This segment includes undisclosed portfolios where one counterpart may agree pricing without detailed knowledge of the individual constituents.  Credit portfolio management models have a long history backed by extensive academic literature, but in practice they are only as good as the credit risk data available to them. The portfolio management objective seems simple: maximize returns subject to an acceptable level of risk. Estimates of gross return (before defaults and recoveries) are often possible with a high degree of accuracy. But the net return – after adjusting for defaults and recoveries – has a high estimation error, although robust data can reduce that uncertainty. Historic default data is notoriously patchy, but forward-looking consensus data can cover the gaps. This paper reviews a data-driven framework for portfolio risk analysis and discusses practical applications of consensus credit risk estimates. The appendix gives details of calculation formulas. An Excel workbook is also available with example calculations – these can be tailored to individual client asset universes. 2. Credit Risk Portfolio Framework: Overview NB: The framework discussed here is not a substitute for detailed analysis of individual company balance sheets, cash flows, and legal status. It aims to provide a context for portfolio decisions where underlying names are not disclosed or difficult to analyze due to incomplete data. The Appendix discusses metrics that adjust portfolio credit risk according to the number of single loans in each portfolio. Bank loan books are diversified across multiple borrowers, but the risk reduction benefit is limited when credit portfolios are concentrated (e.g., in one country or industry). This can be tackled with industry / country concentration limits, although these can be subjective. But if borrowers are grouped by geography and industry, portfolio risk can be measured via estimated default correlations between obligor groups. Group choice matters: risk estimates derived from industry-level metrics may not match a detailed sector-based view.  The ideal framework allows a risk manager to assess how risk estimates change with different industry or geographic mappings. A useful portfolio-level metric is PD[1] volatility, a proxy for credit migration risk – i.e. upgrades, downgrades and defaults.  This metric can be calculated by combining portfolio profiles with consensus credit data.  The ideal framework allows a risk manager to assess how risk estimates change with different industry or geographic mappings. A useful portfolio-level metric is PD volatility, a proxy for credit migration risk – i.e., upgrades, downgrades, and defaults.  This metric can be calculated by combining portfolio profiles with consensus credit data.  Example: The Global Travel & Leisure (T&L) sector suffered multiple downgrades during Covid, while the Global Software (SW) sector benefited from online shopping and working from home.  The chart shows that – from the onset of the pandemic - T&L average default risk rose from 63 bps to 131 bps, while SW stayed in the range 71-80bps. For a credit portfolio with 50% in each sector, the average PD would have moved within the narrower range of 67 to 104.  Similar results can be seen in the monthly standard deviations of the PD changes, which are 1.2% and 3.3% for the sectors and 2.1% for the portfolio, with monthly correlation of 0.45[2]. This approach can be extended to multiple regions, countries, industries and sectors.  Standard deviation / correlation metrics also have the advantage that they can be used for estimating the marginal contribution to risk of each additional loan.  3. Extension to Multiple Indices The image below shows correlations between monthly PD % changes for global sectors, plus the average PD level and PD volatility of each index. This matrix is based on the past 12 months.  Such a truncated period can reveal some very divergent short-term trends.  Italy, for example, shows a high correlation with Asia (+0.79), higher than its correlation with Germany (+0.40).  Switzerland is negatively correlated with many other indices, with Canada and Singapore as modestly positive exceptions. In terms of default risks, Africa and the UK have the highest PDs in this group of indices. Highest PD volatilities are Latin America, Middle East, plus Belgium, Italy and Sweden. Both of these risk indicators are double-edged: high PD volatility leads to more frequent credit migrations, but these can be positive or negative depending on the country, sector, or phase of the credit cycle.  Higher PD implies greater risk to capital, but it also means higher loan rates. Specific loans may offer higher risk adjusted returns if the loan rate implies a higher PD than the consensus. Other risk metrics are possible, such as the upgrade/downgrade balance for a credit risk index, or the proportion of the index constituents that are non-investment grade and hence closer to default. 4. Transaction Analysis If an investor is weighing up whether to take a particular CRT transaction onto their book, they may assess (a) the transaction itself as a stand-alone portfolio or (b) as an addition to their current portfolio. The screenshot below shows a hypothetical portfolio spread across North American and Swiss Corporates with a proposed trade into EU, UK and Middle East Corporates that might diversify risk and increase return.  The North America / Switzerland portfolio exposures combined with the credit index correlation and volatilities in the previous exhibit give a monthly PD volatility estimate of 70 basis points and an average portfolio PD of 36 Bps, shown in the rows at the top. The column on the right is marginal contributions to risk, the effect of a small (+1%) exposure change[3] for the sector credit index in each row. This shows that there is no scope for adding to Swiss exposure (largest positive marginal contribution); while China and Latin America offer the largest reduction in PD volatility. The proposed trade has lower PD volatility but a higher PD level (37 and 53 Bps) while the combined portfolio – 80% of the original plus 20% of the new) gives a volatility of 52 Bps and PD of 40 Bps. Marginal contribution metrics drive portfolio optimization, setting allocations across sectors and assessing the sensitivity of the overall risk number to changes in volatility assumptions, or to correlation matrices based on different historical periods. 5. Portfolio Optimization The 80/20 mix in the previous example is arbitrary, but the scatterplot below shows the relationship between PD level and PD volatility for various blends of the original portfolio and the proposed trade, using correlations and volatilities from two different periods.  These illustrate the trade-off between default risk and migration risk. A manager may tolerate higher default risk if the migration risk (PD volatility) is low. And it is worth emphasizing that higher consensus PDs may be attractive if loan rate implied PDs are higher. In this case, the chart shows simple mean-variance portfolio optimization.  Past 12 Months Past 3 Years Using PD volatility as the key risk criteria, the recent data plotted on the left suggests a 70% portfolio allocation to the proposed trade (i.e., leaving just 30% in the original portfolio) gives the lowest PD volatility of 22 Bps. But it also represents a major increase in PD level – from 37 Bps to 48 Bps.  The three-year data on the right favors a 90% portfolio allocation, but the volatility difference vs. 70% is very small. Based on the recent data, PD volatility is now much more sensitive to the portfolio mix. So, although an investor may have no control over the country or sector mix in a transaction, there may be scope to scale the investment up or down to achieve a more optimal balance of risk and reward in the credit portfolio. The next example shows a diversification from 100% in EU Corporates into a mix of EU member nations, plus Switzerland and the Middle East, based on the 12-month correlations and volatilities: The two portfolios have very similar levels of PD and PD volatility; demonstrating that it is possible to balance the risks of new segments (the Middle East, in this example) with an appropriate mix of exposures to countries that are highly correlated with the original benchmark portfolio (100% EU). 6. Conclusion Credit Consensus Ratings cover a large universe of borrowers. Credit indices based on these provide more than 1,000 geographic and industry combinations and these provide building blocks for a range of credit risk portfolio metrics.  These metrics allow credit portfolio managers to assess risk even without detailed information about individual portfolio constituents; they also support simple portfolio optimization and various sensitivity tests. To download a worked example Excel template for Credit Index Portfolio Risk, please complete your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Workbook [1] Ex ante Probability of Default. [2] Based on monthly % changes in average PDs, for 2020-2022 inclusive. [3] The balance is taken from the exposures to the other credit indices; these are reduced pro-rata. [4] Overlapping names in the portfolio and the aggregate, can be handled by the “number of names equivalent” (=n*).  n* is calculated as the reciprocal of the sum of squared differences between portfolio holding weights and aggregate constituent weights (A version of the Herfindahl index). Similar calculations can be used for uneven weights. ### AT1 Bonds: Investor Risk Means Stronger Banks Download PDF The Credit Suisse bail-in has cleaned out the bank’s AT1 bondholders; and across the bank universe, AT1 bond prices have dropped more than 10% this month. But consensus data suggests that for depositors and central banks, bail-in bonds provide a powerful extra prop for bank balance sheets. The below chart shows two-year cumulative change in the (unweighted) average probability of default for (1) GSIBs and (2) AT1 issuers (based on Invesco AT1 ETF constituents). It shows that both series peaked in Q2 2022, and have since shown a slight deterioration. However, the GSIB deterioration is slightly steeper and the AT1 group has recently shown a modest improvement. Credit Benchmark data is updated every two weeks. End-February data flash update is now available. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### March Credit Consensus Indicators (CCIs) – UK, EU and US Consumer Goods Credit Benchmark have released the March Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Consumer Goods based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Goods. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Goods consists of sectors Automobiles & Parts, Food & Beverage, and Personal & Household Goods. UK Consumer Goods have experienced recent instability in their collective credit balance. US Consumer Goods register a sixth consecutive instance of a negative CCI this month. EU Consumer Goods return to net deterioration. UK Consumer Goods: Net Improvement Short-lived UK Consumer Goods firms have experienced recent instability in their collective credit balance. UK Consumer Goods CCI score this month is 49.1, a decrease from last month’s positive CCI of 50.4 and a return to net deterioration.UK food inflation is at a 45-year high. People in the UK are struggling to get hold of tomatoes, peppers and cucumbers in a food shortage that could last for another month. . EU Consumer Goods: Net Deterioration Returns EU Consumer Goods firms return to net deterioration, after maintaining a positive CCI score for two months. EU Consumer Goods CCI score this month is 48.8, a decrease from last month’s positive CCI of 51.2 and a return to net deterioration. Eurozone inflation fell less than forecast in February. Price increases are testing the loyalty of European customers, and consumer goods makers find they can’t raise prices much more. . US Consumer Goods: Net Deterioration Trend Continues US Consumer Goods firms register a sixth consecutive instance of a negative CCI this month. US Consumer Goods CCI score this month is 48.9, a slight deterioration from last month’s CCI of 49.2. S&P Global Mobility forecasts electric vehicle sales in the US could reach 40% of total passenger car sales by 2030. But, as of right now, the US may not be ready for that future. . To download the full CCI tear sheets for UK, EU, and US Consumer Goods, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### After SVB: What’s the Next Shoe to Drop? Download PDF   Silicon Valley Bank – 16th largest in the US – is the latest casualty of the Fed assault on inflation[1].  It was regulated as a regional bank, and these are typically local, specialising in one sector (e.g. agriculture).  SVB also specialised in one sector – tech – but it had a global reach.  With assets of less than $250bn, they benefited from looser regulation and built a loan portfolio of start ups with limited assets, patchy cash flows, and no profits.  Customers included Biotech, Fintech, Crypto and even California wineries.   COVID and war put many venture capital projects on hold, so SVB had excess deposits which it invested in medium maturity US Treasuries.  If the Fed pivoted and interest rates dropped, SVB would profit; but rates rose – the classic banking trap of borrowing short and lending long.  In the same week that SVB were shut down, two crypto banks closed – Silvergate (voluntary) and Signature (FDIC), both due to bank runs and similar duration mismatches in Treasuries.   SVB’s loan book was also squeezed by a tech recession that has brought layoffs to Amazon, Meta, Twitter etc. The Credit Benchmark Global Software Index shows a bias to downgrades for 7 of the last 10 months.     Bank credit warning signs have been flashing in consensus credit data for the past few months. The Credit Benchmark US Banks index shifted towards downgrades 8 months ago and has been negative in 6 of those. (Moody’s have now also downgraded the entire US banking sector.)     This move started ahead of a similar emerging trend in the Credit Benchmark Global Banking Index; the downgrade trend has even reached the Credit Benchmark GSIB index, which has started to register net downgrades for 3 of the past 6 months.   The Credit Benchmark US Regional Banks index (119 constituents) below also shows the credit distribution shifting to the right, (i.e. cumulative downgrades) in the past 6 months:     Regional bank solvency is likely to suffer from a flight to quality as depositors abandon smaller, less regulated, less well capitalised banks – relatively good for GSIBs. SVB may also be the tip of a larger bank risk iceberg – as rates rise and liquidity tightens, defaults will climb; even the largest banks need to reserve against those, and they need to raise capital more widely. At the very least, this means cash calls and rights issues – negative for share prices.   We expect to see further bank downgrades globally, tighter regulation, capital raising through bond and equity issues, shrinking loan books, higher defaults, bank mergers, and possible sporadic state intervention in weaker banks – which may hit some Sovereign ratings.   Credit Benchmark data is updated every two weeks. End-February data flash update is now available.   Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 75,000 public and private global entities, please complete your details to request a demo or coverage check:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ   [1] Traditionally, rising short rates bring lower long rates – bond markets are happy to see central banks bearing down on inflation, so they will accept lower bond yields and pay higher bond prices because they see the inflation spike as temporary.   But the latest hikes come at the end of a very long period of QE – since 2008, central banks have been buying bonds to keep rates low.  They ended up owning so much of the global Government bond market that this policy had run out of road – so QE (Quantitative Easing) has been switched to QT (Quantitative Tapering). ### March 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-February, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Financials credit quality showed a bias towards net credit deterioration this month, with a negative ratio of 1.1 deteriorations to each improvement. Corporates showed a neutral ratio of 1:1 improvements to deteriorations. Amongst the industries, Telecommunications stands out with a negative ratio of 1.7 deteriorations to each improvement. Utilities, Technology and Health Care also showed a bias toward credit deterioration. Oil & Gas and Industrials were the only industries that showed a bias towards credit improvement, both with improving to deteriorating ratios of 1.1:1. Basic Materials, Consumer Goods and Consumer Services came in at neutral. At the sector level, Canada Oil & Gas stands out with a negative ratio of two deteriorations to each improvement. Travel & Leisure firms continue to reap the benefits of a resurgence of personal and business travel bookings, with a positive ratio of 1.6 improvements to each deterioration. However, General Retailers showed a bias towards credit deterioration, with an improving to deteriorating ratio of 1:1.4. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### March Credit Consensus Indicators (CCIs) – UK, EU and US Consumer Services Credit Benchmark have released the March Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Consumer Services based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Services. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Services consists of sectors Media, Retail, and Travel & Leisure. This month the consensus outlook on EU Consumer Services is back in negative territory. US Consumer Services net deterioration continues. UK Consumer Services have experienced recent instability in their collective credit balance. UK Consumer Services: Ups and Downs UK Consumer Services firms have experienced recent instability in their collective credit balance. UK Consumer Services CCI score this month is 50.6, an increase from last month’s CCI of 48.9 and a return to net improvement. UK aviation returns to business as usual. British Airways parent International Airlines Group reports its first annual profit since the pandemic, suggesting the UK Travel & Leisure industry is recovering. . EU Consumer Services: Net Deterioration Returns Consensus outlook on EU Consumer Services firms is back in negative territory this month. EU Consumer Services CCI score this month is 47.9, a modest deterioration from last month’s CCI of 51.3. European stock markets are modestly growing. European clothing companies look to reduce China manufacturing exposure as stricter laws are being introduced against labour abuses. . US Consumer Services: Net Deterioration Continues The deteriorating trend for US Consumer Services firms continues, with a second month of negative credit balance. US Consumer Services CCI score this month is 47.3, a deterioration from last month’s CCI of 48.9. US services sector expanded in February. However, Walmart, US’s biggest retailer, issues a cautious outlook as it set sales and earnings forecasts below analysts’ expectations. . To download the full CCI tear sheets for UK, EU, and US Consumer Services, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### March 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. It has been a positive month for the credit quality of Global Financial counterparts, with a handful of exceptions. Amongst the banks, APAC Banks had the strongest showing, with an improving to deteriorating ratio of 2.3:1. Globally Systematically Important Banks (GSIBs), Global, North America, Latin America and EMEA Banks all also showed a bias towards credit improvement. On the other hand, Central Banks showed a bias towards credit deterioration, with an improving to deteriorating ratio of 1:2.0. The Intermediaries were wholly positive, with Prime Brokers showing no instances of deterioration. Broker Dealers came out on top with an improving to deteriorating ratio of 2.2:1, closely followed by Custodians and Sub Custodians with an improving to deteriorating ratio of 2.0:1. Amongst the Buy Side, Asset Managers and Mutual Funds showed a bias towards credit deterioration this month, with improving to deteriorating ratios of 1:1.6 and 1:2.8 respectively. Insurance Companies came in at neutral, whilst Sovereign Wealth Funds showed no instances of deterioration and Pension Funds had an improving to deteriorating ratio of 1.2:1. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Monthly Credit Outlook: March 2023 Download PDF Stubborn inflation risks steeper global credit deterioration Key Findings: Global Corporates vs Global Financials vs Global Sovereigns: PDs flatlining but slight downgrade bias continues for Corporates and Financials Credit Risk Scores and Changes: Canada Farming tops list, more Asian and European indices appearing, CCPs still high, Africa remains heavily represented Credit Volatility Stable to down: suggests larger companies may avoid worst of any 2023 default spike US Sector PD comparisons: Consumer sectors deteriorating, some respite for higher risk tech sectors Leveraged Loans: Global downtrend paused, balance shifting to upgrades; but UK driving Europe deterioration Wage inflation and credit: Financial Services and Transport most at risk; Telecomms and Personal Products downgrades may be overdone Renewable Energy vs Fossil Fuel: Renewables show major deterioration past few years, but credit tide may be turning in their favour Despite increased US-China tension and return of the US Debt Ceiling stand-off, the general optimism reported last month has continued in some areas, justified by better US growth numbers, better UK fiscal numbers, and drops in inflation as the mild winter has brought gas prices to pre-war levels – curtailing energy company windfall gains. But bond market hopes of early rate cuts seem to be fading as inflation remains stubbornly high. Challenges remain – extreme weather in US, Brazil, Japan, North Africa and Southern Europe have hit fresh food supplies. Rising bank interest earnings are the flipside of higher mortgage costs, as low fixed rate deals expire. Job losses are climbing and SME defaults are rising, especially in Europe. In addition to regular updates, this report includes special features on Leveraged Loans, wage cost credit impacts, latest US sector default rates and renewable energy credit trends. Global Corporates vs Global Financials vs Global Sovereigns PDs flatlining but slight downgrade bias continues for Corporates and Financials. The charts below show global trends for average PDs and their 2-year Credit Consensus Indicators (CCIs)1. Globally, Sovereign PDs have stabilised after a prolonged deterioration vs. Corporates and Financials, and the CCI has turned positive. As the energy shock fades and public support programs wind down, fiscal balances will likely improve unless economic headwinds put a drag on tax receipts. Corporates and Financials are reporting very mixed results – everything from massive windfall gains (energy, banks) to cratering demand (consumer discretionary, housebuilding) – but the credit indicators are biased towards downgrades. Sector selectivity will be key for credit portfolios. Industry Trends: Six to Watch The charts below are based on the net balance between upgrades and downgrades which forms the Credit Consensus Indicator (CCI). The plotted indices are examples of consecutive net downgrades in recent months. Various indices in the same or similar sectors show similar patterns but these are the most dramatic. These show further stress in the Real Estate sectors, and this has now spread beyond the Office & Industrial segment. The progressively larger negative balance for North American Nonlife Insurance is not dramatic, but probably reflects the impact of extreme weather. Diversified Industrials, again in North America, show a sharp decline – suggesting a slowdown in capital goods generally. South Africa Automobiles corroborates the risk indicators flashing red across the African index set (see next section). In the UK, stagnant transactions and falling house prices are starting to hit the Household Goods and Home Construction Sector. Credit Risk Scores and Changes Credit Risk Scores and Changes – Canada Farming tops list, more Asian indices appearing, CCPs still high, Africa remains heavily represented, European indices now more prevalent. Credit risk scores shown below are a normalized combination of changes in PD levels, PD volatility, and high yield exposures. Canada Farming is top of the list. Compared with previous months there are more Global indices – Tech, Telecomms, Personal Products. There are more Asian credit indices, including Real Estate, Pacific Transport and Hong Kong Consumer Services. African indices are still heavily represented. CCPs remain on the list. There are more European indices than UK, suggesting that EU indices are seeing increased credit risk after the wave of deterioration in the UK. Credit Risk Scores and Changes Credit Volatility Stable to down – suggests larger companies may avoid worst of any 2023 default spike. PD volatility is a leading indicator for upgrades and downgrades – if default probabilities are changing frequently, some of those moves will result in notch changes. The chart below shows the tail percentiles for default risk volatility, taken from the CB universe of more than 1000 credit indices, plus the CBOE Equity VIX. As the chart shows, large PD volatility spikes reflect economic stress, when notch changes are more likely to be downgrades or defaults. Similar to the VIX, credit volatility crept up in early 2022, but the Q4 downtrend continues. The 90th percentile is back to long-term lows, and the Equity VIX is also subdued. These metrics suggests that any hits to global profits and stress on balance sheets will be manageable, at least for the larger companies. Featured This Month US Sector PD comparisons: Consumer sectors deteriorating, some respite for higher risk tech sectors. With economies and markets giving mixed signals, there is a lot of uncertainty about 2023 default rates. Some sectors are major winners (eg energy) and others (eg housebuilding) are facing a prolonged slump. There are also some major regional differences. The table below compares average consensus default probabilities for a range of US sectors. Financials and Funds – apart from Hedge Funds – are very low risk. Travel & Leisure, Software, Technology and Fixed Line Telecomms are highest in the 80 -120 Bps range. The mid range includes Mining, Media and Construction. Large sector increases this month include Personal and Leisure Goods, Media, Industrial Transportation, Home Construction and Construction Materials, Chemicals, Travel and Leisure, Industrial Metals and Mining. Improvements include Beverages, Autos, Industrials, and Oil & Gas. These trends are broadly consistent with retrenching consumer and the impact of higher interest rates on the housing and construction sectors. The improvement for autos is a surprise, but auto supply shortages may mean that pent up demand is only now being met. In coming months, volatility metrics for these industries and sectors in each region will give a strong indication of future downgrades or default rates. Leveraged Loans Global downtrend paused, balance shifting to upgrades; but UK driving Europe deterioration. Pitchbook report that the number of “weakest links” (S&P B- or worse with negative outlook or watch) in the Morningstar Leverage Loan index have started to tick up. They peaked at 18% in Q2 2020; they now stand at 8%, a 25% jump from 6% in Q3 2022. The charts below are based on two universes of Leveraged Loan issuers; the Global index contains 77 names from the Invesco Senior Loan ETF, with a US focus. The Europe index tracks 480 names, with a UK focus. Global (US focus) Europe (UK focus) Leveraged loan fund holdings are generally sub-investment grade, although a minority of issuers may be rated higher by major banks. Global average PD has risen by over 10% after a decline in H2 2022; the balance is shifting to net upgrades. But the European average PD – with a major UK focus - has risen by about 8%, and the upgrade/downgrade ratio is volatile, but trending towards downgrades. In the Leveraged Loan sector, it is possible that a US/Europe gap is beginning to appear. The data here suggest that the UK Leveraged Loan sector is confirming the broader negative trend across European reported by Pitchbook. Wage Inflation and Credit Financial Services and Transport most at risk; Telecomms and Personal Products downgrades may be overdone. Price inflation and labour shortages are pushing wages higher across many countries and sectors. The chart below plots the impact of wage inflation on profitability against Global credit risk changes over the past three months. At the sector level, credit depends on debt levels, asset values as well as profit (i.e. equity) growth, so rising wages may be offset by lower input costs or growing sales. But unless these other factors are significant, the chart suggests that some labour-intensive sectors – like Financials Services – may see profitability and credit compromised over time. At the other extreme, Personal Products, Non Durables, and Telecomms may be more robust in the face of wage inflation than recent credit assessments would suggest. Renewable Energy vs Fossil Fuel Renewables show major deterioration past few years, but credit tide may be turning in their favour. The war in Ukraine means that energy security is now the key priority for most countries. Short term, this is good for fossil fuel companies who have reported record profits as global energy prices have spiked. Last year the UN gloomily reported that “…global energy transition the world had hoped for is simply not happening.” But the Economist shows that the war is now bringing forward the expected peak in CO2 emissions, due to immense investment in renewables in the US and Europe. The Inflation Reduction Act (IRA) in the US includes an unprecedented list of clean energy incentives intended to accelerate the development of diverse, alternative and home-grown energy sources. Renewables have faced some major challenges in recent years, due to high development costs and still-nascent technology. But the war could be a critical turning point. The charts below show relative credit risk and net upgrade/downgrade balances for 38 Global Renewable companies and 105 Global Oil & Gas companies. Renewable Energy (38 entities) Oil & Gas (105 entities) In the past two years, renewables show a credit risk deterioration of nearly 30%, while fossil fuel companies have improved by 50%; which aligns with the UN’s pessimistic assessment. But the net balance charts show that this is changing – recent months show increasing upgrades in renewables, while fossil fuel upgrades are fading. Current global energy investment runs at $2trn pa, skewed to renewables. But from the perspective of energy security, the two types of energy have very different volatility profiles. Fossil fuel sources are reliable and easily adjusted; renewables like solar, wind, hydro and even bio are weather dependent. With no end in sight for the Ukraine war, all energy sources and technologies are likely to see an investment surge – to diversify sources and minimize overall supply volatility. Further credit upgrades for renewables seem likely. The Excel chartbook containing all charts and underlying data from this report is available to download below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Chartbook 1The CCI tracks the monthly net level of credit upgrades / downgrades for a given sector, based on the combined risk views of expert credit analysts at over 40 global banks. A CCI score of 50 indicates an equal number of upgrades and downgrades; over 50 is improvement; under 50 is deterioration. ### March Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the March Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. EU Industrial firms continue their run of positive credit movement, with an 18th month of improvement. UK Industrial firms continue to register a negative CCI this month. US Industrial firms return to positive credit balance. UK Industrials: Trend of Net Deterioration Forms UK Industrial firms continue to register a negative CCI this month, which is the fourth consecutive instance of a negative score. The UK Industrials CCI score is 49.5 this month, a slight deterioration from last month’s CCI of 49.6. Reuters poll suggests Fridays UK GDP numbers will show growth for January. UK’s construction sector rebounded back into growth in February as fears of a recession fade. . EU Industrials: Modest Improvement Continues EU Industrial firms have registered another positive CCI for this month, which is the eighteenth consecutive instance of a positive score. The EU Industrials CCI score is 51.1 this month, its lowest score since Jun-22. The S&P Global Eurozone Manufacturing PMI down in February. The EC proposed packaging regulations that would require companies to make their Containers & Packaging easier to reuse, recycle or in some cases, compost. . US Industrials: A Turn for the Worse US Industrial firms return to positive credit balance this month after ended their run of five months of positive credit balance last month. The US Industrials CCI score this month is 50.7, an increase from last month’s CCI of 48.4. US February jobs report, due this week, is expected to show continued but slowing growth. A shortage of construction workers is putting at risk the plan to fuel a building boom in the US. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### March Credit Consensus Indicators (CCIs) – Global, UK & US Oil & Gas Credit Benchmark have released the March Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for Global, UK & US Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. UK Oil & Gas firms return to positive credit balance this month after ended their run of five months of positive credit balance last month. Global and US Oil & Gas firms also record net credit improvement. Global Oil & Gas: Positive Streak Continues Global Oil & Gas firms have gone from strength to strength, boasting CCI scores above 50 for 23 consecutive months and maintaining long-term net positive credit balance. The Global Oil & Gas CCI score is 51 this month, a slight increase from last month’s CCI of 50.8. Oil slipped this week as signs of ample supply and rising US crude inventories countered hopes for higher demand arising from a jump in manufacturing in top crude importer China. . UK Oil & Gas: Return to Trend of Net Improvement UK Oil & Gas firms return to positive credit balance this month after ended their run of five months of positive credit balance last month. The UK Oil & Gas CCI score is 52.7 this month, a significant increase from last month’s CCI of 45.4. The industry’s trade body warns that Oil and Gas companies are scaling back North Sea operations and prioritising investment outside the UK because of the government’s windfall taxes. . US Oil & Gas: Trend of Net Improvement Slows US Oil & Gas firms have maintained positive credit balance for six consecutive month. However, trend of net improvement is slowing down. This month, the US Oil & Gas CCI score is 50.7, a decrease from last month’s CCI of 51.5. US Oil and Gas companies are pushing to solve the short-term problem of a tight European gas supply, driven by Russia’s invasion of Ukraine, with long-term gas contracts. . To download the full CCI tear sheets for Global, UK & US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Global Corporates & Financials: In the Red Download PDF Global Corporates have returned to a negative credit balance, ending their 19-month positive run. This month Global Corporates recorded their second consecutive negative Credit Consensus Indicator1 (CCI). Global Financials have now had four months without a positive credit balance. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. More CCI industry graphs can be found within Credit Benchmark’s monthly CCI Monitors. This negative shift is being driven by a number of Global Sectors. The charts below plot the latest CCI (Jan-23) for various Global Sectors. Soaring food and energy prices have hit consumer purchases of personal goods, personal products, and home furnishings; retailers are also suffering. Delivery Services, Coal and Electronic Equipment are still strongly positive, but metal sectors are also turning negative. The chart below shows details for various financial sectors. Real Estate is the major negative. Some REITs subsectors started to show negative trends a few months ago, but this has now spread to most REITs categories. Speciality Finance and Nonlife Insurance are now the only financial sectors with a positive credit balance. For more detail on recent credit trends and highlights seen in the consensus dataset please keep an eye out for our monthly outlook next week. [1] The CCI is an index of forward-looking credit opinions based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Renewable Energy: Credit Tide Turning? Download PDF Renewable energy is at the centre of efforts to tackle climate change, but there have been setbacks. Deloitte summarise: “In 2022, US renewable energy growth slackened its pace due to rising costs and project delays driven by supply chain disruption, trade policy uncertainty, inflation, increasing interest rates, and interconnection delays. Many of these challenges will likely carry over into 2023, creating strong headwinds.” According to the UN, their Renewables 2022 Global Status Report shows that “…global energy transition the world had hoped for is simply not happening.” But Deloitte add a positive outlook: “Growth will likely accelerate, powered by robust demand and the record-breaking raft of clean energy incentives in the Inflation Reduction Act (IRA).” Fossil fuel companies have reported record profits as global energy prices have spiked. An investment surge – for all energy sources and technologies – seems likely. Current energy investment runs at $2trn pa, with an increasing skew towards renewables: Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Global Energy Investment by Region Source: IEA But 80%+ of energy demand is still met by fossil fuels, a stubbornly high proportion: post-Covid energy demand growth was largely met by non-renewables. European shortfalls due to the Ukraine war have brought more coal and oil back on stream, plus bonanzas for US and Norwegian gas suppliers. Projected peak dates for oil and gas demand keep getting pushed out. But even without pandemics and wars, renewables face economic challenges. In a recent paper, Benthem et al. discuss limits on physical transition rates and risks of aggressive divestment. Some considerations quoted in the paper are strictly commercial: “…we’ve concluded that our company can’t create value for shareholders by going into wind and solar” (Mike Wirth, Chevron CEO). And practical obstacles also distort the commercial picture: “We cannot start enough new green companies to get to net zero. It’s simply not possible…The incumbents matter, they must transition, they must be rewarded”. (Bernard Looney, BP CEO) Low interest rates have driven down the cost of capital for new investment projects – so rising rates might help the commercials. Effective carbon capture might buy more time for transition, although more radical steps are likely to have a growing political and social following. If renewables businesses are unattractive investments, are they also bad credits? The credit distributions below suggest not; Renewables companies are on average better credit risks than the traditional Oil & Gas sector: Renewable Energy (44) Oil & Gas (105) Note: A list of constituents for the above credit indices (Renewable Energy and Oil & Gas) is available at the bottom of this report as a downloadable appendices. Renewables are clustered in the centre of the scale, with bbb firms as the largest category (bb for Oil & Gas). But the b category has increased in recent months, while the Oil & Gas distribution shows a modest move in the opposite direction. These changes reflect a dramatic change in average PDs for the two groups (44 Renewables firms, 105 Oil & Gas firms): In the past two years, renewable credit risk has deteriorated by close to 30% and traditional energy has improved by nearly 50%. Fossil fuel is booming because supplies are reliable, adjustable and easily available; renewables like solar, wind, hydro and even bio are at the mercy of the weather. This volatility discount on renewables has made transition difficult, but the cost of solar and wind has dropped enormously in recent years and should continue to do so. Fossil fuel is booming because supplies are reliable, adjustable and easily available; renewables like solar, wind, hydro and even bio are at the mercy of the weather. This volatility discount on renewables has made transition difficult, but the cost of solar and wind has dropped enormously in recent years and should continue to do so. But as the below upgrades vs. downgrades1 charts illustrate, there are some signs that the credit tide may be turning: Renewables Oil & Gas The most recent balance between upgrades and downgrades is turning positive for renewables, but heading towards negative for traditional firms. This is encouraging – energy shocks bring higher prices, but they also propel the search for new supplies and new technologies. Fossil fuels are a luxury with increasingly unaffordable costs for the environment; but while the short term effect of the energy shock may be more fossil extraction, it may also accelerate the transition to more sustainable sources. Higher prices are a major political and social issue, but they also rebuild balance sheets and fund further investments. [1] The upgrades vs. downgrades graph looks at the percentage of entities upgraded and downgraded in each month; the rating changes are defined using CB21 credit category scale. It also plots the balance between upgrades and downgrades, highlighting any bias in rating changes. To access the Credit Index Constituents Appendices of this report (Renewable Energy and Oil & Gas), please complete the form to download the full list: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### February Credit Consensus Indicators (CCIs) – UK, EU and US Consumer Services Credit Benchmark have released the February Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Consumer Services based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Services. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Services consists of sectors Media, Retail, and Travel & Leisure. This month the consensus outlook on EU Consumer Services firms is back in positive territory, whilst US Consumer Services firms return to net deterioration. UK Consumer Services firms have experienced recent instability in their collective credit balance. UK Consumer Services: Ups and Downs UK Consumer Services firms have experienced recent instability in their collective credit balance. UK Consumer Services CCI score is 48.8 this month, a decrease from last month’s CCI of 52.2 and a return to net deterioration. Travelers to the UK will soon have to apply in advance and pay to enter the country when the Electronic Travel Authorisation visa waiver goes into effect later this year. . EU Consumer Services: Net Improvement Returns After three months in the red, consensus outlook on EU Consumer Services firms is back in positive territory this month. EU Consumer Services CCI score this month is 51.3, a modest improvement from last month’s CCI of 49.6. Alcohol sales slump for European retailers as consumers attempt to moderate the impact of inflation by cutting discretionary purchases. . US Consumer Services: Net Deterioration Returns US Consumer Services firms struggle to remain in positive territory, with a return to net deterioration this month. US Consumer Services CCI score this month is 48.9, a decrease from last month’s CCI of 51.9. US retailers, battered from tackling recent supply chain disruptions, rising inflation and hiring challenges, are bracing themselves for another uncertain year ahead with a possible recession looming. . To download the full CCI tear sheets for UK, EU, and US Consumer Services, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### February Credit Consensus Indicators (CCIs) – UK, EU and US Consumer Goods Credit Benchmark have released the February Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Consumer Goods based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Consumer Goods. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Consumer Goods consists of sectors Automobiles & Parts, Food & Beverage, and Personal & Household Goods. UK Consumer Goods firms have experienced recent instability in their collective credit balance. US Consumer Goods firms register a fifth consecutive instance of a negative CCI this month. EU Consumer Goods firms maintain a positive CCI score. UK Consumer Goods: Net Improvement Returns UK Consumer Goods firms have experienced recent instability in their collective credit balance. UK Consumer Goods CCI score is 50.2 this month, an improvement from last month’s CCI of 48.9 and a return to net improvement. The UK Competition and Markets Authority will examine the accuracy of ‘green’ claims made about household essential goods to make sure shoppers are not being misled. . EU Consumer Goods: Net Improvement Continues EU Consumer Goods firms have maintained a positive CCI score for the second consecutive month. EU Consumer Goods CCI score this month is 51.2, a slight improvement from last month’s CCI of 50.7. In 2023, many EU sectors, including Household Goods and Food, will likely see diminishing growth due to a weak economy. . US Consumer Goods: Net Deterioration Trend Continues US Consumer Goods firms register a fifth consecutive instance of a negative CCI this month. US Consumer Goods CCI score this month is 49.2, an improvement from last month’s CCI of 48.0. US consumer spending fell for a second straight month in Dec-22, putting the economy on a lower growth path heading into 2023. . To download the full CCI tear sheets for UK, EU, and US Consumer Goods, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Monthly Credit Outlook: February 2023 Download PDF Credit risk elevated but positive surprises possible Key Findings: Financials: Mainstream and Specialized indices show modest but persistent deterioration Credit Index Volatility: higher defaults in 2023, but worst case unlikely Country and sector correlations are dropping, some negative Credit fundamentals for 2023 are challenging, but some optimism is appearing. The IMF promised growth forecast upgrades at Davos; the Bank of England believes that its worst-case scenario for the UK is less likely. Fears of serious global recession have eased as inflation forecasts improve and rate hikes slow. The Ukraine war remains a concern, but financial markets started the year with an upbeat tone: energy prices down, equity markets up, long yields off their highs, and narrower credit spreads. But the end of easy money is hitting consumer-facing and leveraged sectors. Major banks are reserving for higher loan losses in H2 2023. Overall corporate defaults are expected to rise with S&P predicting high yield US corporate defaults to hit 3.5% by June 2023, vs. 1.4% for mid-2022. Moody’s see a range of scenarios from 3.9% to 15.1%, from a current sample level of 2.8%. The chart below shows the proportion of Credit Consensus indices with higher risk in the past twelve months. Detailed highlights from Credit Consensus data: Financials: Mainstream and Specialized indices show modest (single digit %) but persistent deterioration across CCPs, GSIBs, Lev Loans and Specialized Lending. Industrial / Office REITs and Mortgage REITs are also deteriorating and this trend is likely to continue and spread to other real estate subsectors. The proportion of Property-focused mutual funds in the highest credit categories halved in the past year but has rebounded in the past few months. Defaults and Credit Index Volatility: Elevated at about 35% above its base level, but nowhere near the COVID high. If this climbs further, expect to see more downgrades and higher defaults in 2023, but currently less pessimistic than the agencies. Credit index risk scores show highest downgrade risk in Africa, Turkey and UK / US Telecomms and Software. Correlations: Country and Sector correlations are dropping from their very high COVID levels. Countries / Regions with low average correlations are Canada, Singapore, UK and Middle East. Expect further correlation pattern shifts depending on who avoids recession. Sector trends: Rising default risks are concentrated in Consumer focused especially Retail, Real Estate, Pharma and traditional Telecomms. Improvements are widespread in Forestry & Paper, Basic Materials, Autos, Metals, Energy, Non-Life Insurance – and increasingly in Travel & Leisure / Hotels. Key Global Trends Opinions are split on the economic outlook for 2023 – some Central Banks believe that inflation has peaked and any recession will be mild. Markets are pricing in an optimistic scenario but risks remain – escalation in the Ukraine and tension in Asia are the main uncertainties. Key Global Trends: Sovereigns lagging. Leisure, Paper, Transport positive; Retail, Pharma and Telecoms negative. Globally, Corporates have seen a stronger post-COVID rebound than Financials – but both are plateauing. Sovereign Governments, already grappling with COVID debts, have deteriorated in the past year. Funding rates have spiked as Central Banks tackle cost-push inflation1. Developing countries have been particularly hard hit economically. The Ukraine war has added a further fiscal burden, although energy cost help for businesses and consumers is likely to be tapered in spring. Strongest improvements in recent months are in Leisure, Travel and Electronics. Major deteriorations in Consumer, especially Retail, and Pharma. Technology: Downturn in Software from early 2022, Hardware from Q3 Technology – the economic leader for so long – now has a growing list of downsizing companies: Alphabet, Meta, Microsoft, Salesforce, Spotify, Amazon and Twitter have collectively laid off 150,000 people. A major driver is the cost of living crisis and the end of easy money – consumers are cancelling subscriptions, and social media based firms are struggling to keep users and make up for lost advertising revenues. But content automation within the technology sector – symbolized by rapid popular adoption of ChatGPT – may be another driver. Financials and Property Although Financials saw some COVID-related credit downgrades in 2020, they were muted compared to the impact on Corporates. But recent deterioration has flipped the balance of US upgrades vs. downgrades back to negative. Major banks have started layoffs, after shrinking M&A volumes and downturns in consumer lending. JP Morgan has gone a stage further, reserving against possible bad debts for this year. The charts below show some key trends. Financials – GSIBs, CCPs, Specialized Lending: Deterioration? The upper chart shows that US Financials were not immune to the COVID-related wave of downgrades, but they recovered sharply in 2021. This has now run out of steam; of the four negative balances in 2022, three were in the last two months. The lower chart shows modest but consistent credit deterioration for Global Central Counterparties and even for Global Systemically Important Banks – this mirrors regulator concerns that banks need to reserve more and monitor lending books more closely. For Global Banks overall, the trend is flat, with concerns focused in the illiquid and often unrated segments: Global Specialized lending has been volatile but shows a marked deterioration in the past year. After Bonds and Equities, Property is now the third largest asset class held by mutual funds; banks and insurance companies also have significant exposures. US Mutual Fund (ex-money market funds) net inflows were negative in 2022, highlighting the liquidity challenges for heavily exposed funds. The chart below shows the proportion of mutual funds in the highest credit category over time – this has dropped in recent years but has staged a sharp rebound in the past two months. Credit Risk for Mutual Funds with Exposure to Property: Highest quality cohort [Chart based on c.300 funds, showing percentage in highest credit category (i.e. 1-10 on 100 pt scale, in the aa- range.)] Mutual Funds are typically very good credit risks, but those with exposure to Property showed a trend drop in credit quality – from 15% - 20% in the period 2017 -2021, dropping below 10% in 2021 before rebounding in recent months: it is possible that some property-focused mutual funds have adjusted their portfolios. Credit Index Risk Scores COVID and the Ukraine war have had far-reaching impacts on patterns of demand and supply. Across the winners and losers, the net credit impact is not always obvious. Credit Consensus data now includes more than 1,000 credit indices covering various type, geography and industry / sector combinations. The table below shows one example of how these can be used to track credit shifts across these dimensions. Credit Index highest risk scores, Dec 2022: Africa and North America feature heavily The table lists the 50 highest risk consensus-based indices, based on three risk factors: Proportion of constituents in credit categories b and c Percent change in default risk in the past month Percent change in the 6m trailing volatility of the index average PD. These are normalized2 and summed. The rationale is this: if sector PDs are increasingly volatile and trending higher, downgrades are likely and higher default rates are a possibility, especially if the sector has a high proportion of low quality constituents. African indices dominated the list in late 2022, and they continue to feature heavily. French Retailers top the list, due to rising default risk and increasing volatility, but with just 28 constituents this may be overstated. There are now a lot more North American / US indices, more continental European indices, and fewer UK indices. Global Sovereigns now appear, with African Sovereigns as a stand out. African Sovereigns had a difficult 2022: Ghana and Zambia are in default, and there are looming 2023 funding problems for Chad and Ethiopia. Credit Volatility Elevated, but below COVID highs. Currently suggesting a 25% to 35% increase in defaults, could rise during the year. Credit indices can also be used to track volatility of default risks, which is a leading indicator for increasing transitions – upgrades, downgrades and defaults. The chart below shows the 99th percentile of 6 month trailing PD volatility, measured across more than 1,200 credit indices. Credit Volatility: Elevated, but well below 2020 peak The largest credit volatility spikes are in early 2016 and 2017, followed by two COVID waves in 2020 and 2021. Volatility trended higher again in early 2022, but is currently stable. This will be a key indicator in 2023. As an approximate guide, if credit index volatility doubles across all credit categories, then so does the proportion of observed downgrades and defaults. With the more volatile (typically higher PD) credit indices about 25% to 35% above their baseline, it is likely that 2023 will see a significant increase in non-investment grade downgrades and defaults. The scale of the projected increase is less pessimistic than the main agencies, so this metric will be closely monitored this year. The chart below shows average credit volatility across a range of credit indices, sorted by country. Credit Volatility, Corporates by Country: France, India and China are high; Australia, Canada and Japan are low Singapore, Mexico, Belgium, France and Cayman Islands have the highest volatility in terms of corporate default risk. Chile, Sweden, Luxembourg, and Japan are lowest. The UK and US are below average, close to Netherlands, Germany and Canada. Credit volatility will partly reflect the credit mix in each country and will be partly driven by the number of constituents in each index; but changes in this chart over time will give a strong indication of future downgrade and default trends.Correlation matrices shown below are based on credit index monthly changes. During the height of the COVID pandemic, correlations were very high as banks turned cautious on large sections of their loan portfolios. In the past 12 months, correlations have been dropping. Corporate credit correlations by geography: dropping as COVID recedes; new divergent patterns emerging Many correlations have turned negative, indicating divergent directions for some country pairs. For example EU Corporates and Canadian Corporates now show a large negative correlation, with the Ukraine war as the main driver. The following matrix shows Global Industry / Sector correlations for the same recent 12-month period. Credit Correlations by Industry: Beverages, Distillers, Drug Retail, Delivery, Containers and Industrials decouple from Global Corporates. There are fewer negatives, but – for example – Brewers, Distillers, Industrials and Drug Retailers have decoupled from other sectors. Basic Materials are currently very highly correlated with Autos and Autoparts. CB Excel tools are available to estimate these matrices for different sets of credit indices and different time periods. Contact us to request access to the CB Excel Add-In. Conclusion Despite a backdrop of continued geopolitical risk, lenders and borrowers are focused on inflation easing and slower rate hikes. Europe has adapted to Russian gas blackmail by sharing energy and opening up to US LNG. Energy and commodity prices are generally dropping, China is reopening, tourists are travelling, leisure and recreation are recovering. Countries are investing to tackle climate change, reshape infrastructure, and diversify supply chains – good for basic materials, chemicals, electricals and heavy construction. But even if any recession in 2023 is shallower than initially feared, higher interest rates will be tough for smaller, consumer-focused, heavily indebted firms especially if they lack pricing power. Also at risk are specialized lenders and property focused firms that rely – directly or indirectly - on cheap funding. Larger companies, with long term funding or strong balance sheets, pricing power and less consumer dependence are likely to ride out 2023. CB Excel workbooks are available upon request to calculate monthly correlations between indices average PD changes, including options to calculate for different sub-periods. Please use the below form to request a copy of a correlation matrix workbook: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ 1China, Japan, and Switzerland were the only majors to keep inflation under 5% in 2022. 2As z-scores i.e. (x(i) – mean(x))/stdev(x) ### February 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. Financials have seen a mixed bag in terms of credit movement this month across all counterpart categories. Central Banks, Globally Systematically Important Banks (GSIBs), EMEA and APAC Banks all showed a bias towards credit deterioration this month, with improving to deteriorating ratios of 1:1.5, 1:1.3, 1:1.1 and 1:1.1 respectively. On the other hand, LATAM and North American Banks both showed a bias towards credit improvement, with improving to deteriorating ratios of 1.5:1 and 1.3:1 respectively. Global Banks came in at neutral. The Intermediaries showed more instances of improvement than deterioration. Central Clearing Counterparts (CCP) came out on top with an improving to deteriorating ratio of 15.0:1. However, Prime Brokers were the most in the red with a ratio of 1.7 deteriorations to each improvement. Amongst the Buy Side Managers, Asset Managers showed a bias towards credit deterioration this month, with an improving to deteriorating ratio of 1:1.6. Insurance Companies came in at neutral. For Buy Side Owners, the news was much better – all three groups saw net improvement, with Mutual Funds the best at 5.2:1 improvements to deteriorations. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### February 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-January, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Corporate credit quality maintained a bias towards net credit improvement this month, with a positive ratio of 1.1 improvements to each deterioration. Financials showed a neutral ratio of 1:1 improvements to deteriorations. Amongst the industries, the top performer was once again Oil & Gas, with a positive ratio of 1.6 improvements to each deterioration. Utilities and Consumer Goods were the next strongest, both with a ratio of 1.3:1. This month, three industries saw net credit deterioration, with Telecommunications standing out with a negative ratio of 3.9 deteriorations to each improvement. Industrials and Consumer Services remained neutral. Oil & Gas credit strength was reflected at the sector level, with US and Canada firms both showing high positive ratios. Conversely, UK Oil & Gas firms dragged the average down somewhat, with a negative ratio of 1:1.1. Travel & Leisure firms continue to reap the benefits of a resurgence of personal and business travel bookings, with a positive ratio of 1.2 improvements to each deterioration. There were no instances of net deterioration amongst the sectors, however Construction & Materials came in at neutral. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### February Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the February Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. EU Industrial firms continue their run of positive credit movement, with a 17th month of improvement. UK Industrial firms continue to register a negative CCI this month. US Industrial firms return to negative credit balance. UK Industrials: Trend of Net Deterioration Forms UK Industrial firms continue to register a negative CCI this month, which is the third consecutive instance of a negative score. The UK Industrials CCI score is 49.6 this month, a slight improvement from last month’s CCI of 48.7. The UK’s manufacturing sector contracted in January for the sixth month in a row as it was hit by inflation, shortages and weak demand. . EU Industrials: Modest Improvement Continues EU Industrial firms have registered another positive CCI for this month, which is the seventeenth consecutive instance of a positive score. Whilst the trend was dipping close to neutral in Jun-22, the EU Industrials CCI score has remained above 52.3 for the last six months. The EU Industrials CCI score is 52.8 this month. The energy crisis, along with steps taken by the US, China and others, poses a significant challenge and calls for a bold new EU industrial strategy. . US Industrials: A Turn for the Worse This month US Industrial firms ended their streak of five consecutive month of positive credit balance, with a return to negative credit balance. The US Industrials CCI score this month is 48.4, a decrease from last month’s CCI of 51.2. The recently presented Green Deal Industrial Plan aims to provide a more supportive environment for the scaling up of the EU’s manufacturing capacity for the net-zero technologies and products required to meet Europe’s ambitious climate targets and to take on US and China. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### February Credit Consensus Indicators (CCIs) – Global, UK & US Oil & Gas Credit Benchmark have released the February Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for Global, UK & US Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. UK Oil & Gas firms have ended their streak of five consecutive month of positive credit balance, with a return to negative credit balance, while Global and US firms continue to enjoy net credit improvement. Global Oil & Gas: Positive Streak Continues Global Oil & Gas firms have gone from strength to strength, boasting CCI scores above 50 for 22 consecutive months and maintaining long-term net positive credit balance. The Global Oil & Gas CCI score is 50.8 this month, a decrease from last month’s CCI of 52.8. The International Energy Agency believes global oil demand will hit a record high of 101.7 million barrels per day this year. . UK Oil & Gas: A Change in Trend This month UK Oil & Gas firms ended their streak of five consecutive month of positive credit balance, with a return to negative credit balance. The UK Oil & Gas CCI score is 45.3 this month, a significant decrease from last month’s CCI of 52.2. UK Oil & Gas has announced that the Resan JV has identified and plans to drill in Q1 2023, a new potential shallow oil accumulation. . US Oil & Gas: Trend of Net Improvement Continues After ending their streak of 17 consecutive months of positive credit balance in July-22, US Oil & Gas firms have maintained positive credit balance for the fifth month running. This month, the US Oil & Gas CCI score is 51.6, a slight decrease from last month’s CCI of 52.9. US Oil and Gas deal-making declined by 13% last year to $58 billion compared to 2021, according to energy technology firm Enverus. . To download the full CCI tear sheets for Global, UK & US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### January 2023 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. Financials have seen a mixed bag in terms of credit movement this month, with a slight bias towards deterioration across all counterpart categories. Central Banks, North American Banks and Latin American Banks all showed a bias towards credit deterioration this month, with improving to deteriorating ratios of 1:1.8, 1:1.6 and 1:1.3 respectively. On the other hand, Globally Systematically Important Banks (GSIBs) and APAC Banks both showed a bias towards credit improvement, with improving to deteriorating ratios of 1.5:1 and 1.3:1 respectively. Both Global and EMEA Banks came in at neutral. The Intermediaries also showed more instances of deterioration than improvement. Prime Brokers were the most in the red with a ratio of 5.0 deteriorations to every improvement. However, Central Clearing Counterparts (CCP) came out on top with an improving to deteriorating ratio of 3.0:1. The Buy-Side has no instances of more net improvement than deterioration. Mutual Funds were the most in the red with a ratio of 1.7 deteriorations to every improvement. Sovereign Wealth Funds and Pension Funds both remained neutral. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### January 2023 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-December, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Corporate credit quality maintained a bias towards net credit improvement this month, with a positive ratio of 1.2 improvements to each deterioration. Financials showed a neutral ratio of 1:1 improvements to deteriorations. Amongst the industries, the top performer was once again Oil & Gas, with a positive ratio of 2.8 improvements to each deterioration. Health Care and Consumer Services were the next strongest, both with a ratio of 1.4:1. This month, two industries saw net credit deterioration, with Telecommunications at 1:1.7 improvements to deteriorations and Consumer Goods at 1:1.2. No industries remained neutral. Oil & Gas credit strength was reflected at the sector level, with UK and US firms both showing high positive ratios. Canada Oil & Gas had no instances of deterioration this month. Travel & Leisure firms continue to reap the benefits of a resurgence of personal and business travel bookings, with a high positive ratio of 1.8 improvements to each deterioration. There were no instances of net deterioration amongst the sectors, however Construction & Materials came in at neutral. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### The End of 3G: A Credit Boost for US Telecoms? Download PDF 3G has been a major legacy network overhead and consumer of spectrum bandwidth in the US. But as 5G moves into high gear the Big 3 wireless carriers needed to reallocate capacity to fully support the 5G network, and free up resource for the development of 6G and beyond. AT&T stopped 3G services in early 2022 and T-Mobile started to retire its older networks last summer. This month, Verizon became the last of the Big 3 to shut down its 3G network – meaning 3G has effectively ended in the US. This streamlining is a boost for 5G as the US joins Canada and Australia in implementing new guidelines for telecoms companies. Developed by the UK, the aim is to build a more innovative, competitive and secure supply of equipment for next generation telecoms networks. US Telecoms credit has suffered in recent months with the return to normal working practices and the increasing importance of satellite as a backup for mobiles. But with the 3G burden removed, the sector’s Big 3 are better placed to invest in future technologies with less strain on balance sheets. Figure 1 shows the Credit Consensus Indicators1 (CCIs) for US Telecommunications. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Credit Consensus Indicators (CCIs), US Telecommunications: Mar-16 to Nov-22 More CCI industry graphs can be found within Credit Benchmark’s monthly CCI Monitors. US Telecommunications have recorded three consecutive months of credit deterioration, with this month’s CCI score being the lowest since Oct-18. Figure 2 shows the current credit distribution for US Telecommunications companies – over 63% are rated high yield credit quality. Figure 2: Credit Distribution, US Telecommunications; Nov-22 Figures 3-5 show detailed credit trends of the Big 3 wireless carriers in the US. Figure 3: Credit Trend - AT&T Inc Figure 4: Credit Trend - T-Mobile USA Inc Figure 5: Credit Trend - Verizon Communications Inc [1] The CCI is an index of forward-looking credit opinions based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Structured Credit Investor: New Report Sheds Light on Post Covid Correlations Though credit correlations have become more positive after the coronavirus pandemic, they've been dropping since late 2021. Nevertheless, challenges in achieving portfolio diversification are much more acute in the post-Covid period, writes Stelios Papadopoulos for Structured Credit Investor, citing a recent Credit Benchmark report; "Credit Correlations: Avoiding Unnecessary Risk". Stelios Papadopoulos noted in the column: "Investors can use correlation matrices to fine tune synthetic ABS deal terms by plotting the risk and reward of alternatives, where offered. If issuers and investors can agree on a common benchmark correlation matrix-for example monthly and calibrated to the past three years-they have scope to negotiate pricing with more speed and accuracy to minimize opportunity costs." The full original research cited by Structured Credit Investor can be accessed here. Structured Credit Investor, January 13, 2023. View original article (external link - subscriber access required). ### Credit Correlations: Avoiding Unnecessary Risks 1. Credit Correlations With default risks expected to rise in 2023, correlations between those risks are increasingly important for credit portfolio management. Exposures to different sectors – that normally diversify the portfolio – may show a simultaneous increase in risk during difficult economic conditions. And sectors that are expected to move together may start to diverge. Consensus credit data, updated twice-monthly, can be used to estimate credit correlations between regions, countries, industries, and sectors. Credit indices (“Aggregates”) track the average probability of default (“PD”) across many constituents[1].   Correlations are typically calculated from percentage changes in average PDs; although the basic time unit is monthly, some users prefer longer time units (e.g. quarterly) with a smaller number of independent timesteps. Correlations can also be calculated for sub-periods, such as pre- and post- COVID; and these can give dramatically different results if the credit regime has shifted from “Risk On” to “Risk Off”. Figure 1.1 shows two typical credit indices. Figure 1.1 Credit Index Examples: Global Food & Drug Retailers and Global Automobiles & Parts (Rebased) The correlation between these can be calculated by applying the Pearson measure[2] to the monthly percentage changes in average credit risk[3]. Figure 1.1 shows rebased credit indices, starting at a common value in November 2020. The y-axis shows the cumulative percentage change in default risk since then. Correlation calculations are applied to monthly percentage changes in average default probabilities. Figure 1.2 shows a typical 13 x 13 matrix before and after the COVID pandemic. Figure 1.2 Credit Correlations, Pre- and Post-COVID Example: Correlation Matrices between PD changes, pre- and post-COVID Pre-COVID 2018-2020 Post-COVID 2020-2022 Correlations are much higher after the pandemic, showing that portfolio diversification is particularly difficult to achieve just when it is most needed. Consensus aggregates cover more than 1,000 country/sector combinations, and most have monthly history back to 2016. Figure 1.3 shows a 30 x 30 matrix for the full period 2016-2022. Figure 1.3 Credit Correlations, 2016-2022, Various Country/Industry Combinations This has been sorted by row/column. Some of the differences in pairwise correlations may be due to the credit distribution within each aggregate: for example, most constituents in one credit index may be mainly investment grade, while others may be heavily skewed towards non-investment grade constituents.   Figure 1.4 shows correlations between broad credit categories (upper and lower investment grade, upper and lower high yield) for Global industries for the period Q4 2018 to Q3 2022. Figure 1.4 Default Risk Correlations Between Global Industries and Credit Categories, Q4 2018-Q3 2022 Within each credit category, the average industry correlations are: IGa = 0.50, IGb = 0.59, HYb = 0.69, HYc = 0.31.  This suggests global industry weights may be critical in the highest risk HYc category. This is because credit risk for different industries may show major divergences within that credit group.  By comparison, the upper non-investment grade category HYb shows least scope for diversification by industry. Equally, this means less risk arising from industry concentration; the critical decision here is the portfolio weight assigned to this credit category. The average correlation between HYb and HYc is 0.32; almost identical to the low correlation across sectors within HYc. For the period Q2 2021 to Q3 2022, the average correlations in each category are IGa = 0.5, IGb = 0.55, HYb = 0.52, HYc = 0.19. So, scope for diversification has modestly increased in the most recent 18 months, but so has the hazard of sector concentration and single name event risk. Figure 1.5 plots detailed credit risk correlations between the index of all Global Corporates and the four credit categories for the period Q4 2018 – Q3 2022. Figure 1.5 Correlation Between Default Probability Changes, All Global Corporates vs. Global Corporate Credit Categories, Monthly, Q4 2018 – Q3 2022 The index of Global Corporate credit risk across all credit categories is very highly correlated with the HYb index (left chart; R2 = 90%), followed by IGb (upper right chart, R2 = 77%). The correlation with IGa is still high (R2 = 69%). The lowest – but still significant – is HYc (R2 = 60%). These charts can be plotted for all major industries; they alert credit portfolio managers to divergences in credit trends within industries and show the scope for selective diversification from investment grade to high yield. Equally, if the overall credit environment deteriorates, then the lowest quality names will be hardest hit. While high level geographic and industry/sector credit indices are very useful for tracking broad trends, more detail may be needed for some risk management purposes. In these cases, the correlations between credit category indices shown here may bring added clarity to credit portfolio risk modelling[4]. For managers of structured credit portfolios (such as CLOs), the four credit categories used here approximately correspond to Senior, Upper and Lower Mezzanine, and First Default tranche definitions, so the correlations between them can provide a proxy benchmark for implied correlations quoted in tranche pricing. Figure 1.6 shows two versions of the implied time series of changes for largest component. The first is derived from the correlation matrix shown in Figure 1.3; the second is derived from a range of US Industries and Sectors. These are compared with the USD High Yield OAS Level. Figure 1.6 Common Credit Factor Derived From Different Correlation Matrices vs. HY OAS Common credit factor derived from mix of Global, US and European Consensus credit indices: Common credit factor derived from US Consensus credit indices only: There are differences, but the overall patterns are very similar.  The correlation between changes is 0.96. Option Adjusted Spread, US High Yield: Changes in OAS spreads are not correlated with changes in the common factor or the Global Corporate index.  But the major peaks and troughs in the OAS levels are moderately aligned (correlation = 0.6) with common factor changes – suggesting that spikes in market spreads are followed, with a lag, by successive upward revisions in bank risk estimates. If spreads stay high for a sustained period, there will be increasing stress on a growing number of companies. Different combinations of aggregates result in very similar time series patterns, suggesting a robust “Common Credit Factor”. Reassuringly, changes in this Common Credit Factor are very highly correlated (0.91) with changes in the Global Corporates credit index, so the latter can be used as a proxy for applications like single factor betas, discussed in the next section. A useful next step is to estimate the sensitivity of country/industry/sector credit indices to the global factor. Figure 1.7 calculates some credit index betas vs. Global Corporates as a proxy for the global factor. Betas are estimated for pre-COVID (2016 – Feb 2020) and post-COVID (July 2020 – Sep 2022). Figure 1.7 Country / Industry Credit Index Betas vs. Global Corporates, Pre- and Post-COVID The betas are very different for the two periods. In the pre-COVID period UK Corporates, Latin American Corporates, Global Consumer Goods, US General Retailers, US Oil & Gas and US Software are the highest betas; but most of these have a poor fit (i.e. low correlation with Global Corporates). In the post-COVID period, the higher beta indices include Global Oil & Gas, Canadian Corporates, US Real Estate, and US Travel & Leisure. The average fit is much higher, confirming that industry and country correlations have risen significantly in the post-COVID period, making credit portfolio diversification more challenging. Betas which show little change over the two periods include Corporates in France and Switzerland, US General Retailers and US Healthcare, US Software and US Support Services, as well as Corporates in Africa and in the Pacific region. This demonstrates the value of frequent data updates and the need for frequent recalibration of correlations, betas and other risk measures. 2. Use Cases Credit Portfolio Risk Management: Any credit risk portfolio can be treated as a set of exposures, with weights adding to at least 100%, and more if leverage is used. PD volatility is one of a large number of metrics that can be used to estimate portfolio credit risk. There are a range of approaches to calibrating this risk, from Monte Carlo simulation (e.g. if exposures are non-linear) to Historic Simulation (very useful when the distribution of asset value changes is not Log-Normal).  Correlation matrices are compact, allowing rapid comparison between many portfolios, and are especially suited to calculating marginal contributions to risk by exposures, as well as portfolio optimization. They can also provide the basis for the Principal Components analysis outlined here. Since they are symmetric, they are most suited to e.g. portfolios with exposures that cluster in the middle of the credit distribution.  For portfolios in the credit tails, it is important to also look at transition matrices, joint default probabilities, and recovery rates. Financial Stability: Where two organizations have different exposures to the same underlying set of countries or industries, correlations can be used to assess the joint distribution of their PD volatility – in other words, are the two sets of exposures diversifying or concentrating systemic risks? The same approach can be extended to multiple organizations. Risk Sharing / Capital Relief Trades: Investors can use correlation matrices to fine tune deal terms by plotting the risk and reward of alternatives (where offered). If issuers and investors can agree on a common benchmark correlation matrix (e.g. monthly, calibrated to the past 3 years) they have scope to negotiate pricing with more speed and accuracy to minimize opportunity costs. Credit category aggregate correlations may be useful for some of these trades, especially if they involve tranches. For more information, please refer to the whitepaper "Credit Consensus Ratings and Risk Sharing Portfolios". Collateralized Loan Obligations (CLOs): The credit category aggregate correlations reported in this paper can provide a real-world benchmark for implied correlations that feature in CLO tranche pricing.  While correlations between actual issuer risks across credit categories is unlikely to be identical to the correlation between CLO tranches, the matrices shown here should provide a good guide to the expected scale of differences between credit categories. 3. Conclusion Consensus credit data supports a very large universe of credit risk indices. These cover regions, countries, industries, sectors and credit categories.  Correlations between these can be measured using monthly changes in average default risk estimates. These correlations can be used for credit portfolio risk management purposes, highlighting when a portfolio is at risk from rising credit volatility and – by implication – higher rates of downgrades and defaults. Further analysis of these correlations reveals a common credit factor, and this is highly correlated with the Global Corporate credit index.  Country and industry regression betas can also be calculated showing the sensitivity of each index to the common factor. Changes in common factor are correlated with Option Adjusted Spread levels, so it is possible to combine bond market spread data with Consensus-based betas to estimate which countries and industries are most at risk from a general increase in credit risk. So far, the time series data shows two distinct “regimes” separated by the start of the COVID pandemic. Pre-COVID betas are very different from post-COVID betas, illustrating the value of frequent data updates covering large numbers of diverse borrowers. To access the Appendices of this whitepaper (Principal Components Analysis & Correlation Matrices in Credit Portfolio Risk Calculations), please complete your details to download the full PDF report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report [1] The full history is available as a download from the Reports section of the Credit Benchmark Web Application, and this can be converted (eg via the Excel Pivot functionality) into a large set of time series data for more than 1000 aggregates. [2] Pearson definition [3] It can also be applied to the percent change in hazard / survival rates.  The results are very similar. [4] Changes in credit category indices are highly correlated with their parent index: e.g. changes in Global Corporates IGa vs. changes in Global Corporates (All) have a correlation of 0.83.  (NB: The chain linking methodology can cause significant drift in the IGa and HYc series, but this does not affect the correlation calculation applied to log differences.) ### January Credit Consensus Indicators (CCIs) – Global, UK & US Oil & Gas Credit Benchmark have released the January Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for Global, UK & US Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Oil & Gas firms have put a recent negative blip behind them with another month of positive credit quality, while Global and UK firms also continue to enjoy net credit improvement. Global Oil & Gas: Positive Streak Continues Global Oil & Gas firms have gone from strength to strength, boasting CCI scores above 50 for 21 consecutive months and maintaining long-term net positive credit quality. The Global Oil & Gas CCI score is 52.8 this month, a slight increase from last month’s CCI of 52.5. Global Oil & Gas sector’s profits are high despite windfall taxes. . UK Oil & Gas: Improvement Persists The improving trend for UK Oil & Gas firms continues, with a fifth consecutive month of credit quality in the green. The UK Oil & Gas CCI score is 52.2 this month, a slight decrease from last month’s CCI of 54.0. UK’s exporter-heavy FTSE 100 jumped to a seven-month high last week as oil stocks rallied. . US Oil & Gas: Trend of Net Improvement Reforms After ending their streak of 17 consecutive months of positive credit quality in July-22, US Oil & Gas firms have maintained positive credit quality for the fourth month running. This month, the US Oil & Gas CCI score is 52.9, an increase from last month’s CCI of 51.7. The US is looking to double gas exports to the UK over the coming year as a recent partnership was announced to reduce global dependence on Russian energy. . To download the full CCI tear sheets for Global, UK & US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### January Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the December Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. EU Industrial firms continue their run of positive credit movement, with a 16th month of improvement. UK Industrial firms continue to register a negative CCI this month. US Industrial firms remain slightly positive with a fifth consecutive instance of a positive CCI score. UK Industrials: Lingering Deterioration UK Industrial firms continue to register a negative CCI this month. The UK Industrials CCI score is 48.8 this month, a slight worsening from last month’s CCI of 49.6. Further train strikes have been announced this week, expecting to cause significant disruptions. Ministers warn of ‘permanent scarring’ left by rolling industrial action. . EU Industrials: Modest Improvement Continues EU Industrial firms have registered another positive CCI for this month, which is the sixteenth consecutive instance of a positive score. Whilst the trend was dipping close to neutral in Jun-22, the EU Industrials CCI score has remained above 52.3 for the last 5 months. The EU Industrials CCI score is 52.6 this month. The energy crisis, along with steps taken by the US, China and others, poses a significant challenge and calls for a bold new EU industrial strategy. . US Industrials: Improvement Strengthening US Industrial firms remain slightly positive with a fifth consecutive instance of a positive CCI score. The US Industrials CCI score this month is 51.1, an improvement from last month’s CCI of 50.7. In the US, the glory days of manufacturing could once again be possible. Industrial technology companies under-the-radar successes are powering a resurgence in US manufacturing. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Something has started changing: the cost of securities lending indemnification can no longer be ignored Mark Faulkner, Co-Founder of Credit Benchmark, and Matthew Brunette of Norges Bank Investment Management talk to Brooke Gillman of eSecLending on the topic of indemnification in Securities Lending. The Peer Connections Podcast is hosted by the Global Peer Financing Association. ### December Credit Consensus Indicators (CCIs) – Global, UK & US Oil & Gas Credit Benchmark have released the December Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for Global, UK & US Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Oil & Gas firms have put a recent negative blip behind them with another month of positive credit quality, while Global and UK firms also continue to enjoy net credit improvement. Global Oil & Gas: Improvement Persists Global Oil & Gas firms have gone from strength to strength, boasting CCI scores above 50 for 20 consecutive months and maintaining long-term net positive credit quality. The Global Oil & Gas CCI score is 52.5 this month, a slight decrease from last month’s CCI of 54.1. 5G to revolutionize the Global Oil & Gas industry in the next 7 years. The market is expected to grow more than 500% by 2030, due to digitization . UK Oil & Gas: Increased Improvement The improving trend for UK Oil & Gas firms continues, with a fourth consecutive month of credit quality in the green. The UK Oil & Gas CCI score is 54.0 this month, a slight increase from last month’s CCI of 52.7. The UK Oil and Gas sector faces a ~£20 billion bill to dismante over 2,000 unused wells and facilities in the ageing basin over the next decade. . US Oil & Gas: Hanging On After ended their streak of 17 consecutive months of positive credit quality in July-22, US Oil & Gas firms have maintained positive credit quality for the third month running. This month, the US Oil & Gas CCI score is 51.7, a modest decrease from last month’s CCI of 55.0, but still hanging to credit positivity. Oil stocks have continued to show a peculiar disconnect from the commodity they track, with oil equities staging a powerful rally even as oil prices have fallen sharply since the last OPEC meeting. . To download the full CCI tear sheets for Global, UK & US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Shopping Around the Christmas Tree: US Consumer Services and Goods Download PDF High inflation and rate hikes were expected to hit the annual Black Friday sales, but early reports show mostly good news: online sales hit a record $9 billion, and Adobe Analytics figures show ebbing pandemic health concerns with shoppers returning to in-store purchases. But the improvement could be short-lived, reflecting relief at a lockdown-free holiday period and the lure of short-term promotions. Figure 1 shows the Credit Consensus Indicators1 (CCIs) for US Consumer Services and US Consumer Goods. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Credit Consensus Indicators (CCIs), US Consumer Services and US Consumer Goods: Jan-16 to Oct-22 More CCI industry graphs can be found within Credit Benchmark’s monthly CCI Monitors. Both US Consumer Services and Goods are currently hovering around neutral. US Consumer Services remains slightly positive but has not risen above 51 in the past 3 months. US Consumer Goods has been mildly negative for the past 3 months, hovering in the 48-50 range. The CCIs show that US Consumer sectors are at a crossroads. Figure 2 shows that a significant proportion are in the distressed categories (b and c) with more than half of US Consumer Services below investment grade. Figure 2: Credit Distribution, US Consumer Services and US Consumer Goods; Oct-22 But the Black Friday stats so far suggest a good December, at least for consumer goods; if that momentum can be maintained we could see more positive CCIs across the Consumer sector. A possible bellwether is electronics retail giant Best Buy – its stock price is up 24% in the past month, and its Credit Consensus Rating (CCR) has steadily improved over the past year. Figure 3 shows the detailed CCR credit trend for Best Buy Co Inc. Figure 3: Credit Trend - Best Buy Co Inc [1] The CCI is an index of forward-looking credit opinions based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### December Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the December Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. EU Industrial firms continue their run of positive credit movement, with a 15th month of improvement. UK Industrial firms are struggling to remain in positive territory, with a return to net deterioration this month. US Industrial firms hang on to mild positivity with a fourth consecutive instance of a positive CCI score. UK Industrials: Return To Net Deterioration UK Industrial firms are struggling to remain in positive territory, with a return to net deterioration this month. The UK Industrials CCI score is 49.6 this month, the first instance of a negative score since April 2022, and the third negative score in the last 12 months. Further train strikes have been announced by rail staff, raising fears of severe travel disruption over the festive period, as the transport system is struck by widescale industrial action. . EU Industrials: Modest Improvement Continues EU Industrial firms have registered another positive CCI for this month, which is the fifteenth consecutive instance of a positive score. Whilst the trend was dipping close to neutral, the EU Industrials CCI score is 52.4 this month, a fourth large positive CCI score in a row. The European Union is more determined than ever to transition from expensive imported fossil fuels to competitive, clean and home-grown renewables, to secure its clean energy industrial base. . US Industrials: Hanging On US Industrial firms hang on to mild positivity with a fourth consecutive instance of a positive CCI score. The US Industrials CCI score this month is 50.7, a slight improvement from last month’s CCI of 50.2. US Industrial companies across the sectors have bounced back from the pandemic-driven recession. Now the digital revolution is brewing in the industrials sector. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### World Cup 2022: The Credit Effect Download PDF With more teams playing than ever before (and a further expansion planned for 2026) the World Cup might provide some real surprises, with more chances of early baths for favourites and a better shot at football immortality for the new arrivals.But for a quadrennial contest that has been around for over 90 years, the list of winners is a bit repetitive. Across 21 tournaments, there are only eight winning countries. Brazil have played in every tournament and won 5 times; Germany and Italy 4 times, Argentina, Uruguay and France have won twice, England and Spain have each won once. Based on numbers of matches won, we could add Netherlands (ranked 8th, ahead of Uruguay) and Sweden to make this a top 10. Call this the Winners group.The smallest countries to qualify across those 21 tournaments are Iceland, Paraguay, Trinidad & Tobago, Northern Ireland, Kuwait, Slovenia, Jamaica, Qatar, Wales and Panama - although technically two of these nations are still part of the UK. These 10 group members may be small, but they are Determined.Compared with any other sport, Association Football has the world’s largest TV audience, as well as at least 250m professional or organized amateur players, plus countless informal kickabouts. Yet nearly half of the world’s nations have never qualified, including some very populous countries: India, Pakistan, Bangladesh, Thailand, Vietnam, Ethiopia, Kenya, Tanzania, Myanmar and the Philippines. Cricket may be part of the reason in the first three of these nations, but there is no other obvious common theme. Call this group of 10 the Unqualified. Figure 1 compares average Sovereign Credit Consensus Rating for each of these groups. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Average Sovereign Credit Consensus Rating for Each Group The top 10 match winning nations (including Netherlands and Spain) have the highest average Credit Consensus Rating (a), although the Winners are a group of two halves: three of the European nations are aaa, Brazil is bb and two times cup winners and frequent credit defaulters Argentina are ccc.The Determined group have a lower but still investment grade average Credit Consensus Rating (bbb+), but again mix highly rated (and oil rich) nations like Kuwait (aa-) and Qatar (aa-) with the more economically disadvantaged Paraguay (b+) and Jamaica (b).The Unqualified group have an average Credit Consensus Rating of bb-, and only three are investment grade: India (bbb-), Philippines (bbb) and Thailand (a-). While it is possible that their sporting interests and investments in training just do not favour football, it also shows that a large population is no guarantee of success.A common complaint is that too much money has ruined the beautiful game, but this quick sketch of the credit dimension suggests that most successful teams have been nurtured by large amounts of money. But being football, there is always room for an upset by the underfunded or the small with a hunger for glory.Late result: Budweiser (owned by AB InBev (a-)) lost $40m after gearing up as sole supplier of lager to thirsty fans in Qatar before the full alcohol ban imposed at the last minute. But the World Cup is typically good for global beer sales to that huge TV audience, and as Figure 2 shows the sector would benefit from the boost. Figure 2: Global Distillers & Vintners vs. Global Beverages The Distillers & Vintners sub-sector is slightly lower credit quality than the broader Beverages sector, and credit quality has been declining for most of 2022 as cost-of-living hikes bite; but soft drinks have had an easier time - during one of the hottest summers on record… If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to book a demo: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Global Association of Risk Professionals [GARP]: Capital Rules in EU Could Affect Securities Lending Elsewhere U.S. market participants, already facing tough requirements, may find some relief, writes John Hintze at Global Association of Risk Professionals, citing research from Credit Benchmark. "European Union capital rules, to be implemented starting in 2025, are expected to dramatically increase bank capital requirements for securities lending and institutional-investor counterparties’ trading costs. According to a September Credit Benchmark report, that will depress securities financing activity and in turn reduce market liquidity and widen bid-offer spreads, potentially driving up trading costs by €20 billion to €40 billion annually." Global Association of Risk Professionals [GARP], November 23, 2022. View original article (external link). ### UK LDI Crisis: Pension Funds Cannot Rely on Sponsors The UK pension industry has been grappling with the combined challenges of increasing life expectancy and unnaturally low interest rates. The spike in energy costs and COVID disruption to supply chains means that the global interest rate cycle appears to have turned. This has had a particularly acute impact in the UK, where DB (Defined Benefit) and DC (Defined Contribution) schemes had turned to LDI (Liability Driven Investment) strategies to avoid notional funding deficits. The LDI approach spawned an asset management boom in target date funds, which in some cases used leverage to convert 30-year bonds into longer duration hedges. Rising gilt yields have led to margin calls – with many funds holding insufficient cash to make immediate payment. Those funds do have other assets – bonds, equities, property; and ironically, they also have an improved long term funding position due to a drop in liability values following the rate increase. In the short term, however, they need to sell assets, or ask their sponsor for a cash injection – or reduce their swap exposure. Figure 1 shows the relative credit standing of about 150 UK DB schemes compared with the credit risk of their sponsor. Figure 1 UK DB Schemes Credit Risk vs. Sponsor Credit Risk Pension funds are traditionally well capitalised and bank consensus ratings usually show them as investment grade. Many of the companies that sponsor those funds are weaker credits, and a significant number are non-investment grade. This means that most DB pension funds in this sample – some of the largest in the UK – cannot rely on their sponsors for cash support to meet margin calls. This leaves them with the options of a rapid reduction in swap positions (leaving their liabilities unhedged if long rates start to fall again) or forced asset sales, skewing their asset allocation and potentially compromising their long-term funding. Ironically, higher long rates are good for funding as liabilities drop. The challenge is to monetise that improvement to meet margin calls. This is an excerpt from the whitepaper; 'Q3 2022 Credit Review: Inflation and Credit Risk: Close to Boiling Point', which can be read here. If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to book a demo: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### November Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the November Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. EU Industrial firms continue their run of positive credit movement, with a 14th month of improvement. UK Industrial firms have also remained in the green, though showing weaker scores than their EU counterparts. US Industrial firms struggle to maintain a foothold on credit improvement, showing neutrality this month. UK Industrials: Little Month-on-Month Change Another month of mild positivity for UK Industrial firms, with a fifth consecutive instance of a CCI score above 50. The UK Industrials CCI score is 50.7 this month, a positive reading but little month-on-month change from 50.6 last month. The UK Trade Secretary has set out a plan to future-proof the UK economy by investing in cutting-edge green technology, protecting long-term energy security and creating thousands of jobs in industries of the future. . EU Industrials: Modest Improvement Continues EU Industrial firms have registered another positive CCI for this month, which is the fourteenth consecutive instance of a positive score. Whilst the trend recently dipped close to neutral, the EU Industrials CCI score is 52.8 this month, a third healthy CCI score in a row. After decreases in 2019 and 2020, EU rail freight transport performance saw some recovery in 2021, with rail freight transport up 8.7% compared with 2020, reaching almost the high level of 2018 - a recent study shows. . US Industrials: Neutral Consensus opinion on credit quality for US Industrial firms has struggled to remain in positive territory this month. The US Industrials CCI score this month is 50, suggesting neutral credit quality. The US can’t match China’s industrial heft; their attempt at an industrial policy to build electric vehicles and batteries has, once again, fallen flat. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### November 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. Credit movement has leaned towards net improvement for global Financials in the last month. Improvements outweighed deteriorations this month, with net credit movement positive for most Financial Counterparts. Globally Systematically Important Banks (GSIBs) showed the strongest credit movement, with an improvements to deteriorations ratio of 4:1. Latin America Banks followed, with 2.7 improvements to each deterioration. Central Banks were the only bank group that came in with net deterioration with a ratio of 1:1.7. Of the Intermediaries, Prime Brokers came out on top with an improving to deteriorating ratio of 3:1. Broker Dealers and CCP Members were the next best performers, with positive ratios of 2.4:1 and 2.3:1 respectively. None of the Intermediaries showed negative net movement this month. The Buy-Side fared slightly worse off this month, with more net deterioration that improvement. The only example of positive movement was seen in Insurance Companies, with an improving to deteriorating ratio of 1.7:1. Sovereign Wealth Funds remained neutral. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### November 2022 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-October, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Corporate credit quality maintained a bias towards net credit improvement this month – but more instances of deterioration have crept in at the industry level than what was seen last month. Corporates and Financials showed similar credit movement this month, with ratios of 1.3:1 and 1.4:1 respectively. Amongst the industries, the top performer was once again Oil & Gas, with a positive ratio of 3.1 improvements to each deterioration. Basic Materials were the next strongest, with a ratio of 1.7:1. This month, two industries saw net credit deterioration, with Consumer Services worse off at 1:1.5 improvements to deteriorations. Telecommunications and Utilities both remained neutral. Oil & Gas credit strength was reflected at the sector level, with UK, US and Canadian firms all showing high positive ratios. Travel & Leisure followed, with a ratio of 1.7 improvements to each deterioration. There were no instances of net deterioration amongst the sectors, however US Corporates and Construction & Materials both came in at neutral. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### COP27: Failure is Not an Option Download PDF The Apollo 13 moon rocket explosion in 1970 caused immediate failures in multiple systems. Primitive computers poured out reams of data, all with the same message: the moon landing had to be immediately abandoned, and the astronauts were now in mortal danger. At risk of information overload, the exasperated flight controller asked, “what have we got on the spacecraft that’s good?”[1] The climate crisis is at that point – spaceship earth losing its life support system, with limited time, resources and brainpower to guarantee human survival. Published ahead of COP27, the latest UN study is a stark warning that despite lots of talk, there is as yet no agreed feasible solution: Source: “Too Little, Too Slow - Climate adaptation failure puts world at risk” UN Environment Program Adaptation Gap Report 2022 COP26 looked like a wasted opportunity; so COP27 needs to answer one question: Is a declining standard of living the price of a sustainable future? A basic consumer society, limited foreign travel, only essential powered gadgets; appealing to some, a nightmare to many. In theory, technologies like carbon capture or nuclear fusion will solve the problem, but they need years of R&D, huge investment, and major re-engineering of the global economy. And while R&D works on the problem, how do we handle the immediate crisis? For reasons of geography or history, many developing countries are on the extreme weather frontline. Lacking resources, they depend heavily on domestic food production at risk from droughts and floods; they also lack the funds to mitigate the impact of climate change. Early COP27 discussions have flagged the issue of “reparations” (i.e. losses and damages) – controversial proposed payments from energy intensive developed economies to more vulnerable, low consumption, less-developed. The UN estimate developing country mitigation and adaption costs at $200bn pa currently (and $600bn pa by 2050). Major economies have agreed to fund half of that – but are struggling to do so; in part because meaningful net zero progress requires huge investment by major economies. Climate risk assessments are plentiful, but different methodologies lead to some very different conclusions. The CRI reports on actual climate impacts by country each year, plus a cumulative index for the period 2000-2019. The CEI looks at likely economic damage, for a sample of 48 economies. The Institute for Economics and Peace provide publishes future impact assessments on a 1 to 5 scale, for nearly every country in the world, split into Food Security, Water Issues, Climate Disasters, and Population Growth. Figure 1 shows averages for these, split by 7-category Credit Consensus Ratings, for 118 Sovereign Governments. Figure 1: Average Impact Scores by Credit Category As discussed, countries with weaker credit ratings will typically see more impact, especially on Food and Water metrics. Population growth impact is less correlated with credit risk, except in the b and c categories. But the surprise in this chart is the impact of Disaster-related mortality – highest in the bbb category, and even the aaa category is significant. This fits with recent experience, which shows that developed economies are also seeing rapid climate change: record floods in Germany, wildfires in Portugal, Spain and France; Alpine glaciers disappearing, reducing reliable meltwater yields for agriculture; increased variation in temperatures and rainfall confusing plants and hitting harvests; mosquito-borne dengue fever a growing problem in Southern Europe. These indicate future food and water problems, so Figure 1 is likely to flatten over time with all credit categories showing steady increases in each impact category. Some Non-Investment Grade countries are currently in the low impact category – mainly in the Balkans, the Arabian peninsula, or Central Asia. And some Investment Grade countries are in the high impact category – including Mauritius, Panama, Botswana, Malaysia and the Philippines. One end of the impact distribution is heavily skewed to Sub-Saharan Africa – Burundi, CAF, Kenya, both Congos, Niger, South Sudan; while the other is mainly countries in North West Europe. If these two groups cannot agree on a “losses and damages” framework, there is little point in pursuing it more broadly. The Economist states three blunt climate crisis truths: Energy is difficult to store in large quantities and renewable energy outputs are volatile; so some fossil fuel is still needed to maintain stable energy supplies. 1.5C will not be achieved. So adaption is key, especially for the countries at the top of the impact list. They need urgent fixed investment. And sooner or later we all will. Cutting emissions requires huge global investment, and a radical approach to indemnity-based finance to fund projects based in developing countries. A version of Brady Bonds for the climate crisis era would provide a financial framework for developing and developed countries to work together. Credit Consensus data includes ratings for countries that do not have full agency coverage, and the consensus universe continues to grow. These risk assessments are made by banks with a major stake in the outcome, banks experienced in lending to frontier economies. For this reason, Credit Consensus Ratings may have a key role to play in a Brady-bond style framework. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to request a demo or a coverage check on your portfolio: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ [1] According to the Ron Howard movie.  Gene Kranz does not seem to have actually said “Failure is not an option.”  But everyone at NASA was thinking it… ### North American REITs: Industrial & Office Deteriorating Global property is at a crossroads. For example, the build-to-rent sector is strong as urban rents spike around the world; and with general price levels rising at close to double digits, there is renewed interest in property as an inflation-proof real asset. But rising mortgage rates are hitting starter and family home markets globally. Figure 1.1 shows credit trends for North American REITs, split by segment. Figure 1.1 North American REITs, Past 24 months Credit Trend Credit Distribution North American REITs have improved overall since early 2021, but Industrial & Office has plateaued and now shows signs of turning down, as the new hybrid working model persists. The UK is a special case, with Goldman Sachs warning of a darker outlook for UK Commercial Real Estate. Consensus credit ratings for both British Land and Hammerson are at least one notch below their agency ratings. Some UK property funds have temporarily suspended withdrawals in recent weeks. But Sterling weakness is attracting foreign buyers into prime residential locations, where effective prices has almost halved due to COVID impacts and currency weakness. Broader property credit trends in 2023 will show how the positive value of property as an inflation hedge versus the negatives of higher mortgage rates and credit scarcity is balancing out. This is an excerpt from the whitepaper; 'Q3 2022 Credit Review: Inflation and Credit Risk: Close to Boiling Point', which can be read here. If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to book a demo: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### November Credit Consensus Indicators (CCIs) – UK, EU and US Oil & Gas Credit Benchmark have released the November Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. US Oil & Gas firms have put a recent negative blip behind them with another month of positive credit quality, while UK and EU firms also continue to enjoy net credit improvement. UK Oil & Gas: Improvement Persists The improving trend for UK Oil & Gas firms continues, with a third consecutive month of credit quality in the green. The UK Oil & Gas CCI score is 52.3 this month, a slight decrease from last month’s CCI of 52.8. The UK has opened up a new licensing round to allow oil and gas companies to explore for fossil fuels in the North Sea despite threats of a legal battle from climate campaigners. . EU Oil & Gas: Increased Improvement After some instability in their collective credit quality at the beginning of this year, the consensus outlook on EU Oil & Gas firms has kept itself out of net deterioration territory for a sixth month running. The EU Oil & Gas CCI score is 52.2 this month, an improvement from last month’s CCI of 51.1. Europe is set to increase its reliance on oil imports from the United States after the EU embargo on Russian seaborne crude imports enters into force in early December . US Oil & Gas: Maintained Improvement After ending a streak of 17 consecutive months of positive credit quality in July-22, US Oil & Gas firms have maintained positive credit quality for the second month running. This month, the US Oil & Gas CCI score is 55.1, a slight decrease from last month’s CCI of 55.7. US president Joe Biden claimed oil companies were “profiteering” from Russia’s invasion of Ukraine as he threatened them with legislation to impose a windfall tax unless they increase output. . To download the full CCI tear sheets for UK, EU, and US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### The Outlook for Global Risk Transfer Activity Click here to watch this webinar on the GoTo webinar platform. Mark Faulkner, Co-Founder of Credit Benchmark, moderates a panel of synthetic securitization experts to discuss the outlook for global risk transfer activity. This webinar is hosted by Structured Credit Investor ### COVID Recovery: Running Out of Steam The COVID outbreak led to widespread and rapid credit deterioration across multiple sectors; the subsequent recovery has been slower but has reversed much of the decline as economies have re-opened. Figure 1.1 shows the balance of upgrades and downgrades for Global Corporates. Figure 1.1 Global Corporates: Upgrades vs. Downgrades The COVID impact is clear, with a large negative balance in June 2020 below 40 (downgrades heavily outnumbering upgrades) before rebounding to its recent peak in June 2021. But while the Global Corporates balance between upgrades and downgrades remains positive, it has moved closer to balance in recent months. War, supply shocks, inflation and rising rates have stalled the improvement across multiple sectors and a growing number of them are turning down again. Figure 1.2 shows the detailed credit trend for corporates by region. Figure 1.2 Regional Corporates Credit Trend Credit Distribution Corporates credit is only just still improving, with Americas and Asia leading the pack, however it is slowing down and reaching a turning point. This is an excerpt from the whitepaper; 'Q3 2022 Credit Review: Inflation and Credit Risk: Close to Boiling Point', which can be read here. If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to book a demo: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### October 2022 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-September, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Upgrades and downgrades have again stayed relatively balanced this month, though the modest bias towards improvement continues. Financials showed slightly superior credit traction than Corporates, with a ratio of 1.5:1 improvements to deteriorations. Corporates came in at a ratio of 1.3:1. Of the industries, Oil & Gas maintains dominance as a top performer, at a ratio of 2.7:1 improvements to deteriorations. Next strongest were Basic Materials, at 1.9:1, followed by Consumer Services at 1.6:1. The rest of the industries were close to neutral, with Utilities coming in last with a negative ratio of 1:1.3 improvements to deteriorations. Of the sectors, Oil & Gas unsurprisingly were the strongest – Canada Oil & Gas led the pack at 16:1 improvements to deteriorations, followed by US firms at 4.8:1 and UK at 1.9:1. Travel & Leisure companies also performed well, with 2.5 improvements to every deterioration. There were no instances of net deterioration, but Construction & Material firms were weakest overall, at 1.1:1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### October 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. Credit movement has leaned towards net improvement for global Financials in the last month. Globally Systematically Important Banks (GSIBs) were the stand out performer, with a strong bias towards credit improvements at a ratio of 9 improvements to every 1 deterioration. Far behind, but still well in the green, were APAC Banks and Central Banks, with improving/deteriorating ratios of 2.2:1 and 2:1 respectively. LATAM and North American Banks were neutral, both with a ratio of 1:1. Amongst the Intermediaries, Broker Dealers had the strongest net improvement, with a ratio of 2.2:1 improving to deteriorating. CCPs were the only group with net deterioration. On the Buy-Side, Pension Funds came out on top with an improving to deteriorating ratio of 2.5:1. The rest of the groups were modestly positive, with the exception of Mutual Funds, which came out negative at a 1:1.3 ratio. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Credit Volatility: Defaults Set to Rise, Africa and UK at Risk Many credit portfolio managers expect default rates – currently around 2% - to be sharply higher in 2023, but the scale of the increase is still a major unknown – pessimistic estimates range as high as 7.8% for US Corporates. The overall global observed rate across all credit grades has rarely been above 4% in the past 40 years. A useful metric to anticipate rising defaults is credit volatility, measured by monthly percentage changes in default probability. If this trends higher, credit category transition rates will increase, including transitions into default. Figure 1.1 shows various measures of credit volatility, calculated from more than 800 aggregates derived from bank Credit Consensus Ratings. Figure 1.1 Credit Aggregates: Maximum and Average 6m Trailing Volatility The average and maximum trailing volatility is increasing, although it is nowhere near the peaks seen at the during the main pandemic waves. But it implies more frequent credit transitions; and if increasing volatility is biased to higher risk estimates, it suggests that downgrades and defaults will also rise in coming months. This will be a critical metric in 2023.  Figure 1.2 shows a list of consensus-based aggregates chosen according to three risk factors: (1) proportion of constituents in credit categories b and c (2) percent change in default risk in the past month (3) percent change in the 6m trailing volatility of the aggregate average PD. These are normalised[1] and summed. The 50 aggregates with the highest score are shown in Figure 1.2. Figure 1.2 Top 50 Aggregates Ranked by Combined Risk Indicator The list is headed by Turkish Financials, and the upper half is dominated by African aggregates, including the Sovereign / Central Bank aggregates. UK, US and North American aggregates appear in the top half, including UK Utilities, North American Health Care, US Industrial & Office REITs. Europe aggregates (which include UK) on the list include Gambling, Trucking and Railroads. The UK features heavily in the lower half of the list, including Autos, Industrials, Publishing, Telecoms and Electricity. The sectors on this list are the key ones to watch in coming months – these aggregates contain a high proportion of very high yield names, the aggregate is becoming more volatile, and the average risk level is rising. This is an excerpt from the whitepaper; 'Q3 2022 Credit Review: Inflation and Credit Risk: Close to Boiling Point', which can be read here. If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to book a demo: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ [1] As z-scores i.e. (x(i) – mean(x))/stdev(x) ### Q3 2022 Credit Review: Inflation and Credit Risk: Close to Boiling Point Executive Summary Credit Volatility: Defaults Set to Rise, Africa and UK at Risk COVID Recovery: Running Out of Steam US Industry Trends: Tech and Healthcare Show Most Downward Momentum North American REITS: Industrial & Office Deteriorating European Energy: Lehman Moment Averted – For Now? UK LDI Crisis: Pension Funds Cannot Rely on Sponsors Food Products – Asia and Africa diverge Global Oil & Gas: Credit Improvement Lagging Stronger Oil Price Inflation has been the major issue in Q3 2022. There are glimmers of hope in the Ukraine war, but energy and food price aftershocks will continue to strain fragile supply chains, not helped by China enforcing continued COVID lockdowns. The IMF now project inflation of over 7% in major economies this year and above 4% in 2023, and global growth is expected to be around 2.5%. With some monthly G7 inflation prints hovering close to double digits, Central Banks have responded with aggressive short rate hikes. The most optimistic projections show US rates peaking at 4%- 5% in early 2023; but so far this year, 10-year Treasury bond yields have already moved from 1.5% to over 4%. War and rate increases have cut support for global equities, with the FTSE All-World Local 23% lower YTD, and High Yield spreads for Dollar debt have spiked from around 3% to more than 5%. Governments and Central Banks are increasingly turning to intervention, support, bailouts and even nationalisation. So, in addition to inflation, higher yield curve levels also reflect rising global public debt. Rising long rates have uncovered some major issues in pension fund liability hedging in the UK, while energy price volatility has revealed some major derivative-driven strains in the European energy sector. Tighter credit supply has hit private and illiquid and asset values, with IPOs drying up, house prices under pressure, and various specialised financial vehicles struggling to find investors. All of this points to higher credit defaults in 2023. Believe it or not, there are some bright spots. Russian aggression has pushed major economies to focus on secure alternative energy sources. Airlines continue to flourish, build-to-rent is booming, and weak currencies in Japan and the UK are attracting Dollar investors. This report elaborates on some of these trends and shows where credit could be headed next. Download the full PDF of this whitepaper below: Download PDF [pdf-embedder url="https://www.creditbenchmark.com/wp-content/uploads/2022/10/Q3-2022-Credit-Review-Whitepaper-Inflation-and-Credit-Risk-Close-to-Boiling-Point-26.10.22.pdf" toolbar="top" toolbarfixed="on"] ### Business Development Companies (BDCs) Download PDF The Business Development Company sector in the US has grown steadily over the past 20 years, and there are currently more than 40 quoted funds with combined assets of more than $30bn. While BDCs allow retail investors to gain liquid exposure to portfolios of private companies, their historically high returns have been dented recently by some steep falls in valuations and – in some cases – discounts to net asset values. The sample of BDCs covered by consensus credit data includes several otherwise unrated firms. This note shows some variation in credit quality (driven by differences in sector focus and 1st lien status) across the sample, but recent credit trends have so far been benign. This data can be used to track monthly changes in BDC companies and alert investors to any turning points. Figure 1 shows the credit distribution for a sample 15 BDCs, of which Credit Benchmark has had a Credit Consensus Rating (CCR) for the last year, 6-months ago compared to current estimates. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Credit Distribution, BDCs; 6M Ago vs. Current The credit distribution for this sample of BDCs has improved over the last 6-months; 7% of companies are now rated a credit category rating. This improvement of BDCs is mirrored in Figure 2. Figure 2: Proportion of BDCs With IG Credit Category Rating; Sep-21 to Sep-22 Figure 2 shows that the percentage of BDCs with IG credit category rating has substantially increased from 67% in Sep-21 to 80% in Sep-22. Figure 3 shows the credit trend for BDCs. Figure 3: Credit Trend, BDCs; Sep-21 to Sep-22 This shows that BDCs experienced a decline in average credit risk – measured by default probability (axis inverted) - in late 2021. In 2022, the credit risk has been more stable. Figures 4-6 show detailed credit trends for various individual BDCs, some of which have limited CRA coverage. Figure 4: FS KKR Capital Corp – a publicly traded business development company (BDC) focused on providing customized credit solutions to private middle market U.S. companies. Figure 5: Midcap Financial Investment Corp – an externally managed, publicly traded, Business Development Company, focused on providing senior debt solutions to middle market companies. Figure 6: Goldman Sachs BDC Inc – is a specialty finance company focused on lending to middle-market companies, primarily in the US A full Universe Analytics based on this sample of BDCs is available. Please contact info@creditbenchmark.com for more information. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Professional Pensions: 40% of DB Schemes 'May Have Sponsor Credit Issues' Nearly 40% of sponsors have significantly lower credit ratings than their pension schemes, which increases the likelihood of those funds being forced to rely on asset sales in the liability-driven investment (LDI) crisis, writes Stephanie Baxter at Professional Pensions, citing research from Credit Benchmark. "Research by Credit Benchmark found that 63 out of 156 defined benefit (DB) pension sponsors have credit ratings that are more than three notches weaker than their pension funds. It comes as some schemes have been forced to meet margin calls on their LDI positions as gilts rose sharply following the chancellor's Mini Budget, causing the Bank of England (BoE) to intervene by buying long-dated gilts." Professional Pensions, October 13, 2022. View original article (external link). ### Structured Credit Investor Special Report: Data and Portfolio Optimisation In the newly published special report from Structured Credit Investor (SCI), Mark Faulkner, co-founder, Credit Benchmark, investigates how Credit Consensus data can help support growth in SRT activity. The full report, "Global Risk Transfer Report 2022: Expanding the Universe" can be accessed for free here. In times of flux, prudent risk management is of critical importance. After a stretch of relative calm in the world of credit risk, a stronger focus on risk management is crystallising across the capital markets, including in the business of significant risk transfer (SRT). This change is being driven by a combination of distressing geopolitical and macroeconomic events. After the initial shock, the coordinated accommodative economic policy driven by central bankers in response to the global pandemic created conditions for a relatively ‘benign’ credit environment. These conditions have proven to be the lull before the storm. The scale of the unprecedented action by central banks protected much of the global economy and companies from default. However, as liquidity and fiscal support are now inevitably being withdrawn, we find ourselves adjusting to a ‘new normal’; positioned at the epicentre of a dramatic economic storm. Rising inflation, interest rates and ongoing supply chain challenges are having a major impact upon all aspects of the economy and are inevitably concerning to investors. In this increasingly ‘malign’ environment, analytically and empirically grounded composure is an invaluable asset. Over recent years, SRT transactions have grown in popularity as banks look to release and redeploy regulatory capital, with investors happy to take on the higher returns of bank-owned high-yield assets. Banking business models are increasingly factoring in the ability to originate and distribute risk to investors via strategic risk-sharing programmes. This growth is likely to continue, given current market conditions, and should be supported by appropriate risk-related data to ensure the sector can operate efficiently and at scale. It is clear that investors are seeking a higher level of informational transparency than that currently available as standard. This is in response to the changing market conditions and to ensure that they invest in portfolios that reflect their particular risk/return profile. This case study explores some themes around how data can optimise portfolio construction now and in the future. The recent Credit Benchmark whitepaper, ‘Credit Consensus Ratings and Risk Sharing Portfolios’, provides a more in-depth technical analysis. Risk versus reward “Not all portfolios are equal; it is important to know the underlying risk and get paid accordingly” – an experienced SRT investor Figure 1: Option Adjusted Bond Spreads (Proxy for PIT) vs Tail Risks for 7 sample portfolios Figure 2: Through-The-Cycle Probability of Default (TTC PD) vs Tail Risks for 7 sample portfolios Risk is measured here by the proportion of exposures in the ‘tail’ of b- and c-rated credits – just one of a range of portfolio risk measures that can be used. Investors need at a minimum to cover credit risk, so the lowest acceptable return for each portfolio can be proxied by real world probabilities of default (PD). The upper pricing bound will be closer to market-implied PDs embedded in Option Adjusted Spreads (OAS). The latter also include a risk premium and will be more sensitive to short-term credit cycles. Observations on the sample CRT portfolios above: In general, higher tail risk brings higher compensating return, especially when tail risk is compared with OAS. For some actual CRT portfolios plotted here, the lower pricing bound (measured by PD) does not compensate for higher tail risk; e.g., Portfolio AA3. So, if tail risk is a particular issue – such as during a period of rising defaults – then deal pricing based on average PD will probably not fully compensate for tail risk. Investors in the world of SRT are a diverse group, ranging from sovereign wealth funds to hedge funds and all types of asset managers in between, and this diversity lends strength to the market. The ability to identify portfolios that meet these diverse needs and to monitor their changing risk profiles is essential to reassure investors, especially for new market entrants. “As a new investor in the SRT sector, we need reassurance from issuers and elsewhere that we are making sound investments at these challenging times” – a prospective sovereign wealth SRT investor Credit risk information is valuable at the initiation of a transaction and throughout its lifecycle, to support both portfolio construction and ongoing portfolio monitoring and surveillance. Other enhancements – such as the ability to receive automated alerts when portfolio risk changes - can only serve to improve risk management practices in the SRT business. However, issuer-provided data is not always easy to come by in certain jurisdictions and in certain segments of the market. Where transparency is lacking, aggregated data at a sectoral or geographical level can supplement entity-level ratings. For both disclosed and undisclosed portfolios, the ability to complement issuer-provided information with a richer source of externally available data is likely to become standard market practice. Portfolio diversification impacts risk and return Depending on which assets you invest in, there is a big difference in how much diversification you are getting in a portfolio. Even within the context of mid- to large-cap corporate portfolios, true diversification can be difficult to measure and monitor. Figure 3 shows the range of credit risk correlation estimates across a sample of 29 sector aggregates. In effect, this shows whether a particular sector will remain stable when other sectors are experiencing deterioration. Some sectors show very similar credit risk profiles in all market conditions; others may be independent or even negatively correlated. Figure 3: Most and Least Diversifying - 30 Sector Aggregates Used for Portfolio Examples There are many ways to estimate sector similarity – they all involve a correlation estimate, but these can be based on similarities in PD changes, in ‘tails’ (% of an asset class in the b and c credit categories over time) or on market risk measures, such as OAS. The error bars in the chart show the range of estimates using different measures of correlation – for some sectors, such as the ‘catch-all’ aggregate ‘Global Corporates’ (second from left), the range is very narrow – most measures give similar results. For others – such as ‘Belgian Corporates’ – the range is very large, while the average correlation measure is low. So Belgian corporates may look like a way of diversifying a portfolio, but there is a lot of uncertainty about their behaviour across the credit cycle. Alternative sources of correlation estimates are patchy – CDS indices cover a limited range of names and many of them are illiquid; OAS are more widely available but restricted to traded bond assets subject to the short-term swings in market sentiment and credit/liquidity risk premiums. They also tend to be positive and high – close to a value of +1 (implying perfect correlation) – in all but the most unusual market conditions. By contrast, Credit Consensus data provides a set of regular and consistent time series, including risk estimates for legal entities that are not publicly traded. They are also stable over short periods, while showing trends and turning points over longer time periods. Correlation matrices may also be used in various portfolio risk calculations and re-estimated for different time periods to assess their stability. These are likely to be utilised more widely as credit becomes more volatile. What kind of information will support and assist the growth of the SRT business? “Our bank is eager to provide useful and necessary information to investors – but we are wary of the cost of meeting the continuous demands for more and more information. Such provision can be expensive and of questionable utility” – a seasoned bank issuer As the SRT market grows, additional credit intelligence can only be a good thing, benefiting banks and investors alike and helping to build and maintain confidence in the asset class. Recognising complementary sources of data that maintain necessary levels of confidentiality could ensure that risk sharing continues to function smoothly. Diversity of portfolios and varying levels of regulatory-approved issuer disclosure implies a need in the industry for any available data to be contextualised, comparable and consistent. Standardisation or achievable industry-wide protocols could help, but establishing these presents a challenge – though one not beyond the wit of this innovative growing market, and with the potential for great benefits. The provision of information from issuer to investor is not without cost to the former. To maintain the dynamism of the industry, it is important that this provision is not too onerous to banks, nor is it requested by investors for information’s sake. Alternative sources of data could ease this informational burden between parties. As the pace of change in global markets accelerates, transition matrices may be more widely adopted to project PD term structures and future default rates for SRT portfolios. Additionally, overlaying point-in-time (PIT) data upon through-the-cycle (TTC) data could help investors make better informed decisions that consider current and expected market conditions amid increased risk volatility. “It is a capital mistake to theorise before one has data” – Sherlock Holmes The widespread adoption of appropriate levels of data provision will ensure the continued future growth of this increasingly important market. These are challenging times and the need to avoid surprises is essential. A greater understanding of the risk/return profile of a portfolio from inception to maturity can only be a positive force for all SRT practitioners. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Economics Nobel Prize Highlights Credit Risk as “Crucial Information” Download PDF The recent award of the 2022 Nobel memorial prize in Economics to Bernanke, Diamond and Dybvig for their work on banking regulation and liquidity is well-timed. As the era of low interest rates draws to a close in the face of post-Covid adjustments and international tensions, it is a reminder that the global financial system has already weathered the 2008/9 crisis and the pandemic, largely thanks to the insights from these economists. Government intervention in financial markets is rising – power company bailouts (Europe), currency intervention (Japan), record reverse repos to absorb excess investor cash (US Fed) and direct buying of Government bonds (UK). These are signs of stress as investors and business adjust to a high inflation / high interest rate environment. This stress has had a knock-on effect to funds – whether it is banks having to rein in lending to hedge funds, pension funds cutting their interest rate swap exposure, or mutual funds having to manage withdrawals (and halting them in the case of some illiquid property funds). Figure 1 shows the credit distribution for global funds. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Credit Distribution of Global Funds, Aug-22 Sovereign Wealth funds ($10trn) are concentrated in the a category; Pension Funds ($50trn) dominate the aa category. Mutual funds ($45trn) are spread across aa and a, while Hedge Funds ($5trn) are predominantly in the bb category. One of the key insights from the Nobel Prize Winners is this: “A bank crash leads to loss of crucial information that banks acquire (and can pass on to others) on savers and borrowers. Without such assurances about the credit-worthiness of businesses and households, liquidity cannot be quickly re-established”. This highlights the connection between credit and liquidity, making the point that credit assessments are a form of market information. Consensus ratings published by Credit Benchmark are, in effect, the same “crucial information” that Bernanke, Diamond and Dybvig describe, contributed monthly by 40+ large banks. Current coverage extends to more than 60,000 legal entities; half of that is in funds, the once overlooked and unrated but now increasingly critical element in global financial plumbing. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### October Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the October Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. UK Industrial firms are in a positive position for the fourth time this month, suggesting a trend of improvement is forming. EU Industrial firms have registered another positive CCI for this month, which is the thirteenth consecutive instance of a positive score. Consensus opinion on credit quality for US Industrial firms is still in positive territory, although their CCI score has significantly decreased from last month. UK Industrials: Ticking Along Another month of mild positivity for UK Industrial firms, with a fourth consecutive instance of a CCI score above 50 - suggesting a trend of improvement is forming. The UK Industrials CCI score is 50.6 this month; the CCI score has not risen above 51.5 in the past four months of improvements. Nearly £50 million in government funding is being made available to support Britain’s industrial future. . EU Industrials: Modest Improvement Continues EU Industrial firms have registered another positive CCI for this month, which is the thirteenth consecutive instance of a positive score. Whilst the trend was dipping close to neutral, the EU Industrials CCI score is 52.7 this month, a second large positive CCI score in a row. Newly elected Assonave (the Italian shipbuilding industry’s trade association) Chairman Claudio Graziano urged new industrial policy to strengthen the Italy’s and Europe’s global shipbuilding competitiveness. . US Industrials: Staying Positive Consensus opinion on credit quality for US Industrial firms is still in positive territory. However, the US Industrials CCI score this month is 50.7, a significant decrease from last month’s CCI score of 53.2. President Biden signed an industrial policy bill known as the Chips Act last month, as an answer to the computer chip shortages that have devastated the supply chain in the fallout from the pandemic. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### October Credit Consensus Indicators (CCIs) – UK, EU and US Oil & Gas Credit Benchmark have released the October Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. This month US Oil & Gas firms return to positive credit quality. UK Oil & Gas firms maintain positive territory once again and EU Oil & Gas firms avoid net deterioration territory for a fourth month running. UK Oil & Gas: Momentum Building UK Oil & Gas firms are gaining positive momentum after a second consecutive month in the green. The UK Oil & Gas CCI score is 52.8 this month, a slight improvement from last month’s CCI of 52.3. As part of its efforts to boost domestic energy production and bolster energy security, the UK government has lifted the moratorium on shale gas production in England and confirmed its support for a new oil and gas licensing round. . EU Oil & Gas: One Step Forward After some instability in their collective credit quality at the beginningof this year, the consensus outlook on EU Oil & Gas firms has kept itselfout of net deterioration territory for a fourth month running. The EU Oil & Gas CCI score is 51.1 this month, an improvement fromneutrality last month. The European Union has promised a “robust” response to any intentional disruption of its energy infrastructure after saying it suspected sabotage was behind gas leaks discovered on subsea Russian pipelines to Europe. . US Oil & Gas: Return to Net Improvement Last month US Oil & Gas firms ended their streak of 17 consecutivemonths of positive credit quality. However, this month, the US Oil & Gas CCI score is 55.7, a significantincrease from last month’s CCI of 47.9 and a return to net improvement. US petroleum product exports increased in the first half of 2022 by 11% compared with the first half of 2021—the fastest growth rate for that time period since 2017. . To download the full CCI tear sheets for UK, EU, and US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### September 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. Financials have seen a mixed bag in terms of credit movement this month across all counterpart categories. Globally Systematically Important Banks (GSIBs) and North American Banks both showed a bias towards credit deterioration this month, with improving to deteriorating ratios of 1:1.7 and 1:2 respectively. On the other hand, Latin American Banks were overwhelmingly positive, with a strong improving ratio of 7:1. APAC Banks also came out strong with a ratio of 3.2:1 improvements to deteriorations. The Intermediaries showed more instances of deterioration than improvement, with all groups showing negative ratios with the exception of Custodians and Sub Custodians which came out positive at 1.3:1. Of the other Intermediaries, Prime Brokers were the most in the red with a ratio of 2.3 deteriorations to every improvement. Amongst the Buy Side Managers, Asset Managers and Insurance companies both showed slight negative ratios, at 1:1.2 each. Buy Side Owners had a better run, with positive ratios across the board, led by Pension Funds at 2 improvements to each deterioration. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### US Basic Materials Credit Trends: Turning Point? Download PDF   The Basic Materials Industry includes Chemicals, Metals, Mining, Forestry and Paper. Output prices for these sectors have been very volatile in the past 12 months, reflecting recent rapid structural changes in the global economy.   Metals for steel and alloy production – Aluminium, Iron Ore, Lead, Zinc, Manganese, Molybdenum and Tellurium are mainly down. Rare earths used in mobile phones, EVs, batteries, catalytic convertors, and flat screens – such as Rhodium, Titanium, Lithium, Palladium, Neodynium – are higher, with Lithium up over 200% YoY. Mined fuels such as Coal are up nearly 150% over the past 12 months in response to the Ukraine war. Urea ammonia for fertilizer is up more than 100%. Precious metals are modestly down, despite surging global inflation. Some key chemical outputs with wide consumer and industry applications – Polyethylene, Polypropylene and Polyvinyl – are also weaker although PVC prices have spiked more recently. Semiconductor inputs are mixed – Germanium (a largely China-controlled market) is down over 15%, but Gallium is up nearly 50%.   This environment is very positive for some Basic Materials firms but – overall – the sector faces increasing uncertainty as interest rates hit economic growth. US Basic Materials companies recorded a run of 15 months of net improvements from Nov-20 to early-2022. However, this year has been more erratic, with multiple months of net improvement and net deterioration.   Figure 1 shows the Credit Consensus Indicators1 (CCIs) for US Basic Materials. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Credit Consensus Indicators (CCIs), US Basic Materials: Feb-16 to Aug-22   More CCI industry graphs can be found within Credit Benchmark’s monthly CCI Monitors.   This sample of more than 350 US Basic Materials companies have recorded a few CCIs below 50 recently. However, in the latest month, US Basic Materials CCI is above 50, indicating that upgrades now outnumber downgrades.   Figure 2 shows the credit trend for US Basic Materials.   Figure 2: Credit Trend, US Basic Materials; Aug-20 to Aug-22     US Basic Materials average credit risk – measured by default probability (axis inverted) – has shown some improvement this month. The CCI indicator may be picking up on early-stage changes in credit opinions that will feed into an even lower average PD in coming months.   Figure 3 shows the current credit distribution for US Basic Materials; less than 50% are rated investment grade.   Figure 3: Credit Distribution, US Basic Materials; Aug-22   [1] The CCI is an index of forward-looking credit opinions based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions.   Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Not So Healthy? US Health Care Credit Trends Download PDF As pandemic-related spending continues to fall, the US Health Care sector is beginning to show credit deterioration. Figure 1 shows the Credit Consensus Indicators1 (CCIs) for US Health Care. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Credit Consensus Indicators (CCIs), US Health Care: Feb-16 to Aug-22 After a record run of 14 months of net improvements, this sample of more than 400 US Health Care companies has recorded three months with a CCI below 50, indicating that downgrades now outnumber upgrades. More CCI industry graphs can be found within Credit Benchmark’s monthly CCI Monitors. The changing balance between upgrades and downgrades in US Health Care is mirrored in Figure 2, showing that the long decline in average credit risk – measured by default probability (axis inverted) – has been faltering, with recent periods of credit deterioration. Figure 2: Credit Trend, US Health Care; Aug-20 to Aug-22 Figure 3 shows the current credit distribution for this sample – the good news is that over 60% are still rated investment grade. Figure 3: Credit Distribution, US Health Care; Aug-22 While the Inflation Reduction Act (IRA) makes notable strides toward improving the affordability and accessibility of health care in the US, Fitch Ratings believes this act will pressure revenues and margins and have a negative effect on corporate credit, however, the future of US Health Care is still uncertain. Figures 4-7 show detailed credit trends for some of the US Health Care companies which have experienced credit deterioration recently, majority of which have limited CRA coverage. Figure 4: Dentsply Sirona Inc CreditBenchmark.com Figure 5: California Physicians' Service Figure 6: Marshfield Clinic Health System Inc Figure 7: Legacy Health [1] The CCI is an index of forward-looking credit opinions based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### The Trade: Securities Lending Reg Reforms Could Hike European Buy-Side Trading Costs by €40 Billion, Report Finds Trading costs for the European buy-side could be set to hike up by up to €40 billion due to new securities lending regulation, writes Annabel Smith at The Trade, citing research from Credit Benchmark. "...according to Credit Benchmark’s report...the new rules will have a “dramatic” impact on the buy-side that will see spreads widened and liquidity lessened. The firm predicts that the changes will see lending out of securities for general collateral (GC) cease due to a reduction in the annualised €1.2 billion income that European savers currently receive. They could also spark a decline in securities financing activity that Credit Benchmark predicts will dry up market liquidity." The full original research cited by The Trade can be accessed here. The Trade, September 16, 2022. View original article (external link). ### “Lehman Moment” for European Power Companies – Who Is at Risk? Download PDF By accident or design, Russia has weaponized energy supplies. European Governments are pledging hundreds of billions of Euros in financial aid to power generators and distributors, plus support for consumers facing massive energy price hikes. But an even larger crisis may be lurking in European energy trading, with the FT reporting sector margin requirements as high as €1trillion – vastly in excess of current sector liquidity. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Primary energy producers – oil companies, coal and uranium miners1, hydro schemes, solar and wind farms – are mainly concerned with achieving a minimum selling price - they are typically natural sellers of energy futures. Power generators can control their output provided they have access to raw energy supplies – but many do not own these outright. So the latter may hedge inputs and outputs, but need to make physical delivery. Power distributors are one step further along the power supply chain, even more vulnerable to input-output price and volume mismatches – including the risk that consumers cannot pay for usage.  Duration risk, basis risk and delivery risk are all live issues for the sector. Via exchanges and bilateral OTC deals, companies across the power supply chain hold extensive2 (up to five times the end user demand) long and short positions. Many firms have sold future output at prices that have been overtaken by war and market volatility, leaving them vulnerable to margin calls as their short positions are squeezed. For some, those short positions are covered by physical production that should materialise in the future, so their current challenge is a liquidity issue that need not become a solvency issue with help from their bankers or their governments.  But some energy generators and many energy distributors face existential risk – with potentially uncovered short sales stretching into the future which they may not be able to honour.  Putin’s decision to suspend all oil and gas supplies to Europe has put distributors in this impossible position; and they will argue that the sudden lack of physical deliverable is beyond their control, leaving them having to buy energy on the open market at any price. If their banks are understandably reluctant to provide finance, Governments face the difficult choice of acting as insurer of last resort (adding to post-Covid debt piles) or letting them collapse. The latter has huge systemic risk implications; not just for exchanges (ICE for oil and gas, Nasdaq and EEX for electricity) but also for CCPs and their members, and even for apparently well-capitalised energy firms who have potentially insolvent counterparts. It has been described as a “Lehman moment” for the sector, and there are parallels with the 2008 financial crisis: many of these positions will come good over time provided supplies can be found somewhere to meet the obligations, but in the meantime, there is a need for a large lifeboat. Iberdrola subsidiary Scottish Power has proposed amortizing the necessary consumer and corporate help over multiple years – a recognition that these are exceptional circumstances. The EU is proposing a form of “power bank” where firms with windfall gains could finance those in distress until prices and volumes stabilise.  But how to identify who is a winner and who is a loser? As in 2008, the tangle of derivative deals – many undisclosed – risks contagion across the industry. Some companies may not know their true net position until they know which of their counterparts are in a position to deliver financially or physically. The complex legal relationship between holding company and operating subsidiary is a further problem – creditors may not be sure that their loans are actually backed by assets. For example, figure 1 shows the credit history for Uniper. Figure 1: Uniper Consensus Credit Rating History From bbb last year, Uniper has declined steadily to bbb-, bb+, bb and now bb-. The long term S&P rating remains investment grade and Uniper has effectively been bailed out (and may be nationalised); but for lending banks there was no guarantee that this would happen. Recent share prices and consensus credit data across the sector reflect this uncertainty, with the latter sourced directly from banks facing major and critical lending decisions. Figure 2 shows current and recent consensus ratings for some of the main energy companies, along with equity price performance for the quoted firms. Figure 2: Consensus Ratings and Equity Performance of Major European Energy Firms Credit is generally strong and has been stable, with the exception of Engie, Fortum, EDF and Uniper – but the enormous variation in equity performance shows the challenge for investors and lenders in this sector. Engie’s gas business is not directly dependent on Russian pipelines, but they are having to compete in the open market for increasingly limited LNG supplies. EDF’s credit rating suffered due to complete suspension of their nuclear facilities for maintenance; a government bailout has rescued shareholders and covered hedging obligations pending nuclear output coming back onstream in Q4. Uniper, Fortum, Enel, A2A, Veolia and E ON all show significant share price weakness this year; Italy and Germany are large importers of Russian gas. RWE bucks this trend due to large coal and nuclear exposure, both of which are back in favour to fill the gap left by the Russian supply squeeze. Iberdrola and its subsidiaries are heavily focused on renewables; their shares and credit rating have been stable. Clear double winners may emerge – those with little exposure to Russian fossil fuel supplies and windfall profits from price spikes, either due to limited hedging of output or effective hedging of inputs. But the losers will include those that over-hedged and now face a price and liquidity squeeze. If counterparty risk becomes a problem, the equity and credit picture could change; and this sector has a large number of smaller firms, many of them very exposed at the moment and generally classed as non-investment grade. Consensus credit data is sourced directly from major global banks – it covers more than 100 European energy companies, many of them unrated, or private, or subsidiaries of the holding companies; the latter show a remarkable variation in ratings. Figure 3 shows the correlations between the European Electricity aggregate and other major aggregates (these are a small sample from a full set of 1000+ aggregates covering multiple geographies and sectors). Figure 3: European Electricity correlations, 2020-2022 European electrical companies show some striking divergences in credit risk behaviour; UK Conventional Electricity default risks are highly correlated (+0.90) with the main Europe Electricity aggregate, but only +0.43 with the EU Conventional Electricity companies. The European sector is – not surprisingly – completely independent of Asia, with low negative correlations, and only modestly correlated (+0.25 to +0.44) with Global Oil & Gas Producers. Correlations with Global Utilities are stronger (+0.57 to +0.70), while correlations with European and Global Corporates are almost identical. Single name consensus credit data covering 30,000 corporates and financials is now available on Bloomberg for direct comparison with equity and bond prices. Single name data and aggregate time series are available in the Credit Benchmark Web App or in csv file format. Contact info@creditbenchmark.com for more information. [1] Insight - Uranium: Kazakhstan Effect May Be Transitory, EU Policy May Be Critical - Jan-22 [2] FT estimate 11th September 2022. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### September 2022 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-August, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. The balance of upgrades and downgrades has been very even across Global Corporates and Global Financials this month, with Financials showing a neutral ratio of 1:1 improvements to deteriorations, while Corporates were ever so slightly positively biased, with a ratio of 1.1:1. Amongst the industries, the strongest instance of net improvement was seen in Basic Materials, with a ratio of 1.4:1. Most of the other industries hovered close to neutral, with the exception of Utilities which bucked the trend with a negative ratio of 1:1.6 improvements to deteriorations. In the sectors, Canada Corporates were the worst performers, with a negative ratio of 1:2.9 improvements to deteriorations. This movement was largely driven by Canada Oil & Gas firms, which showed a similar negative ratio of 1:3.1. US Corporates fared slightly better, though still negative, at 1:1.6, while the US Oil & Gas subset showed a ratio of 1:1.5. UK Corporates emerged the winner this month with a modest positive ratio of 1.1:1 improvements to deteriorations. Travel & Leisure firms continue to reap the benefits of a resurgence of personal and business travel bookings, showing the highest positive ratio this month at 2:1 improvements to deteriorations. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### September Credit Consensus Indicators (CCIs) – UK, EU and US Oil & Gas Credit Benchmark have released the September Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. This month US Oil & Gas firms end their streak of 17 consecutive months of positive credit quality. UK Oil & Gas firms return to positive territory once again and EU Oil & Gas CCI score sits neutral. UK Oil & Gas: Ups and Downs UK Oil & Gas firms recently ended its run of improvements, with a CCI score of 49.5 last month. However, the UK Oil & Gas CCI score is 52.3 this month, returning US Oil & Gas firms to positive territory once again. A new agreement signed between an oil and gas operator and a green energy and infrastructure developer will see the creation of one of the UK’s first wind-powered oil and gas production facilities. . EU Oil & Gas: Neutral EU Oil & Gas firms have experienced some instability in their collective credit quality this year, with multiple reversals between improving and deteriorating credit quality. However, the EU Oil & Gas CCI score sits neutral at 50 this month. Europe clings to stability as Russia halts gas supplies, citing a need for maintenance on its only remaining compressor. . US Oil & Gas: Trend of Net Improvement Ends This month US Oil & Gas firms ended their streak of 17 consecutive months of positive credit quality. The US Oil & Gas CCI score is 47.9 this month, a significant drop from last month’s CCI of 56.6. Interest rate and recession fears knock stocks and oil, as US crude oil slides below $90 a barrel. . To download the full CCI tear sheets for UK, EU, and US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Securities Finance Times: Basel Changes Could Trigger 35% Decline in Sec Lending Income for Europe’s Buy-Side New EU capital rules scheduled for implementation in 2025 are likely to trigger a sharp rise in trading costs for buy-side firms in Europe, writes Bob Currie at Securities Finance Time, citing a recent report published by Credit Benchmark.   "The London-based credit consensus ratings and analytics company predicts that these changes may contribute to a 35 per cent decline in the securities lending income generated by European buy-side institutions, causing lending income to contract from its current €1.2 billion to less than €800 million.   It predicts that these changes are also likely to reduce market liquidity and to widen bid-offer spreads, resulting in a potential increase in the annual cost of trading of between €20 billion and €40 billion."   The full original research cited by Securities Finance Times can be accessed here.   Securities Finance Times, September 6, 2022.   View original article (external link). ### EU Capital Rules to Increase Buyside Trading Costs Download PDF Author: Thomas Aubrey, Risk Advisor Executive Summary The new EU capital rules to be implemented from 2025 will likely lead to a dramatic rise in trading costs for the buyside across Europe. The cost of capital for banks undertaking securities financing activity with pension and mutual funds could rise by as much as fivefold due to the new rules, making much of this activity unprofitable. A fall in securities financing activity will result in less market liquidity and wider bid offer spreads, potentially driving up trading costs by between €20bn and €40bn per annum. In addition, the annualised €1.2bn of income earned by European buyside institutions from lending securities is likely to fall by as much as 35% to less than €800m. These effects will also reduce the vibrancy of Europe’s capital market, negatively impacting the Commission’s drive for a Capital Markets Union. The industry along with European policymakers and regulators need to work collectively on appropriate solutions to ensure that European savers are not financially penalised when these new rules are implemented. Background In October 2021, the European Commission published its proposals to amend Capital Requirements Regulation 575/2013, which includes the requirements related to credit risk and the output floor for banks. Since the Basel guidelines were updated in 2017, market participants have registered a substantive issue with regulators related to the output floor, which will result in a dramatic increase in capital requirements due to the jump in risk weights for unrated corporates. The Basel definition of corporates includes mutual and pension funds. The aggregate output floor requires a bank’s risk weighted assets (RWA) using an internal ratings-based (IRB) approach to not be lower than 72.5% of RWA as calculated by the Basel standardised framework. The impact of the pending Basel rules is that high quality credits that have no external rating would see a significant jump in risk weight to 100%. The vast majority of corporates do not seek an external rating due to costs. Furthermore, because ratings are typically used by issuers to facilitate access to capital markets and funds generally do not need access to capital, the tens of thousands of high-quality funds have had little use for a rating. The European Commission has responded to these concerns and has recommended that there should be a transitional arrangement for unrated corporates and funds. IRB institutions would apply a preferential risk weight of 65% to their corporate and fund exposures that do not have an external rating, provided those exposures have a probability of default of less or equal to 0.5% or 50bp, which is consistent with an investment grade rating. This is particularly relevant to funds given that more than 99% of them do not have an external rating and most mutual and pension funds are investment grade. Despite this transitional proposal to reduce risk weights from 100% to 65%, the new rules will still likely have a dramatic effect on the buyside resulting in declining market liquidity and wider bid offer spreads driving up costs for pension and mutual funds. This is due to the way in which the new rules will impact securities lending activity. This will also create further negative headwinds for a Capital Markets Union across the EU. Impact of Basel Reforms on Securities Lending Pension, mutual, insurance and sovereign wealth funds are responsible for lending out 76% of European government bonds, 75% of European corporate bonds, and 85% of European equities. Figure 1: Lenders of European Securities by Institution Type 2021 Source: S&P Global Entities that borrow these securities pay the funds an income, which in turn boosts the returns for savers. According to S&P Global data, European institutions in 2021 earned around $1.4bn by lending out securities, or €1.2bn*. These securities are either used for hedging investment positions, liquidity, financing and in some cases to short the company. The vast majority of funds lend out their securities to large banks’ prime broker desks, and as part of the Basel rules, these banks need to rate the credit worthiness of their counterparties. An analysis of the credit quality of funds that lend out securities shows they are mostly of the highest credit quality. 67% of funds that lend out government bonds have either a CB1/CB2 Credit Consensus Rating, 73% of funds that lend out corporate bonds have either a CB1/CB2 Credit Consensus Rating, while 98% of funds that lend equities have either a CB1/CB2 Credit Consensus Rating. CB1 is equivalent to AAA to AA- and CB2 is equivalent to A+ to A-. Figure 2: Credit Quality of Lenders of Securities Source: Credit Benchmark, S&P Global Large IRB banks, which dominate securities financing activity across Europe, are particularly impacted by the pending Basel rules. At the moment, these banks are able to estimate the credit risk of these funds based on their internal models that have been signed off by their national regulator. As noted above, more than two thirds of the lending of European corporate and government bonds is by obligors with a rating above A-, whereas nearly all of equities are lent by high quality obligors. Following discussions with a number of IRB banks, we estimate that a typical risk weight for high quality mutual and pension funds is around 12.5% - although there is of course some variation above and below this figure. Given that 99% of these tens of thousands of funds do not have an external rating but are nearly all investment grade, the risk weights of these counterparties could jump as much as fivefold from an average of 12.5% to 65% based on the Commission’s transitional arrangement. A handful of sovereign wealth funds from OECD countries, that can demonstrably be shown to be backed by its government, may continue to receive low risk weights. This increase in risk weights will drive up the cost of securities financing significantly. For analytical purposes it is assumed that banks allocate the capital requirements from a binding output floor to that business activity, and then pass on the cost of the capital associated with this additional RWA to their counterparties. Assuming the current cost of RWA capital is around 3bps**, a fivefold increase would mean that it would rise to 15bps for securities financing transactions. This dramatic increase in the cost of capital will have two major effects on the buyside across Europe. First, European savers will experience a material reduction in the annualised €1.2bn income they currently receive from lending out securities. The increase in cost will mean that lending out securities for general collateral (GC), which are mostly used for hedging and liquidity, would largely cease. GC accounts for the bulk of the securities lending market in terms of loans outstanding. Specials, which are generally used for shorting, would be less impacted as these earn a significantly higher income. As noted above, one approach to estimate the potential loss in income to the European buyside is to assume that the increased 12 bps of costs would be passed through to funds resulting in all transactions taking a 12bps cut. Such an outcome would result in a loss of around 35% of overall income from €1.2bn to below €800m. Figure 3: Revenue Reduction Flowing to European Funds Due to Rising Costs Source: S&P Global Second, a decline in securities financing activity will dry up market liquidity which in turn will result in wider bid ask spreads and higher transaction costs for funds. According to the Committee on Capital Markets Regulation in the United States, the impact of short selling bans – which can be used a proxy for a decline in securities financing activity - resulted in a significant fall in market liquidity. A study by Beber and Pagano indicates that average bid ask spreads widened from 4.05% to 6.03% based on analysis of over 30 markets including most European markets. Recent analysis of the Austrian equity market which banned short selling on March 18 2020 shows that when securities financing activity drops, bid ask spreads widen. Average bid ask spreads prior to the ban were 0.9%, which spiked at 2.3% after the ban was imposed. Figure 4: Austrian Market Average Bid-Ask Spread 2020 Expected Liquidity Impact of the Pending Reforms To estimate the increase in trading costs due to widening bid ask spreads, the methodology used by Nasdaq was followed. According to Nasdaq, 12.6% of daily liquidity in the US is attributable to mutual and pension funds. Although we do not have the breakdown across Europe, it is not unreasonable to assume that liquidity driven by pension, mutual and insurance funds is of a similar nature. Using the data provided by the Federation of European Stock Exchanges (FESE) it is possible to estimate a proxy for total annual liquidity of €15.8 trillion, of which around €2 trillion is therefore driven by institutional investors. SIFMA provides data on trading costs and the component that is related to shortfall, which is the difference between the arrival price and the execution price for a trade. This enables an estimate of the increase in trading costs to be computed due to a widening of bid ask spreads. Figure 5 provides a range of widening bid ask spreads from 100bps up to 200bps resulting in trading costs increasing from €20bn up to €40bn per annum. As costs increase there is likely to be some depressing impact on volume, although it is not clear what the sensitivity of this is likely to be. Figure 5: Revenue Reduction Flowing to European Funds Due to Rising Costs Source: Nasdaq, SIFMA, FESE, Credit Benchmark Finally, it is important to note that if liquidity in government bonds dries up then this might also place greater pressure on widening yields across the eurozone, thereby impacting the ability of governments to fund themselves. This is likely to be of concern for the ECB which is already having to deal with widening Italian government bond yields. A Call to Action The securities financing industry has shown significant resilience in implementing solutions to mitigate the impact of regulatory changes on transactions. For example, the use of pledge for borrowers to transfer collateral to lenders by way of security interest rather than an absolute transfer of title has been implemented in certain areas of the market. But in order for the industry to come up with appropriate solutions to mitigate the effects of the Basel reforms, there needs to be an urgent recognition by regulators, policy makers and industry participants that the European savings industry is facing a significant negative shock. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ *Based on the average 2021 exchange rate of €1 to $1.18. **The cost of RWA is approximated by EAD x RiskWeight x Cost of Capital x Tier 1 Capital Ratio. The outputs will vary by bank and the results can be sensitive to the initial assumptions. For the analysis we use a 3bps estimate. ### September Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the September Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. UK Industrial firms are in a positive position for the third time this month, suggesting a potential trend of improvement is forming. EU Industrial firms have registered another positive CCI for this month, which is the twelfth consecutive instance of a positive score. Last month US Industrial firms ended their streak of 17 consecutive months of positive credit quality. However, this month US Industrial firms return to positive territory once again. UK Industrials: Net Improvement Momentum Grows UK Industrial firms are in a positive position for the third time this month, suggesting a potential trend of improvement is forming. The UK CCI score is 51.4 this month; an improvement from last month’s CCI of 50.4. UK’s industrial heartlands have been boosted by the next stage of carbon capture, usage and storage (CCUS) clusters process. . EU Industrials: Modest Improvement EU Industrial firms have registered another positive CCI for this month, which is the twelfth consecutive instance of a positive score. Whilst the trend was dipping close to neutral, the EU CCI score is 53.2 this month; a modest improvement from last month’s CCI of 50.4. Europe is seeing a hiring jump in railway industry industrial automation roles, which could suggest positive growth in that industry. . US Industrials: Regaining Momentum Last month US Industrial firms ended their streak of 17 consecutive months of positive credit quality. However, the US CCI score this month is 53.4, a significant increase from last month’s CCI of 48.1, and returns US Industrial firms to positive territory once again. Of the 22 manufacturing categories tracked by the United Nations, the US rank first in six categories and second in 13 others, underscoring the breadth and competitiveness of American manufacturing. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Transition Matrices: Multi-Notch Downgrades Download PDF Transition matrices (“TMs”), derived from credit data, track the speed of full notch and multi-notch upgrades and downgrades over a set timeframe1. Figure 1 shows the one-year TM for 9,560 US Corporates. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: US Corporates, One-year TM For example, 12.5% of this large sample of US Corporates changed credit rating from aa to a over the past year. The leading diagonal shows the proportion of US Corporates that had no change in credit rating – for example, 75.1% remained in the bbb credit category. Multi-year matrix benchmarks can be derived from the one-year matrix2. These multi-year “equivalent” matrices can be compared with actual multi-year transition rates to show if upgrades and/or downgrades are speeding up or slowing down. Figure 2 shows the 3-year equivalent (left) and the 3-year actual (right) for the same sample of US Corporates Figure 2: US Corporates, Three-year equivalent, and actual TMs 3Y equivalent = “Adjusted 1Y” 3Y actual This shows that the frequency of transitions has increased in the past year - the actual three-year transition frequency is lower across all seven credit categories. The leading diagonal for the actual 3Y matrix shows more firms staying in the same credit rating category throughout the period, compared with the recent activity in the adjusted 1Y matrix. It also shows that higher recent credit mobility appears in both the upper (downgrades) and lower (upgrades) triangles. The 3Y equivalent aaa to a transition rate is 14.4% compared to the actual value of just 2.7%, and the aa to bbb is 11% in the 3Y equivalent compared with 5.2% for the actual. The lower triangle shows faster upgrades – the recent “Rising Stars” 3Y equivalent rate for bb to bbb transitions is 27.5%, compared with 17.9% for the actual 3Y. And the recent 3Y equivalent proportions of very high risk b and c names moving to investment grade bbb are 14% and 12%, compared with 4.9% and 7.2% The implication is that bank credit estimates for US Corporates show a rising proportion of one-notch upgrades and some multi-notch upgrades in the lower credit categories. But while one-notch downgrades have continued at a similar rate, multi-notch downgrades within the investment grade categories have picked up. The 3Y equivalent proportion of names with no credit rating change has been lower in the past year than for the past three years. So previously downgraded names are staying in their lower categories, and across the investment grade categories those downgraded firms are being rapidly joined by firms that have seen multi-notch downgrades. The conclusion is that the post-COVID credit recovery has been strong across most credit categories, but at the same time a significant number of investment grade firms have started to be subject to multi-notch downgrades. This may indicate a structural shift in credit – in the new regime of rising interest rates and supply-side shocks, new winners are emerging, and previously sound firms are showing credit weakness. Any further evidence of more widespread credit deterioration following recent rate hikes will quickly show up in these matrices. To receive regular updates on credit trends across 1000+ geographic and industry/sector combinations, contact us on info@creditbenchmark.com. Credit Benchmark TM updates are also available upon request for various geographic and industry/sector combinations, and for more detailed credit categories (e.g. 21x21). [1] A (credit) transition matrix shows frequency counts of revisions to probability of default estimates that are sufficiently large that the credit rating changes by at least one full 7-category notch over a set time period. [2] To derive the three-year matrix, the one-year matrix is multiplied by itself, and the resulting two-year matrix is post-multiplied by the original one-year to give the three-year matrix. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Credit Portfolios and Rising Defaults: Tracking Credit Risk Correlation Shifts ### CCP Monitor: Improving Risk Trends, Member Upgrades Dominate Download PDF The latest Central Counterparty Clearing House (CCP) monitor produced by Credit Benchmark shows further improvements in credit quality in the two main regions. Figure 1 shows changes in credit risk over the last year (left hand chart), and current credit risk distribution (right hand chart), split by Europe, North America and Other. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. To arrange a demo of all single name and aggregate data detailed in this report, please request this by sending us an email. Figure 1: Global CCP Aggregated Consensus Credit Risk Average Consensus Credit Risk of Global CCPs Consensus Credit Risk Distribution of Global CCPs European CCP credit risk was the first region group to improve, with a significant increase in credit quality from the beginning of this year. North American CCP credit risk has steadily improved from Feb-22 although at a slower rate than European CCPs. The broader “Other CCP” group shows its first improvement for over 6 months. Overall credit quality is very high, with 60% of North American CCPs in the aa category and the majority of European CCPs in the a category. Outside of these regions, there are some CCPs in the bb (i.e. High Yield) category. Figure 2 is an extract from the latest CCP monitor, showing median consensus credit risk data on CCPs members, as well as their credit distribution and the proportion of upgrades vs. downgrades. Note that CCP risk is not a linear function of member risk: median member risk does not necessarily reflect CCP direct credit worthiness. Figure 2: Global CCP Aggregated Member Credit Risk To illustrate this, Figure 3 shows Credit Consensus Rating (CCR) for some of the main CCPs – and many of these are not rated by the major CRAs. Figure 3: Global CCP Entity Consensus Credit Risk   For example, the Canadian Derivatives Clearing Corporation has a CCR of a+, but the median rating across more than 80% of the members in Figure 2 is a-. Similarly, the CME has a CCR of aa- but the median across 76% of its members is again a-. CCPs are major users of Credit Consensus data, and as interest rates rise there is a growing focus on credit risk concentration and early indications of changes in credit trends. Consensus data is also available as a download for more than 1000 aggregates, including various financial subsectors. These can be used to calculate upgrade/downgrade ratios and default risk correlations across geographies, industries and sectors. To download the full August CCP Monitor, please complete your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### August 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. It has been a positive month for the most part for the credit quality of Global Financial counterparts, with a handful of exceptions. Amongst the banks, Latin America Banks had the strongest showing, with an improving to deteriorating ratio of 7:1. Globally Systematically Important Banks (GSIBs) showed the most overall instances of improvements, but the ratio was tempered by deteriorations, with the final ratio being 2:1. Central Banks were the lone net negative performer this month, at 1:3 improvements to deteriorations. The Intermediaries were wholly positive, with Central Clearing Counterparts (CCPs) showing no instances of deterioration. Broker Dealers had the strongest positive ratio at 2.7:1, while Prime Brokers showed the most overall instances of improvements, though with a slightly lower positive ratio of 2:1. Buy Side Managers performed more modestly, with Asset Managers at 1.3:1 and Insurance Companies at 1.2:1. For Buy Side Owners, the news was worse - all three groups saw net deterioration, with Pension Funds the worst affected at 1:2.1 improvements to deteriorations. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### August 2022 Industry Monitor Download the latest Industry Monitor below. Credit Benchmark have released the end-month industry update for end-July, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Global Financials and Global Corporates both enjoyed a predominance of credit improvements this month; setting the tone for the broader industry update. Financials showed a ratio of improvements to deteriorations of 1.5:1, with Corporates slightly behind with a ratio of 1.4:1. Of the industries, Oil & Gas firms were the top performers, with 2.4 improvements to every deterioration. Close behind were Basic Materials firms, with a ratio of 2:1. Industrials were the next most positive group, with a ratio of 1.4:1 improvements to deteriorations. The only industry that demonstrated net negative credit quality was Telecommunications, with a modestly negative ratio of 1:1.1. The sector breakdown demonstrates that US Oil & Gas firms were responsible for the strong credit showing for the broader industry - the ratio this month for this group of firms is 3.5:1 improvements to deteriorations. Conversely, UK Oil & Gas firms dragged the average down somewhat, with a negative ratio of 1:1.2. All other sectors showed positive credit ratios this month, with Canadian Corporates and US Corporates also showing strong improving trends, with ratios of 3:1 and 1.5:1 respectively. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the latest Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Declining Credit Quality: Is Global Tobacco Being Stubbed Out? Download PDF In June 2022, British American Tobacco flagged that the global tobacco industry volume is now expected to shrink by 3% in 2022, worse than the 2.5% decline previously forecast, due in part to the continuing global uncertainty over the war in Ukraine. For Imperial Brands PLC, one of the top 10 largest tobacco companies in the world, earnings are forecast to decline by an average of 1.9% per year for the next 3 years. The introduction of stricter tobacco measures globally – such as the Tobacco and Smoking Products Control Bill 2022, requiring retailers to be licensed, raising the age requirements to purchase tobacco products and raising taxes on tobacco products – all contribute to this change. Recent evidence from the US is that raising the age of sale from 18 to 21 has reduced smoking prevalence in that age group by at least 30%. In addition to this, with smoking highly likely to worsen the symptoms of COVID-19 and the risk of associated death, a Danish study recorded that among regular smokers tobacco purchases declined by about 20% between March 2020 and the end of 2020. This has contributed to a sustained decrease in tobacco purchases. Figure 1 shows the credit trend for the Global Tobacco industry. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Credit Trend, Global Tobacco; Jul-21 to Jun-22 Global Tobacco credit quality has weakened by 3.4% month-on-month. However, Global Tobacco is still currently rated a bbb+ - an investment grade rating. Figures 2-4 show detailed credit trends for some of the largest tobacco companies in the world; many are recording a deteriorating Opinion Change Indicator in the latest month. Figure 2: Philip Morris International Inc Figure 3: British American Tobacco Plc  Figure 4: Altria Group Inc Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### August Credit Consensus Indicators (CCIs) – UK, EU and US Oil & Gas Credit Benchmark have released the August Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Oil & Gas based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. UK Oil & Gas firms recent run of improvements ends after 6 months. EU Oil & Gas firms have experienced some instability in their collective credit quality this year, however, their CCI score has been above 50 for 3 consecutive months now. US Oil & Gas firms have gone from strength to strength, boasting CCI scores above 50 for 17 consecutive months. UK Oil & Gas: Trend of Net Improvement Ends UK Oil & Gas firms recently had a run of improvements, with CCI scores above 50 for 6 consecutive months. However, the UK Oil & Gas CCI score is 49.5 this month, bringing an end to the trend of net improvements. Anxiety over global slowdown knocks sterling to a two-year low, as oil falls to its levels when the Ukraine war began. . EU Oil & Gas: Trend of Net Improvement Forms EU Oil & Gas firms have experienced some instability in their collective credit quality this year, with multiple reversals between improving and deteriorating credit quality. However, the EU Oil & Gas CCI score has been above 50 for 3 consecutive months, suggesting a trend of improvement is forming. Recently, it has been reported that Europe can withstand Russia’s energy threat of reducing gas supplies further. . US Oil & Gas: Trend of Net Improvement Persists US Oil & Gas firms have gone from strength to strength, boasting CCI scores above 50 for 17 consecutive months and maintaining long-term net positive credit quality. Continuing a positive run, the US Oil & Gas CCI score sits at 56.8 this month, a small increase from last month’s CCI of 56. The two largest energy companies in the US recently said that profits rose to record levels in the second quarter as they continued to reap the benefits of soaring oil and gas prices. . To download the full CCI tear sheets for UK, EU, and US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Securities Finance Times: Rethinking the Economics of Indemnification Securities lending indemnification is mispriced, subsidised by the agent providers and not all it’s cracked up to be as a risk mitigant, according to Credit Benchmark’s co-founder Mark Faulkner. He talks to Bob Currie of Securities Finance Times about how to reset the economics of the agency lending market. Bob Currie references Mark Faulkner's thesis in the article: "This divergence between the cost, the benefit and the regulatory capital cost of indemnification is unsustainable in current market conditions, he notes, and this “will hopefully provide a catalyst for change”. The report urges interested parties to work with regulators to ensure that the securities lending industry can continue to deliver its important role in providing short-side liquidity for global capital markets. Failure to change could have significant ramifications for global capital markets, it concludes." The full original research cited by Securities Finance Times can be accessed here. Securities Finance Times, August 2, 2022. View original article (external link). ### August Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the August Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. UK Industrial firms are in a positive position for the second time this month, but they have been unable to maintain a consistent trend since mid-2021. EU Industrial firms have registered another positive CCI for this month, which is the eleventh consecutive instance of a positive score. This month US Industrial firms ended their streak of 17 consecutive months of positive credit quality. UK Industrials:  Ups and Downs UK Industrial firms are in a positive position for the second time this month, but they have been unable to maintain a consistent trend since mid-2021. The UK CCI score is 50.5 this month; a small drop from last month’s CCI of 51.4. British manufacturers suffered their first drop in output in over two years in July-22, as new orders and fresh export business both continued to decline. . EU Industrials: Hanging On EU Industrial firms have registered another positive CCI for this month, which is the eleventh consecutive instance of a positive score. The EU CCI score hovers above neutral at 50.5 this month. While the ongoing run of net positive scores bodes well for the group, the trend remains modest and keeps dipping close to neutral. The eurozone manufacturing sector has fallen into contraction in July-22. Factories recorded the sharpest drop in production since the initial wave of strict COVID-19 lockdowns in May 2020. . US Industrials: A Change in Trend This month US Industrial firms ended their streak of 17 consecutive months of positive credit quality. The US CCI score this month is 47.8, a significant drop from last month’s CCI of 51.8. US manufacturers are likely to see a hit to their quarterly profit in the second half of the year as higher prices for everything take a toll on consumer spending. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Q2 2022 Quarterly Review: Credit at a Turning Point? Executive Summary Post-COVID recovery running out of steam: upgrades vs. downgrades now close to neutral Technology is biased to upgrades, but sharp slowdown vs Q1 Average credit risk close to rising in UK Corporates and rising in African Financials UK Household Goods & Home Construction turning negative Sovereigns deteriorating, especially Developing economies as food price inflation hits Europe corporates recovery continues to lag Asia and Latin America US Sectors show major shift in credit risk correlations Credit Spreads have widened by as much as 74% so far this year: as the chart below shows, B-rated credit spreads are up from less than 4% to more than 6%. Spreads show a major shift to a “risk-off” mindset, as supply shocks and rate hikes show no sign of abating. Many basic foodstuffs are up 20%; some, like eggs, are up more than 200%. Non-food commodity prices are mixed as global demand falters – so some Developing economies face the double hit of falling export revenues and rising import costs. Central banks continue to hike rates, while commercial banks are now reserving against future loan impairment.  Corporate default rates are likely to spike; Credit Consensus distributions show sector-by-sector proportions in the vulnerable b and c categories. Across those sectors, correlations between default risks are changing – typically rising, others moving sharply down. Consensus data tracks these shifts across many otherwise unrated country/sector universes. 1. Credit Trend Overview Figure 1.1 shows recent credit trends Global Financials, Corporates and Sovereigns. Figure 1.1 Credit Trend and Distribution: Global Corporates, Financials and Sovereigns Corporates continue to improve at a faster rate than Financials, which appear to be plateauing. Sovereign Government credit may be bottoming out after a steep decline but the monthly numbers are volatile. Figure 1.2 shows regional trends and distributions for Sovereigns, Corporates and Financials. Figure 1.2 Credit Trends and Distributions by Region: Sovereigns, Corporates, Financials Regional Sovereign aggregates are all turning down, Corporates continue to improve (although see Figure 1.3 below) – and Europe is slower than the rest; Financials improvement is slowing and turning down in Africa and Latin America. This is worth noting for any lenders with large exposures to financial counterparts in those regions. Figure 1.3 shows the balance of 3-month upgrades and downgrades for Global Corporates and Global Financials. Figure 1.3 3-Month Upgrades and Downgrades Figure 1.4 compares the 3-month balance rates (% upgrades – downgrades) for Q2 2022 vs Q1 2022 across global industries. Figure 1.4 3-Month Balance Rates (% Upgrades – Downgrades) by Global Industry – Q2 2022 vs Q1 2022 The Q2 2022 values lower than Q1 2022 imply that recovery rates have continued to slow. Technology has the largest drop over the quarter. Oil & Gas and Basic Materials show an increased rate of recover over the quarter. Figure 1.5 plots the 3-month balance rates (% upgrades – downgrades) of Corporates and Financials by country, comparing Q2 2022 vs Q1 2022. Figure 1.5 3-Month Balance Rates (% Upgrades – Downgrades) by Country – Q2 2022 vs Q1 2022 This again shows slowing recovery rates in many countries, including Hong Kong, Spain, Korea and Brazil. However, compared with Q1, there is an increased rate of improvement in Netherlands and Japan. But overall there are more countries below the 45-degree line (i.e. net improvements continue to slow). Figure 1.6 shows the regional breakdown of credit trends in Corporates and Financials, comparing quarterly credit risk change in Q2 2022 and Q1 2022. Figure 1.6 Quarterly Credit Risk Change: Q2 2022 vs Q1 2022 Corporates Financials Measured by change in average PD, most countries show a slight improvement in Corporates with the notable exception of the UK. Financials are more mixed: Canada, Pacific, Asia and the EU all show improvement; Africa, Latin America, US and UK all show slight deterioration. Figure 1.7 lists the Corporate geography/industry/sector combinations that have shown recent turning points. The names on the left show a one-month deterioration after three months of improvement; those on the right show a one-month improvement after three months of deterioration. Figure 1.7 Turning Points Q2 2022 Deteriorating 1M After Improving Last 3 MonthsImproving 1M After Deteriorating Last 3 MonthsEurope Basic MaterialsEurope Food & Drug RetailersEurope ChemicalsEurope Oil & Gas ProducersEurope Durable Household ProductsGlobal Drug RetailersEurope Pharmaceuticals & BiotechnologyGlobal Electronic Office EquipmentFrance Construction & MaterialsGlobal Forestry & PaperFrance CorporatesGlobal Multi-utilitiesGlobal Durable Household ProductsGlobal Nondurable Household ProductsGlobal Household Goods & Home ConstructionUnited Kingdom Conventional ElectricityGlobal Marine TransportationUnited Kingdom Distillers & VintnersGlobal PharmaceuticalsUnited Kingdom ElectricityGlobal Pharmaceuticals & BiotechnologyUnited Kingdom Food & Drug RetailersGlobal TiresUnited Kingdom Integrated Oil & GasLatin America CorporatesNorth America Business Support ServicesSouth Africa Automobiles & PartsTaiwan CorporatesUnited Kingdom Durable Household ProductsUnited Kingdom Exploration & ProductionUnited Kingdom Household Goods & Home ConstructionUnited States Support Services The list of recent deteriorations includes Durable Household Products in the UK, Europe and Globally, Household Goods & Home Construction in the UK and Globally and Pharmaceuticals & Biotechnology in Europe and Globally. The improvements list includes instances of Electricity and Utilities, as well as Oil & Gas and Food & Drug Retailers. 2. Impact of Interest Rate Hikes A growing number of Central Banks have hiked rates in the face of spiralling inflation. The 60 rate rises across 55 countries in recent months, the fastest pace since 2000. Spreads have widened, especially in High Yield bonds – BB, B and C spreads are up around 75% since the start of the year. Aggressive US rate hikes are likely to continue; driving the Dollar higher and pushing up prices of some USD-denominated commodities that are already in short supply. But there have also been substantial commodity price drops. Figure 2.1 shows the range. Figure 2.1 Commodity Price Changes, % YTD. At a time when public debt levels are rising, higher funding costs are an added burden for Government finances; see section 3 below on Food Price Inflation and Sovereign credit. Some Corporates have correctly anticipated the shift in interest rate policy and have issued large amounts of long-duration cheap debt. This has insulated them from the immediate impact of rate hikes; and they have limited amounts of maturing debt needing to be rolled over at higher coupons. Figure 2.2 shows the top 25 aggregates based on the proportion of constituents in the c category (i.e., closest to default). Figure 2.2 Top 25 Aggregates by % in c Category Aggregate% in c categoryAfrica Sovereign Government24.1%Africa Sovereign & Central Banks21.7%Emerging/Frontier Sovereigns16.4%Africa Banks14.5%North America Hotels13.3%Global Sovereigns13.2%Global Airlines13.1%United States Hotels11.8%North America Retail REITs10.7%United States Retail REITs10.7%United Kingdom Recreational Services10.3%Europe Recreational Services9.9%North America Aerospace9.8%North America Travel & Leisure9.7%Turkey Banks9.5%Global Sovereign Government9.4%Turkey Financials9.1%United States Travel & Leisure9.1%United States Aerospace8.8%Latin America Sovereign & Central Banks8.7% Developing markets – Sovereign and Financial –  feature heavily in this list, but it also includes US Hotels / Travel & Leisure, UK Recreational, US Aerospace, Global Airlines and Global Coal.  This suggests that Global Sovereigns, Developed market financials and US / UK leisure Industries are the most likely immediate casualties in the event of rising default rates. Figure 2.3 shows latest trends for some of the most and least leveraged US industries. Figure 2.3 US Industry Credit Trends by Leverage High Leverage (Av. Equity Index -16% YTD) Low Leverage (Av. Equity Index -10% YTD) Industries with higher leverage have seen higher stock price declines this year. Three of the four industries plotted on the left showed limited credit deterioration during the pandemic but have also shown only modest improvement.  The less leveraged sectors, on the right, declined more during the pandemic but three of the four have either matched or exceeded the credit changes for the more leveraged industries.  Transportation is a laggard. If interest rates continue to rise, Credit Consensus Ratings for the less leveraged industries are likely to continue to outpace the more leveraged. For Financials, the impact is mixed. Net positive for banks (rising margins, but potentially lower business volumes) and insurance companies (cash floats / strong cash flow). However, banks also face rising loan delinquencies, and reinsurers may see some negative impact from trade credit insurance losses and other forms of credit insurance. Rising annuity rates are probably net positive, but it depends on the balance between assets and liabilities in terms of interest sensitivity. 3. Food Price Inflation Food prices inflation will be difficult to control as long as the Ukraine war continues. Even if the Ukraine harvest partially succeeds, there are logistical problems in moving grain out of the Black Sea although the Turkey-brokered deal may solve part of this. The fertilizer shortage means higher prices across a broad range of foodstuffs. Volatile weather and continued COVID waves have made shortages worse. Figure 3.1 shows projected food price inflation and Sovereign credit risk for 115 countries. Figure 3.1 Projected Food Price Inflation and Sovereign Credit Risk for 115 Countries High food price inflation has a disproportionately negative effect on most of the countries that already have low credit quality. Countries with a combination of poor Credit Consensus Rating (b or c) and high sensitivity to food price inflation (projected >20% in 2022), and hence at higher risk of being pushed into default / bailout territory include Angola, Egypt, Ethiopia, Ghana, Turkey, Malawi, Nigeria and Paraguay. Countries in the bb category with similarly high food price inflation include Georgia and Kazakhstan (Credit Benchmark Credit Consensus Rating = bb+, although agency ratings still show it as investment grade). Colombia, currently bbb- (although agencies rate it as high yield), is also facing excessive food price inflation. Six of these countries are in Africa, two in Latin America, two in the Black Sea region and one in central Asia. Turkey and Kazakhstan have had serious food and energy riots already; there has been similar unrest in Peru, Tunisia, Uganda and Sri Lanka. Some of the countries on this list have external revenue sources that may cushion the blow; Nigeria has oil and Kazakhstan has oil and uranium. But for most the impact of food price inflation is direct and likely to become more severe in the coming 12 months. Figure 3.2 shows credit trends for Food Producers in various regions. Figure 3.2 Credit Trends for Food Producers in Various Regions Africa is rebounding and Asia is continuing to improve; but Europe and Latin America are plateauing and may be turning down. The outlook for profits and credit is the result of a delicate balance between higher input costs vs higher output prices; that may be driving the regional differences seen here. 4. Energy Oil price spikes this year have briefly exceeded the highs recorded in 2012-2014; gas prices are at their highest for over 10 years (see Figure 2.2). If prices remain at these levels, mothballed and marginal sources of fossil fuels become economic again – although growing recession concerns may offset some of the supply chock impact. If fuel costs and the need for fuel security give a boost to traditional non-renewables, it may be long-term positive for renewables. While alternative energy cannot yet fill the supply gap, the current crisis will drive more investment into diverse, sustainable and secure energy sources. At least the crypto winter has reduced energy demand from digital mining. European energy supplies face major, direct challenges. If Russia cuts gas exports to Europe completely, then winter power cuts and rationing are likely; plus increased friction within Europe as individual countries focus on securing their own supplies. Figure 4.1 shows latest credit trends for Oil & Gas firms. Figure 4.1 Oil & Gas Producers: Credit Trends Oil & Gas Producers were badly hit during the early phase of the pandemic as international travel shut down, but most of them have been recovering since mid-2021. African producers have taken longer, and although the 2021 deterioration seems to have ended the series remains volatile. North American producers show the largest improvement; Europe (which includes the UK) has yet to recover. Credit trends for Integrated firms show a similar pattern to Producers.  In the E&P sector, the gap between North America and Europe is even more pronounced. 5. Changes in US Default Risk Correlations The pandemic has changed the relationship between credit risks in different sectors.  Figure 5.1 and 5.2 show correlations between PD changes for various US Corporate sectors for the periods (1) early 2016 to early 2020 and (2) early 2020 to Q2 2022. Figure 5.1 Correlations Between PD Changes, Early 2016 to Early 2020 From mid-2016 to the start of the pandemic in early 2020, correlations were generally low to negative across many aggregate pairs.  Financials and Corporates showed moderate correlation.  Some specific examples:  Autos were not part of the consumer bloc. REIT subsectors show low or moderate correlations. Hotels and Travel & Leisure are moderately correlated Figure 5.2 Correlations Between PD Changes, Early 2020 to Q2 2022 Since the start of the pandemic, correlations between corporates and financials have risen. In addition: Autos are now correlated with the Consumer bloc Autos are also correlated with Basic Materials – reflecting the importance of supply chains. REITs are much more correlated Hotels and Travel & Leisure are highly correlated The list of aggregates with a full monthly history starting in 2016 includes more than 850 geographic and industry/sector combinations. Correlation matrices are available for subsets of these, and a matrix generator worked example is also available from Credit Benchmark. 6. Conclusions The post-COVID recovery running out of steam - upgrades vs. downgrades are now close to neutral. The Technology sector is still biased to upgrades but shows a sharp slowdown vs Q1. In the Oil & Gas Exploration & Production sector, there is a large and growing gap between recovery in North America and continued decline in Europe. Average credit risk is close to rising in UK Corporates and is rising in African Financials. Europe corporates recovery continues to lag Asia and Latin America. UK Household Goods & Home Construction turns negative. Sovereigns are deteriorating, especially Developing economies as food price inflation hits and various other commodity prices drop. US Sectors show some major shift in credit risk correlations; these are generally rising. To download the full PDF of this whitepaper, please complete your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### July Credit Consensus Indicators (CCIs) – UK, EU and US Oil & Gas Credit Benchmark have released the July Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Oil & Gas firms based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for Oil & Gas firms. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. UK and US Oil & Gas firms continue their streaks of consistently positive CCI scores, with 7 months and 17 months of net credit improvement respectively. EU Oil & Gas firms have travelled a bumpier road, with alternating positive and negative scores this year, ending on a neutral credit quality position in the most recent update. UK Oil & Gas: Little Month-on-Month Change UK Oil & Gas firms continue their run of improvements, with CCI scores above 50 for 7 consecutive months. The UK Oil & Gas CCI score is 51.6, a modest positive reading but little month-on-month change. UK Oil & Gas firms are seeking further finance before the middle of the fourth quarter to fund oil exploration in Turkey, giving a promising positive outlook. . EU Oil & Gas: Neutral Credit Quality EU Oil & Gas firms have experienced some instability in their collectivecredit quality this year, with multiple reversals between improving anddeteriorating credit quality. This month, the EU Oil & Gas CCI score is 50, suggesting neutral creditquality. Recently, Russia resumed gas flows to Europe after fears of a totalshutdown, which is likely to be reflected in the EU Oil & Gas CCI incoming months . US Oil & Gas: Trend of Net Improvement Persists US Oil & Gas firms have gone from strength to strength, boasting CCIscores above 50 for 17 consecutive months and maintaining long-termnet positive credit quality. Continuing a positive run, the US Oil & Gas CCI score sits at 55.4 thismonth, a small drop from last month’s CCI of 56. US petroleum demand, as measured by total domestic petroleumdeliveries, rose slightly in June, a contributing factor to the improvingcredit quality. . To download the full CCI tear sheets for UK, EU, and US Oil & Gas, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### July Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the July Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. EU and US Industrial firms continue their streaks of consistently positive CCI scores, with 10 months and 17 months of net credit improvement respectively. UK firms have travelled a bumpier road, with alternating positive and negative scores in recent months, ending on a positive in the most recent update. UK Industrials:  Ups and Downs UK Industrial firms are in a positive position this month but have been unable to maintain a consistent trend since mid-2021.   The UK CCI score is 51.4 this month; an improvement after another negative blip last month when the CCI registered at 49.2. UK factory growth has slowed to its weakest in 18 months, with business optimism following suit amidst cost pressures and supply bottlenecks. However, with evidence of an increase in investment intentions in the region, the CCI may yet see strengthening credit quality longer term. . EU Industrials: Hanging On EU Industrial firms have registered another positive CCI for this month, which is the tenth consecutive instance of a positive score. The EU CCI score hovers above neutral at 50.5 this month, a decrease from last month’s score of 53.4. While the ongoing run of net positive scores bodes well for the group, the trend remains modest and has dipped close to neutral on several occasions. EU factories are currently experiencing labour shortages as a result of tens of thousands of Ukrainian workers returning home to fight against the Russian invasion of their country. For firms struggling to recover from COVID and rising costs, this worker shortage may begin to impact Industry credit quality. . US Industrials: Level Trend US Industrial firms show positive credit quality for another month, stretching the streak of good fortune to 17 consecutive months now. The US CCI score this month is 51.7, registering slightly under last month’s CCI of 52.4. Similarly to the EU CCI, the US trend has remained reasonably modest in recent months, though with a degree less fluctuation. Global chip shortages continue to affect manufacturing output in the US, but an expansion of local production capacity should ease this while also providing a boost to the industry. Rising interest rates may also hurt demand for the production of new goods, with a slight drop in output already seen in recent months. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Structured Credit Investor: Credit Benchmark Publishes Innovative CRT Report Credit Benchmark have published a report that introduces a novel approach to portfolio selection and risk assessment in capital relief trades, writes Stelios Papadopoulos for Structured Credit Investor, referencing the whitepaper "Credit Consensus Ratings and Risk Sharing Portfolios". Stelios Papadopoulos noted in the column: "...investors can use credit consensus ratings to price risk in otherwise unrated names, but they can also use credit consensus aggregates to proxy risk for undisclosed capital relief trade portfolios." The full original research cited by Structured Credit Investor can be accessed here. Structured Credit Investor, July 19, 2022. View original article (external link). ### Tech Sector Meltdown & Credit – Opportunities Emerging? Download PDF The 2022 technology stock meltdown brought widespread financial damage to Indices, ETFs, IPOs, VCs, cryptos and 401K plans.  Markets are repricing the new reality of geopolitical tension, inflation and scarce money.  But has the selloff brought opportunities? Credit Benchmark Credit Consensus Ratings (CCRs) provide a unique angle; they are one step removed from volatile market values, reflecting balance sheet strength and the long-term robustness of business models.  Figure 1 plots the NASDAQ over the past two years against credit risk movements for the aggregates that cover some of the major technology companies (Broadline Retailers, for example include Amazon and eBay). Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: NASDAQ Equity Index and Credit Benchmark Technology Credit Trends NB Left Hand Axis inverted: Negative Value / Higher = Declining Credit Risk COVID was generally good for technology credit quality: after the initial limited downgrading, all three sectors have made a steady recovery. Hardware & Equipment shows a sustained improvement, even in recent months.  This reflects the impact of WFH on demand for technology, and the explosion in online retail as a key household lifeline during early lockdown.  Hybrid working is now the norm in many service industries, so the positive impact has persisted. But equity price drops suggest tough times ahead.  Supply chain issues have hobbled some product launches, and cash-strapped corporates are delaying hardware (and software) upgrades.  Chip shortages are biting in many sectors; and this is not automatically good news for semiconductor manufacturers as material and energy costs spiral. Funding for startups is drying up, and bond issues are becoming more expensive and less liquid.  And households are cancelling streaming services with subscription fees are dropping in response, while non-essential subscription apps are not being renewed.   Share prices of the largest and best-known tech names have been severely hit, especially where earnings targets are missed or guidance has been downbeat.  Figure 2 shows 15 of the main tech stocks across a range of subsectors (as of July 11th). Figure 2: Main Technology Stocks: Equity Performance YTD and CCRs Microsoft (aa) results have been healthy, but its share price is down more than 20%; whereas the IBM (a) share price is actually up this year.  Apple (aa) – also down approx. 20% - has maintained earnings but warns of supply chain challenges ahead.  Amazon (aa-) is suffering as the WFH peak passes, and competition intensifies. Alphabet (i.e. Google) (aa) reports significant drops in YouTube advertising revenue – although the share price has tracked Apple and Microsoft. Meta (aa-) also missed earnings while its share price dropped nearly 50%, although the decline in user numbers seems to have stabilized. Tesla (bbb-) faces headwinds of increased competition and supply chain issues, plus the legal fallout from its abandoned Twitter takeover.  Ironically, the Twitter (bbb-) share price probably benefited from a bid during the worst of the tech stock decline. The relative price divergence between chipmakers Intel (aa-), Qualcomm (a+) and NVIDIA (a) show the impact of the cryptowinter on NVIDIA’s business. It is no surprise to see weakness in the Salesforce (a) share price during a business downturn, but eBay (a-) is less predictable: more households are selling their junk to raise some cash, but they need buyers – and eBay report that overall revenues are down. HP (bbb) and Oracle (bbb+) shareprices have been relatively stable, but the Oracle credit consensus rating has downgraded from a+ to bbb+ in the past 2 years. Figure 3 shows the detailed credit trend for Oracle Corp. Figure 3: Oracle Corporation So are there opportunities in the technology sector? Some of the “boring” tech companies are amongst the strongest credit ratings and best performers, but others have lagged, perhaps unfairly.  And some of the weaker credits have avoided the worst of the tech rout.    Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Credit Consensus Ratings and Risk Sharing Portfolios Executive Summary Investors can use Credit Consensus Ratings to price risk in otherwise unrated names; but they can also use Credit Consensus aggregates to proxy risk for undisclosed Capital Relief Trades (CRT) portfolios. CRT portfolio credit risk can be proxied in a number of ways using Credit Consensus data – average default probabilities, proportions of names in very high yield categories (b and c). These metrics can be combined with market credit spreads to plot efficient frontiers and identify anomalies or scope for portfolio optimization; US Corporate bond spreads are closely correlated with aggregate average PDs and tail risk (% in b and c credit categories). Diversification benefits can be quantified by adjusting for correlations between aggregates. These correlations are more stable and potentially more meaningful than market-derived equivalents. Correlations between aggregates reduce measured portfolio risk in some cases by more than 20%. US Non-Life, Latin American Corporates and Belgian Corporates are the most diversifying aggregates. Regional and large country corporates are the least diversifying, followed by major US sectors. See Appendix for a return and risk chart for all (800+) aggregates. Risk estimates can also be adjusted by Point-in-Time stress scenarios. PIT adjustments approximately double the TTC default risk; the adjustment is larger for some higher risk portfolios. Risk estimates can also be adjusted by medium term credit transition rates. Long term transition effects increase risk by up to 5x, less for lower risk portfolios. Risk sharing transactions (also known as Capital Relief Trades, Credit Risk Transfers, Significant Risk Transfers, Synthetic Risk Transfers, amongst other variations) are a rapidly growing asset class. The sector has provided attractive risk-adjusted returns in the low-yield / low-default environment of the past decade; but global supply shocks and rising interest rates are expected to push corporate default rates higher. For risk-sharing investors, emerging risks – and opportunities – highlight the need for timely and comprehensive credit data for accurate transaction pricing. This paper details how Credit Consensus Ratings and Aggregates provide a detailed map of the credit market risk-reward landscape, including possible anomalies. 1. Introduction Europe has traditionally been the main source of risk sharing trades, but the US and Canada are increasingly important.  Figure 1 shows the average geographic distribution of names from a small survey of (disclosed) CRT portfolios. Figure 1.1 Average Geographic Distribution, Recent Disclosed Risk Sharing Portfolios The geographic and sector diversity of CRT portfolios is a challenge for portfolio risk managers – a significant portion of the issuers involved are unrated, and in many cases the issuer names are not disclosed to investors. Credit Consensus data coverage includes many of the otherwise unrated corporates and financials that feature in risk-sharing transactions; it also shows detailed geographic and sector risk trends in the absence of detailed issuer information. Risk sharing investors are a diverse group, with variable credit risk appetites and differing tolerances for transparency between disclosed and undisclosed lists of borrowers. Issuance of tranched investments (Senior, Mezzanine, First Loss) highlights the need for estimates of correlations between different credit categories and geography / industry combinations.  Credit Consensus aggregates cover more than 1,200 such combinations and can be used to calculate correlations and PD volatilities at a granular country / sector level using recent or full cycle time series. A subset of these aggregates are used in this note to compare several typical risk-sharing portfolios across a range of credit risk metrics.  The outputs suggest that the Credit Consensus dataset may have significant value in the risk sharing segment. 2. Optimizing CRT Portfolios: Risk vs Reward Overview Risk-sharing investment options are driven by banks who will aim to transfer assets that contribute heavily to their Risk Weighted Asset (RWA) calculations. If these are offered “blind”, the challenge for investors is to balance return against potential diversification benefit for their existing investments.  The classic approach to asset choice is to plot risk vs return for the asset universe. Figure 2.1 shows the relationship between Option Adjusted Spread[1] (OAS) as a proxy for return and Probability of Default (PD) as a proxy for risk, for a set of 30 geographic and sector aggregates used throughout this report. Figure 2.1 Efficient Frontier 1: Spreads vs PD for 30 Geographic / Sector Aggregates The correlation is positive and very high – so average credit risk for each aggregate is closely related to current OAS. Similar correlations are likely vs CDS prices, secondary loan market rates, and most other traded credit assets, but these will be distorted by tranche structures. (At this stage, correlation between default risks is ignored – this is relaxed later in this report). Figure 2.2 shows a similar chart with “Tail Risk” (% in b and c credit categories) as the risk measure. Figure 2.2 Efficient Frontier 2: Spreads vs Tail Risk (% in b and c Credit Categories) - 30 Aggregates Used for Portfolio Examples The correlation is again very high although the distribution of the aggregates in the plot is different. This suggests that any portfolio construction decisions need to use more than one risk metric. The previous return vs risk charts ignore correlation between the various risk metrics for each aggregate.  Credit Consensus data can be used to calculate correlations between PDs in terms of PD levels, PD changes, or the varying proportions of each aggregate in the tails (i.e. in the b and c credit categories). Figure 2.3 plots the range of correlation estimates for each aggregate compared with the other 29 aggregates in the sample. Correlations use unweighted monthly data from 2016. Figure 2.3 Most and Least Diversifying - 30 Aggregates Used for Portfolio Examples The error bars show the range of estimates using different measures of correlation – PD levels, PD Changes, and the proportion of aggregate constituents in the b and c credit categories. US Non-Life, Latin American Corporates and Belgian Corporates are the most diversifying, although some of the error bars for these are wide.  Regional and large country corporates are the least diversifying, followed by major US sectors. Alternative sources of correlation estimates are patchy – CDS indices cover a limited range of names and many of them are illiquid; bond indices are more widely available but restricted to traded bond assets subject to the short-term swings in market sentiment and credit / liquidity risk premiums. Credit Consensus data provides a set of regular and consistent times series including risk estimates for legal entities that are not publicly traded. They are also stable over short periods, while showing trends and turning points over longer time periods. Figure 2.4 shows rolling 12-month correlation between changes in US and European credit risk in the Healthcare sector, comparing Credit Consensus data aggregates with bond market-based proxies. Figure 2.4 Rolling 12-month Correlation, US vs Europe Healthcare, Consensus vs Bond Indices Credit Consensus data shows a much wider range in correlation estimates, dropping from 0.6 at the start of the period to -0.4 at the end.  Over the same period, bond market proxies never dipped below 0.6 and were usually close to 1. [1] The Option Adjusted Spread (OAS) is derived from recent (May 2022) OAS calculated by ICE-BAML and reported on the St. Louis Fed FRED website.  The credit % distribution of the aggregate constituents across 7 categories (aaa, aa, a, bbb, bb, b and c) are used as weights to derive a weighted average OAS for each aggregate. 3. Portfolio Structures and the Typical CRT Portfolio The sample portfolios used in this report have been selected to show how risk and return changes as the granularity of the exposures increases. This shows the value of mapping single names to aggregates, even with limited information (e.g. the country of risk is known but the industry / sector is not.) Figure 3.1 shows allocations for each sample portfolio, with summary risk and return statistics. Figure 3.1 Sample Portfolio Allocations and Summary Statistics CRT Asset Allocation 1 (AA1) is a low-risk mix of 50 / 50 EU and Global Corporates, and AA2 splits the EU exposure by country. AA3 is a 50 / 50 mix of US and Global Corporates, while AA4 is 100% allocated to Global Corporates. AA5 again allocates 50% to the US, but splits this by sector. AA6 is a diverse geographic mix allocated by region. The final portfolio, “CRT Super”, is an approximate average of a number of disclosed portfolios – a more sector-detailed version of Figure 1. Selection risk may be significant for any of these portfolios: aggregates cannot fully represent investor exposures in a particular sector or geography. The key issue is differences in credit behaviour between individual holdings and the typical aggregate constituent.  If, for example, investor exposures are all high yield in a specific sub-sector, their transition and PD change characteristics may be very different.  This issue can be partly tackled by: Introducing “Selection” volatility and adjusting for the number of exposures (the higher the better) Adjusting for the % overlap between holdings and constituents (reducing the impact of maverick holdings) Modifying selection volatility to reflect the behaviour of the actual exposures Selection risk is not included in these estimates but example calculations are shown in the Appendix. Figure 3.2 graphs two of the sample portfolio on a radar chart, with each summary risk metric plotted on a different axis. Figure 3.2 Radar Graph of Summary Risk Statistics for 2 Portfolios This shows that – compared with the CRT Super Portfolio, the AA5 is significantly higher risk on all of these metrics except for the Volatility without the Correlation adjustment.  Multiple portfolios can be compared in this way. Glossary of summary statistics reported for each portfolio in Figures 3.1 and 3.2 TTC PD Exposure weighted 1-year through-the-cycle ex ante probability of default.  PIT PD Exposure weighted Point-in-Time ex ante probability of default Vol PD (Chg) Exposure weighted average of annualized standard deviation of TTC PD monthly changes OAS Credit category exposure weighted USD Option Adjusted Spread PD T=5 CTM TTC PD after 5th iteration of 1-year transition matrix Unexpected Loss (UL) Weighted average of [TTC PD * (1- TTC PD)]^0.5 (ie St.Dev. of Bernoulli distribution) Vol PD (Corr Chg) Exposure weighted average of annualized standard deviation of TTC PD monthly changes adjusted by monthly correlations between aggregates % Tails Proportion of portfolio in b and c credit categories Max PD Increase 2020 Change in PD in 2020 if portfolio held current exposures Case Study: Should Credit Portfolios Be Proxied by Country or by Sector?  The table below shows the summary risk statistics for two portfolios of US Corporate entities. The first maps all single names to the US Corporate aggregate; the second approximates the portfolio with 13 equally-weighted US Sector aggregates. Risk Metric US Corporate = 100% US = 13 Sectors Max PD Increase 2020 28.4% 40.5% % Tails 17.1% 14.8% OAS 2.88% 2.81% Vol PD (CorrChg) 4.95% 5.26% Vol PD (Chg) 4.95% 7.08% Unexpected Loss 7.33% 4.96% PIT PD 0.96% 1.09% PD T=5 CTM 2.47% 2.56% TTC PD 0.54% 0.56% The 100% US Corporate portfolio has a higher % in the tails and higher implied OAS; but on all other metrics it is lower risk. The PD metrics are very close.  PD volatility metrics are also similar but only after adjusting for correlations between sectors. The 2020 stress period has a much larger impact at the sector level. This suggests that country exposures should be split into geographically specific sectors where possible to effectively capture risk extremes. Figures 3.3 and 3.4 shows the relationship between OAS, PD, Tail Risks and Unexpected Loss for these 7 portfolios. Figure 3.3 Spreads, Default Risks and Tail Risks for 7 portfolios Figure 3.4 Spreads, Default Risks and Unexpected Loss for 7 portfolios The % of aggregate constituents in the tails (b and c) are highly correlated with (1) the average PD and (2) the estimated spread.  The vertical difference between these two lines is roughly proportional to the combined Credit and Liquidity risk premium, adjusted by recovery rates. It is worth noting that the Super portfolio is close to the middle of the sample based on % in the tails, but Unexpected Loss adjusted by Correlation makes the Super portfolio lowest risk.  This suggests that using PD alone (and deriving Unexpected Loss (UL) from it) may understate the portfolio risk compared with other metrics. 4. Impact of Correlation Figure 4.1 plots the relationship between the volatility of monthly PD changes over the period 2016-2021 for each of the 7 portfolios. The green bars show the weighted average volatility of the portfolio PD after adjustment for the effect of correlations between changes in aggregate PDs. Figure 4.1 Relationship Between Volatility of Monthly PD Changes 2016-2021 Apart from AA4, all portfolios show some reduction in PD volatility – marginal for AA3, but significant for AA5, AA6 and the “Super” portfolio. [AA4 shows no correlation effect since it is represented by 100% exposure to Global Corporates.] There are clear benefits to diversity and consensus aggregates can be used to quantify these. Apart from AA4, all portfolios show some reduction in PD volatility – marginal for AA3, but significant for AA5, AA6 and the Super portfolio [AA4 shows no correlation effect, since it is represented by 100% exposure to Global Corporates.] There are clear benefits to diversity and consensus aggregates can be used to quantify these. Figure 4.2 shows the correlations between PD changes for the 30 aggregates used in this report. Correlations can also be calculated using Levels, % in Tails, or asymmetric changes (i.e. just the PD increases). These usually give similar but not identical results, and for specific aggregates they may be very different. Figure 4.2 Correlation between PD Changes Extension to Tranche Correlations Correlations between tranches can be estimated from the aggregates correlation matrix and the credit distributions of those aggregates. If tranches are defined as Senior (aaa/aa/a), Senior Mezzanine (bbb), Junior Mezzanine (bb/b) and First Default (c), then a universe of aggregates can be used to proxy the correlations between tranches for a given underlying portfolio. This first approximation can be refined by using the full universe of Credit Consensus aggregates to give more granularity, and by experimentation with the impact of defining the tranche boundaries – for example across 7 credit categories instead of three or four.  See Appendix 8.1 for a description of the full universe of 800+ Credit Consensus aggregates. For example, a number of emerging market aggregates (African Sovereigns, Turkish Banks) as well as sectors badly hit by COVID (US Travel & Leisure) have 10% - 20% of their constituents in the c category; while EU Sovereigns, North American Health Care and many developed market financials (including some Pension Fund aggregates) have very high proportions in the aa category. 5. Impact of Point-in-Time Adjustments In banks and non-banks, Point-in-Time (PIT) credit risk models have been developed to address the need for impairment calculations under IFRS9 / CECL. These estimates complement the main Credit Consensus dataset, with stress test metrics showing how default risk changes in a downturn.  These can be used to further differentiate and accurately price risk sharing portfolios. Figure 5.1 shows the impact of PIT adjustments, specifically based on the period of credit stress at the start of the 2020 pandemic.  These adjustments vary by industry and have been cascaded to the relevant sectors for each portfolio. Figure 5.1 Impact of PIT Stress Scenario Adjustments on Through-The-Cycle (TTC) Risk Estimates For a given level of OAS, each portfolio is shifted to the right as the PD is scaled up under the stress scenario. The correlations between OAS and PD remain almost unchanged for both metrics. However, risk for the higher return portfolios more than doubles while risk for the lower return shows a smaller increase.  The greater impact of the PIT PDs for higher return portfolios is intuitive since their exposures bring higher tail risk. 6. Impact of Transition Adjustments The impact of rising defaults can be measured using credit transition matrices – using Credit Consensus data these can be updated monthly, supporting decisions between long term and short-term holding strategies for specific groups of loans. Figure 6.1 shows the impact of applying typical multi-year transitions to the 1-year PDs. Figure 6.1 Impact of 5-year CTM Adjustments on PD Estimates As before, for a given level of OAS, each portfolio is shifted to the right as the PD is scaled up; in this case the increase is the result of repeated transformations using a 7x7 credit transition matrix. The correlations between OAS and PD are similar but lower in the 5-year case.  The AA6 portfolio shows the proportionately highest increase in risk, while the highest return (AA3) and (especially) the lowest (AA2) show lower proportionate increases. This is due to the transition matrix effect, which pulls risky entities from both ends of the credit distribution into the center. However, the most risky portfolios increase by a factor of about 5x, while the least risky increase by about 4.5x. To access the Foreword, Conclusion and Appendices of this whitepaper, please complete your details to download the full PDF report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download PDF ### Sovereign Credit Risk & Food Prices Download PDF Russia blames its latest foreign currency default on a technicality - their means and willingness to pay blocked by Western sanctions. But a growing list of countries have already seen Sovereign ratings slide in the past two years due to COVID costs; some now face a real risk of outright default as the war in Ukraine drives food, fertilizer and energy prices higher. The stronger Dollar is good for commodity producer margins, but rising interest rates hit global demand and weaker regional currencies increase debt servicing burdens. Figure 1 shows regional sovereign & central bank credit trends and credit distribution. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Regional Credit Trends and Credit Distribution CreditBenchmark.com EU Sovereign risk has steadily improved over the last two years, but is now plateauing. The Middle East has been stable, and higher energy price benefits may balance the hit from rising food costs – but the gap between winners and losers will grow. Africa continues to deteriorate, and Latin America – always volatile – is heading down. Figure 2 shows projected 2022 food price inflation by credit category. Figure 2: Projected Food Price Inflation and Sovereign Credit Source: Trading Economics, Credit Benchmark High food price inflation has a disproportionately negative effect on most of the countries that already have low credit quality. Countries with a combination of poor consensus rating (b or c) and high sensitivity to food price inflation (projected >20% in 2022), and hence at higher risk of being pushed into default / bailout territory include Angola, Egypt, Ethiopia, Ghana, Turkey, Malawi, Nigeria and Paraguay. Countries in the bb category with similarly high food price inflation include Georgia and Kazakhstan (Credit Benchmark Credit Consensus Rating = bb+, although agency ratings still show it as investment grade). Colombia, currently bbb- (although agencies rate it as high yield), is also facing excessive food price inflation. Six of these countries are in Africa, two in Latin America, two in the Black Sea region and one in central Asia. Turkey and Kazakhstan have had serious food and energy riots already; there has been similar unrest in Peru, Tunisia, Uganda and Sri Lanka. Some of the countries on this list have external revenue sources that may cushion the blow; Nigeria has oil and Kazakhstan has oil and uranium. But for most the impact of food price inflation is direct and likely to become more severe in the coming 12 months. Credit Benchmark consensus data is updated twice monthly, so it can capture the downward drift that is often a precursor to Sovereign default or bailout. Data is available in flat files, APIs and a web application with portfolio alerting functionality. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### UK Retail: Cost of Living Impact Download PDF Rising food and energy prices are a global issue, but the UK also faces the major inflationary impact of a depreciating currency. Against the US Dollar, the British Pound is getting close to its lowest level for 40 years. Last month, UK shoppers cut spending by the most since the country was in a COVID lockdown in early 2021.  The British Retail Consortium reported that total retail spending is already down year-on-year. And apart from a possible blip from the Jubilee celebrations, tighter household budgets will squeeze both non-essential and essential spending this year. Tesco is seeing early indications of the impact of inflation on consumer spending patterns with a greater-than-expected 1.5% year-on-year decline in like-for-like UK sales, and kitchenware retailer ProCook reported increasingly challenging market conditions. Figure 1 shows the credit trends for broadline retailers in the UK compared with the EU, Global and US. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Credit Trend, UK, EU, Global and US Broadline Retailers; Jun-21 to May-22 UK and EU both show recent deterioration against a still-rising global trend.  Imported inflation may be part of the issue - until April this year, the Euro was even weaker than Sterling, but a newly hawkish stance from the ECB is likely to see the gap close. As consumers across the UK and the EU focus on essentials and spend less time at home there has been a reduction in white goods demand: for example AO, the electrical retailer, has cited a deterioration in their outlook and its shares are down more than 60% this year. Figure 2 shows the AO credit trend, with the Credit Consensus Rating (CCR) recently downgraded from bb to bb-. Figure 2: AO World PLC. Figures 3-5 show credit trends for some other negatively impacted companies. Figure 3: Wilko Retail Ltd, a ubiquitous presence in UK retail parks. The Wilko homeware range is cheap, but the UK DIY boom seems to be over. Wilko is unlisted, and limited CRA information is available, but the CCR is bb- and shows a recent deterioration. Figure 4: Moonpig Com Ltd, a dot-com survivor and online greetings card IPO success story in 2021; but carries high debt and has seen its share price drop 40% this year. Figure 5: Ocado Group PLC, the lockdown lifeline, has seen its share price almost halve this year.  The loss-making firm has raised funds for expansion despite analyst concerns about the negative impact of inflation on the on-line business model.  The current CCR is bbb-, but the trend has been negative. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Automobiles & Parts: Impact of Chip Shortage Download PDF Semiconductor supplies have not yet recovered from COVID disruption. This has caused problems for many industries, but the impact is becoming acute for manufacturers of automobiles and parts. Figure 1 and 2 show credit trends and credit distributions for auto manufacturers in the main regions. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Credit Trend, Global, North America, Asia & Europe Automobile & Parts; May-20 to Apr-22 Figure 2: Credit Distribution, Global, North America, Asia & Europe Automobile & Parts; Apr-21 vs Apr-22 Auto-maker credit deteriorated during lockdown, but recovery began early as the public shunned public transport on health grounds.  Credit has continued to recover as economies have reopened but it is now plateauing globally, with Asia turning negative again. COVID disrupted supplies of labour and materials at all stages of car manufacture, but silicon chip supplies are particularly tight - bad news for automobiles, but good news for semiconductor firms. Figure 3 shows the dramatically improving credit trend for 28 semiconductor companies in the iShares Semiconductor ETF index - 86% of these are now investment grade. Figure 3: Credit Trend, 28 semiconductor companies listed on the iShares Semiconductor ETF index But Taiwan Semiconductor has 50% of the global semiconductor market - so it is possible that recent military rhetoric from China over Taiwanese sovereignty has encouraged stockpiling. Electric car technology is very semiconductor intensive, needing about 2,000 chips per vehicle, and demand is strong - registrations of battery electric vehicles (BEVs) and plug-in hybrids (PHEVs) have risen steadily, and government policies in Europe and China are increasingly pro-EVs.  But labour and supply shortages mean long waiting lists, with over a year for some electric models from Porsche and Volkswagen and many petrol models are also suffering long lead times. Semiconductors are not the whole story - as new car manufacturing struggles with shortages of labour and general parts (with rising car thefts specifically aimed at scarce components), prices of second-hand cars have risen sharply.  Used car sales grew 11.5% YOY in 2021. Prices of second-hand cars have been rising sharply; since April 2020 used car prices have risen by as much as 12%. This is good for some dealers, but negative for online car dealers like Carvan (ccc+) and Cazoo (b) which have recently announced staff layoffs against a backdrop of plummeting valuations. Consumer cutbacks combined with easing of COVID restrictions have dented online car sales, and online listings have also dropped as professional dealers hoover up any surplus stock. The shortage of new cars and parts has affected car rental supplies – existing stock is not easy to repair or replace, and demand is growing as tourism recovers with COVID restrictions easing from mid-2021 onwards. Some drivers, expecting WFH to be permanent, sold their cars to take advantage of the spike in second hand prices; now they can either pay up for a replacement or rent for special occasions - but rental rates have spiked, so the global car market is effectively in backwardation. Figure 4 lists some car rental companies and their current Credit Consensus Rating (CCR). Figure 4: Car Rental Companies Car Rental Company NameCCRCountryAVIS BUDGET CAR RENTAL LLCb-United StatesDONLEN FLEET LEASE FUNDING 2 LLCa+United StatesENTERPRISE RENT A CAR UK LTDaUnited KingdomGRANTHAM MOTOR CO LTDbbUnited KingdomHA FLEET PTY LTDa+United StatesHERTZ CORPb+United StatesINTERNATIONAL CAR RENTAL LTDbbUnited KingdomLOCALIZA RENT A CAR SAbbBrazilSIXT RENT A CAR LTDbbUnited Kingdom War in Ukraine has led to record petrol prices, but many drivers have no realistic alternative.  And those who can are determined to hold on to traditions: Rolls-Royce reported that COVID spurred wealthy motorists to buy more Rolls-Royces than ever before – because it made them realise life is short. In 2021, the luxury carmaker booked the highest annual sales in its 117-year history, selling 5,586 vehicles. Despite higher costs of cars, parts, technology and fuel, petrol cars are likely to be around for some time yet. Figures 5-9 show detailed credit trends for some of the affected companies. Figure 5: Broadcom Inc, an American designer, developer, manufacturer and global supplier of a wide range of semiconductor and infrastructure software products. Figure 6: Jaguar Land Rover LTD, a British multinational automobile manufacturer which produces luxury vehicles and sport utility vehicles. Figure 7: Dana Inc, is a leading automobile parts supplier of fully integrated drivetrain and electrified propulsion systems for all passenger vehicles. Figure 8: CarMax Inc, an online used vehicle retailer based in the United States – limited CRA information available. Figure 9: Avis Budget Car Rental LLC, one of the world's largest car rental providers. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Something Better Change: Securities Lending Indemnification is Unsustainable in Its Current Form Click Here for PDF Report   The longstanding issues surrounding Securities Lending Indemnification are symptomatic of the need for change in an industry that has always struggled with inertia and structural and economic change.    In this paper, Mark Faulkner, Credit Benchmark Co-Founder and author of “An Introduction to Securities Lending” reflects on the securities finance industry from a personal perspective and explores some of the challenges associated with Securities Lending Indemnification. The paper aims to explain the confluence of events behind these problems, assess their impact upon the market structure and make some suggestions to help mitigate the issues moving forward.   Executive Summary:   Securities Lending is a long-established secure activity, offering small but incremental returns. It plays a critical role in facilitating the efficacy and “lubrication” of the capital markets. Any historic losses have typically come from the overly aggressive reinvestment of cash collateral. Securities Lending Indemnification does not protect the beneficial owners from reinvestment risk losses[1]. Beneficial Owners have become overly dependent upon Securities Lending Indemnification, with many requiring it as a matter of course rather than after assessing its value as a true risk mitigant. Traditionally, the custodial agent banks have provided indemnification; however, Asset Management Lending Agents have not – which is to be expected given that they operate under differing regulatory regimes - but unusual given their similar roles and responsibilities. Indemnification protects the beneficial owner from two unlikely, concurrent events – a borrower default and a contemporaneous collateral shortfall post liquidation. The economic benefit associated with Securities Lending Indemnification is very low – about 0.2bps. The true economic / real-world cost of indemnification is about 0.9bps - exceeding the benefit BUT the cost is not passed on to the beneficial owners by the custodial lending agents. The regulatory capital cost of indemnification under Basel III is approximately 13bps, significantly exceeding the economic cost. Yet it is similarly not passed on to either the beneficial owners or borrowers. Agent advocacy with regulators has gone some way to reducing this cost - but the spreads between the benefit, economic cost / regulatory capital cost of indemnification remain material. Macro events and structural changes in the securities lending market have conspired to make the business less profitable over recent years – a phenomenon that is true across the industry and especially so for lending agents. The term “market” can only be loosely applied to an industry resistant to adaptation to economic forces. The growing adoption of Capital Relief Transactions is one important way of mitigating the capital challenges of the industry. However, U.S. regulators are currently seeking a pause in new transactions after a record level of activity in 2021. The decoupling of the cost, the benefit, and the regulatory capital cost of indemnification is unsustainable in the current market conditions and will hopefully prove a catalyst for change. There remains a window for regulatory engagement and advocacy and we encourage all parties to get involved – both as individual organizations and as trade associations. The growing capital implications associated with indemnification are just an example of the myriad of regulatory capital challenges faced by the securities finance industry. Regulatory capital issues are not “bank-related” issues; they impact all participants in the securities finance industry including the agent banks providing indemnifications, the prime brokers and their clients, and the traditional “buy-side” beneficial owners.   We implore all interested parties to work together with the regulators to ensure that the securities lending industry can perform its critical role in the provision of short-side liquidity for the global capital markets. There remains a window of opportunity for trade associations to join the banks on the front line to lobby and engage with the regulators before Basel IV for example.   Addressing the issues associated within the securities lending industry in general and those of Securities Lending Indemnification in particular has major capital markets ramifications and it is time for all parties to realise that something better change.     Mark Faulkner, Co-Founder, Credit Benchmark Download the full paper below: Click Here for PDF Report Detailed Credit Consensus Ratings, Aggregates and Analytics enable our clients to build a best-in-class credit risk management framework, and provide access to tens of thousands of otherwise unrated entities as well as sophisticated macro risk views.   The data are available via the CB Web App or on Bloomberg - to book a demo, or to discuss the contents of this paper in more detail, please get in touch with our team:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ [1]   Unless cash collateral is reinvested in explicitly indemnified reverse-repo programs offered by some lending agents. ### June Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the June Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40+ of the world’s leading financial institutions. Drawn from more than 950,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The positive trend continued in June for both EU and US Industrial firms. EU Industrials have been modestly improving in recent months, while US firms remain steady. UK Industrial firms are experiencing some instability, with alternating instances of improvement then deterioration, month-on-month. UK Industrials:  Another Hiccup UK Industrial firms are struggling to remain in positive territory, with a return to net deterioration this month. UK Industrial firms are experiencing some instability in their collective credit quality, with another reversal of last month’s net improvement. The UK CCI score sat just under neutral this month, at 49.4. This drop comes after last month’s positive score of 52.2, which followed an earlier negative score. This instability is unsurprising given British manufacturing activity was reported to expand last month at the weakest rate since January 2021; struggling to maintain momentum against rising costs of living. . EU Industrials: Continued Improvement The improving trend for EU Industrial firms continues, with credit quality hitting another a peak not seen in recent months. The EU CCI score is 53.7, which is the highest score since June 2021. The CCI has not been in negative territory since the subsequent CCI score drop in July 2021. These good fortunes may be jeopardised by heightened supply chain crisis issues as a result of EU regulations limiting steel imports – potentially forcing manufacturers to relocate to Asia. . US Industrials: Steady but Modest US Industrials are in the happy position of experiencing another month of net credit quality improvement. Continuing a positive run, the US CCI sits at 52.6 this month. This is the 16th consecutive month showing a positive score. Scores have been modest across 2022, however. US investment into local vehicle and semiconductor chip manufacturing will go some way to ease supply chain pressures which threaten to slow recent positive output figures. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Credit Consensus Ratings & Risk Sharing Download PDF For investors in Risk Sharing products, transparency is key. Credit Consensus Ratings speed up decision making, particularly where no public ratings exist and even when analysing undisclosed portfolios. Complementing the information received from issuers, independent Credit Consensus Ratings put a bank’s credit data into context alongside that of their peers with real-world exposures. The data informs portfolio pricing, construction, substitutions and ongoing monitoring and alerting during the lifetime of a transaction. Consensus credit data covers large numbers of unrated names, adding extra clarity for disclosed and undisclosed portfolios. This note uses Credit Consensus Ratings to compare a single bank’s view of a typical risk sharing portfolio with the broader bank peer group view of the same portfolios. It shows how this unique dataset can be used for industry trend tracking, portfolio analytics, and single name assessments. Figure 1 shows the industry and credit structure as well as credit trends for a disclosed risk sharing portfolio offered by Bank A. The first set of charts refer to the entire portfolio; the second set are for the Consumer Services portion. Similar analytics are possible for each industry. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Disclosed Risk Sharing Portfolio – Structure and Credit Trend Based on Bank A’s internal ratings, the majority (over 55%) of individual exposures are in the bb credit category. Across the peer group (excluding Bank A), the collective view is that only 35% of those same entities are in the same bb credit category. Over the past two years, Bank A estimates that the credit quality of this portfolio has deteriorated by around 45% before recovering – about three times more than the rating deterioration for the same set of names estimated by the broader bank peer group. Consumer Services is the largest single industrial category. Within Consumer Services, Bank A estimate that the proportion in bb is just under 50%, compared with an estimated 35% according to the bank peer group. And as with the overall portfolio, Bank A estimates that that this disclosed portfolio would have deteriorated by three times more than the average bank credit estimates for the same set of exposures. Figure 2 compares Bank A credit risks and trends for the main industries. Figure 2: Risk Sharing Portfolio Credit Trends for Main Industries, Bank A Estimates Bank A estimates that Consumer Goods are the highest quality industry with an average credit risk (based on average default probability) corresponding to the bb category. Most of the other industries are just below this at the upper end of the bb- category, but Consumer Services is in the b+ category. Over the past 6-months, 35% of the Oil & Gas names in this portfolio were upgraded and there were no downgrades. Consumer Services, Consumer Goods and Industrials all show upgrades in the 20% - 25% range, with minimal downgrades. Downgrades were more prevalent in Technology but still outweighed by upgrades. Over the past two years, the Oil & Gas industry has shown the most striking turnaround in credit risk, which more than doubled in 2020 before a dramatic recovery in 2021 which has continued this year. Consumer Services saw a similar decline but a very limited recovery. This illustrates how individual banks can use consensus credit data to: Compare their own portfolio risk estimates with those of their peer group, on a like-for-like name basis. This shows any biases or tendencies to over- or under-react to changes in the credit environment. This in turn can inform pricing, so that Bank A can consciously adjust exposures to sectors where it believes the differences are justified, and make adjust models where the differences are unexpected. Use peer group data to identify pricing anomalies across high and low risk sectors, and track credit trends based on upgrades vs. downgrades and average PD time series to predict potential turning points. The same data and similar approaches can be used for undisclosed portfolios. Consensus credit data supports more than 800 aggregates across a range of geographies and sectors – including Corporates, Financials and Funds at the region, country, industry and sector level. These aggregates can be used to support a correlation-based approach to structured credit pricing and risk sharing. Figure 3 shows a typical example. Figure 3: Quantifying Credit Risk Diversification via Consensus Aggregates Using the Credit Benchmark geography and industry schema, risk sharing investors and banks can compare portfolio pricing down to the sector and even sub-sector level of granularity without disclosing individual names. Credit risk correlations between sectors can be estimated over the past 5+ years to set exposure limits and single name concentrations; the volatility of the overall portfolio with and without the impact of correlations can be calculated to show the diversification benefits of portfolio decisions. Figure 4 shows the correlations between changes in average PDs for these aggregates over the past few years. Figure 4: Correlations Between Selected Aggregates, Based on Changes in Average PDs This shows, for example that monthly changes in PDs are very highly correlated (+0.91) across US Corporates and US Industrials; while Italian Corporates show low correlations with all other aggregates in this set. A large set of aggregates and schemas are available to our clients or upon request. For a confidential report customised to your portfolio, please get in touch with our team: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### US Energy Sector: Credit and Equity Download PDF The invasion of Ukraine has shifted energy sector dynamics, with all energy sources (including non-renewables) back in scope. After describing themselves as “cash machines”, major oil companies are now trying to head off a windfall tax with promises of renewed investment – in fossil fuel extraction.  The alternative is ongoing European dependence on Russian oil and gas – but the war has demonstrated that energy security may be more politically pressing than environmental worries. US energy companies have had a bonanza as oil and gas prices have spiked, and this has been mirrored in share price performance with the sector up more than 30% while the broader market has lurched down. Figure 1 shows the relationship between Credit Consensus Ratings and US energy sector equity price changes in 2022. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Consensus Credit and Equity Performance Based on the 100-point credit scale (1 = Best, 100 = Worst), Nabors has the lowest Credit Consensus Rating (above 70), followed by Oceaneering and Ring (both above 60). Laredo, Bristow, Genesis and Calumet are above 50. Of these, Ring and Nabors have been the best share price performers, both up by c50% since the start of the year. Oceaneering, Laredo and Bristow have lagged behind the sector with share prices up less than 20% this year. Genesis share price is only up slightly, despite recent credit improvement, whilst Calumet share price is slightly down. Figure 2 shows the detailed credit trend for Genesis Energy since Dec-21. Figure 2: Genesis Energy Across the full range of Credit Consensus Ratings in the US Energy sector, companies like Consol Energy, Comstock Resources and Range Resources stand out as strong equity performers. High quality firms that have lagged the equity market include Exxon, Magellan and Plains All American. Figures 3 and 4 show the detailed credit trends for Consol Energy and Range Resources since Dec-21. Both companies have experienced recent credit improvement, moving from the b+ credit category to bb-. Figure 3: Consol Energy Figure 4: Range Resources The Credit Benchmark consensus dataset is now available on Bloomberg, supporting detailed comparisons between bank-sourced Credit Consensus Ratings, equity markets and bond/CDS prices. It includes a large number of Credit Consensus Ratings for companies that are unrated by the major NRSROs. For more information, please get in touch with our team: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### May 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. Financials have seen strong credit quality improvement this month across a variety of counterparts. Globally Systematically Important Banks (GSIBs) were the stand-outs in the Banking group, with an improving to deteriorating ratio of 6:1. North American Banks followed closely behind with a ratio of 5.3:1. The other groups all also showed net improvement to varying degrees, with the exception of Latin American Banks which were neutral with a ratio of 1:1. Among the Intermediaries, Prime Brokers led the pack with 5 improvements to each deterioration, followed by CCP Members with a 3:1 ratio. CCPs themselves showed no instances of deterioration this month. On the Buy-Side, Sovereign Wealth Funds showed the strongest performance this month with a ratio of 5:1. Asset Managers and Insurance Companies showed similar levels of net credit improvement, at 2.2:1 and 2.1:1 respectively. The only net deterioration this month was observed in Pension Funds, with an improving to deteriorating ratio of 1:3.1. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### May 2022 Industry Monitor Download the May Industry Monitor below. Credit Benchmark have released the end-month industry update for end-April, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Global Corporates and Global Financials both saw credit quality improvement this month, with Financials performing marginally better with a ratio of improvements to deteriorations of 2:1, compared to Corporates with a ratio of 1.8:1. Following a month-to-month trend, Oil & Gas firms again performed the best of the industry groups, with 3.1 improvements to every deterioration. Basic Materials and Technology were the next best performers, with ratios of 2.2:1 and 2.1:1 respectively. Several other industries showed similar levels of improvement, with Telecommunications finishing at the bottom of the group with the only negative ratio of 1:1.1 improvements to deteriorations – a small margin of difference. Of the sectors, Canadian Oil & Gas firms were weighted heavily towards credit improvement, with a stand-out ratio of 36:1 (with fewer than 1% of the total pool deteriorating this month). US Oil & Gas showed another strong instance of net improvement at 4.3:1. Travel & Leisure firms are setting their pandemic-related woes firmly behind them as holidaymakers enthusiastically make summer travel plans, resulting in a ratio of 2.5 credit improvements to each deterioration this month. General Retailers are also enjoying improved fortunes with a ratio of 1.8:1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the May Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### What Will Happen to Default Rates in 2022 / 2023? Download PDF Figure 1 shows overall global debt hitting a new high at the end of 2020, with corporate debt levels in major economies at or close to their highs (UK corporate debt was on a steady downward trend until the pandemic). Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Debt to GDP Source: IMF Source: Statista With tighter global monetary policy already hitting heavily indebted households and firms, could default rates also reach record levels? Figure 2 shows the history of US Business Loan Delinquencies since the late 1980s. Figure 2: US Business Loan Delinquencies The average over the whole period is 1.7%. The series peaked between 6% and 7% in the early 1990’s, with further peaks in 2002 and 2009. The current rate of 1% is close to the all-time low. Other default rate series averages may be higher or lower depending on the universe. For example, the Moody’s Global Speculative-Grade index has an average default value of 3.8%, with a peak of close to 14% and a low of about 1%. But both series show a similar pattern of peaks and troughs in terms of relative scale and timing. Figure 3 shows the relationship between the Fed Effective rate and US Business Loan Delinquencies. Figure 3: Fed Effective and Business Loan Delinquencies Latest data is in the cluster of points at lower left. Fed rates and Delinquency levels have both dropped erratically from values of about 6.5% in 1991, spiralling down to about 1% (Delinquency) and close to zero (Fed Effective) in recent quarters. There have been periods when the Fed Effective Rate has been close to its high for the period, and at the same time Delinquencies have been in the lower half of their range for this sample. This suggests that other factors – such as aggregate debt loads – are likely to play a key role in determining the impact of the current round of Fed hikes. If, for example, the Fed moved short rates to 4%, then the Delinquency rate could be anything from 1.5% to 6% based on the historic range plotted in Figure 3. But with many heavily indebted companies having become acclimatized to paying record low rates to borrow, it is possible that the next spike in defaults will be in the upper half of the range. Recent Fed policy appears to have reverted to a more traditional inflation-driven approach. In the past 30 years, the average Fed Effective rate has been 2.5% against an average CPI inflation rate of 2.6%. So if inflation becomes stubbornly stuck – say at 4% (still half its current rate) – then Fed rates may reach a similar level. Few commentators are yet talking about inflation staying anywhere near its current level for long, but it is worth bearing in mind that inflation was well into double digits in the 1970s and early 1980s – both spikes also a result of war-driven energy shocks. There are many dependencies here, but if US inflation stabilises at 4% and the Fed follows suit, then default rates measured by US Business Loan Delinquencies could be above 3.5% (half the range of 1.5% to 6%) - more than 3 times their current value. At an inflation / Fed rate level of 3%, default rates could still be double their current level. Moody’s base scenario is for the current global high yield default rate of 2% to remain around that level – but rising to about 9% in a pessimistic scenario, an increase of more than 4 times. It seems likely that default rates will show a sustained rise – they could double, triple or even quadruple from current levels depending on assumptions and the chosen universe. Figure 4 shows consensus credit data for 19,244 global corporates. Figure 4: Consensus Credit Data for Global Corporates The average Global Corporate PD has risen from 44 Bps at the end of 2015 to a peak of 60 Bps at end 2020. It currently sits at 56 Bps, an increase of more than 25%. Default rates rise when the credit distribution shifts to the right, with a higher proportion of the corporate universe in the non-Investment grade categories. The average PD rate plotted on the left is very sensitive to small changes in the proportion in the b and c grades plotted on the right, but as a very general rule a tripling of average credit risk corresponds to a shift in the distribution by three to four notches on the 21-category scale – meaning that typical bbb+/bbb/bbb- firms move into the bb+/bb/bb-/b+ range. Consensus credit data covers a large universe of otherwise unrated names; these can be used in calculating quarterly transition matrices to track credit distribution shifts in detail. Credit Benchmark provide regular updates on the speed and scale of movements in the global corporate credit distribution and the impact on average PDs. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Home Improvement and Grocery Delivery Firms Suffer as Pre-COVID Habits Return Download PDF As offices and city centres come back to life, consumption patterns are shifting after the sustained impact of COVID lockdowns.  The main early beneficiaries were grocery delivery firms such as Ocado, as customers favoured the convenience of online delivery services above queuing for socially distanced supermarkets. Later, home improvement companies such as B&Q and Screwfix did good business as working-from-home owners invested spare time upgrading their properties. As the pandemic eases and workers return to their offices, the COVID beneficiaries are facing the double hit of a return to more traditional buying habits and an inflation squeeze on household budgets. Figures 1 to 4 show detailed credit trends for some UK home improvement and grocery delivery companies – all show a recent decline in credit quality. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: B&Q PLC, owned by Kingfisher PLC Figure 2: Screwfix Direct LTD, owned by Kingfisher PLC Figure 3: Ocado Group PLC Figure 4: DFS Furniture PLC Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### April Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the April Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. April showed similarly positive CCI readings for US and EU Industrial firms this month, both of which have enjoyed overall net improvement for several months now. The UK dropped into negative territory after three prior months of improvements, implying a shakier credit foundation. UK Industrials:  Recurrent Setbacks UK Industrial firms are struggling to remain in positive territory, with a return to net deterioration this month. The UK CCI score is sitting just under neutral at 49.4, the first instance of a negative score since October 2021, and the third negative score in the last 12 months. Manufacturing dropped by more than a third in the UK in March due to a shortage of semiconductors and other components, representing the worst March since 2009. With cost pressures remaining intense, these challenges are likely to be reflected in the coming months’ credit quality. . EU Industrials: Modest Growth EU Industrial firms continue their run of improvements, registering the highest CCI score since June 2020 – though the net balance of improvements remains modest.  The EU CCI score sits at 52.3 this month, an increase from last month’s score of 50.2. The last instance of deterioration for the group was in July 2021; also the only instance within the past 12 months.  The region may see a boost in manufacturing fortunes as a result of efforts to cut reliance on Russian gas and rebuild Europe’s industry manufacturing of solar parts. The Union plans to reduce Russian gas use by two thirds this year and end it by 2027.  . US Industrials: Trend of Net Improvement Persists US Industrial firms have gone from strength to strength, boasting CCI scores above 50 for 14 consecutive months and maintaining long-term net positive credit quality. The US CCI score this month is 52, a small drop from last month’s CCI of 53.2. While the long-term trend is positive, the individual scores have not gone above 55 for eight months, indicating some macro pressures on the industry. Though a consumer spending shift from services to goods during the pandemic was beneficial to US manufacturers, labor markets have been tight and supply chain pressures have persisted due to China lockdowns and the war in Ukraine. Autos were hit particularly hard, but recent production figures are encouraging.  . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Q1 2022 Quarterly Review: COVID Recovery, Inflation and Ukraine Invasion The latest whitepaper from Credit Benchmark illustrates the global credit trends in the first quarter of 2022. Global growth rebounded strongly at the start of 2022 as COVID-hit economies began to reopen, and consensus credit trends mirror this recovery across a broad range of sectors.  But post-pandemic supply challenges and the Ukraine invasion impact mean that robust demand is driving inflation higher.  Central Banks are increasingly hawkish after years of low interest rates, so heavily indebted companies and consumers are facing a squeeze which could drive credit defaults higher. Some of the key points from the whitepaper include: Broad-based credit recovery from the pandemic is continuing but slowing.  Industries and sectors that were hardest hit by COVID in 2020 staged the most dramatic recoveries in 2021; some of them are plateauing or even turning down. Global Corporates have recovered faster than Global Financials, after deteriorating further at the start of the pandemic. War in Ukraine has hit European Sovereign credit risk – especially in Eastern Europe – as well as some EU industries such as Technology, Autos and Industrials. Sensitivity analysis shows that Fed rate hikes are likely to have a significant credit impact on US Industrials, Aerospace and Health Sectors. Heavily indebted US firms are unusual, showing limited post-COVID recovery; aggressive rate hikes could mean renewed deterioration. The zero-COVID policy in China may be starting to hit Financials Credit Trend: Global Corporates, Financials and Sovereigns Lists of companies affected by the war in Ukraine are available as stored portfolios with automatic upgrade/downgrade alerts in the Credit Benchmark Web App. Contact Credit Benchmark to start a trial or to request a coverage check. Please complete your details to download the full whitepaper: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Earth Day: Ukraine War Pushes Energy Efficiency Rethink Download PDF The Ukraine war has realigned economic priorities: countries are scrambling to secure stable food and energy supplies. The EC aims to replace 100 bn m3 of Russian gas this year by tapping alternative supply sources (such as LNG from the US) and boosting capacity in renewables. Non-renewable production is being ramped up everywhere to plug the immediate gaps, but the energy shock is a huge boost for renewables, including wind and solar power. Figures 1 and 2 show the impact of efficiency measures and the relative efficiency of various energy sources. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Changing Habits vs Changing Technology Figure 2: Energy Efficiency One of the most effective ways of curbing CO2 emissions is greater efficiency in energy usage from any source – by insulating homes, turning down heating, and using less hot water. Non-renewables are also highly efficient; but some of the greenest technologies are also paradoxically dependent on the increasingly volatile climate. Until large scale energy storage becomes cost-effective, diversity in technologies is critical to ensure stable supplies from renewable sources. Consensus credit ratings cover 41 wind companies and 51 solar companies. Figure 3 shows the Investment Grade (IG) High Yield (HY) balance for each. Figure 3: Mar-22 IG/HY balance; Wind and Solar Over 80% of the companies in the wind power consensus aggregate have an investment grade rating. More than half of companies in the solar power consensus aggregate are investment grade. The proportion of investment grade companies in the Conventional Electricity sector in various geographies is typically in the range of 60% to 70%. For traditional Oil & Gas companies, the investment grade proportion is 47%. Figure 4 shows credit trends for these wind and solar companies. Figure 4: Credit Trends; Wind and Solar At the beginning of the COVID crisis, average solar company credit risk increased 26%. Credit quality modestly improved from early 2021 but this has faded in recent months. The pandemic had less impact on wind company credit risk, deteriorating from Mar-20 to Nov-21. Recent months show signs of stabilisation and possible improvement. The Ukraine war is changing the credit landscape – any shift towards green energy is likely to be reflected in major credit improvements in these aggregates. Figures 5.1 and 5.2 shows Credit Consensus Ratings and country of risk for some of the companies included in these aggregates. Figure 5.1 Solar Companies Figure 5.2 Wind Companies Companies on this list have limited or no rating agency coverage, so the Credit Consensus Rating shown here may be the most robust (or only) estimate of credit available. Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to start a trial or to request a coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### April 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The news is, on the whole, good for Financials this month, with a few exceptions. Among the banks, Globally Systemically Important Banks (GSIBs) again showed their strength, with a positive ratio of 2:1 improvements to deteriorations. Presumably much of this was driven by North American Banks which came out on top with a ratio of 3.3:1. Central Banks performed the worst this month, with a negative ratio of 1:1.3. On the buy-side, Sovereign Wealth Funds mirrored the fortunes of their Central Bank counterparts, with double the deterioration versus improvement. Pension Funds were positive this month at 1.8:1, while Mutual Funds remained neutral. Intermediaries also showed a mixed picture, with a stand out performance from Prime Brokers at five improvements to every deterioration. Broker Dealers shared the good news with a 3.2:1 ratio. Central Clearing Counterparties and Custodians / Sub Custodians were both in the red this month with net deterioration.   The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### April 2022 Industry Monitor Download the April Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-March, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. The trend of credit quality improvement seen in Global Corporates continues, with net positive movement across the board this month. That said, the ratio difference in most industries and sectors is marginal, indicating a pattern of balance – though with an optimistic bent. Corporates outperformed Financials by a slim margin, with an improvements to deteriorations ratio of 1.4:1, to Financials’ 1.3:1. Among the industries, the best in class was Oil & Gas, with a ratio of 2.6 improvements for every deterioration. With oil and gas prices soaring as a result of the Russia-Ukraine conflict, companies are seeing record profits and a resultant healthy credit risk performance. Basic Materials followed by a distance, with a ratio of 1.7:1, with Healthcare close behind at 1.5:1 improvements to deteriorations. The rest of the industries maintained slim positive ratios of 1.3:1 or lower, with Technology and Utilities showing the comparatively lowest ratios, at 1.2:1 and 1.1:1 respectively. The strong performance from Oil & Gas was evident at the sector level, with all three regions showing a heavily weighted bias towards improvement. US Oil & Gas led the pack at 3.8:1 improvements to deteriorations, followed by Canadian Oil & Gas at 3:1, and close behind was UK Oil & Gas at 2.9:1. US Corporates overall reflected this positive bias, with a ratio of 2.1:1, while UK Corporates had a weaker ratio at 1.1:1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the April Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Not Immune: Fed Hikes Will Hit Some Key UK Sectors Download PDF Rising inflation has pushed up Government bond yields and many Central Banks are now increasing short rates. Shortages of labour and materials are driving a major short-term adjustment to the price level, and the challenge for rate-setters is to manage long-term inflation expectations downwards without completely derailing the global economy as it recovers from COVID containment measures. Consensus credit data is available for 1,000 corporate and financial aggregates (based on more than 30,000 issuer-level credit estimates), with monthly time series back to 2016. These aggregates represent unweighted geometric means across the constituent issuers. This data gives some insights into the possible impact of rising rates on credit risk. This short study focuses on models of changes in selected PD aggregates for UK sectors, and uses changes in the UK Corporate Credit Consensus PD average, the Fed Effective rate, the WTI Oil Price and the US High Yield OAS as explanatory variables. Rate, spread and oil data are sourced from the St Louis Fed website. The study period is mid 2016 – early 2020, pre-dating the aggressive rate cuts in response to COVID restrictions. This includes a period when the Fed had been steadily tightening policy. Figure 1 shows the t-statistics and R2 results for a large group of UK sector aggregates. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Summary Regression Results: t-statistics and R2 for UK Sectors The t-statistics indicate how much each sector PD is positively or negatively affected by each of the four factors, after removing the impact of direct correlation between those factors. The R2 shows the combined influence that the four t-statistics have on the overall credit risk of each sector – the influence is as low as 3% for Media Agencies and as high as 89% for Specialty Retailers. The UK Corporate Consensus represents general UK credit risk, and understandably it explains a lot of the variation in some of these aggregates; but other factors are important for some key sectors. After removing the effect of general UK credit risk, there are some sector-specific effects that are explained by the other factors. For example, Fed hikes strongly increase credit risk in the UK Integrated Oil & Gas and Industrial Machinery sectors. Other sectors which are likely to see a moderate risk increase include Food Products, Insurance Brokers, Pharmaceuticals and Waste Disposal Services. Fed hikes actually reduce risk for Mining, Health Care, Construction, Speciality Retailers and Travel & Tourism. (Some of these sectors may be responding to associated currency effects that reflect changing interest rate differentials). Rising oil prices are bad credit news for Healthcare Providers, Speciality Retailers, Transport, and Travel & Tourism. In credit terms, Basic Materials and Broadline Retailers benefit from oil price rises; it is worth noting that the credit risk for Integrated Oil & Gas companies is largely unaffected by the oil price – perhaps because price rises can be passed on and price drops are not. An increase in US High Yield spreads – as a proxy for global high yield bond risk and funding costs – is credit negative for Health Care providers, Insurance Brokers, Railroads, and Speciality Retailers. It is positive for Broadline Retailers, Oil E&P companies, and Heavy Construction. Sectors that are most strongly influenced by the overall level of UK Corporate credit risk include Basic Materials, Business Support Services, Consumer Goods, General Mining, Health Care, Heavy Construction, Home Construction, Specialized Consumer Services, Speciality Retailers, Transport, and Travel & Tourism. These are the sectors that will suffer most in a downturn and benefit most in an upturn. With Central Banks raising rates to tackle inflation at time of materials and labour shortages, it is likely that the default rate will rise and the forward-looking probability of default will anticipate this. This analysis shows which sectors are likely to see the largest increase in credit risk as a result, and in particular those sectors that are particularly vulnerable to adverse developments in multiple factors. With the full consensus credit data set (more than 1,000 aggregates) this type of analysis can be extended to different countries, sectors, time periods and explanatory variables. This report is available upon request for other geographies and variables. Please complete the form below to request a custom report and a member of our team will be in touch: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### US Construction & Materials: Sharp Credit Improvement May Stall on Ukraine Impact Download PDF The global construction industry is facing renewed challenges: just as the COVID-driven labour and materials shortages showed signs of easing, the Ukraine war is hitting the industry in two specific areas: steel and glass.  The US typically imports 60% of its pig iron from Russia and Ukraine, while higher natural gas prices are hitting glass prices and supplies.  Glass furnaces are not easy to restart after shutdowns, and the glass shortage has been compounded by the trend away from single-use plastic bottles as well as the demand for glass vials during the COVID vaccination program. Prior to the invasion, credit risk for US Construction & Materials had improved especially rapidly as the pandemic eased, despite the highest cost-inflation rate in 50 years, and disruptions to building due to extreme weather in the US.  The recovery matched that in Canada and outpaced that of the UK, EU and Global aggregates. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: EU, Canada, Global, UK and US Construction & Materials aggregate probability of default; past two years. Figure 2 shows the latest and one year ago US Construction & Materials credit distribution Figure 2: Credit Distribution, US Construction & Materials; Feb-21 vs Feb-22 Over the past year, the credit distribution has shifted towards investment grade: there are no longer any entities in the c credit category and the bbb and a credit categories have expanded. North American construction firms have some advantages compared with the rest of the world – large home-grown timber sources, more reliable energy supplies, and the continued demand as the spend from the $1.2trn infrastructure bill signed in late 2021 is rolled out.  The Ukraine war is pushing the US to become self-sufficient in many industrial inputs; steel and glass will need to be high priorities if the infrastructure bill is to be kept on track. Figures 3, 4 and 5 show recent positive credit trends for three U.S. Construction & Materials companies: Summit Materials LLC, Masco Corp and Apex Tool Group – the next few months will be crucial for the sector credit outlook.  Consensus data is now available on Bloomberg to track these and other changes across more than 30,000 global corporate issuers. Figure 3: Summit Materials LLC,  US-based aggregates producer Figure 4: Masco Corp, US-based home improvement and new home construction products Figure 5: Apex Tool Group, US-based hand and power tools Enjoyed this report? If you’d like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to request a complimentary trial or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### US Office Market: Recovery From Pandemic Slump Download PDF Flexible-office operators suffered during the early part of the pandemic, in part because their short-term leases were easier to exit than traditional office leases. However, many companies are embracing hybrid-work schedules when sending their employees back to the office. This is increasing demand for offices and meeting rooms, especially for those with flexible, short-term booking options. In Jan-22, property brokerage JLL reported that the US office market registered positive net absorption for the first time since the onset of COVID during the fourth quarter of 2021. Figure 1 (below) shows the consensus aggregates and current credit distribution for US Industrial and Office REITs compared with Global Real Estate Investment & Services and Global REITs (which includes Industrial & Office REITs companies). Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Credit Trend and Current Credit Distribution By Dec-20, US Industrial and Office REITs credit risk had increased by over 15%, due to COVID. However, it was impacted by COVID less and recovered sooner than Global Real Estate Investment & Services and Global REITs. Today, US Industrial and Office REITs has almost fully recovered from COVID. Over 92% of US Industrial and Office REITs companies are IG rated, this is compared to 54% for Global Real Estate Investment & Services and 65% for Global REITs. Figure 2 shows a detailed credit trend for Corporate Office Properties, L.P., a US real estate investment trust that owns, manages, leases, develops, and selectively acquires office and data centre properties. Figure 2: Corporate Office Properties, L.P. Diversified Healthcare Trust is a US REIT with a $6.6 billion investment portfolio which has been on the Credit Benchmark Watch List since April 2021. For a detailed credit consensus report on Diversified Healthcare Trust, please download using the below form. Custom credit consensus reports are also available on request: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Global REITS: Slow to Recover After Major Pandemic Downgrade Download PDF The Real Estate market is being pulled in multiple directions.  The “race for space” has driven up land prices, but supply chain issues are also pushing up the cost of newbuilds.  Cities are returning to some form of normality, but existing offices are operating at less than full capacity while many new offices are struggling to find tenants in the face of hybrid working practices.  Industrial property has been boosted by the need for huge fulfilment centres as online shopping thrives.  Real Estate is at the junction of Wall St and Main St.  COVID did not affect these two pillars of the economy equally: Figure 1 shows that, in credit terms, global Financials were impacted less by COVID, but Corporates showed a faster recovery. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark to start a trial or to request a coverage check. Figure 1: Credit Trend and Current Credit Distribution for Global Corporates and Financials Corporate credit risk was increased by more than 18% by the COVID crisis, while Financial credit risk was only increased by 11%. Recovery started in May-21 for both Corporates and Financials; Corporates have experienced a quicker recovery and are now more in line with Financials. However, the bb credit category still dominates the Corporate universe, whereas Financials are more evenly spread; with nearly 30% in the a category. Within Financials, there is another split. Figure 2 shows Banks, Insurance (Life and Non-Life) and Real Estate Investment Trusts (as a proxy for all Real Estate) as separate series. Figure 2: Credit Trend and Current Credit Distribution for Global Banks, Insurance and Real Estate Investment Trusts (REITs) The Global Financial credit risk changes shown in Figure 1 are entirely driven by REITs – Banks and Insurance companies show minimal change over the same period. Banks and REITS still have very similar credit profiles (banks have more in aa, REITS in bbb). Figures 3 to 7 show detailed credit trends for REITs companies. DiamondRock Hospitality LP, Brookfield Property REIT Inc and MGM Growth Properties Operating Partnership LP were substantially impacted by COVID and have been slow to recover. Figure 3: DiamondRock Hospitality LP Figure 4: Brookfield Property REIT Inc Figure 5: MGM Growth Properties Operating Partnership LP Broadstone Net Lease LLC and Sun Communities Operating LP were impacted less by COVID, currently holding better post-COVID credit ratings than pre-COVID. Figure 6: Broadstone Net Lease LLC Figure 7: Sun Communities Operating LP REITS show some recovery from their COVID lows, but there is a long way to go.  While real estate is traditionally a hedge against inflation, higher interest rates will hurt funding and profitability.  Any recovery is likely to remain sluggish. Diversified Healthcare Trust is a US REIT with a $6.6 billion investment portfolio which has been on the Credit Benchmark Watch List since April 2021. For a detailed credit consensus report on Diversified Healthcare Trust, please download using the below form. Custom credit consensus reports are also available on request: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Russia - Ukraine Credit Shock Hits European Food Producers Download PDF     Even if the war in Ukraine can be stopped soon, it has already had a dramatic impact on the global food trade.  Russia and Ukraine are major and direct suppliers of grain (especially wheat and barley) to Africa and the Middle East, and Ukraine provides the majority of the world’s sunflower oil used in animal feed.   Even before the invasion, wheat prices had doubled from their lows of 2017 – the pandemic adding to the effect of trade tensions and the growing impact of climate change[1].  But Russian aggression has damaged global food supplies: wheat and sunflower oil prices are up more than 35% in the month; soy and palm oil up 15%; corn and rice up 7% and 3% respectively.   In a further twist, Russia recently agreed to supply China with grain “from anywhere within Russia” - presumably including Ukraine – and China has no plans to block those imports.  This gives Russian some foreign exchange while other sources are sanctioned.   The war could hamper spring planting in western Ukraine; wheat futures for delivery as far out as two years have spiked to reflect this.  But grain and plant oil are not the only issues. The war will severely restrict global fertilizer supplies from Russia, Belarus and Ukraine – all major producers.   The fertilizer industry has seen intense innovation in recent years in an attempt to meet inexorably growing demands for higher yields. Seaweed, food waste and microbial ammonia are just some of the alternatives.  But there are no quick fixes, and natural gas shortages are a major limiting factor for nitrogen-based fertilizer.    The EU is expected to quickly amend rules on state aid to farmers to maintain production levels despite rising costs.  And they are also likely to relax rules on pesticides and GMO content to admit meat supplies from the Americas - although markets seem to be anticipating a change in meat-eating habits: prices of live and feeder cattle are actually down on the month. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark for a complimentary trial or coverage check. Figure 1: Credit Risk Trends   In the past month, the main impact is on EU Food Products companies, with a 4% deterioration in average credit risk. The UK is down about 3%, and the Global aggregate is down just over 1%. North American Food Products actually improved – up 0.3% over the month.   Some of the individual companies driving the deterioration include Unilever and Yara (fertilizers) in Europe; while Cargill in the US has improved.   Even if a peace deal can be brokered soon, the delay in spring planting and the disruption to supply networks means that these credit trends are likely to continue for some time.   Consensus data is updated twice per month, tracking the continuing effect of the war on sectors and companies, rated and unrated, across the globe. This data is now also available on Bloomberg or via the CB Web App – contact Credit Benchmark for a complimentary trial or coverage check. Enjoyed this report? If you'd like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to request a complimentary trial or coverage check:   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ [1] G20 and Oxfam have published a number of reports on the growing global food crisis.  They cite climate change and water shortages, population expansion and the growing demand for (grain-intensive) meat as the systemic issues that will bring increasingly volatile food prices, food poverty and – in some countries - the risk of starvation. ### Gender Diversity and UK Corporate Financial Health: Stronger Credits Have More Female Board Members Download PDF In 2011, FTSE350 boards were 91% male, and 150 of those companies had no female board members at all. In 2015, the Hampton-Alexander review set a 2020 target of 33% for average female representation – and this was achieved in May 2020. Companies that embrace diversity are more likely to be progressive in multiple ways, but corporate diversity also exerts a subtle but powerful and direct influence on performance, because constraints in any form tend to be bad for business. A McKinsey & Company report found that the greater the representation of women executives at a company, the higher the likelihood of outperformance - with up to 48% separating the most from the least gender-diverse companies. A gender-diverse leadership certainly seems to be linked to financial strength; consensus credit ratings are noticeably better in companies with more females on their board. Credit Benchmark currently cover 248 companies in the FTSE350 universe, and 80% of these companies meet the 33% target for women on their board. Figures 1 shows the credit distributions of the 248 companies in the FTSE350 universe that meet / don’t meet the 33% target for women on boards. Detailed consensus credit data is available on Bloomberg or via the CB Web App, covering many otherwise unrated companies. Contact Credit Benchmark for a complimentary trial or coverage check. Figure 1: Credit Distribution of 248 companies in FTSE350 universe, Jan-2022 81% of companies who do meet the 33% target for women on boards have an IG credit rating in Jan-2022. This is 10 percentage points higher than companies who do not meet the 33% target. In addition, 4% of companies that meet the target have a credit rating of aa; those that miss the target have no companies higher than the a category. Figure 2 shows credit trends for the 248 companies in the FTSE350 companies that meet vs. don’t meet the 33% target for women on boards. Figure 2: Credit Trends Serco Group PLC and Hill & Smith Holdings PLC are examples of FTSE350 companies who meet the 33% target for women on their boards. Both companies have shown improvement in the past year and currently hold an IG credit rating. Both companies are currently not rated by either S&P or Fitch. Figure 3: Serco Group PLC Figure 4: Hill & Smith Holdings PLC Enjoyed this report? If you'd like to see more consensus-based credit ratings, mid-point probabilities of default and detailed analytics on 60,000+ public and private global entities, please complete your details to request a complimentary trial or coverage check: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Credit Benchmark Has Joined The World Economic Forum’s Global Innovators Community Credit Benchmark is delighted to announce that it has joined the World Economic Forum's Global Innovators community. The Global Innovators Community is a group of the world’s most promising start-ups and scale-ups that are at the forefront of technological and business model innovation. The World Economic Forum provides the Global Innovators Community with a platform to engage with public-and private-sector leaders and to contribute new solutions to overcome current crises and build future resiliency. Visit https://www.weforum.org/about/global-innovators for more information. Credit Benchmark (CB) is a financial data analytics company founded in 2015 and headquartered in London with offices in New York. CB currently partners with 40 global financial institutions and operates the world’s largest contributed credit risk data platform. CB’s suite of risk tools and analytics help market practitioners more effectively manage risk and capital. Visit https://www.creditbenchmark.com to learn more. ### Gold Mining: Russian Invasion Squeezes Supplies and Boosts Demand Credit Benchmark cover more than 500 mining companies, many of them unrated by the main agencies. This data is now available on Bloomberg. Contact us for more info and a free coverage check. The gold price, moribund for years, is up about 8% over the past month, and major gold mining ETFs are up by even more. Other precious metals have also spiked. The Russian invasion of Ukraine, coming on top of existing inflation fears, is now changing the dynamics of the bullion market. RCB FX reserves are frozen, leaving domestic gold holdings to meet short term cash needs – if there are any international buyers. Oligarch sanctions and Rouble collapse mean a spike in Russian crypto demand, while gold is regaining its role as a portable and physical store of value in a collapsing economy. Russia is also one of the world’s largest gold producers. And while sanctions triggered huge equity sell-offs in UK-listed Russian mining stocks – Evraz and Polymetal down more than 60% in a week - some producers will continue to function despite growing legal and logistical difficulties. Outside Russia, metal miners are seeing windfall profits. Many of these firms were already strong credits, but some of the weaker credits could see their fortunes transformed by a sustained rise in precious metal prices. Figure 1 shows the current consensus ratings and recent (YTD) equity price performance for some of the largest international mining companies, ranked by market value. Figure 1: VIX and Credit Spreads NameDomicileConsensusEquity YTDNEWMONT CORPUnited Statesa-12%BARRICK GOLD CORPCanadaa-23%FRANCO NEVADA CORPCanadaa-9%NEWCREST MINING LTDAustraliabbb+7%AGNICO EAGLE MINES LTDCanadabbb+2%KINROSS GOLD CORPCanadabbb+-7%ANGLOGOLD ASHANTI LTDSouth Africabb+17%GOLD FIELDS LTDSouth Africabbb-34%YAMANA GOLD INCCanadabbb26%B2GOLD CORPCanadabb+8%IAMGOLD CORPCanadabb6%ALAMOS GOLD INCCanadabbb2%ENDEAVOUR MINING CORPCayman Islandsbb-28%PRETIUM RESOURCES INCCanadabb5%NEW GOLD INCCanadab+18%Consensus ratings in bold indicate limited coverage by the major rating agencies. Most of these firms are investment grade, but six are non-investment grade. Equity price performance in 2022 has been positive, with three companies increasing in value by more than 25%. In the current global environment of rising inflation, armed conflict and equity market volatility, precious metal mining is likely to see broad credit improvements. Credit Benchmark cover more than 500 mining companies, many of them unrated by the main agencies. This data is now available on Bloomberg. Contact us for more info and a free coverage check. To download this report in PDF, please complete your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### February Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the February Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. February marked another month of positive readings across the board, with UK firms returning to credit health after earlier instances of negative or weak positive readings. The US retains long-term strength with 12 months of positive CCI readings, while EU firms enjoy a more modest stretch of positivity. UK Industrials:  One Step Forward UK Industrial firms are gaining positive momentum after a second consecutive month in the green. The UK CCI score is now 52.4, a notable improvement from last month’s score of 50.2 which barely crossed the neutral threshold after an earlier instance of net deterioration. Factory production increased this month amid rising domestic demand, while COVID-related delivery delays seem to be finally abating – however the Russia / Ukraine conflict may yet undermine this progress. . EU Industrials: Ticking Along Another month of mild positivity for EU Industrial firms, with a fifth consecutive instance of a CCI above the 50 score, but with very little variation in either direction. The EU CCI score has shown slight improvement at 51.5, after last month’s score of 51.1. The CCI has not risen above 51.5 in the past five months of improvements. With chip shortages impacting manufacturers globally, European firms have cause for optimism after a €43bn investment plan was unveiled by the European Commission this month to promote investment into semiconductor chip production in the region.    . US Industrials: Long Term Positivity, Short Term Weakening US Industrial firms enjoyed yet another month of positive credit quality, with a full year of CCI scores above the neutral line. The last time the group dipped into the red was in December 2020. The US CCI score is 50.9, which shows a drop from last month’s score of 53.4. Whether this temporary weakening indicates a longer term downwards trend and potential drop into negative territory is to be determined. There are some indications that pandemic-related delays and supply chain disruptions have spurred a manufacturing revival within the US where government tariffs were previously unsuccessful. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### February 2022 Industry Monitor Download the February Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-January, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Corporate credit quality continues to improve, as does that of Financials. In this month’s credit consensus update, almost all industries and sectors showed a dominance of improvement over deterioration. Corporates performed slightly better than Financials, with an improvements to deteriorations ratio of 1.7:1, while Financials still remained in the green with a ratio of 1.4:1. Out of the industries, the stand out this month was Basic Materials, with a ratio of 2.5 improvements to every deterioration. Consumer Goods and Consumer Services were level, both with a ratio of 1.7:1, as well as Health Care. Technology remained neutral with a ratio of 1:1. The only instance of net deterioration was in Utilities – only barely tipping the balance into the red. Amid the sectors, the Canadians came out on top, dominating in both overall Corporates with an improving to deteriorating ratio of 3.2:1, but also notably in Oil & Gas, at 4.7:1, likely due to new pipeline connections and expansions in the US Gulf. US and UK Oil & Gas also performed well. There were no instances of net deterioration among the sectors this month, though UK Corporates were comparatively the weakest performer, still with a positive ratio of 1.3:1. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the February Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### VIX, Credit Spreads and Consensus Credit Risk With East-West tensions running high and interest rates at an inflection point, market risk indicators are increasingly important.  Equity markets focus on the VIX volatility index, bond markets on credit spreads.  These measures are linked: equity market volatility is a classic model input for credit risk estimates. Rising share price volatility implies higher default risk in the Merton framework, so it should not be surprising if credit spreads show positive correlation with the VIX.  Option-based equity volatility is, however, only a proxy for company asset volatility; credit spreads may spike because of an increase in the credit risk premium, rather than an increase in the real-world probability of default.  And despite some very synchronized spikes during the early phases of the Covid pandemic, these risk metrics still show plenty of scope for short-term divergences.  But whether the market measures are correlated or divergent, Credit Benchmark’s consensus credit data1 provides a third datapoint, and a direct read on the real-world probability of default, independent of short-term noise in the equity and bond markets.  Figure 1 plots monthly time series for the VIX index (“VIX”) and the High Yield option-adjusted credit spread (“HY spreads”) since 2017; Figure 2 shows credit consensus metrics for the same period.  The bars in Figure 2 plot changes in median default risk (from a universe of 800+ industry/sector aggregates), and the line shows interquartile range (“IQR”).  The latter measures sector risk divergence using the 25th and 75th percentiles of credit risk changes across the aggregate universe. Figure 1: VIX and Credit Spreads Both metrics show small spikes in Q4 2018, and again in Q2 2019. The Covid outbreak pushed both indicators to near-record highs and both have more than halved since then.  The VIX entered a rather erratic uptrend from mid-2021 onwards, and HY spreads have also recently been climbing. Figure 2: Consensus credit risk estimates, across 800+ sector aggregates. The IQR often spikes at the same time as the VIX and the HY spread, and the early 2020 Covid spike led to months of rising median default risk.  But the early 2021 risk recovery saw another IQR peak in June. In recent months, like the VIX and the High Yield spread, the range is trending slightly higher. NB: The last two plotted points are provisional based on contributor flash updates. The interquartile range is one of a family of indicators that may anticipate shifts in real world credit risk estimates.  Crucially, it can spike when either positive or negative changes in default risk are on the horizon. When assessed against the VIX and credit spreads, it can confirm or deny the current market view, or alert investors to credit portfolio and default risk changes – positive and negative – that may not yet be picked up by the usual market metrics.    At a time when the global economy is grappling with supply chain problems, Fed tapering and international tension, current data show all three measures heading higher.  The market price of risk may be rising, but it looks like major financial institutions see current problems translating directly into higher default rates. Volatility is usually measured by the standard deviation family of metrics, mainly because of their tractability for option calculations and parametric VAR estimates.  However, percentile-based metrics have the advantage that they are non-parametric and naturally include any asymmetry (ie skewness); They can also be used to compare different points on the distribution of credit risk changes (such as comparing the 95th percentile with the 50th). As long as robust aggregates are available, any volatility or range based metric can be applied to specific regions or countries, or in global subsets of the aggregate universe that focus on one industry, sector, or credit portfolio.  The data reviewed here suggest that it can also anticipate credit risk changes in loans and assets where VIX or spread metrics are unavailable. The data used in these calculations can also be used to assess the cross-sectional correlation between credit risk changes from one time period to another.  For example, if the monthly cross section correlation has been high and positive for several months, and then turns negative, it indicates that the pattern of credit risk is changing – with risk dropping after a spike in some sectors, and vice-versa in others.  In effect it signals the end of a period of one-way trending in sector credit risk estimates. To download this report in PDF, please complete your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Unpacking Bond Portfolio Risk with Consensus Credit Data Fed tightening is bad news for all bonds but widening credit spreads add to the pressure for longer dated corporates, with the high yield segment most vulnerable to a default rate spike.  Mandated holders are buying short-dated bonds to hedge the impact of expanding credit spreads; discretionary holders are either selling outright or upgrading the credit profile of their portfolios. As credit markets become more challenging and volatile, consensus credit data[1] provides a stable reference point for assessing underlying portfolio credit risk.  The following examples are based on a universe proxy for issuers of bonds tracked by the iBoxx High Yield Index.[2] Figure 1 shows the issuer credit distribution across all seven categories.[please continue below to access full report]. Figure 1: Issuer Credit Distribution, now and 6 months ago Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report [1] Sourced from major financial institutions including most of the GSIBs. [2] iShares iBoxx $ High Yield Corporate Bond ETF as proxy ### February 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. Amongst the banks, Globally Systematically Important Banks (GSIBS) again showed the strongest ratio of improvements to deteriorations, at 3:1. North American Banks also showed favourable movement, with a ratio of 2.3:1. All other regions / groups showed positive credit movement with the exceptions of Central Banks and EMEA Banks, which both showed a very modest bias towards deterioration with a ratio of 1:1.1.   Intermediaries did not perform as well as last month’s across-the-board positive report card, with Custodians and Sub Custodians this month showing mild deterioration with a ratio of 1:1.2. On the positive side, Prime Brokers stood out with an improving to deteriorating ratio of 3:1. CCPs showed no movement of note in either direction, remaining neutral this month. Asset Managers were the stand out group this month, topping the improving ratios at 4.5:1. Buy-Side Owners showed a more mixed picture, with Mutual Funds demonstrating a very slight bias towards deterioration (1:1.2), while Pension Funds improved, and Sovereign Wealth Funds remained neutral. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### US Leads Oil & Gas Credit Recovery The energy sector had a difficult pandemic and Government attempts to pursue net zero carbon policies added further challenges. But with the UK oil giants announcing record profits, it is clear that their setbacks were short-lived. The West Texas oil price is close to $90, up about 50% from lows last year. European Natural Gas – a transition fuel to cleaner energy – saw prices almost triple in 2021, before dropping back. Despite tensions in Ukraine, gas prices are below the peaks of last year, but they remain volatile. As economies reopen and travel bans lift, demand for fossil fuels is climbing. Ironically, climate change has hampered the yield from some green technologies – such as wind. The demand-supply imbalance may be only temporary, but fossil fuels are still the Plan B for most major economies and traditional energy companies know that they hold the balance of power. Figure 1 shows regional credit trends for Oil & Gas [please continue below to access full report]. Figure 1: Oil & Gas Regional Trends, past 24 months Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Consensus Credit Risk Helps to Navigate “Risk Off” Markets January 2022 has been a difficult month for investors: S&P500 down 7%, NASDAQ down nearly 12%, and most bond market returns are negative. Looming Fed rate hikes mean more “Risk Off” days. But cash rates will take time to reach meaningful levels, so the hunt for yield continues.  Equity dividend yields are close to historic highs and many of them are significantly above their fixed income equivalents.  Consensus credit data can identify where high yields are underpinned by safe credit. Figure 1 compares the equity dividend yield with average default probability for the main US Equity industries [please continue below to access full report]. Figure 1: US Equity Dividend Yields and Estimated Probability of Default, Dec 2021 Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Another COVID Year: Credit Trends in 2021 Download the full whitepaper below. The COVID crisis saw dramatic increases in global credit risk throughout 2020, but signs of recovery have emerged in the last 12 months. In 2021, credit upgrades outnumbered downgrades by 3:2. Corporate credit risk improved by 6% in 2021 after plummeting by 20% the prior year. Financials showed weaker improvement at just 1%, though had less ground to recover with a drop of 10% the previous year. Global Corporates are creeping back to majority investment grade, with an increase from 42% to 49% - this sat at 50% pre-pandemic. African Sovereigns continued to feel the strain in 2021, growing in credit risk by 10%. Globally, Sovereign credit risk was broadly stable. The US economy flexed its muscles, leading corporate credit recovery at 11%, while the UK languished with a modest recovery of 1.6%. EU corporates showed a moderate recovery rate of 4%. Travel & Leisure companies felt the COVID crash more than most, and after a disastrous 2020, continued to increase in credit risk by a further 20% in 2021. As borders reopen and restrictions ease, the sector has started to show signs of late improvement – but no such luck for UK firms. Argentina, China and Canada stood out as high performers with the strongest bias towards upgrades. Middle Eastern countries including Oman, Kuwait and United Arab Emirates struggled in comparison, with significantly more downgrades than upgrades. Rising Stars outnumbered Fallen Angels in 2021, with almost twice as many corporates upgrading from high yield to investment grade (13%) than in the opposite direction (7%). Amidst the online office boom sectors like Technology Hardware & Equipment flourished with 32% of entities achieving Rising Star status, while the beleaguered Travel & Leisure sector saw 21% of all firms descend as Fallen Angels. The banking industry has retained strength throughout the pandemic but there are signs of deterioration within emerging markets such as Mexico and Turkey, as well as in South Africa. Figure 1: Annual credit risk changes by sector Figure 1 shows the annual credit risk changes in sectors in 2021. Credit quality of most sectors improved in 2021. Global Leisure Goods, Industrial Metals & Mining and Technology Hardware & Equipment experienced the largest improvement with credit risk decreasing by more than 13%. 2021 remained difficult for Travel & Leisure (risk increased by a further 20%) and Aerospace and Defence (risk up about 5%). 2021 will hopefully mark the beginning of the end for COVID.  New variants brought continued restrictions, but the vaccine effort was a phenomenal success.  Despite empty city centers, supply chain disruptions and labor shortages, many major economies bounced back, in some cases exceeding their pre-COVID GDP levels.  Some areas continued to struggle – Travel & Leisure, Developing Economies, Aerospace.   But the expected widespread increase in corporate defaults has not yet materialized, although the costs of tackling COVID are now being felt in rising prices and higher interest rates.  Consensus ratings were downgraded in 2020, and they remain below their pre-pandemic levels. But Government support has meant widespread upgrades in 2021 – and on average slightly faster than the main rating agencies. This report shows the key credit trends that emerged in 2021 and examines which geographies, industries and sectors proved resilient to the widespread deterioration brought about by COVID in 2020 - and which have a more difficult road ahead. Download the latest whitepaper to read the full analysis: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### Containers and Packaging: Environment Concerns Drive Credit Improvements The Containers and Packaging Sector has boomed during the pandemic, with the side-effect that many consumers are now used to recycling large amounts of cardboard every week. But the sheer volume of paperboard and paper packing used by online retailers – especially Amazon – has put severe strain on recycling processes and upward pressure on packaging material prices. This squeeze has been intensified as a growing number of countries legislate to substitute cardboard for plastic. In the EU, polystyrene food and drink containers were banned in 2021. The US is the world’s biggest plastic polluter; but this month New York state banned polystyrene foam containers and ‘packing peanuts’ . Post-Brexit, UK legislation is behind the EU, but its Plastic Packaging Tax is due in April. While some cardboard products have a higher carbon footprint than the plastic equivalent, the shift is certainly better for the oceans, with the equivalent of one garbage truck of plastic dumped in the ocean every minute. And if current trends continue, by 2040 the weight of plastic in the ocean will exceed the weight of fish. Figure 1 shows credit trends for the Europe and United States Containers & Packaging sector [please continue below to access full report]. Figure 1: Credit Trends, Europe and United States Containers & Packaging Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### January 2022 Industry Monitor Download the January Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-December, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Corporate credit quality is in good health, according to credit consensus opinion this month. Financials and Corporates both showed a higher instance of improvements than deteriorations, with ratios of 1.6:1 and 1.7:1 respectively. At an industry level, only Telecommunications showed overall deterioration, and this was extremely marginal with an improving to deteriorating ratio of 1:1.1. Oil & Gas came out on top, with a ratio of 3.2:1. Other strong showers included Basic Materials at 2.1:1 and Consumer Goods and Technology, both at 1.8:1. North American Oil & Gas takes the lion’s share of the credit for the industry’s strong showing, with US firms at a positive ratio of 7:1 and Canadian firms at 5.5:1. UK Oil & Gas firms were almost neutral, with a ratio of 1.1:1. This regional strength was also reflected at an overall Corporate level. Construction & Materials was comparatively the weakest sector, at 1.1:1 improvements to deteriorations, though this still falls within positive territory. Travel & Leisure also had a mild month, at 1.2:1 – though this is a welcome change from a slew of negative ratios in recent history. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the January Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### January Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the January Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The news was positive across all three regions this month, with industrial firms maintaining their positive credit quality or returning to it after previous drops. Credit strength was most evident for US Industrial firms, which have maintained a positive CCI reading for 11 consecutive months. EU and UK firms have a weaker grasp on this improving trend. UK Industrials:  Incremental Gain After a material negative drop last month, the consensus credit quality of UK Industrial firms has returned to positive territory this month, albeit incrementally. The UK CCI score is now 50.1, just scraping above the neutral mark after last month’s negative score of 46.1. UK manufacturers are keeping the faith, with a survey showing 73% of firms expect conditions to improve in 2022 – though this optimism is tempered by labor shortages and rising costs. . EU Industrials: Mild Positivity Consensus credit quality for EU Industrial firms has been idling for the last four months, with modest positive readings and little change month-on-month. The EU CCI score has marginally improved this month, sitting at 51.5, up from 50.6 last month. European manufacturing continued to expand in late 2021, with tentative signs that ongoing supply chain pressures are beginning to recede – though Omicron-related disruptions cannot be ruled out. . US Industrials: Retaining Power US Industrial firms have gone from strength to strength in recent months, with their collective credit quality remaining in positive territory for an 11th consecutive month. The US CCI score is 53.1, an improvement from last month’s weaker score of 51.2. Though last month did indicate some slowing, the industry is experiencing an easing of supply constraints and a cooling of input prices, and the credit quality of the sector reflects these tentatively positive signs. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Bank Policy Institute: Consistency in Risk Weights for Corporate Exposures Under the Standardized Approach In recent joint research titled ‘Consistency in Risk Weights for Corporate Exposures Under the Standardized Approach‘, the Bank Policy Institute and Credit Benchmark show that using internal ratings in the revised standardized approach for corporate exposures would lead to a limited systematic variation in risk weights. The article explains “In December 2017, the Basel Committee published the final elements of the revised Basel III capital framework, which included important enhancements to the risk sensitivity of the standardized approach… We show that using banks’ own internal ratings to distinguish between investment-grade and non-investment-grade obligors without the securities-listing requirement would significantly expand and enhance the risk sensitivity of the standardized approach for corporate entities. It would also result in little variation in risk weights across banks for the same entity”. View original article (external link). ### January 2022 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. Financial counterparts had a strong showing in the latest Credit Benchmark credit consensus data. Globally Systematically Important Banks (GSIBs) came out on top, with a ratio of improvements to deteriorations of 9:1. All other categories of banks showed a bias towards improvement, with the exception of LatAm banks which had a balance slightly tipped towards deterioration, at 1:1.2. Central Banks showed overall improvement at 1.3:1, however the instances of both improvements and deteriorations were notably high this month. It was good news all round for Intermediaries, with a positive bias in all categories. Prime Brokers showed the highest ratio of improvement to deterioration at 4:1, while CCPS showed no instances of deterioration at all. The Buy-Side also saw overall improvement, particularly in Sovereign Wealth Funds which showed no instances of deterioration. Asset Managers performed well too, with an improving/deteriorating ratio of 2.7:1. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Uranium: Kazakhstan Effect May Be Transitory, EU Policy May Be Critical Russia and America are in high-profile talks to defuse tensions over NATO boundaries and Ukraine (which holds a Credit Consensus Rating (“CCR”) of b-), but the Russian intervention in Kazakhstan (CCR of bbb-) has attracted less attention. Russia clearly sees the country as strategically important and part of its sphere of influence. The vast former Soviet republic provides more than 40% of the world’s uranium supply, mainly via state-owned Kazatomprom. Uranium prices and uranium mining firm equities both jumped in early January as the situation in Kazakhstan deteriorated, although the effect was short-lived. The Russian intervention does highlight the global importance of uranium supplies for military and power generation purposes. While a growing list of developed countries are turning towards obviously sustainable and clean technologies, there is a two-way pull on nuclear. China is planning to build 150 nuclear reactors in the next 15 years, while France, along with some of the Eastern EU countries, is arguing that nuclear energy should be included in the “clean” taxonomy. If that goes ahead, then the geopolitics of uranium supply will begin to shift. And for some emerging and frontier economies, reliable and cheap energy from nuclear is already a more tempting option than the sustainable alternatives. Currently trading at $45/lb, uranium is up from a low of $20 in 2018. In addition to Kazatomprom, major uranium producers are Cameco, BHP, Orano, Rio Tinto, Swakop (Namibian j.v. with China), CNNC and CGN (China), and Uranium One (Russian owned, Canada operated). Some of these are unrated by major CRAs, but most of them have a CCR, ranging from a+ to bb+. Credit consensus trends are stable to slightly positive. The chart below shows the trend for Orano, which has mines in Canada and Niger, as well as a joint venture with Kazatomprom [please continue below to access full report]. Figure 1: Credit Trend, Orano SA Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Financial Times: Data Drill ESG scores are driving credit differences between oil and gas companies, writes Amanda Chu in the Financial Times' 'Energy Source' newsletter, citing research conducting by Credit Benchmark and Moody's. Amanda Chu noted in the column: "The...analysis suggests that company investments in ESG portfolios pay off. Having better credit quality means these companies have easier and cheaper access to funding. Oil and gas companies with high ESG scores saw a 17 per cent decline in credit risk in 2021, more than twice their low-ESG-scoring counterparts." The full original research cited by the Financial Times can be accessed here. The Financial Times, December 23, 2021. View original article (external link). ### December Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the December Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Good news holds out in the latest CCI data, at least for the US and EU. Scores are still positive for these two regions, highlighting that consensus credit risk opinions point to greater improvement than deterioration.  Economies for each are still strong, even with inflation pressures, supply chain issues, and the pandemic. Monetary policy will remain accommodative for a while, even if it’s tightened slightly. Despite all of this, it’s hard not to be wary of the months ahead, given the new COVID variant. Supply chain pressures may ease a bit, but conditions won’t return to normal right away. Inflation is not yet in the double digits but is higher than many are used to, and energy costs may be a pain point for some time. The CCI scores for the US and EU remain positive but are progressively weakening and do not sit very far above the neutral line of 50, indicating the possibility that they may turn negative and stay there in the months ahead. Much the same applies to the UK Industrial firms, which have a CCI score already shifted into negative territory. UK Industrials:  A Turn for the Worse Consensus outlook on credit quality for UK Industrial firms has returned to negative territory after a five-month-long stretch of positive scores. The UK CCI score is now 46.1, a significant drop from 55.9 last month. UK manufacturing activity is still growing despite rising input prices and other intense supply chain pressures. . EU Industrials: Positive Trend Holds On Consensus outlook on EU Industrial firms has clung onto a positive reading for the third month running, though the balance remains modest and is weaker than last month. The EU CCI score is now 50.6, compared to 51.5 last month. Eurozone manufacturing activity is growing and stabilizing but factories are battling supply chain challenges. . US Industrials: Stretch of Positive Credit Perseveres Opinions for US Industrials are in positive territory for the tenth straight month but have shifted downward from earlier highs and sit at the weakest position since December 2020. The US CCI score is 51.5, compared to 53.6 last month US manufacturing activity is still growing but restrained amid a weak rise in new sales and shortages. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### December 2021 Industry Monitor Download the December Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-November, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. Consensus opinions continue to paint a brighter picture for corporate credit, with almost every category seeing more improvement than deterioration. In the latest data, the broad category of Corporates has a ratio of 1.5:1 improvements to deteriorations. But within the sectors some stood out, including Basic Materials at 2.8:1, Telecommunications at 1.8:1, and Technology and Consumer Goods, each at 1.6:1. Others were just below, including Industrials at 1.4:1, and a handful hovered around neutral. Only Utilities saw more deterioration than improvement at 1:1.2. At the regional level, Canadian Corporates were out in front at 2.3:1, compared to US Corporates at 1.9:1 and UK Corporates at 1:1 improvements to deteriorations. The positive ratio for US Oil & Gas was strongest at 3.3:1, compared to 1.6:1 for Canadian Oil & Gas and 1.4:1 for UK Oil & Gas. Not only was this far better than the ratio for the broader Oil & Gas category which is 2.2:1; it’s the best ratio of all the categories tracked. Financials also saw more improvement than deterioration with a ratio of 1.2:1. According to David Carruthers, Research Adviser at Credit Benchmark: “While there continues to be more positive than negative in corporate consensus data, there are no shortage of pressures, from supply chain challenges to growing inflation to continued uncertainty around COVID restrictions. Monetary tightening is also a factor. It’s yet to be seen if this improving trend will persist, but for now, the situation is plainly positive.” As noted previously, research from Credit Benchmark comparing improvements and deterioration for Global Corporates amid rising interest rates found them in balance but noted that this may turn negative in the coming months if and when central banks impose additional monetary tightening. The Federal Reserve is going to taper its asset purchases, and some are calling for it to happen more quickly. Many central banks in Europe are raising interest rates amid increases in inflation. The Bank of England didn’t raise rates at its last meeting, but Governor Andrew Bailey said he’s “very uneasy” about inflation. Then there are supply chain challenges that continue to vex all types of companies amid the pandemic-era surge in shipping. There are no quick fixes, of course, and some believe problems may last well into next year. But these issues and others like energy costs and inflation all tie back to the pandemic. It’s still limiting economic growth, even in developed countries, and it will act as an anchor on the global economy until more progress is made. Some are now calling for a quicker pace of monetary tightening. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the December Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### December 2021 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The latest Credit Benchmark consensus data on financial counterparts are largely positive with some exceptions. Intermediaries came out best. Custodians and Sub Custodians had the strongest ratio of improvements to deteriorations at 3.2:1, followed by Broker Dealers at 1.9:1 and CCP Members at 1.3:1. Central Clearing Counterparts had no instances of deterioration in the latest update. The category of Prime Brokers showed the weakest position but at a 1:1 ratio, remained neutral overall.   Banks also showed strength but not across the board. With an improving to deteriorating ratio of 1.9:1, APAC Banks were in the best position. The broad category of Global Banks had a ratio of 1.5:1, as did the sub category of EMEA Banks. Ratios for North America Banks and G-SIBs were 1.3:1 and 1.2:1, respectively, still on the positive side. Central Banks saw slightly more deterioration than improvement with a ratio of 1:1.5. Latin America Banks saw only deterioration, but it was minor. As for the buy side, Asset Managers tipped the balanced slightly towards the negative at 1.1:1 improvements to deteriorations; the reverse was true for Insurance Companies at 1.1:1. Mutual Funds and Pension Funds both side more improvement than deterioration at 1.4:1. Sovereign Wealth Funds saw an equal amount of each. According to David Carruthers, Research Adviser at Credit Benchmark: “Improvement is always the goal, but just as one weak month isn’t necessarily cause for alarm, one good month isn’t always cause for celebration. Sector-specific issues exist, but at this point, the best metrics to watch may be overall economic growth related to the pandemic, supply chain challenges, and monetary policy. These macro factors will exert strong influence on the overall financial system.” One category-specific issue is potential changes to European regulations that could cause increases to the minimum required capital for unrated entities. This is a concern not just for corporates but also for funds, the vast majority of which are unrated, as Credit Benchmark has highlighted. As Bloomberg noted, there are plenty of related considerations, including sustainability and climate that are not a focus not just for European banks but those in the US and elsewhere, too, like The Wall Street Journal described. Credit Benchmark recently noted this was an issue for insurance firms. As for the overall economy, supply chain challenges may be easing, as per Bloomberg and The Wall Street Journal, but plenty of pressures remain. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### ESG and Credit in Oil & Gas and Industrials Corporate ESG profiles are driving some key business decisions. ESG scores can be critical in choosing suppliers; and for listed firms it can determine their suitability as an investment and ultimately their funding costs. This paper looks at the link between ESG profiles and credit risk. Moody’s ESG scores and related analytics have up to 15 years of history with a core database covering more than 100,000 companies. Credit Benchmark have been providing consensus credit ratings since 2015, covering around 30,000 corporates and financials globally. This study looks at a sample of global corporate issuers: 58 in the Oil & Gas sector and 56 in the Industrials sector. Figure 1 shows the credit distributions for Oil & Gas companies split by ESG score, with a score of 30 as the boundary. There are 23 companies in the Low Score category [please continue below to access full report]. Figure 1: Credit Distributions, Oil & Gas, by ESG score Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Global Insurance in an Era of Heightened Risk Download the full whitepaper below. After two tumultuous years, the global insurance market has proven its resilience. The sector has weathered COVID and ongoing trade and supply chain disruptions to emerge with stronger credit quality and recovery patterns than those of banks and other financial counterparts. The storm clouds have not fully dissipated for the industry however, with regional advantages apparent. Where North American firms have rebounded to and, in some cases, surpassed pre-COVID credit quality levels, European companies show higher rates of deterioration or stagnation. Climate change risk may prompt more frequent and larger claims, but also creates an opportunity for business generation and product development. As society adapts to an era of increased risk, insurers must keep pace to ensure premiums exceed pay-outs. While the ‘new normal’ presents challenges, the insurance industry is well-placed to face the unexpected. A new whitepaper examines the state of global insurance in this climate of heightened risk, focusing on regional and sector trends alongside single company examples. Topics covered in the whitepaper include: Insurance credit trends during COVID Regional insurance credit trends Credit trends of corporate insurance buyers Counterparties and credit portfolios Insurance companies: single name examples Climate risk and insurance Download the whitepaper below for the full analysis. The data is available via the Credit Benchmark Web App, Excel add-in, flat file download, and third-party platforms including Bloomberg. Get in touch with us to request your free trial of Credit Benchmark Credit Consensus Ratings and Analytics. Download this whitepaper to read the full analysis: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Supply Chain Crisis: Chip Shortages Drive Semiconductor Credit Boost Recent data shows global semiconductor sales growing at nearly 30% YoY. Covid and East-West tensions have disrupted production and trade flows in this area, and various industries have had to accept significant price hikes to ensure that supplies are maintained. The chip shortage is permeating many aspects of daily life – for example, long lead times for new cars have driven used car prices to record levels; iPhone 13 production runs have been scaled back; and expectations for ever-faster and more realistic game graphics and TV displays will have to be scaled back. The electronic chip shortage has pushed some auto companies to seek closer partnerships with semiconductor firms; good for the largest firms but squeezing supplies even further for smaller firms and other industries. With rebounding demand and ring-fenced supplies, high prices are likely to persist for the foreseeable future. Figure 1 shows the credit trend for the 24 Semiconductor companies listed on the iShares Semiconductor ETF index [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Home Construction: US Credit Outpaces UK Despite Supply Shortages The post-pandemic “race for space” is driving strong demand for housing globally. Higher building material costs have pushed up new house prices in the US by at least 25% in the past year; but over the same period, (highly seasonal) housing starts are up 7.4%. UK housebuilders are not immune to global shortages of construction materials and skilled workers but – according to some sources – these have been amplified by Brexit [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### EC Capital Proposals: Low Profile, High Impact European Commission proposals published in October 2021 have significant implications for credit risk and the “aggregate output floor”. This has been a contentious area since the Basel guidelines were updated in 2017, with market participants warning that the higher risk weights for high quality unrated corporates – which crucially includes funds - will lead to a dramatic increase in bank capital requirements and a reduction in lending. Under the pending Basel rules, high quality credits with no external rating will be assigned a risk weight of 100% - a significant jump from the typical range of PD/LGD model-based estimates previously. Currently, the vast majority of corporates along with nearly all of the tens of thousands of high quality funds do not have an external rating; in part due to the cost of retaining a traditional credit rating agency (“CRA”) rating. Figure 1 shows the proportion of 26,000 EU Corporates and Funds that have a rating from global banks1 but no rating from any of the three major CRAs [please continue below to access full report]. 1 Provided by 11 global banks with significant exposure to EU entities (defined as 700 and more entities). The universe breaks down to 34% traditional Corporates and 66% Funds. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Are Trucking Companies Winning From Supply Chain Strain? Supply chain issues appear to be an opportunity for some sectors. Freight and Logistics companies, especially in North America, have recently reported highest-ever quarterly revenue and operating income. Figure 1 outlines the credit trends for the North America and Europe Trucking sector. North America trucking firms show a steep decline in credit risk from Jan-20 to Dec-20 but since then has shown significant recovery. The decline in Europe is very shallow, and has been on a gently improving trend since mid-2020. Figures 2 and 3 show the change in credit distribution over the past year for North America and Europe Trucking respectively [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Bank Policy Institute: How Much Will U.S. Businesses Pay for Loans? Translating a Basel Accord Into a U.S. Regulation In a recent report titled 'How Much Will U.S. Businesses Pay for Loans? Translating a Basel Accord Into a U.S. Regulation', the Bank Policy Institute describes how Credit Benchmark data can be a tool in evaluating default risk for loans. The article explains “...many large banks now participate in a benchmarking exercise that is provided by a company called Credit Benchmark, which collects data on one-year probability of defaults of corporates from 40 global financial institutions, including 15 global systemically important banks (GSIBs).  Consensus ratings are available on Bloomberg.  Using these or similar data, for businesses that are assigned a probability of default by multiple banks, examiners could cross check the probability of default assigned by any one bank against the PDs assigned by other banks to determine whether a given bank was systematically understating risk weights, or the risk weight could depend on the average probability of default assigned by reporting banks for that business". View original article (external link). ### COP26: Is Credit Risk Part of the Problem? COP26 has got off to a shaky start with the premiers of China, Russia, Brazil and Turkey not attending. The G20 meeting in Rome reached agreement on a minimum corporate tax rate, but in the run up to COP26, host Boris Johnson worried that unity on climate action would be too much of a stretch. There have been some good headlines: a pledge to end deforestation by 2030, a promise to start paying the $100bn already pledged by developed countries, and declarations of net zero targets from various countries by various dates over the next 50 years. But the real debate is about the need for speed in translating pledges into action. It is probably easier to agree on taxing multinationals than on sharing the climate burden. It is developing countries that are suffering the most, in part because many of them already inhabit the economically marginal parts of the world where changes in weather systems are first felt. Climate change is likely to amplify those effects and increase the disparity with developed economies. So countries that are most in need of help are least able to help themselves, while some of the largest economies may be major contributors to the problem but may also be best placed, economically, to fix it. Climate change solutions need major investment; Swiss Re estimate that without it, the cumulative effect of crop failures, floods, and heat stress is expected to cost at least 10% of global GDP by 2050. This sobering forecast was published earlier this year as part of a detailed assessment of the economic impact of climate change on 48 countries, covering 90% of global GDP. Countries are assessed on the GDP impact of factors such as crop failures, heat stress and sea level changes set against their capacity to adapt1 to these. Top of the Climate Economics Index (“CEI”) are Finland, Switzerland, Austria, Portugal and Canada. At the bottom are Indonesia, Malaysia, Philippines, India and Thailand. Figure 1 shows the average consensus credit risk (in 21 categories) of the 48 countries split into CEI quartiles. The values for Sovereign (i.e. Government) and Corporate risk are shown separately. For Sovereign credit risk, there is a clear difference of about 5 notches between the Low and High impact countries, but the highest credit risk is in the third quartile. Corporates, on the other hand, show very little difference – suggesting that firms that are in a position to borrow from the largest banks in the world are also able to weather the impact of climate change – by relying on support from a parent in the developed economies, or by relocating. Most of the countries that are most at risk from climate change are not significant contributors to the problem - they can only address the symptoms, not the underlying causes. As Figure 1 shows, these countries tend to be higher credit risks, making it more expensive for them to act, even if that action is limited to mitigating the damage. This disparity is at the heart of the COP26 debate. In conclusion, consensus credit data reinforces the argument that any solution to tackling climate change is largely in the hands of developed economies. Their governments have stronger consensus ratings, while multinationals have a vested interest in protecting their subsidiaries across the developing world. Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg or via our Web App. Please complete your details to download this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report 1Based on the Verisk Maplecroft Climate Change Adaptive Capacity Index. ### World Economic Forum: Financial Services Study Reveals Emerging Tech-driven Systemic Risks Accelerated technology adoption in the financial services sector is creating new systemic risks to the global financial system, according to a new report. Beneath the Surface: Technology-driven systemic risks and the continued need for innovation is the first publication in the World Economic Forum’s two-part Technology, Innovation and Systemic Risk research initiative. The report explores the relationship between increased technology adoption and the potential shock of cascading risk factors – for example, the domino effect that can result when hackers, disasters or geopolitics expose interconnected financial systems to a growing array of known and unknown vulnerabilities. The research additionally examines actions that can address identified risks, including the role that technology itself can play in mitigation approaches. Credit Benchmark are pleased to have contributed to this report as industry experts through numerous interviews and workshops over the past year. The full report can be accessed here. ### Will the UK & US Leisure Goods Sector Be Home for Christmas? Much of the Leisure Goods sector was hit hard by Covid, especially during the draconian early lockdown phases. While lockdowns have eased, some social distancing has persisted. Golf equipment, boats, tents and caravans have done well, outpacing indoor sports; but growing supply chain problems are a threat to the winter holiday season, and to toy sales in particular. According to the National Retail Federation, overall US retail sales have bounced back from the depths of the pandemic, and within this US Sporting and Leisure goods show modest improvement. However, Reuters report that the recovery in overall UK retail sales has been more subdued and volatile. Figure 1 shows the credit trends for Leisure Goods in both regions. In the US, Leisure goods credit quality started to recover in late summer 2020 and have consistently strengthened since then. The UK languished, flatlining in spring / early summer 2021; improvement has been modest following the easing of restrictions in Jul-21 [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### US, UK Retailers Optimism Tempered by Supply Chain Risk: October 2021 US and UK Retailers are enjoying a steady improvement in credit fortunes after a long period of difficulty and some big increases in default risk. Strong vaccination rates along with accommodative monetary and fiscal policy should continue to support each sector. The major issue continues to lie with supply chains. This is at the forefront of US and UK Retailer’s minds, affecting everything from the goods sold to the drivers that transport the goods to the catalogues that many still use. Turmoil in energy markets isn’t helping. Even if the worst of this massive problem has passed, the negative effects may linger for some time. Measures like extending the hours of a major shipping port can only do so much in the short-term. With bottlenecks threatening to curtail Christmas buying, the festive season may look different this year. The future is looking brighter for retailers, but supply chain issues may lower the ceiling for improvement in the months ahead. US General Retail Firms US retail keeps moving in the right direction. Credit quality has improved by 1% from last month and 12% over the last year. Default risk remains at 58 bps, compared to about 65 bps six months ago and at the same point last year, reflecting the period last year into the beginning of this year when default risk saw only minor change. The sector’s overall CCR rating is bb+ and 79% of firms are at bbb or lower. Overall US corporate default risk is 61 bps, with a CCR of bb+ and 80% of firms at bbb or lower.  UK General Retail Firms The outlook for UK retail is also getting better. Default risk was high at the same point last year (96 bps), then worsened (was 103 bps six months ago). It was 97 bps last month and is now 95 bps. This reflects a slight improvement in credit quality of 2% compared to last month, 8% compared to six months ago, and 1% compared to the same point last year. The sector’s overall CCR rating is bb and 92% of firms are at bbb or lower. Overall UK corporate default risk is still 80 bps, with a CCR of bb and 90% of firms at bbb or lower.  Please complete your details to continue reading this report and to access the single name credit matrix: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 60,000 financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### October Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the October Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. This month: is the glass half full or half empty for major economy industrial firms? On the one hand, forward-looking sentiment is positive for the UK, EU, and US. There’s good reason for this. Though the pandemic is not entirely under control, all three regions have vaccinated the large majority of their populations and rates continue to grow. The economies of all three are growing. Monetary and fiscal policy may remain relatively accommodative. On the other hand, forward-looking sentiment has been volatile for the UK and EU and is trending in the wrong direction for the US. There are also plenty of obstacles and pitfalls, from broader supply chain and logistics challenges to energy sector problems. In the US specifically, there’s no guarantee of approval for infrastructure legislation. And while monetary and fiscal policy remain loose, they may get tighter if inflation continues to be stronger than anticipated earlier this year. There is also a risk of crisis contagion from issues affecting other areas of the world. Efforts to untangle these challenges will take time. Some suggest the problems may get even worse his year. The global economy, and specifically economies for the UK, EU, and US, may have improved from the low points of the last few years, but they aren’t out of the woods just yet. Neither are their respective industrial firms. UK Industrials: Positive Streak Continues Consensus outlook on credit quality for UK Industrial firms has remained positive for a fourth consecutive month; the longest run since tracking began. The UK CCI score is now 52.1, compared to 50.9 last month. UK manufacturing activity is growing but slowing amid supply chain problems and rising costs. Energy prices are proving to be a headache for the UK.  . EU Industrials: Modest Positivity Consensus outlook on EU Industrial firms is also back in positive territory, but the swing towards improvement is far weaker than in recent months. The EU CCI score is now 50.7, compared to 46.3 last month. Eurozone manufacturing activity is growing strongly but still slowing due to supply chain challenges and inflationary pressures. Surging energy prices are also causing problems for the EU. . US Industrials: Struggling With Momentum US Industrials are clinging onto a positive credit trend, though opinions have risen and fallen in recent months and currently sit in their weakest position for six months. The US CCI score is 51.5, down from 55.1 and marking the eighth consecutive month in a row this score is in positive territory, yet the trend is in the wrong direction. US manufacturing activity is still rising but is now at a five-month low due to supply chain difficulties. Global energy problems could be on their way to the US. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### October 2021 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. The latest Credit Benchmark consensus data offer up good news for some types of financial counterparts. Three classes of intermediaries saw more improvement than deterioration in this month’s update. The category with the best ratio was Prime Brokers at 2:1 improving to deteriorating, followed by CCP Members at 1.5:1 and Broker Dealers at 1.4:1. Central Clearing Counterparts was steady with neither improvement not deterioration at 1:1. Only Custodians and Sub Custodians moved in the wrong direction. The news was even better for the buy side. Asset Managers led the pack with a ratio of 1.7:1, followed Mutual Funds at 1.5:1, Pension Funds at 1.4:1, and Insurance Companies at 1.2:1. Only Sovereign Wealth Funds saw more deterioration than improvement. The news was more mixed for banks, with some categories seeing improvement and others seeing deterioration, but the broad category of Global Banks was even at 1:1. According to David Carruthers, Head of Research at Credit Benchmark: “Overall improvement is always welcome, even if moves are minor. As important as banks are to the real economy, entities like clearers and custodians are the backbone of the financial system.” Previous research from Credit Benchmark has highlighted the interconnectedness and importance of Custodians and Sub Custodians and Central Clearing Counterparts.  The collapse of Archegos Capital Management earlier this year highlights how one firm’s troubles might spread to many different firms. The problems with Archegos were so severe, Man Group suggested the number of prime brokers may shrink, as reported by Bloomberg.  Note that with the exception of Prime Brokers (and to a lesser extent, Custodians and Sub Custodians), a significant percentage of intermediaries are unrated by the main ratings agencies, which may allow for festering credit problems to go unnoticed. As for insurance companies, the Financial Times describes how US firms have managed disasters well this year, despite massive insured losses, because of reinsurance. However, an earlier piece cites S&P saying reinsurers could be underestimating their exposure to natural disasters by as much as 50%. Meanwhile, Bloomberg citing AXA notes that climate change is back at the top of the agenda for insurers around the world. The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### October 2021 Industry Monitor Download the October Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-September, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. The latest update to consensus credit data paints another largely positive picture. Corporate credit risk continues to trend in the right direction with more improvements than deteriorations as seen by a ratio of 1.6:1. Consumer Goods is out in front at 1.9:1, and the Health Care, Technology, and General Retailers sectors are right behind at 1.8:1. Travel & Leisure almost came in at neutral, a notable improvement from earlier months – though the balance tipped slightly into negative territory once more. Beyond that, Telecommunications at 1:1.3 saw more deterioration than improvement, following last month’s weak ratio. The Utilities sector, which was weak last month along with Telecommunications, is improving once more, at 1.6:1. Industrials and Basic Materials are each at 1.5:1. On a country-level, Canadian Corporates led the pack with an improvements to deteriorations ratio of 2.5:1, above the 2.2:1 seen for US Corporates and the 1.3:1 seen for UK Corporates. Financials also saw more improvement than deterioration with a ratio of 1.4:1. According to David Carruthers, Head of Research at Credit Benchmark: “The latest consensus data confirms the broad-based credit recovery that has been underway for some months. A number of Corporate and Financial sectors show more improvement than deterioration. There are certainly plenty of challenges ahead, with monetary tightening and supply chains issues especially in energy markets. But after the ravages of covid, there is still scope for some further credit improvements in a number of areas." There are already signs the supply chain problems that have been building for months are threatening the global economy as inflation picks up, and some (but not all) think it could get worse. In fact, one of the world’s biggest port operators, DP World, think the disruption could last for two years. Surging energy prices aren’t helping. Other research by Credit Benchmark has compared improvements versus deteriorations amid rising interest rates. After a period of improvement, the direction is downward, leaving the net credit improvements in balance. There may be a risk that the net credit balance turns negative in the months ahead with more central banks imposing monetary tightening. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the October Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Supply Chain Crisis: Food Producers Credit Trends Kraft Heinz CEO, Miguel Patricio, says consumers need to get used to higher food prices. The immediate cause is pandemic-driven stockpiling, reduced planting and a lack of suitable labour. But climate change is a growing issue: poor harvests in Brazil, drought in Russia, and (literally) a plague of locusts in parts of Africa.  These factors, combined with fertilizer shortages, higher energy costs and shipping challenges have pushed global food prices to a 10-year high[1].   For broadline, consumer-led food producers, the pandemic brought some benefits: a revival in home cooking boosted demand for basic ingredients aimed at the retail market – even the humble tin of baked beans. And while hospitality is now recovering, eating patterns are changing; there is a growing awareness of the environmental and health impacts of food choices, increasing demand for plant-based products, a focus on food waste, and a push for more visibility over sources and ingredients.  In theory, this creates opportunities for firms like Kraft Heinz provided they can predictably source ingredients in sufficient volume, of the right quality, at reasonable cost. Figure 1 shows the credit profile for Kraft Heinz over the past two years [please continue below to access full report]. Figure 1: Kraft Heinz Credit Trend [1] UN Food and Agriculture Organisation Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Rising Interest Rates and Credit Upgrades The UK could be the first major economy to increase short term interest rates over the next 12 months. With oil & gas prices spiking and consumers facing shortages and delays, interest rate futures are already discounting at least two UK rate hikes over that period, and Michael Saunders of the UK Monetary Policy Committee described the market view as “appropriate”. A rate hike would add the Bank of England to a growing list of central banks who see inflation as a key near-term risk to economic stability. In the past 10 months, there have been 52 short rate increases and just 18 drops. Figure 1 shows the pattern of interest rate increases vs. decreases over the past 6 years. Figure 1: Central Bank interest rate increases vs. decreases, global The tendency towards rate cuts over the period 2016-2017 was followed by a large number of small increases in 2018, beginning a significant reversal even before Covid. From the low reached in early 2020, the balance remained strongly skewed towards cuts until the start of 2021. Since then, there has been a modest trend towards rising rates; the latest positive balance is the highest since mid 2018. Figure 2 shows an equivalent chart (upgrades vs. downgrades net balance) for global corporate credit [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Fallen Angels and Rising Stars: October 2021 Consensus data show ongoing shuffling within corporate credit, but the balance is slightly in favour of Rising Stars as a growing number of firms see their credit status shift from high-yield to investment-grade.  Fallen Angels, or firms that have deteriorated from investment-grade to high-yield, now total 401, up from 369 last month. About 5% out of a global sample of 7,667 companies are still classified as Fallen Angels after crossing the threshold since the start of 2021. Sectors with the highest percentages of Fallen Angels remain the beleaguered Travel & Leisure at 13%, Leisure Goods at 12%, and Mobile Telecommunications at 10% [please continue below to access full report]. Fallen Angels Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Reuters: Will Washington truce stick? Wall St assesses U.S. debt ceiling risk An apparent truce in the U.S. debt-ceiling standoff in Congress has offered some relief to Wall Street investors on edge about a possible debt default, but analysts are left assessing the risk of a repeat crisis as the year closes out, writes Karen Pierog for Reuters, citing research from Credit Benchmark. The major credit rating agencies do not expect the U.S. will default, but if it did, the country's rating would be downgraded until a resolution was found. While Moody's and Fitch rate the US at Aaa and AAA respectively, S&P famously cut the rating down a notch to AA-plus in 2011. "Major financial institutions have considered the United States an AA-plus-rated credit since October 2020, down from AAA where it stood since 2017, according to David Carruthers, head of research at Credit Benchmark, a financial data and analytics company that collates the internal credit risk views of more than 40 institutions around the world, including 15 global systemically important banks." Reuters, October 7, 2021. View original article (external link). ### Restaurants & Bars: US Recovery Pulls Ahead of UK The hospitality industry has been a high profile COVID casualty. For an already low margin business, the combination of prolonged closures followed by socially distanced openings, supply issues and staff shortages has been very damaging. For the UK, Brexit has magnified these effects.  Figure 1 shows credit trends for the UK and US Restaurants and Bars sector. Figure 1: Restaurants and Bars, UK vs. US From March 2020, deterioration was initially steeper in the US, with credit risk rising by 60% by October 2020. UK credit risk also rose sharply over the same period, with a 40% increase over the same period. Since then, the US has shown an erratic but generally positive trend (despite a sharp blip down in May 2021). The UK clearly saw a short-lived benefit from the “Eat Out to Help Out’ campaign in Q4 2020, but it has been in steady decline since the start of 2021.  The two sectors have now almost reversed positions since October 2020, with UK risk up 60% since the initial COVID outbreak while the US has recovered about a third of its initial deterioration. These trends are reflected in the pattern of upgrades and downgrades for the Restaurants and Bars sector in the two countries.  Figure 2 breaks the pandemic period into the 6 months to August 2020 and the following 12 months to August 2021 [please continue below to access full report]. Figure 2: Restaurants and Bars, UK and US, 21-category notch changes, 2020 and 2021 Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Credit Quality Continues Upwards Momentum in US, UK Auto Sectors: September 2021 The positive credit movement witnessed in other industries like retail and energy can also be seen in the US auto sector. Credit quality continues to improve and risk continues to decline. In addition to the overall economic picture improving, demand remains robust. The same is largely true for the UK sector. The biggest obstacles to further growth continue to be supply chain and logistics, with auto makers unable to get the parts they need, especially semiconductor chips. The problems have gotten so bad that GM is idling some of its plants until supply flows recover. While individual firms and the sector overall should weather these challenges, full potential is temporarily curtailed. US Auto and Auto Parts Industry The US auto sector continues to trend in the right direction. The latest data show improvement in credit quality of 2% from last month, 9% from six months ago, and 4% year-over-year. Default risk is now 45 bps, compared to 46 bps last month, 49 bps six months ago, and 47 bps at the same point last year. This sector’s current overall CCR rating is bbb- and 77% of firms are at bbb or lower. Overall US corporate default risk is 62 bps, with a CCR of bb+ and 80% of firms at bbb or lower.  UK Auto and Auto Parts Industry After a long period of deterioration, the UK auto sector is now seeing improvement. In the latest data, credit quality is still down 5% year-over-year. However, it has improved by 2% from last month and 1% from six months ago. Default risk is now 90 bps, compared to 92 bps last month, 90 bps six months ago, and 86 bps at the same point last year. This sector’s current overall CCR rating is bb and 88% of the firms are at bbb or lower. Overall UK corporate default risk is 80 bps, with a CCR of bb and 90% of firms at bbb or lower.  Please complete your details to continue reading this report and to access the single name credit matrix: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Sovereign Credit Risk and the Cost of COVID The risk of a US Government shutdown is focusing attention on Sovereign credit risk.  While various sleights of hand (such as daily changes to bond maturities) are possible, there remains a small but significant risk to US Treasury bond payments in October.  A missed payment – even if it is only deferred – would be a major market event.  S&P famously downgraded the US to AA+ in 2011 under similar circumstances, and it has never moved it back.  Fitch currently have a negative outlook on their AAA rating for the US. But the broader issue is how Governments around the world handle the cost of COVID [please continue below to access full report]. Figure 1: Two-Year Trends in Sovereign Credit Risk Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Energy Sector Credit Quality Maintains Stability: September 2021 . The outlook for major energy sectors ranges from good to under-performing. The US energy sector is seeing improvement in its credit though with a small blip this month. Meanwhile, the UK has seen slight improvement, and the EU has seen slight deterioration. The industry is not without its challenges - losses from Hurricane Ida in the US were the worst since 2005, and additional hurricanes could cause further trouble. Meanwhile, wholesale gas prices are surging in the EU and UK which could lead to a host of problems including more insolvencies and a spill over effect on other industries. The UK is also in the midst of a fuel crisis, after disclosures that a nationwide shortage of HGV drivers had disrupted supply to some petrol stations, though major suppliers have assured consumers that UK fuel stocks are plentiful and the situation is expected to soon return to normal. Additionally, the threat from the pandemic, while greatly reduced, has not gone away entirely. The months ahead threaten to be perilous. . US Oil & Gas The US energy sector continues to look more positive. The latest data show credit quality down 5% year-over-year but improving 7% over the last months and remaining largely unchanged from last month. Default risk is now 67 bps, compared to 72 bps six months ago and 64 bps at the same point last year. Now this sector’s overall CCR rating is bb+ and 85% of firms are at bbb or lower. Overall Large US Corporate default risk is 52 bps, with a CCR of bb+ and 78% of firms at bbb or lower. UK Oil & Gas The UK energy sector has received some breathing room. Credit quality is down 13% year-over-year and 4% over the last six months but has improved 1% compared to last month. Default risk is 49 bps, compared to 47 bps six months ago and 43 bps at the same point last year. Now this sector’s overall CCR rating is bb+ and 75% of firms are at bbb or lower. Overall Large UK Corporate default risk is 63 bps, with a CCR of bb+ and 86% of firms at bbb or lower. EU Oil & Gas The overall position for the EU energy sector is largely stable. Credit quality is down 1% from last month but has improved 1% over the last six months. From the same point last year, it’s down 7%. Default risk is 33 bps, compared to 32 bps last month, 33 bps six months ago, and 31 bps at the same point last year. This sector’s overall CCR rating is bbb and 73% of firms are at bbb or lower. Overall Large EU Corporate default risk is 34 bps, with a CCR of bbb- and 73% of firms at bbb or lower. . Please complete your details to continue reading this report and to access the single name credit matrix: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### September Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the September Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The latest forward-looking consensus data confirms the notion that an improving trend in industrials may be slower or more uneven than previously anticipated.  For US Industrial firms, the CCI score is above the neutral 50 line for the seventh month in a row, continuing the longest streak of upgrades. Though this momentum is good news, the downward shift from last month suggests continued uncertainty in the sector. Economic growth projections are strong for the US but have been adjusted downwards from a few months ago. New infrastructure is on the cards but spending may be less than originally proposed. Supply chain problems could easily drag on for longer than was anticipated earlier this year.  Much the same can be said for UK Industrial firms, whose score fell but remains within positive territory, or for the EU, where the CCI has experienced higher volatility in recent months and now sits in negative territory. UK Industrials: Staying Positive Consensus opinion on credit quality for UK Industrial firms is still in positive territory. The UK CCI score is now 50.9, compared to 53.9 last month. UK manufacturing activity is still growing even though it is down from a high point reached earlier this year amid ongoing supply pressures. The UK is facing a labor shortage across a variety of industries.  . EU Industrials: Volatile Consensus opinion for EU Industrial firms is proving to be volatile, with no consecutive run of improvement since late 2019. The EU CCI score is now 46.7, compared to a high peak of 62.3 last month. Eurozone manufacturing activity is still expanding even though it has slowed, in part due to supply chain problems. . US Industrials: Strong Despite Comedown This month also suggests some volatility for US Industrials, however the general trend is comparatively strong against the other regions. The US CCI score is now 55.1, compared to 63.9 last month, marking the seventh consecutive month consensus opinion has been in positive territory. Once again, US manufacturing activity expanded robustly, but growth continues to be limited by supply chain issues. There's also a labor shortage. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Survival of the Fittest in the Leveraged Loan Market The $1.2trn Leveraged Loan market continues to grow, with S&P showing new issuance in the sector running at double the volume recorded a year ago. Mergers and acquisitions are a key driver in this growth, especially driven by private equity buyouts of existing firms. But there are fears that investors in the broader high yield space are not being properly compensated for the risks.  Moody’s data shows that, compared with typical non-investment grade borrowers, the default rate for private equity backed firms was significantly higher in 2020-21; the pandemic has taken its toll on heavily indebted companies. But recent private equity investments have focused on firms that have weathered the pandemic with stable revenues and strong cash flows. This could boost the average credit quality of leveraged loan assets, but the latest consensus credit data shows a more mixed picture. Figure 1 shows the 6M change in credit distribution for 154 companies in the leveraged loan sector. Figure 1: 6M Change in Credit Distribution for 154 Companies in Leveraged Loans Sector This year, there has been a modest decrease in the bb category, and a corresponding increase in the b category; but the c category has dropped while the bbb category shows a slight increase. This is consistent with the overall damage caused by the pandemic but shows signs that leveraged loan portfolios may be at the beginning of a credit upgrade. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### September 2021 Industry Monitor Download the September Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-August, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. The latest consensus credit data provides a mostly sunny view of corporate credit risk this month. Overall, corporate credit is positive, with improvements blipping deteriorations by a ratio of 1.1:1. Sectors and Industries leading the pack are Construction & Materials at 1.7:1, Health Care at 1.6:1, Basic Materials at 1.5:1, followed by Technology and Industrials each at 1.3:1. Oil & Gas remained even-footed with an improving to deteriorating ratio of 1.1:1. At a country-level, Canadian Corporates and Canadian Oil & Gas enjoyed improving fortunes, with ratios of 3.1:1 and 3.4:1 respectively. Ratios for UK and US Corporates are 1.4:1 and 2.3:1, respectively. UK Oil & Gas firms out-performed their Corporate peers with a ratio of 2.1:1, while US Oil & Gas underperformed comparatively – though still ended up positively inclined - with a ratio of 1.5:1. The worst performing industries this month are Utilities and Telecommunications, which both saw more deterioration than improvement with ratios of 1:3.3 and 1:2, respectively. Financials also saw more deterioration than improvement with a ratio of 1:1.6. According to David Carruthers, Head of Research at Credit Benchmark: “Deterioration within financial firms is never a positive sign, even if the movements are small, although the financial system overall appears to be in strong shape. On the plus side, overall corporate credit looks healthy. The ongoing effects of the pandemic and interlinked supply chain challenges continue to put strain on the economy, but as we know from recent history, the situation could certainly be worse. With vaccination programs maintaining pace globally and the global economy picking up, expect to see corporate credit continue to improve.” In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Improvements and Deteriorations in each category since last update, calculated as Improvements : Deteriorations. IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the September Industry Monitor infographic here: Error: Contact form not found. Download Industry Monitor ### Steady Improvement for US, UK Retail: September 2021 The retail sector is enjoying some long-awaited good fortune. According to the latest consensus data, credit risk has improved for both the US and UK retail sectors. It’s a welcome change of pace for an industry which was thrown for a loop during the pandemic. Even better, the forecast continues to look promising for each sector as their respective economies improve and vaccination rates continue to trend higher. The recently announced effort by the Biden administration to mandate or encourage vaccinations will likely push figures up in the US; Goldman Sachs estimates an additional 12 million vaccinations will result from this effort. Private employers mandating the vaccine will push this total even higher. Plus, monetary policy will remain accommodative for the near future, even with some tapering. Credit risk remains higher than it was at the start of the pandemic, especially for the UK, and future pandemic flare ups could certainly curtail future improvements. But for now, things are looking up for US and UK retail. US General Retail Firms US retail continues on a slow and steady path to improvement. Credit quality is down 9% year-over-year, but the latest The outlook for US retail continues to brighten. Credit quality has improved 2% month-over-month, 11% from six months ago, and 8% from the same point last year. Default risk is currently 58 bps, compared to 59 bps last month, 65 bps six months ago, and 63 bps at the same point last year. The sector’s overall CCR rating is bb+ and 79% of firms are at bbb or lower. Overall US corporate default risk is 62 bps, with a CCR of bb+ and 80% of firms at bbb or lower.  UK General Retail Firms The position for UK retail is also improving. Credit quality is still down 4% year-over year, but it’s improved 2% from last month and 7% from six months ago. Default risk is now 96 bps, compared to 98 bps last month, 103 bps six months ago, and 93 bps at the same point last year. The sector’s overall CCR rating is bb and 92% of firms are at bbb or lower. Overall UK corporate default risk is 80 bps, with a CCR of bb and 90% of firms at bbb or lower.  Please complete your details to continue reading this report and to access the single name credit matrix: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 60,000 financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### Marine Transportation: Turning the Credit Tide? The Economist reports that container unit costs have risen 4 to 6 times in the past 18 months while delivery times have nearly doubled. Local Covid outbreaks have resulted in temporary port closures around the globe, while changing consumption patterns have disrupted trade flows. These challenges have been compounded by deliberate capacity reductions at the start of the pandemic. Figure 1 shows the trend and credit distribution for the Global Marine Transportation aggregate (131 firms) over the past two years compared to Global Corporates. Figure 1: Credit trend and distribution for Global Marine Transportation vs Global Corporates The steady decline from January 2020 is a noticeably early reaction to the Covid outbreak, pushing credit risk up by 25%. Recovery began in September 2020 – also earlier than many of the other industry aggregates. This suggests that the global Marine Transportation aggregate may be a leading indicator for overall credit risk [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Fallen Angels and Rising Stars: Shifting Corporate Credit September brings more corporate credit shuffling across the investment-grade / high-yield threshold. The number of firms that have fallen from investment-grade to high-yield (known as Fallen Angels) and retained this status continues to grow, moving from 289 to 369 or about 5% out of a global sample of 7,667 firms. Sectors with the highest percentages of companies still classified as Fallen Angels are Travel & Leisure (12%), Leisure Goods (12%), and Mobile Telecommunications (10%). Only one sector, Personal Goods, saw its ranks of Fallen Angels decline in the latest update [please continue below to access full report]. Fallen Angels Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Prolonged Credit Turbulence for Global Airlines Air travel is currently running at about 50% of its pre-pandemic peak and the JETS Global Airline equity ETF is about 20% down from its recent high in March 2021. The sector still faces uncertainty from new virus variants, a patchy recovery in tourist traffic and a possibly permanent shift in business travel norms. Airlines are now setting out their post-pandemic strategies – some are launching new low-cost carriers to compensate for the lack of business traffic; those with strong balance sheets are looking to acquire fleets and slots from weaker competitors. Figure 1 shows the two-year trend and consensus credit distribution for more than 100 airlines and related businesses. Figure 1: Credit trends and distribution for Global Airlines and related companies During the pandemic, global airline credit risk more than tripled from 48 Bps in February 2020 to 165 Bps in July 2021. This steady decline in credit quality shows tentative signs of stabilising, but 80% of the sector is now below investment grade. The b category represents 20% of all firms with 15% in the c category.  Most of the companies in this universe are unrated by traditional agencies. There are many agency ratings for individual bonds and notes, with a number of national carrier issues underwritten by their governments. But these guarantees only apply to note holders and bond investors – suppliers and trade creditors take credit risk directly with the issuer. Figure 2 shows a comparison between agency ratings and consensus for 12 major airlines. [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### August Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the August Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. There is reason for optimism in the latest CCI data. Scores for the UK, EU, and US are all above 50. For the US, this would the six consecutive month above this threshold. Fiscal policy will remain robust; in fact, in the US, trillions in additional spending seems likely. Even with some tightening, monetary policy will remain relatively loose for the UK and US and even looser for the EU. At the same time, warning signs and potential obstacles abound. The virus, driven by the Delta variant, continues its hold globally, including in countries with high vaccination rates. Despite ample availability of vaccines in the US, vaccination momentum has dropped significantly since the spring of this year. While infection rates remain high, a return to normal will be hindered. Some companies are delaying a return to the office, and there are signs of unevenness in travel rates, particularly business travel. Ongoing supply chain and logistics issues persist, grinding the gears of production and shipping and contributing to inflation, even if transitory. The worst may be behind us, but improvement may end up being slower or more uneven and volatile than anticipated even just a few months ago. UK Industrials: More Improvement UK Industrial firms have maintained positive credit quality after a recent tumble.The UK CCI score is 53.9, compared to 51.4 last month. The Delta variant is posing problems for the UK, but it might not be as bad as earlier waves due to vaccines and individuals exercising caution even with reduced restrictions. UK manufacturing activity has slowed. . EU Industrials: Positive Movement EU Industrial companies have returned to positive territory after last month’s negative blip. Now the EU CCI score is 62.4, compared to 48.1 last month.  The EU has passed the US in vaccinations, which will help limit the damage from the virus. Eurozone manufacturing activity keeps expanding quickly. . US Industrials: Ongoing Strength US Industrial firms remain in a good position. The US CCI score is currently 64.1, compared to 55.9 last month.   The virus continues to hold parts of the US in a grip, but there are signs vaccinations are trending higher, especially in states that have been laggards thus far. US manufacturing activity continues to expand robustly. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Credit Strength Dampens Wildfire Risk for US Electricity Firms Another northern hemisphere summer, another wildfire record. California is facing the single largest fire that the state has ever seen, and this year many of the western states of Canada and the US have seen multiple outbreaks. US wildfires are sometimes attributed to outdated electricity infrastructure; companies in the sector also face a legal hurdle that can hold them responsible even if their infrastructure is not at fault. Wildfire risk is not just in North America: parts of Italy have declared a state of emergency and the annual fires in Siberia are particularly extensive this year. Turkey and Greece have had to appeal for international help as they evacuate some of their holiday resorts; and even the Greek capital is at risk. At least one power station in Turkey has been destroyed, and unburied power cables which often stretch across wilderness areas are acutely vulnerable. Wildfires also intensify the political and media focus on global warming, with renewed debates about energy source sustainability and optimal technology in electricity generation and transmission. So electricity companies face a triple challenge: (1) are generation inefficiencies contributing to carbon emissions which make wildfires more likely? (2) is underinvestment in infrastructure one of the causes of wildfires? (3) how vulnerable is their infrastructure as wildfires inexorably increase in size each year? Addressing these issues requires investment, and companies with stronger credit ratings are better placed to fund the necessary capital spending. This note looks at the credit profile and recent trends for US companies in the electricity sector. The US Electricity sector consists of more than 500 companies, of which 371 are covered by Consensus Credit Ratings (CCRs). Of these, more than 180 are not covered by the main credit rating agencies at the issuer level. Figure 1 compares consensus and average agency credit ratings on the 21-category scale. The bubble size shows the numbers of legal entities. Figure 1: Consensus vs. Agency ratings, US Electricity companies For most (116 out of 156) of the legal entities in this sample, the consensus and agency ratings are the same or at most one notch different. For more than half of these (70 out of 116) the agency average is more conservative than the consensus. This suggests that the consensus is a reliable guide for entities where no agency rating exists, although there is a modest bias to conservativism in the agency ratings. Figure 2 shows the average consensus rating for legal entities with and without an agency rating, across the full consensus sample of 371. Figure 2: Average consensus rating, CRA-rated vs. non CRA-rated Legal entities with a CRA rating are typically 2 notches better than those without. The average notch for the unrated entities is still above the investment grade threshold, suggesting that a number of the unrated entities could qualify for an investment grade agency rating if they requested one. Figure 3 shows the credit distribution for the sample of 371 legal entities. Figure 3: Credit distribution for US Electricity legal entities The largest single category is a-; overall, 71% are investment grade, and just 3% are in the b or c categories. For US Corporates, the equivalent proportions are 44% and 18% respectively. Figure 4 shows trends in upgrades vs downgrades over the past few years. Figure 4: Upgrades vs. Downgrades, US Electricity companies, 2017-2021 There have been a number of outlier months where upgrades or downgrades dominate. The three major spikes in downgrades have been in summer; of the five major spikes in upgrades, four have been in summer. Over the past year, the sector has followed a volatile but clear uptrend, with June 2021 recording one of the largest positive net balances in the 2017-2021 period. The volatility of US Electricity balance between upgrades and downgrades is 26% larger compared to US Corporates overall (measured by standard deviation). Figure 5 shows the same metric for the Western Electricity Co-ordinating Council (WECC) area (US companies only) The WECC (US) area companies also show a volatile balance between upgrades ad downgrades, but there are two clear uptrend periods: Feb-19 to Sept-19, and Aug-20 to Jun-21. Again, the major spikes – upgrades or downgrades – are mainly (4 out of 5) in summer. Conclusion US electricity companies are generally strong credits. Addressing climate change requires investment, and most of these firms are relatively well placed for that. Of the many US Electricity firms that do not have a CRA rating, some may be surprised to learn that the global bank consensus views them as investment grade. Electricity company credit estimates (upgrades vs. downgrades) are more volatile than US Corporates overall with a possible seasonal pattern to that volatility; but there has been a reasonably consistent bias towards upgrades in recent years. The pattern of upgrades and downgrades shows some variation by NERC area. Please complete your details to download this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Fallen Angels and Rising Stars: Credit Volatility Persists Credit volatility remains in the picture for global corporates. The latest consensus data show increases in both the number of Fallen Angels - companies that have seen their credit scores fall from investment-grade to high-yield status - and Rising Stars - companies that have risen from high-yield to investment grade. The total number of firms still classified as Fallen Angels has grown from 235 to 289 or roughly 4% out of a global sample of 7,667 companies spanning several sectors. Those with the highest percentages of investment-grade firms that shifted to high-yield are Leisure Goods at 12%, Travel & Leisure at 11%, and Mobile Telecommunications at 10%. Two sectors, Personal Goods and Technology Hardware & Equipment, saw their ranks of Fallen Angels shrink [please continue below to access full report]. Fallen Angels Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Credit Trends: Focus on Australia Australia has so far weathered the Covid storm in reasonable shape – though rising case figures driven by the Delta variant have led to numerous snap lockdowns. The country is one of the few Sovereigns rated AAA by the three largest traditional rating agencies, but with a credit consensus rating of aa+, Banks have taken a slightly more cautious view of Australia’s creditworthiness. This research analyses a number of Australian industries, sectors and companies to demonstrate the Covid effect on national credit quality comparative to global trends. The usual Covid casualties – especially in Travel & Leisure – are apparent, but it is clear that in credit terms, most Australian industries – domestic and international, capital and consumer – are typically outperforming their global peers. Figure 1 shows cumulative Australian and Global Covid cases since the start of the pandemic. Figure 1: Covid cases, Australia vs Global Australian case growth rates began to level off in August 2020; global rates have continued at a consistently faster pace. Tight travel restrictions, strict local lockdowns and a comprehensive vaccination program backed by hard hitting advertising have contributed to a relative success story; although cases are growing again as the more infectious Delta variant spreads. Australian credit risk trends mirror the Covid case graphs. Figure 2 compares the combined Corporate and Financial credit risk picture for Australia vs. the Global trend [please continue below to access full report]. Figure 2: Corporates and Financials: Australia vs Global Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Global Credit Recovery Gathers Pace According to The Economist, just 10% of the world’s population is fully vaccinated against Covid.  This average conceals a huge global divide – for low-income countries, the average is just 1%; it is over 30% for the most advanced economies.  Even in the developed nations, the formula for vaccine rollout success is a complex blend of politics, economics, public health preparedness and national attitude.  But it is clear that the economic bounceback will be led by the largest and most developed economies. Overall vaccination figures show that the global pandemic is far from over; but trends in the credit consensus are already giving some clues to the shape of the expected global economic recovery. Figure 1 shows the latest credit consensus for corporates and financials globally. Figure 1: Global Corporates and Financials After deteriorating by as much as 25%, Corporates have so far recovered about one-fifth of their decline which troughed in February this year; latest data shows the sharpest spike so far.  Financials show a similar pattern after a more modest decline of about 12%. Rating agencies have also been upgrading in the past few months, following a raft of downgrades in March.  Figure 2 shows the regional trends for corporates. Figure 2: Corporate credit regional trends The sharpest recovery is in the US, which troughed in February and has since recovered more than a fifth of its decline.  The UK also showed a significant pandemic decline; it is now recovering, but more slowly than the US while analysts await the result of the UK’s reopening experiment.  Asia is almost flat after a sizeable decline; EU corporates have made modest but steady increases after an equally shallow decline during the pandemic. Figure 3 shows the corporate trends for Africa, Latin America and the Middle East. Figure 3: Africa, Latin America, Middle East credit trends Despite low average vaccination rates, there are signs of improvement in Africa and especially in Latin America, which has recovered about a quarter of its decline after a surprisingly early turning point at the end of 2020.  The Middle East has not, so far, turned the corner. Consensus credit data suggests that the coming recovery will be broad based and may appear earlier than expected in some of the developing nations.  Rising vaccination rates and any sign of a decline in the vaccine mutation rate will underpin these emerging trends. The latest data is available via the Credit Benchmark Web App, Excel add-in, flat file download, and third-party platforms including Bloomberg. Get in touch with us to request your free trial. ### Ongoing Chip Issues Cloud Outlook for US, UK Auto Sectors: July 2021 To download the July 2021 Auto Aggregate PDF, click here. In some circumstances a sparsely populated sales lot might be a good sign for auto sellers, but not recently. As the semiconductor shortage continues to disrupt many areas, especially the auto sector, dealer inventory is suffering. Some estimate that industrywide supply in the US might last around a month, compared to about 60 days in normal circumstances. The tightness of inventories has led to higher prices, but consumer demand is certainly not inelastic. The worst of the pandemic-related challenges may have passed but continued improvement for the US auto sector may be under threat unless supply chain problems ease. The UK, meanwhile, is seeing similar problems as credit for auto firms deteriorates, and lingering concerns about Brexit remain. US Auto and Auto Parts Industry The US auto sector is trending in the right direction. The latest data show improvement of 1% month-over-month and 5% from six months ago; the year-over-year decline is just 6%. Default risk is now 47 bps, compared to 48 bps last month, 50 bps six months ago, and 45 bps at the same point last year. This sector’s current overall CCR rating is bbb- and 80% of firms are at bbb or lower. Overall US corporate default risk is 65 bps, with a CCR of bb+ and 82% of firms at bbb or lower.  UK Auto and Auto Parts Industry The UK auto sector continues to trend negatively. In the latest update, credit quality has declined by 1% month-over-month, 4% from six months ago, and 16% year-over-year. Default risk is now 93 bps, compared to 92 bps last month, 89 bps six months ago, and 80 bps at the same point last year. This sector’s current overall CCR rating is bb and 89% of the firms are at bbb or lower. Overall UK corporate default risk is 83 bps, with a CCR of bb and 91% of firms at bbb or lower.  About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Energy Sector Credit Quality Enters Wait-and-See Mode: July 2021 To download the July 2021 Oil & Gas Aggregate PDF, click here. . Depending upon who you ask, the world is either headed for the best period of global growth since the early 1970s or problems are mounting as the delta variant of the virus that causes COVID-19 continues to spread. Opinions on either of those options – and some combinations of the two – are already showing up in the energy sector. Even with high US oil prices, for instance, investment is weak and rig count growth is slow. Volatility may grow, especially if there are supply constraints. There are added pressures from climate activists and potential changes in regulation. Amid this lack of clarity, monthly changes in credit quality outlook for the energy sector were muted, with the US seeing some improvement and the UK seeing some deterioration in credit. The EU energy sector is stable. . US Oil & Gas Slowly but surely, the US energy sector is looking better. In the latest data, credit quality has improved by 1% compared to last month, even though it’s still down 5% over the last six months and 23% over the last year. Default risk is now 72 bps, compared to 73 bps last month, 69 bps six months ago, and 59 bps at the same point last year. Currently, this sector’s overall CCR rating is bb+ and 86% of firms are at bbb or lower. Overall Large US Corporate default risk is 55 bps, with a CCR of bb+ and 80% of firms at bbb or lower. UK Oil & Gas The UK energy sector continues to deteriorate. On top of declines of 17% year-over-year and 8% over the last six months, credit quality dropped 2% from last month. Default risk is now 51 bps; it was 50 bps last month, 48 bps six months ago, and 44 bps at the same point last year. Currently, this sector’s overall CCR rating is bb+ and 75% of firms are at bbb or lower. Overall Large UK Corporate default risk is 65 bps, with a CCR of bb+ and 87% of firms at bbb or lower. EU Oil & Gas The EU energy sector is stable. While down 10% year-over-year, credit quality is unchanged from last month and over the last six months. Default risk remains at 31 bps, compared to 29 bps at the same point last year. Currently, this sector’s overall CCR rating is bbb and 70% of firms are at bbb or lower. Overall Large EU Corporate default risk is 34 bps, with a CCR of bbb- and 73% of firms at bbb or lower. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### July 2021 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. After several months of downgrades, the latest Credit Benchmark consensus data show improvement across multiple categories of financial counterparts. Intermediaries saw more upgrades than downgrades for the first time in several months. Prime Brokers had the highest instance of downgrades last month, with a ratio of 5:1 deterioration-to-improvement; it’s now at a modest 1.3:1. Custodians and Sub-Custodians moved from a ratio of 3:1 deterioration-to-improvement last month to a current net positive ratio of 0.9:1; Broker Dealers changed from 2.5:1 to 0.4:1. Most categories of banks also showed improvement. The ratio for Latin American Banks showed heavy deterioration at 14:1 last month but is now net positive at 0.4:1. North American Banks and G-SIBs moved from 4:1 last month to 0.3:1 and 0.5:1 in the latest update. EMEA Banks are an exception this month. While the current ratio of 2.5:1 is an improvement from last month’s 3.1:1, this is still the highest rate of deterioration for any of the Financial subsets this month. According to David Carruthers, Head of Research at Credit Benchmark: "The dominance of improvement in consensus opinion is a welcome change after several months of deterioration, particular for entities like prime brokers that are so important to the functioning of the financial system. EMEA banks were one of the few exceptions this month. Additional downgrades could cause concern for the banks themselves but also for the broader economy that depends on them for lending. Thankfully, banks are in a relatively strong position overall. Improving economic prospects will only make them stronger." The European Commission projects the region’s economy to expand faster than previously anticipated, with growth of 4.8% this year and the volume of output returning to its pre-crisis level by Q4 2021, one quarter earlier than projected in the spring. As noted by Bloomberg, the ECB is seeking to extend one of its key pandemic-era relief changes, permitting a change in how leverage ratios are calculated, indicating the region’s “stronger reliance on bank loans, rather than capital markets, as a source of corporate financing.” The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### July 2021 Industry Monitor Download the July Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-June, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. The latest consensus data provide even more reason for optimism, with widespread improvement in credit risk. The broad category of Corporates once again saw a dominance of upgrades, with an overall deterioration-to-improvement ratio of 0.6:1. This improvement translated to individual categories, like Consumer Goods and Consumer Services which had ratios of 0.6:1 and 0.7:1, respectively. Health Care and Industrials performed equally well, with ratios of 0.7:1 and 0.6:1. Even beleaguered Oil & Gas firms saw an overall credit improvement this month. Unfortunately, Travel & Leisure firms remain languishing in net deterioration, but to a less severe extent than previous months, with a ratio of 1.4:1. Utilities saw the highest rate of deterioration this month, at 1.5:1. Perhaps most notable is the improvement seen in Financials, which has jumped from a deteriorating ratio of 1.7:1, to an improving ratio of 0.8:1   According to David Carruthers, Head of Research at Credit Benchmark: “The upgrades seen across financial firms is a positive development, as this category has seen a dominance of deterioration in recent months. The sector faces obstacles ahead, like loan quality and stunted economic growth in the face of a fresh increase in Covid cases, but at the moment, credit for financial companies isn’t getting worse. A strong financial sector from a credit perspective is to the benefit of the overall economy.” In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the July Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### UK Retail Holds Steady: July 2021 To download the July 2021 Retail Aggregate PDF, click here. Stability is the current trend for the UK retail sector.  Already very high before the pandemic began, this sector’s default risk grew even more as the virus wreaked havoc in the UK and throughout the world. Yet the latest data show default risk levelling off, even as it remains higher than overall UK corporate default risk. The UK is certainly not fully back to normal just yet. The government delayed a general reopening by a month; and a reinstatement of restrictions is possible if COVID cases continue to rise. Economic growth is returning, but after a steep drop. Unemployment is still higher than it was pre-pandemic. Higher inflation may come, even if it’s only temporary. Supply chain problems linger. Despite this, there’s reason to be positive. Even with a slight dip, recent retail sales volumes are still higher than they were earlier in 2021 and the beginning of 2020. Flush consumers with pent up demand may continue to support the sector in the months ahead. All in all, the sector may be in its best position in months, despite some big issues. US retailers have many of the same current advantages as well as disadvantages, specifically rising COVID cases, although this may be a regional issue. US General Retail Firms US retail continues on a slow and steady path to improvement. Credit quality is down 9% year-over-year, but the latest data show improvement of 1% from last month and 5% over the last six months. Default risk for the sector remains elevated at 64 bps, compared to 65 bps last month, 68 bps six months ago, and 59 bps at the same point last year. Its overall CCR rating is bb+ and 82% of firms are at bbb or lower. Overall US corporate default risk is 65 bps, with a CCR of bb+ and 82% of firms at bbb or lower.  UK General Retail Firms UK retail continues to level off. Credit quality is down 16% over the last year but unchanged from last month and down only 1% over the last six months. Default risk is still rather high at 101 bps, compared to 100 bps six months ago and 87 bps at the same point last year. This sector’s overall CCR rating is bb and 93% of firms are at bbb or lower. Overall UK corporate default risk is 83 bps, with a CCR of bb and 91% of firms at bbb or lower.  About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 60,000 financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### Sector Risks Revealed in Fallen Angels and Rising Stars While corporate credit risk has been improving across many industries, some sectors are still dealing with large numbers of Fallen Angels, or companies that have seen their credit scores fall from investment grade to high-yield status. Since January 2021, a total of 235 companies (about 3%) out of global sample of 7667 have become Fallen Angels and still retain this status. Of these, sectors with a heavy consumer focus tend to be in worse shape, such as Leisure Goods, which counts roughly 12% of its constituents as Fallen Angels, Travel & Leisure, with 8% and Construction & Materials with 5%. On the flip side, in the Rising Stars category, which captures firms whose credit quality was high-yield but then moved to investment-grade, counts 343 entities out of a total global sample of 10,161 (3.4%) [please continue below to access full report]. Fallen Angels Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### July Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the July Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The latest data on US Industrials provides further evidence that the sector may be on the mend. For the fifth consecutive month, the US CCI score is above 50, and each month has seen a higher score than the last. The score is now in the best position since January 2017. It’s quite a contrast from the lows seen during Q1 and Q2 of 2020. The news is strong on multiple fronts, with air travel continuing to pick up, factory activity in good shape even with some hiccups, and the economy in an solid position. An additional boost may come from infrastructure spending.  Meanwhile, scores for the UK and EU have been dipping in and out of positive and negative territory, with consensus credit opinions having yet to settle on a stable outlook. The months ahead will hopefully provide greater clarity. Beyond the Delta variant, supply chain concerns may limit economic progress in the months ahead for these and other regions. CCI data were highlighted in the recent white paper, Trade Credit Risk and Supply Chains: The Post-Pandemic Landscape.  UK Industrials: A Step Back, a Step Forwards UK Industrial firms have slipped back into positive territory after backflipping into negative territory last month.  The UK CCI score is 51.5, a positive change from 43.9 last month. The UK economy is in a good position and reports of a spike in new orders and a doubling of manufacturing growth indicates better days ahead for the industry. . EU Industrials: Struggling to Improve EU Industrial companies are back in a weak position, hovering below neutral after last month’s positive CCI reading.The EU CCI score is 48.3, a negative change from 53.5 last month.  Europe’s economy is in great shape but pressures on some industries such as the building material shortages facing construction may act as an anchor to growth. . US Industrials: All Signs Point Up The outlook for US Industrial companies continues to shine brightly. The US CCI score is 55.9 this month, another instance of improving credit quality from last month’s CCI of 52.7.  The US economy is in good shape and one measure showed manufacturing activity expanded at the fastest pace in 14 years of recording. With these positive signs, the CCI should continue to improve. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Financial Times: Data Drill Credit Benchmark data highlighting the difference in credit quality of Global Coal and Global Oil & Gas companies against Global Corporates has been cited in the latest 'Energy Source' newsletter via The Financial Times. Authors Derek Brower, Justin Jacobs, and Amanda Chu noted in the column: "The industry is also now laden with hazard for investors. In the past two years, credit risk for coal increased by over 30 per cent...Oil and gas companies are also in danger — they saw the greatest increase in credit risk over the past two years. Still, they are more than three times more likely than coal companies to be investment grade." The Financial Times, July 15, 2021. View original article (external link). ### Global Investor: Securities Finance Americas Guide 2021 Global Investor Group spoke with Credit Benchmark co-founder Mark Faulkner on peer-to-peer lending for an article in the latest Securities Finance Americas Guide. The article notes that proponents of peer-to-peer securities lending are confident that rather than taking business from agent lenders, its wider use will facilitate deals that would not have happened in a conventional transaction environment. "The obvious demographic for peer-to-peer lending are those global beneficial owners with an innovative approach to their securities lending programmes, such as the largest sovereign wealth funds and pension plans as well as sophisticated asset managers. “These entities self-select because they are institutionally curious and are often amenable to new ideas, including the idea of dealing with new types of counterparts,” observes Mark Faulkner, co-founder of Credit Benchmark, who says counterpart expansion or counterpart extension or even non-standard counterpart selection is perhaps a better way of characterising this activity since peer-to-peer implies activity only between a pension fund and a pension fund, for instance." Global Investor Securities Finance Americas Guide, Summer 2021. To download the 2021 guide and read the original article, please click the link below. View original article (external link). ### Is Staying In the New Going Out? Shifting Recreational Trends in Credit 2020 was the year of the homebody. While those preferring the great indoors may have relished a government-mandated excuse to stay at home over the weekends, social butterflies and live entertainment enthusiasts struggled during months of enforced lockdowns. But how did the longer-term credit fortunes of jigsaw makers and theatre producers compare before COVID – and is a shift in leisure habits likely to persist? With live music, mass sporting events and other leisure services curtailed for many months, consumers were forced to pursue new forms of personal entertainment and recreation. Sales of home gym equipment skyrocketed in 2020, with exercise bikes increasing in popularity by 2000% in the UK. Spending on video games grew to $56.9bn in 2020 in the US, a 27% increase from 2019. This COVID-prompted shift towards personal leisure and recreation activities bucks a longer-term trend in the opposite direction. The growth of ‘experiences’ has been fuelled in part by the rise of social media, and from the status afforded to those boasting a life well lived – in preference to the accumulation of things. As noted in a Deloitte study on UK leisure consumers in 2019, ‘…spending on things to do has grown so much faster than spending on things to own.’ This preference for experiences and live entertainment is reflected in the consensus credit trend of North American and European Recreational Services companies over the past 5 years. Figure 1: Credit Trend - Recreational Services Figure 2: Credit Level - Recreational Services Some examples of recreational services companies listed in this analysis include gyms (Gym Group PLC, Fitness First, Virgin, Goodlife), sporting clubs and leagues (Liverpool Football Club, PGA Tour Europe, Major League Baseball, NBA), stadiums and arenas (Wembley National Stadium, Las Vegas Arena), entertainment providers (Live Nation, Cirque de Soleil), theatres and cinemas (Everyman Media Group, Cineworld, AMC), and museums and galleries (Metropolitan Museum of Art, The Kennedy Centre). The long-term trend for both regions shows relative stability between mid-2016 and March 2020, at which point things went rapidly downhill for obvious reasons. Though European firms at first declined at a slower pace than US firms, a severe drop in early 2021 – perhaps in response to a fresh round of Christmas lockdowns – saw them reach similar footing. Both groups plateaued from March onwards and have remained fairly stable. The credit level chart shows a somewhat even spread across the credit categories for North American companies, while European firms are vastly overrepresented in the non-investment grade category of bb, and almost none fall within the higher quality aaa to a categories. The consensus credit trend for North American and European Recreational Products tells a different story. Figure 3: Credit Trend - Recreational Products Figure 4: Credit Level - Recreational Products Some examples of recreational product companies listed in this analysis include manufacturers of bicycles (Giant, Shimano), toys and games (Lego, Hasbro, Mattel, Wizards of the Coast), sporting gear (Nike, Dicks Sporting Goods, Wilson Sporting Goods), pool companies (Pool Corp), and boating and fishing gear (Daiwa Sports, Bass Pro). These firms have seen a steady decline for some time, with the North American companies on a negative trajectory since tracking began in early 2017, and the European companies again trailing but ultimately following the same trend from early 2018. Some improvement in the North American companies between late 2018 and early 2020 saw the two groups converge before both were hit by the COVID effect (leisure good manufacturers are not immune from widespread supply chain disruptions). The regional divergence is apparent once more as North American companies began to improve in mid-2020 (perhaps buoyed by the renewed interest and spending on personal leisure) and have shown significantly improved fortunes since this point. The European companies lag but recent data indicate that the group may be following the same path of improvement. The credit level chart shows that Products are generally worse rated than Services, however the distribution between regions is a lot more even. The majority of companies for both groups lies within the non-investment grade bb category. Consensus credit data, sourced from 40+ leading global financial institutions, demonstrates that companies offering leisure products are generally of lower credit quality than services companies, and were already in decline before COVID impacted both groups heavily. However, the boost in spending on leisure products over 2020 and into this year has set North American companies on the path of recovery, with European firms likely to follow suit. With live entertainment and leisure services still on hold or severely hamstrung across most of the world, this pattern may continue over the course of 2021. Please complete your details to download this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Trade Credit Risk and Supply Chains: The Post-Pandemic Landscape Download the full whitepaper below. Supply chains and trade credit are critical in a post-COVID world. Trade volumes are likely to fluctuate, reflecting the collision of pent-up consumer demand with widespread goods and labour shortages, supply bottlenecks and uncertainty about further COVID variants. Disruption is the new status quo. Advances in technology are helping to create more flexible supply chains but there is a long way to go to repair the damage from COVID. Growing pressure to understand end-to-end supply chain credit risk leaves SMEs at a disadvantage when it comes to accessing credit. There is growing evidence that more transparent, widely available credit data benefits the global economy. A new whitepaper from Credit Benchmark demonstrates how consensus credit data is part of the solution. With coverage on 30,000+ corporates, financials and sovereigns, the dataset helps fill the gap between the need for flexible, robust global supply chains and the need to minimize payables and receivables risk arising from supply chain volatility. For CFOs, Group Treasurers, Procurement Managers, and participants in the trade finance sector, the whitepaper highlights the value of credit consensus ratings in assessing current and future counterpart credit risks. Download the whitepaper below for credit risk insights across sovereigns, global corporates, financials, industrials, travel and leisure, oil and gas, metals and mining, automobiles and parts, forestry and paper, hotels and airlines, and REITs. Also included in the whitepaper are consensus analytics that provide trade finance and supply chain professionals with an overview of counterparty credit risks, available across bespoke lists of counterparties: trading partners, buyers, sellers, banks, non-bank intermediaries, and various subsidiaries of these. Figure 1: Sample of Universe Analytics available for a sample industry - Global Automobiles & Parts The data is available via the Credit Benchmark Web App, Excel add-in, flat file download, and third-party platforms including Bloomberg. Get in touch with us to request your free trial of Credit Benchmark Premium Data and Analytics. Download this whitepaper to read the full analysis: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Top Polluters Have More Credit Risk – and Are Mainly State-Owned Environmental awareness is having a significant effect on the way we consume and invest. Plans to phase out petrol-driven cars, outlawing of gas boilers, massive investment in alternative energy sources, elimination of peat-based compost; these are just a few of a rapidly growing list of measures intended to halt and even reverse the impact of human activity on the environment. While climate change remains a controversial and partisan topic, the private sector cannot ignore it in the face of vocal public opinion and a strong trend towards ESG-driven investment. Investible companies need to be able to show a credible plan for reductions in CO2 emissions to meet internationally agreed targets. Twenty organisations – all in the resource extraction industry – have been responsible for a third of all CO2 emissions over the past 50 years. Consensus credit ratings are available for 19 of these1, and 16 of these provide credible projections for their intended CO2 emissions for the next ten years. Nine of these are majority state-owned.Figures 1 shows the average projected CO2 emissions in billions of tons per billion dollars of revenue, for Private and State-owned firms. Figure 2 shows the average consensus credit rating on a 21-category scale (1=aaa), also split into Private and State-owned firms [please continue below to access full report]. Figure 1: Average Projected Emissions Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report 1 No consensus is available for the National Iranian Oil Company due to international sanctions. ### 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. To read the original article, please click the link below. View original article (external link). ### Supply Chain Pressures Linger for US, UK Auto Sectors: June 2021 To download the June 2021 Auto Aggregate PDF, click here. Conditions are ripe for the US and UK auto sectors. The threat of new COVID variants persists, but vaccination rates continue to move higher and new cases remain relatively low. Fiscal and monetary policy will stay supportive. Job growth is not spectacular but certainly positive. Many consumers remain ready to spend. But car makers are having difficulties procuring computer chips for production lines and the problem shows little sign of abating. Flex, a manufacturer of electronical components like semiconductors, said problems may persist into the middle of 2022, and some believe into 2023. This will limit production and put pressure on prices, hitting the bottom line even for companies handling the situation well like GM (there may also be issues with certain suppliers for companies like GM, as Credit Benchmark research has found.) One estimate from KPMG suggests the blow to automakers at $100 billion globally; another estimate from AlixPartners says the global auto industry will lose $110 billion in revenue this year, up from an earlier estimate of $60.6 billion in January. Supply chain pressures will ease eventually, but in the meantime the otherwise bright outlook for the US and UK auto sectors will be hampered by this ongoing issue. US Auto and Auto Parts Industry Conditions are improving for the US auto sector. Even though credit quality is down 11% year-over-year, it has improved 2% month-over-month and 5% over the last six months. Default risk is currently 47 bps; it was 48 bps last month, 49 bps six months ago, and 42 bps at the same point last year. Now this sector’s overall CCR rating is bbb- and 74% of firms are at bbb or lower. ​Overall US corporate default risk is 65 bps, with a CCR of bb+ and 82% of firms at bbb or lower. UK Auto and Auto Parts Industry The situation worsened for the UK auto sector in the latest update but remains steady overall. Credit quality is down by 2% over the last month; it's fallen by 1% from six months ago and 21% year-over-year. Default risk is now 90 bps; it was 88 bps last month, 90 bps six months ago, and 74 bps at the same point last year. Now this sector’s overall CCR rating is bb and 90% of firms are at bbb or lower.​ Overall UK corporate default risk is 81 bps, with a CCR of bb and 91% of firms at bbb or lower. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### June 2021 Financial Counterpart Monitor Download the latest Financial Counterpart Monitor below. Financial counterparties have experienced widespread deterioration, according to the latest Credit Benchmark consensus data. Banks of all types have seen their credit quality decline. The largest shift was with Latin American banks, as seen by a 14:1 ratio showing far more deterioration than improvement. North American banks and G-SIBs were the next most negatively affected with ratios of 4:1 each. Last month's worst performing category, APAC banks, saw the least deterioration this month but the ratio was still tilted towards downgrades at 1.7:1.  Intermediaries performed a little better. The brief respite enjoyed by Prime Brokers last month is over, with this category's ratio now at 5:1 deteriorating to improving. Custodians and Sub Custodians, Broker Dealers, and CCP Members showed ratios of 3:1, 2.5:1, and 2.1:1, respectively, and this comes on top of previous deterioration. Only CCPs themselves were unchanged this month. The buy side shows a mixed picture. Ratios for Sovereign Wealth Funds and Insurance firms had ratios of 3:1 and 1.5:1 deteriorating to improving respectively, while Pension Funds and Mutual Funds saw more improvement than deterioration and were at a ratio of 0.6:1 each. According to David Carruthers, Head of Research at Credit Benchmark: "The latest update shows a few areas of concern. Consensus risk data show deterioration across all types of banks, especially those in Latin America and G-SIBs. The core plumbing of the financial system also shows signs of strain, with four out of five categories of intermediaries seeing more downgrades than upgrades, led by prime brokers; a group heavily involved in multiple ends of the financial system. This is an area worth keeping an eye on." As noted by Valeri Sokolovski, Magnus Dahlquist, and Erik Sverdrup in Fortune earlier this year, "the risk of a prime broker shock negatively affecting their hedge fund clients is much larger than any potential risk of a hedge fund adversely affecting its prime broker." The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Dynamics Solid for Energy Sectors: June 2021 To download the June 2021 Oil & Gas Aggregate PDF, click here. . The energy industry is experiencing mixed fortunes, with the US sector holding steady and the EU seeing some improvement, whereas the UK sector showed deterioration from the prior month. The underlying dynamics of the oil industry are relatively solid. Demand for oil is improving and could grow stronger still; it may be a hot summer for oil as economies continue to reopen and travel picks up. Additional lockdowns may delay the return to normal, but they won’t quash all hope. With the effects of the pandemic slowly but surely receding, there’s reason for cautious optimism for energy firms. The most serious challenge for oil and natural gas companies may be the transition to different, cleaner forms of energy, whether the pressure comes from outside activists or from regulatory changes. . US Oil & Gas US energy gets a little more room to breathe. Credit quality is down 35% year-over-year and 7% over the last six months but remains largely unchanged from the prior month. Default risk remains at 71 bps, compared to 67 bps six months ago and 53 bps at the same point last year. Now this sector’s overall CCR rating is bb+ and 85% of firms are at bbb or lower. Overall Large US Corporate default risk is 56 bps, with a CCR of bb+ and 80% of firms at bbb or lower. UK Oil & Gas UK energy saw additional deterioration. Credit quality is down 20% year-over-year and 6% over the last six months; it fell another 2% from last month. Default risk is currently 51 bps, compared to 50 bps last month, 48 bps six months ago, and 42 bps at the same point last year. Now this sector’s overall CCR rating is bb+ and 75% of firms are at bbb or lower. Overall Large UK Corporate default risk is 64 bps, with a CCR of bb+ and 87% of firms at bbb or lower. EU Oil & Gas EU energy moved in the right direction. Credit quality is down 15% year-over-year and 5% over the last six months, yet the latest data show improvement of 2% from last month. Default risk remains at 32 bps; it was 30 bps six months ago and 28 bps at the same point last year. Now this sector’s overall CCR rating is bbb and 71% of firms are at bbb or lower. Overall Large EU Corporate default risk is 34 bps, with a CCR of bbb- and 72% of firms at bbb or lower. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### June Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the June Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. One month does not make a trend, but what about four months? That's a question for US Industrial companies amid the latest data showing a CCI score above 50 for the fourth consecutive month, the longest stretch of positive readings since late 2018/early 2019. Better still, the overall movement in forward-looking sentiment keeps trending upwards. The latest reading is the highest since October 2018. The UK and the EU abruptly switched positions. Last month, the UK score was the single best since this data was first tracked; now it's firmly below 50. The EU score was neutral last month but is now solidly above 50 and in the best position since the second half of 2018. Recovery has been bumpy in recent months but remains undeniably positive. The good news continues to outweigh the bad news for the three regions, and each have a supply of fiscal and monetary support. Yet there are still obstacles ahead, whether more regionally focused like Brexit or more global in nature like supply chain problems that could wreak havoc for multiple types of firms. Last month’s CCIs indicated that Industrials were on the mend, and the next few months will confirm whether this is true of the UK and EU as well as for the US. UK Industrials: A Step Backwards After last month's big leap forward, UK Industrial firms nosedived back into deterioration. The UK CCI score is 44.2, a negative change from a score of 54.7 last month. The UK’s economy and specific areas like manufacturing along with sentiment are moving in the right direction, and the latest movement may be a temporary blip. But supply chain concerns linger. . EU Industrials: Moving on Up EU Industrial companies crossed the CCI threshold into positive territory after last month’s neutral score. The EU CCI is 53.5 this month, a positive change from a score of neutral 50 last month. The EU also continues to have a strong foundation, including in manufacturing, but supply chain issues may limit firms’ prospects. . US Industrials: Good News Continues The outlook for US Industrials looks increasingly brighter after a nightmare run in 2020. The US CCI score is 52.8, another step further into positive territory from last month’s CCI of 51.9.  As with the UK and EU, the US has a strong foundation, in manufacturing and elsewhere, but supply chains may hurt production. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Regs, Ratings & ESG Mark Faulkner. Credit Benchmark - Regs, Ratings & ESG Listen to this podcast on the Pierpoint Perspective website. ### Good News for US Retail: June 2021 To download the June 2021 Retail Aggregate PDF, click here. The outlook continues to brighten for the US retail sector. The US retail sector's improvement aligns with the US economy being in a relatively strong position. Job growth may not be as robust as anticipated, but it's still positive. Consumers are still flush with savings. Monetary policy will remain accommodative. Overall growth forecasts have improved in recent months. The UK retail sector did not improve but default risk didn't get any worse. The UK economy continues to move in the right direction, yet the reopening of hospitality has had a weaker knock on effect to retail than originally expected and a full reopening has been delayed once more. But job growth remains strong and monetary policy will remain loose.  Neither the US or UK retail sectors are out of the woods just yet. The biggest obstacle in the near future may be supply chain issues that are limiting inventory now as well as months down the line; US retailers have seen a declining inventory-to-sales ratio, and retailers like Dollar General, Best Buy, and Costco have highlighted this issue on earnings calls. Inflation may also be problem in the months ahead. But for now at least, neither sector is seeing huge declines the likes of which were witnessed during the height of COVID. US General Retail Firms US retail is moving in the right direction. Credit quality is still down 16% year-over-year but, according to the latest data, has improved by 4% over the last six months. Default risk is still higher than it was before the pandemic but is trending down. It's now 67 bps, compared to 69 bps last month and six months ago and 57 bps at the same point last year. Now this sector's overall CCR rating is bb+ and 82% of firms are at bbb or lower. Overall US corporate default risk is 65 bps, with a CCR of bb+ and 82% of firms at bbb or lower.  UK General Retail Firms UK retail is looking relatively steady. Credit quality is down 20% over the last year and 3% over the last six months but has stabilized compared to last month. Default risk remains very high at 101 bps, but that is largely unchanged compared to last month; it was 98 bps six months ago and 85 bps at the same point last year. Now this sector's overall CCR rating is bb and 93% of firms are at bbb or lower. Overall UK corporate default risk is 81 bps, with a CCR of bb and 91% of firms at bbb or lower. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 55,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### June 2021 Industry Monitor Download the June Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-May, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. There’s reason for mild optimism, according to the latest consensus risk data. The broad category of Corporates saw more improvement than deterioration in the latest update, with a ratio of 0.9:1 deteriorating to improving. Within the industry categories, some of the notable improving groups included Basic Materials, Technology, Telecommunications, and Consumer Goods. Within the sectors, General Retailers also improved. But not all industries and sectors saw improvement. Health Care saw mild deterioration. Travel & Leisure continues to bear the brunt of corporate downgrades, with a ratio of 2.4:1 deteriorating/improving this month. Unlike Corporates, the Financials category saw overall deterioration, with a ratio of 1.7:1. deteriorating/improving. According to David Carruthers, Head of Research at Credit Benchmark: “Certain industries and sectors provide reasons to be hopeful, but it’s not universal. US corporate credit is improving, but UK corporate credit deteriorated. Something similar can be seen within different sectors, for example travel companies performing poorly while retail improves. The months ahead may provide more clarity as to which sectors are seeing gradual improvement, and which may have deeper underlying problems that could persevere even when pandemic pressures ease.” In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the June Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Corporate Credit Stuck in Holding Pattern: Fallen Angels and Rising Stars Consensus credit data has indicated improving credit quality for global corporates in the last few months, but the latest data update paints a more nuanced picture. There has been only a small increase in the number of Fallen Angels this month. Now, a total of 1,099 firms out of a global sample of 6,895 (16%) have migrated from investment-grade to high-yield at some point during the COVID period since February 2020, compared to last month's total of 1,070. Of the firms that were downgraded at some point in this period, 736 (11%) still retain high-yield status, up only a little from 718 in the last update [please continue below to access full report]. Fallen Angels - Sector Comparison Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Credit Risk Case Study: REITs vs Tenants As part of the credit risk assessment of a commercial real estate investment trust (REIT), one can consider the credit risk of the REIT itself as well as the credit risk of its tenants. But what does it mean when a REIT’s credit quality doesn’t reflect that of its tenants? This case study presents Credit Benchmark consensus credit data on Boston Properties and its top 20 tenants per its 2020 annual report. Over the last two years, credit risk of Boston Properties was rather stable. It was downgraded by S&P from A- to BBB+ in August 2020, while it kept a Credit Consensus Rating (CCR) of a until April 2021, when it was downgraded to a-. Figure 1 uses consensus credit data to demonstrate the credit risk of Boston Properties’ top 20 tenants, leveraging information available on the Bloomberg Terminal. The analysis of the creditworthiness of the REIT’s tenants shows a slightly different story than suggested by the REIT’s credit rating. [Please continue below to access full report]. Figure 1: Credit Risk of Top 20 Tenants Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Forestry and Paper: Credit Recovers as Lumber Prices Skyrocket Download PDF Lumber prices have tripled since June 2020, adding an average of $24,000 to the price of a new US home; and reports from Canada show that timber poaching is increasing as a result. Sawmills were idle during the pandemic lockdown, so the usual inventory build over winter did not happen. These technical constraints on supply are colliding head on with a spike in demand as housebuilding restarts, with the added pressure of the post-COVID desire for larger houses. Figure 1 shows Forestry and Paper credit trends over the past two years. Figure 1: Consensus Credit Trends in Forestry and Paper by Region The impact of COVID was uneven – North American Forestry and Paper deteriorated by about 25%, whereas North American Paper showed no change; suggesting that Forestry took the brunt of the downgrades. The recovery is almost as dramatic, with credit risk rapidly returning to pre-COVID levels. European Forestry and Paper showed a mild increase in credit risk – just over 5% - and unlike North America, Paper increased slightly more – about 10%. Overall, this industry is credit-robust – the majority of the North American Forestry & Paper universe is in the bbb or bb categories, with a few in aa, about 10% in a and another 10% in b. There are no names in the c category. Canada and Forestry are inseparable; Figure 2 shows the impact of COVID on the Canadian Forestry and Paper sectors. Figure 2: Consensus Credit Trends in Canadian Forestry and Paper The credit distribution mirrors that of North American Forestry & Paper, but Canada’s Forestry sector shows a significant (+40%) increase in credit risk during the COVID period. As with the North American aggregate, the recovery has been rapid. ### Companies Led by Women Deemed Less Risky, Fare Better in Crisis Numerous studies have shown that female-led companies outperform male-led companies on metrics ranging from stock price momentum and returns, profitability increases and employee satisfaction. Venture capitalism-backed firms with female founders or predominantly female leadership groups have been found to sell or go public faster, and at higher valuations. Despite this, VC funding for female entrepreneurs fell as a percentage of overall investment during the pandemic, while total VC investment grew. New analysis from Credit Benchmark suggests that female-led companies are also a better credit risk, particularly in times of economic turmoil. Women continue to be perceived as less suitable for leadership roles than men, with a survey showing that only 69% of US-based respondents reported feeling ‘very comfortable’ having a woman as the CEO of a major US company. This percentage fell to as low as 39% across other G7 nations, and there has been little to no growth in the positive perception of female leadership since the survey began in 2018. Consensus credit risk data, based on the collated views of expert analysts from leading global financial institutions, supports the evidence that female-led firms perform better – and are considered less of a credit risk. Analysis on the data also shows that companies with a woman in charge weathered the storm of the pandemic with greater success and demonstrated a smaller increase in the probability of defaulting than those run by men. 6% of CEO positions at S&P500 companies are currently held by women. Credit Benchmark provides a Credit Consensus Rating (CCR) for 87% of these female-led companies. Figure 1: COVID-19 impact on Female / Male CEO S&P500 companies The left chart in Figure 1 shows that the female-led S&P500 companies entered the pandemic in February 2020 with a lower probability of default (24 bps vs 35 bps for the male-led companies), and though both cohorts were negatively impacted by COVID-19, the male-led companies also increased in risk by a larger margin. The right chart shows that the probability of default for the male-led companies increased by 17% more between February 2020 and March 2021. When comparing the credit risk distribution for female-led and male-led S&P500 firms (as seen in Figure 2), the data also shows that the female group have on average better credit quality, dominating in the higher a category. The male group skew more towards the lower credit categories, with the largest number of entities in the bbb category, trailing off into the lowest rated b and c categories, which contain no instances of the female CEO firms. Figure 2: Credit Risk Distribution for Female / Male CEO S&P500 companies In the UK in 2020, only 14 firms listed in the FTSE350 were headed up by female CEOs. UK companies with no women on their executive committees reported a net profit of 1.5% compared to a 15.2% net profit margin at companies with at least one in three women at the same level – a figure 10 times greater. Figure 3 shows the increase in the probability of default (PD) for 659 UK companies from the beginning of the pandemic to a year on. The chart shows that the companies with a large proportion of men dominating the top quartile pay band deteriorated more severely during COVID-19. The firms with a minimum of 50% females in the top quartile pay band deteriorated on average by a modest 3%, compared to almost 30% worsening for the firms with 75-100% male top earners. Figure 3: COVID-19 impact on top quartile pay band gender gap These findings suggest that companies have much to benefit from championing diversity at the executive level, including lower credit risk and less potential of defaulting. Please complete your details to download this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Improvement in US, UK Auto Sectors, but Supply Chain Problems Remain: May 2021 To download the May 2021 Auto Aggregate PDF, click here. The brakes have been pumped on 2020’s credit deterioration in the US and UK auto sectors. Consensus credit data is showing improvement after a long period of stress. Signs of momentum are numerous. US auto sales were projected to double in April; they are also now increasing in the UK. Consumer spending is in a solid position and will continue to strengthen as both economies improve. Amidst various pandemic pressures, one of the biggest issues facing these auto sectors is supply chain problems, with frequent accounts of auto sector disruption. There are some indications the problem is getting worse and causing longer-term changes to manufacturing processes. With estimates that the situation may not improve until at least Q4 2021, supply chain disruptions will continue to entangle the auto sector for the foreseeable future. US Auto and Auto Parts Industry After months of declines in credit quality, the US auto sector saw improvement of 2% in the most recent data. There’s also been little change over the last six months. Still, credit quality is down 26% year-over-year. Default risk is currently 47 bps; it was 48 bps last month, 47 bps six months ago, and 38 bps at the same point last year. Now this sector’s overall rating is bbb- and 75% of firms have a CCR rating of bbb or lower. Overall US Corporate default risk is 66 bps, with a CCR of bb+ and 82% firms at bbb or lower. UK Auto and Auto Parts Industry While still in far worse shape than its US counterpart, the UK auto sector also saw credit quality improve by 2% in the latest update and has seen little change over the last six months. Of course, credit quality is down by 26% year-over-year. Default risk is currently 88 bps; it was 89 bps last month, 88 bps six months ago, and 70 bps at the same point last year. Now this sector’s overall rating is bb and 90% of firms have a CCR rating of bbb or lower. Overall UK Corporate default risk is 80 bps, with a CCR of bb and 91% firms at bbb or lower. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Good Signs for Energy Sectors: May 2021 To download the May 2021 Oil & Gas Aggregate PDF, click here. . Dynamics look better for the US, UK, and EU energy sectors. The IEA is projecting demand for all fossil fuels to grow "significantly" in 2021. Demand is coming back for oil and natural gas as economies reopen, even if sectors like travel have yet to return to pre-pandemic levels. Some companies are optimistic about a recovery; others are further along. There will be bumps along the way, like potential cyber attacks, and some companies will still be in distress. Demand will grow but perhaps not as smoothly as some would like, especially if some areas still suffer from the pandemic. But the overall direction is more positive than negative. Credit Benchmark consensus data show little recent change in credit quality for the three energy sectors. If market conditions continue to improve, real improvements in credit may come sooner rather than later. . US Oil & Gas US energy gets a breather. Credit quality has fallen 49% year-over-year and 8% from six months ago but is largely unchanged from last month. Default risk is currently 71 bps; it was 72 bps last month, 66 bps six months ago, and 48 bps at the same point last year. Now this sector’s overall rating is bb+ and 86% of firms have a CCR rating of bbb or lower. Overall Large US Corporate default risk is 57 bps, with a CCR of bb+ and 80% firms at bbb or lower. UK Oil & Gas UK energy remains stable. Credit quality is down 49% year-over-year and 8% from six months ago but mostly unchanged from last month. Default risk remains at 50 bps; it was 48 bps six months ago and 41 bps at the same point last year. Now this sector’s overall rating is bb+ and 75% of firms have a CCR rating of bbb or lower. Overall Large UK Corporate default risk is 64 bps, with a CCR of bb+ and 86% firms at bbb or lower. EU Oil & Gas EU energy is also steady. Credit quality has dropped 20% year-over-year and 6% from six months ago but is essentially unchanged from last month. Default risk remains at 32 bps; it was 30 bps six months ago and 27 bps at the same point last year. Now this sector’s overall rating is bbb and 72% of firms have a CCR rating of bbb or lower. Overall Large EU Corporate default risk is 34 bps, with a CCR of bbb- and 73% firms at bbb or lower. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Bloomberg Opinion: Optimism Is Justified. Valuations? Not So Much Credit Benchmark CCI data on the credit quality of US, UK, and EU Industrial companies has been cited by John Authers in his Bloomberg ‘Points of Return’ column. He writes: In credit as in stocks, the good news from the fight against the virus has created a level of justified optimism. The current direction of travel seems to be justified. What remains far harder to discern is whether the incredible valuations of both credit and equity can possibly be sustained if central bank support were to be removed.  Bloomberg, May 24, 2021. To read the original article, please click the link below. View original article (external link). ### May Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the May Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. EU and US Industrial firms have cause for cheer this month, but the UK is the real stand out. After hovering near a neutral CCI of 50 in recent months, the score leapt well above this month to 54.2, the largest net positive position since CCI tracking began. Positive market news has given cause for optimism, particularly for UK manufacturers. The nation also remains a leader in vaccinations. The Bank of England left monetary policy loose and upgraded its growth forecast, and the economy is moving in the right direction, with some projecting faster growth for the UK than the US. There are some lingering issues, notably supply chain problems. But overall, this was the best month for forward-looking consensus data in quite some time. Industrials may be on the mend. UK Industrials: Credit on the Up UK Industrial companies took a big leap forward this month after a year of deterioration. This month's CCI is 54.2, well above last month's 49.9 and the best score yet.  In addition to supply chain problems, there are manufacturing profitability concerns and issues around Brexit.  Still, with the economy set for a strong rebound, this will keep pressure on Industrials to move in the right direction. . EU Industrials: Slow, but Steady EU Industrial companies are close to crossing a key threshold. This month's CCI is a neutral 50, up from last month's negative score of 47.6 and moving in a positive direction. With its vaccination program on track and monetary policy remaining loose, the EU has a strong foundation. Air travel is set for a boost. The biggest negative for the region may be supply chain disruption. . US Industrials: Continued Improvement US Industrial companies registered a net positive score above 50 for the third consecutive month. This month's CCI is 51.9, up slightly from last month's 51.4. The US economy was in a strong position prior to the latest data release and remains so even with some blips like a weak jobs report. The Fed, which is keeping its accommodative monetary policy, thinks inflation may be transitory. Air travel is picking up. Even with supply chain problems as obstacles, the US is on a solid path.  . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Rays of Light for UK Retail Sector: May 2021 To download the May 2021 Retail Aggregate PDF, click here. Consensus data may be providing some hope for the beleaguered UK and US retail sectors. The UK retail sector remains in worse shape than the overall UK corporate sector. However, retail sales are growing more than expected with a potential spending boom on the horizon, overall economic activity is robust with improving forecasts, and the Bank of England is so optimistic that it’s slowing its bond purchases. The situation may improve with strong underlying dynamics. The US retail sector is also in worse shape than the overall US corporate sector, but risk has levelled off in recent months. Like in the UK, there are plenty of signs, like improving retail sales or flush consumers, that the sector has the wind at its back. Inflation may be a concern in both the UK and US, including as it relates to supply chains, although recent increases may be transitory. Still, the future is now looking at least a little bit brighter for the UK and the US. US General Retail Firms US retail remains stable. Although credit quality is down 30% year-over-year, it’s largely unchanged from last month and from six months ago. Default risk is 70 bps, compared to 69 bps last month, 70 bps six months ago, and 54 bps at the same point last year. Now this sector’s overall rating is bb+ and82% of firms have a CCR rating of bbb or lower. Overall US corporate default risk is 66 bps, with a CCR of bb+ and 82% firms at bbb or lower. UK General Retail Firms Prospects for UK retail may be getting better. While still down 24% year-over-year and 4% from six months ago, credit quality improved by 2% in the latest update. Default risk is 101 bps, compared to 103 bps last month, 98 bps six months ago, and 81 bps at the same point last year. Now this sector’s overall rating is bb and 92% of firms have a CCR rating of bbb or lower. Overall UK corporate default risk is 80 bps, with a CCR of bb and 91% firms at bbb or lower. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 55,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### May 2021 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Fallen Angels Dwindle While Rising Stars Continue to Ascend: Corporate Credit The pandemic-fuelled deterioration in credit quality for many corporations may be coming to an end. Credit Benchmark noted early signs of improving credit quality last month. The latest consensus data update provides more evidence that corporate credit quality is improving across a number of sectors. The rate of increase of Fallen Angels is slowing to a trickle. Now, only 1,070 firms out of a global sample of 6,895 (16%) have migrated from investment-grade to high-yield at some point since February of 2020, a modest change from 1,051 Fallen Angels in the last update. Of the 1,070 that have fallen into high-yield in this time period, only 718 (10% of total sample) retain this status compared to 734 in the last update. This means that a third of companies that became Fallen Angels during the COVID period have since migrated back to investment-grade [please continue below to access full report]. Fallen Angels - Sector Comparison Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### May 2021 Industry Monitor Download the May Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-April, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the May Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Better Employer, Better Investment? How the 100 Best Companies Stack Up When the world entered lockdown in early 2020 employers globally were forced to lock their doors, ushering in a new age of a stay-at-home workforce. Some doors will not reopen, with economic conditions being just too difficult. Millions of employees have lost their jobs, are on extended furlough, or have become remote workers amidst challenging and unfamiliar conditions. Company-led pastoral care initiatives have become critical; corporate policies relating to job security, support during illness and flexibility for working parents are under more scrutiny than ever before. Social issues also took centre stage in 2020: the obvious reduction in urban pollution during early lockdown kept environmental issues to the fore, while Climate Change and Black Lives Matter protests went ahead despite government-dictated social distancing measures. The vocal and broadly-supported demonstrations of the last year have prompted many companies to evaluate and improve their own adherence to Environmental, Social and Corporate Governance (ESG) values. In tandem, investment into ESG-compliant funds grows exponentially. Bloomberg Intelligence estimates that global ESG assets under management will exceed $53trn by 2025, representing more than a third of the global total. Figure 1: ESG Projected Global Assets Under Management Source: GSIA, Bloomberg Intelligence While an increased focus on ethical governance and improved employee support is good for society, the financial health of progressive companies is equally important to their investors and shareholders. Rapid growth in ESG investment suggests confidence in the profitability of green, social, and sustainable business – and new research from Credit Benchmark indicates that forward-thinking companies are also a better credit risk. Fortune Magazine collates an annual list of the 100 best companies to work for, based on both employee feedback and company analysis. Employees are surveyed on their experiences regarding their job role, gender, race/ethnicity, payroll status and other elements contributing to their workplace experience, while the companies were analysed for their employee demographics and HR programs and practices. The latest survey gives special consideration to how well the companies have been supporting their employees during the pandemic. Of the companies appearing on the 100 Best Companies list, 54% currently hold a Credit Consensus Rating (CCR) and these can be compared in credit quality against a list of UK Top 100 companies (comparative to the FTSE100 index) and US Top 500 companies (comparative to the S&P500 index) [please continue below to access full report]. Figure 2: Credit Risk Distribution for Best Companies / UK Top 100 / US Top 500 Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Credit Case Study: 5G and Satellite Internet The post-Covid economy will be increasingly dependent on telecoms to keep its supply chains running. Lockdown and working from home have already been a major boost for telecoms firms, who have been investing heavily in 5G to meet the perpetual demand for more bandwidth. But if the move away from cities continues, quality of coverage will also become more important. Starlink aim to solve this with comprehensive orbital next generation internet, based on satellites rather than terrestrial landlines and line-of-sight telecom masts. In some respects, 5G and satellite are complementary; but in some use cases satellites may mean significant competition for established telecom providers. Figure 1 below shows the credit position and recent trends for some of the key 5G direct or associated service providers and equipment manufacturers [please continue below to access full report]. Figure 1: 5G Firms: Credit Status and Trends Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Bank Policy Institute: Goldilocks and the Fourth Way: Assessing Credit Risk for Capital Purpose A recent blog post from the Bank Policy Institute highlights Credit Benchmark as a way to help financial institutions better assess credit risk for capital purposes. The post explores how the data “leverages private sector innovation and resources; allows for prompt adjustments to adapt to new risks or new data; prevents any possibility of cheating; and expands the universe of companies that can be fairly evaluated.” View original article (external link). ### US Auto Sector Challenges Are Diminishing: April 2021 To download the April 2021 Auto Aggregate PDF, click here. After a long period of trouble, the US auto sector may be nearing an on-ramp. Risk remains elevated but is not getting worse. The US consumer may be itching to get moving after a long bought of cabin fever; they are certainly in a strong position due to fiscal relief. Auto sales in the US are red hot; even with the chip shortage and other supply chain problems, first quarter sales were strong. But the chip shortage and supply chain problems should not be underestimated. GM stopped production at multiple plants because of it, and production delays may last beyond this year. The same problems are hurting the UK auto sector, which doesn’t have rising sales to fall back on. The sector at least managed to avoid tariffs from Brexit. The US and UK auto sectors need to put the pandemic in the rear view mirror before legitimate improvements come. But with vaccination rates strong in each country, that point may come sooner rather than later. US Auto and Auto Parts Industry Deterioration for the US auto sector is levelling off. The year-over-year decline in credit quality is 42%, but the drop from six months ago is 3% and there’s been little change in the last few months. Default risk remains at 51 bps, compared to 50 bps six months ago and 36 bps at the same point last year. This sector’s current CCR rating is bb+, and 80% of firms have a CCR rating of bbb or lower. Overall US corporate default risk is 65 bps and its CCR is bb+, with 81% of firms at bbb or lower. UK Auto and Auto Parts Industry The UK auto sector remains in much worse shape than the US auto sector. Credit quality has declined by 31% over the last year, 6% from six months ago, and 2% from last month. Default risk is far higher at 85 bps, compared to 84 bps last month, 81 bps six months ago, and 65 bps at the same point last year. This sector’s current CCR rating is bb, and 86% of firms have a CCR rating of bbb or lower. Overall UK corporate default risk is 82 bps and its CCR is bb+, with 91% of firms at bbb or lower. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### A Brighter Outlook for the Energy Sector: April 2021 To download the April 2021 Oil & Gas Aggregate PDF, click here. . The pandemic era has not been kind to the energy sector, yet the situation may be looking a bit brighter. Oil forecasts from the IEA and IMF are improving, even if they are not back to pre-pandemic levels, due to more a more robust economic picture. An improving dynamic is showing up at the company level. In addition, a return to normal in other sectors will certainly help the energy sector. Of course, demand and prices may come under pressure if pandemic cases rise or there are problems with vaccinations. In the US, there may also be lingering problems due to weather-related disruption earlier in the year. Natural gas has its own issues that are making it less competitive. The global energy industry may not be out of danger just yet, but a better near future that eases stress on credit seems possible. The US energy sector certainly needs it. . US Oil & Gas Deterioration for US Large Oil & Gas firms continues to be pronounced. Credit quality has declined by 68% over the last year, 12% from six months ago, and 1% from last month’s update. Default risk is now 77 bps, up from 76 bps last month, 69 bps six months ago, and 46 bps at the same point last year. This sector’s current CCR rating is bb+, and 86% of firms have a CCR rating of bbb or lower. UK Oil & Gas There’s also been deterioration for UK Large Oil & Gas firms, yet recent data has been more positive. Credit quality has dropped by 26% over the last year and 7% over the six months, but there’s been little change compared to last month. Default risk remains at 55 bps, compared to 52 bps six months ago and 44 bps at the same point last year. This sector’s current CCR rating is bb+, and 77% of firms have a CCR rating of bbb or lower. EU Oil & Gas The credit picture for EU Large Oil & Gas firms remains in superior shape compared to the US or UK aggregates. There’s been deterioration of 23% over the last year, 6% from six months ago, and 1% from last month. Yet default risk remains at just 29 bps, compared to 27 bps six months ago and 24 bps at the same point last year. This sector’s current CCR rating is higher at bbb, and 71% of firms have a CCR rating of bbb or lower. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Navigating the Uncharted Waters of Post-COVID Trade Credit Risk Download the full whitepaper below. The COVID-19 pandemic has pushed global personal savings to record levels, estimated by Moody’s to represent 6% of Global GDP ($5trn). This brings the prospect of a major consumer spending spree and general economic boom as the world emerges from lockdown.  But chronic material shortages and general supply bottlenecks have raised the ancient spectres of cost-push and demand-pull inflation, while the recent Greensill failure has focused attention on supply chains, trade finance and trade credit insurance.  Even before the pandemic, global supply chains were showing signs of strain. Now that the world economy is in the process of a full-scale restructuring, the credit implications are wide-ranging and long-term. COVID has been a catalyst, but globalisation was already in retreat, and tackling climate change is now a political and corporate priority. This whitepaper details some factors reshaping supply chains and presents single company case studies using a combination of Bloomberg supply chain data and Credit Consensus Ratings (“CCRs”). With almost 60,000 CCRs available globally, 75% of which are unrated by the major credit rating agencies, it is now possible to monitor credit risk across a much larger set of otherwise unrated customers and suppliers. This data can also be used in aggregate form to detect sector turning points in credit cycles, and to finesse terms of trade during periods of inflation uncertainty. For CFOs, Group Treasurers, Procurement Managers, and participants in the trade finance sector, it highlights the value of CCRs in assessing current and future counterpart credit risks. Download the whitepaper below for the full insights including: Managing payables and receivables (Greensill) Receivables Case Study: Rio Tinto (Aluminium) Payables Case Study: General Motors (Aluminium, Semiconductors etc.) Inflation hedges: avoiding the impact of supply chain bottlenecks in credit portfolios Figure 1: Balance of Downgrades Net of Upgrades, Global Sectors, 12 Months to March 2021 Figure 1 is an example of the visual analysis within the whitepaper, and shows the balance of downgrades net of upgrades for many global sectors with credit consensus coverage in the 12 months to March 2021. All of these sectors show net credit deterioration in this time period, with the severity of the deterioration visible along the centre top axis (0-100%). The chart shows that the essential sectors – Technology, Electricity, Telecoms, Food, Pharmaceuticals, General Industrials and Household Goods – had the smallest downgrade net balance. Discretionary, leisure and personal transport spending – captured by Travel & Leisure, Oil & Gas, Aerospace, Autos and Media – had some of the highest net downgrades. As the post-COVID path of inflation becomes clearer, consensus data can be used to track the cumulative credit impact on industries, sectors and individual companies. Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Download this whitepaper to read the full analysis: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### April Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the April Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The US continues to improve in credit quality. For the second month in a row, forward-looking sentiment is above 50, something that last happened at the end of 2018, and recent data point to positive momentum in the months ahead. Manufacturing data is coming in strongly on multiple fronts, and less positive results may be temporary and explained by bad weather. Job growth is robust, and there are plenty of signs pointing to the strength of consumers. The US is accelerating its vaccination program. Fed Chair Jerome Powell noted ongoing fiscal and monetary support and said the outlook had "brightened substantially." Some firms may experience supply chain problems, but overall, there's reason for optimism.  The UK continues to edge closer to positive territory, though the same can't be said for the EU, which moved in the opposite direction in the latest update - though the negative trend remains mild. UK Industrials: On the Cusp UK Industrial companies may not yet be in positive net credit territory, but they are inching closer. This month’s CCI is 49.9, a positive change from last month’s CCI of 49.1.  Though the trend is moving in the right direction, negative influences still remain in the UK including the ongoing effects of the pandemic, spill over effects from financial industry problems, and multiple problems including Brexit.  . EU Industrials: Lingering Deterioration The positive CCI reading from late 2020 now looks more like a temporary blip, as EU Industrial firms continue to register a negative CCI. This month’s CCI is 47.6, a worsening from last month’s CCI of 49.3. The EU is facing some headwinds, yet there are signs it is adapting to restrictions and problems may be less severe than anticipated. . US Industrials: Back-to-Back Improvement US Industrial companies have registered a positive CCI reading for a second month running, making this the first back-to-back positive CCI since December 2018/January 2019. The US CCI is 51.4 this month, up from 50.6 last month. Supply chain issues may be an obstacle in the near term. Still, the overall outlook is robust in a variety of ways, and may yet get a boost from investment in infrastructure of various types.  . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Pension Funds: Does Fund Risk Increase with Lower Rated Sponsors? Pension provision is changing globally, with a move from defined benefit (“DB”, where the sponsoring company or public body takes the risk) to defined contribution (“DC”, where the saver takes the risk). But while DB schemes are gradually being phased out, they still represent trillions of dollars spread across bonds, equities, real estate and various specialised assets. In some cases, they are fully funded, closed to new business, and “de-risked”. Others are running significant risks in the hope that they can eliminate their deficits; shortfalls have grown in recent years as low interest rates boost the value of liabilities. Fully funded schemes are no longer a burden for their sponsor; but public bodies and private firms with significant DB pension deficits are under increasing scrutiny – what happens if the sponsor runs into financial trouble? Figure 1 shows the relationship between the credit risk of a fund and that of its sponsor, covering 117 funds in UK, Canada, Australia and New Zealand. Figure 2 shows the same plot for 250 funds in the US [please continue below to access full report]. Figure 1: UK, Canada, Australia, New Zealand (117 funds) Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### US Retail Sector Credit Risk Shows Continued Stability: April 2021 To download the April 2021 Retail Aggregate PDF, click here. US Retail has remained relatively stable, according to Credit Benchmark consensus data. Unlike other sectors whose default risk seems to be trending ever upward, US retail has seen its aggregate default risk level off in recent months. It remains lower than default risk for UK retail as well as Global Retail, and it is only marginally higher than default risk for the overall US corporate sector. The tailwinds for the US retail sector are strong. The country continues to ramp up its vaccination efforts, and its various forms of fiscal and monetary support will likely provide a solid foundation for the near future. JPMorgan CEO Jamie Dimon stated recently he was optimistic an economic rebound could last at least two years. Fed Chair Jerome Powell was also optimistic even as he warned about lingering risks. Supply chain problems may be an obstacle for some firms, to the point where they may pay more to get items by air rather than by sea. Private sector spending data offer reason to be hopeful. Overall, credit risk data for the US retail sector suggest reason for cautious optimism. Time will tell if the same can be said for the UK as well as the Global sectors. US General Retail Firms Default risk for the US retail sector is elevated but stable. The latest data show credit deterioration of 37% year-over-year, yet recent trends have been more positive, with improvement of 1% over the last six months. Default risk remains at 67 bps, compared to 68 bps six months ago and 49 bps at the same point last year. Currently, 80% of firms have a CCR rating of bbb or lower, and this sector’s overall rating is bb+. Overall US corporate default risk is 65 bps and its CCR is bb+, with 81% of firms at bbb or lower. UK General Retail Firms Data for UK retail looks at least a little better than it did last month. The sector’s credit has deteriorated by 29% year-over-year and by 8% from six months ago, yet it has improved by 1% from last month. Default risk is still very high at 105 bps, but this is down from last month’s 106 bps. It was 97 bps six months ago and 81 bps at the same point last year. Now, 92% of firms have a CCR rating of bbb or lower, and this sector’s overall rating is bb. Overall UK corporate default risk is 82 bps and its CCR is bb, with 91% of firms at bbb or lower. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 55,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### April 2021 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Asset Servicing Times: New data shows 'significant deterioration’ across a number of financial counterparties Credit Benchmark's Financial Counterpart Monitor has been highlighted in a story published by Asset Servicing Times, noting the declining credit quality of some groups of financial counterparts: David Carruthers, head of research at Credit Benchmark, says the latest consensus data show “significant deterioration” across a number of different financial counterparties. He explains: “The so-called ‘plumbing’ of the financial markets, including custodians and sub-custodians, prime brokers, and CCP members, many of which are unrated by main agencies, all saw credit quality declines.” As seen in recent months, Carruthers notes these players are important for the orderly operation of markets. Ascertaining the creditworthiness of these intermediaries may allow counterparties to get ahead of potential challenges. In addition, Carruthers identifies there was considerable deterioration in many regional banking sectors, including those in the APAC region and in Latin America. Asset Servicing Times, April 15, 2021. View original article (external link). ### April 2021 Industry Monitor Download the April Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-March, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the April Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Global Chip Shortage Undermines Post-Pandemic Credit Recovery The global economy currently faces multiple supply chain challenges, but the global semiconductor shortage is one of the most pressing. As with many production shortages, this is the result of a perfect storm of apparently unrelated factors: trade wars and sanctions, COVID-linked supply squeezes, growing demand for chip-driven products, the short-lived Suez blockage, cold weather in Texas (with impacts on Samsung, Infineon, and NXP) and a factory fire in Japan (shutting down Renesas Electronics). The shortage is hitting car manufacturing, with the majors announcing temporary factory closures; it has curbed iPad and MacBook production but – oddly – not iPhones; and it is likely to push up prices of the growing number of smart household goods, in addition to the overall cost of automation. With the inexorable need for more chip speed and memory by the telecoms and server farm industries while economies attempt to exit from lockdowns, this shortage is likely to get worse before it gets better. The credit impact is obviously negative for many firms, but there may also be some winners: some chip manufacturers could see margins expand, albeit on reduced volumes. Figures 1 and 2 below compare the credit status and recent trends for some of the largest producers and consumers of semiconductors globally [please continue below to access full report]. Figure 1: Sample of major semiconductor manufacturers Auto manufacturers are a high-profile casualty of the semiconductor shortage – for more detail on credit trends in that sector, see the recent CB Insight report. Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Is Corporate Credit Quality Improving? Fewer Fallen Angels, More Rising Stars The COVID era has caused corporate credit quality to shift rapidly between investment-grade and high-yield in either direction – and for some companies, to shift right back again, suggesting a premature upgrade or downgrade. But the latest data from Credit Benchmark suggest consensus estimates may be improving overall. The ranks of Fallen Angels, which are companies that have seen their credit status change from investment-grade to high-yield, continue to increase. Now a total of 1,051 companies out of a global sample of 6,895 (15%) have deteriorated to high-yield at some point over the last year, up from 1,009 in the last update. However, only 734 (11%) of these Fallen Angels remain in high-yield status, essentially unchanged from last month’s figure of 733. Thus, 317 (5%) have migrated back to investment-grade, up from 276 last month. In the Fallen Angels category, the latest data show that sectors which are heavily consumer oriented continue to show the largest credit movement. The Travel & Leisure group has seen 50% of its constituents drop into high-yield at some point but 11% have since shifted back to investment-grade status. Personal Goods is right behind with 28% of constituents falling into high-yield, and 9% reverting back to investment-grade. Travel and leisure activities are still hampered by COVID, and the retail sector remains in flux [please continue below to access full report]. Fallen Angels - Sector Comparison Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### US Energy Sector Still Facing Enormous Challenges: March 2021 To download the March 2021 Oil & Gas Aggregate PDF, click here. . Default risk for US Large Oil & Gas firms remains far higher than default risk for comparative UK and EU firms. In fact, the US Oil & Gas aggregate has higher default risk at 75 bps than that of the Large US Corporates aggregate (56 bps), whereas the default risk for the UK and EU Oil & Gas cohorts remain lower than their Corporate aggregate counterparts. Energy firms around the world have been challenged by COVID and changing consumption habits. The US has been hit particularly hard. There were over 100 bankruptcies in 2020, with predictions of further trouble this year and claims that the boom years are over. There may be a so-called drilling binge due to higher oil prices. A new clean energy focus in Washington could bring additional pressures, and US firms already lag behind their European peers in the green transition. On the positive side, demand for gas seems to be picking up. Of course, the UK and Europe are facing pressures as well. The months ahead may be more positive than some anticipate, but the global energy industry is not yet out of the woods. . US Oil & Gas The relentless downward trend for US Large Oil & Gas firms continues. Credit quality is down 67% from the same point last year and 13% from six months prior, and 2% from one month prior. Default risk is now 75 bps, compared to 73 bps one month prior, 66 bps six months prior, and 45 bps at the same point last year. This sector’s current CCR rating is bb+, and approximately 86% of firms have a CCR rating of bbb or lower. UK Oil & Gas While in better shape than the US, UK Large Oil & Gas firms have also been trending down. Credit quality has fallen by 30% from the same point last year, 10% from six months prior, and 2% from one month prior. Currently, default risk is 55 bps, compared to 54 bps one month prior, 50 bps six months prior, and 43 bps at the same point last year. This sector’s current CCR rating is bb+, and approximately 76% of firms have a CCR rating of bbb or lower. EU Oil & Gas While not without difficulties, EU Large Oil & Gas firms remain in much better shape than their US or UK counterparts. Credit quality is down a much smaller amount, 19%, over the last year, down 7% from six months prior, and 1% from last month. Default risk remains at 28 bps, compared to 26 bps six months prior and 24 bps at the same point last year. This sector’s current CCR rating is bbb, and approximately 69% of firms have a CCR rating of bbb or lower. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Tumult in Auto Industry but Not All Firms Affected Equally Volkswagen Sees Credit Upgrade as Transition to Electric Vehicles, Speculation of a Porsche IPO Revs Up The auto industry was t-boned over the last year as transportation and consumption habits changed dramatically. Overall credit risk in the auto industry is still far higher than it was last year on a global and regional basis. But not all auto industry firms have been affected the same way. In fact, some have even seen their credit quality improve throughout the crisis. Auto Sector Default Risk Surges Over the last year, credit risk surged for the Global auto sector by 30% to 53 bps, and its Credit Consensus Rating (CCR) rating is now bb+. Regional subsectors also saw double-digit increases in credit risk, but there are still wide disparities. Default risk for the US and Asian auto sectors is now 51 and 44 bps, and their respective CCR ratings are bb+ and bbb-. The overall European auto sector’s default risk is now 59 bps and its CCR is bb+, far better than the 85 bps and bb for UK firms. But the real standout is the German auto sector whose default risk is just 23 bps and whose CCR is still investment-grade at bbb. Figure 1: Credit Trend - Europe, Germany, United States and Global Automobiles & Parts Of course, not all companies are experiencing the same fate [see credit movement matrix in Figure 2 - please continue below to access full report]. Figure 2: Six month credit levels and changes for Global Automobiles Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Markets Insider: Strengthening Credit Quality and Biden's Massive Infrastructure Plan Is Setting Industrial Stocks up for Further Big Gains Credit Benchmark's Credit Consensus Indicator (CCI) data has been highlighted in a story published by Markets Insider (via Business Insider), noting the improving credit conditions and stock gains for US Industrial companies. Author Carla Mozée notes in the article: "A forward-looking index of credit opinions for industrial companies in March rose to its highest level in 15 months, with improved conditions arriving as shares of industrial firms, as a whole, have outpaced other sectors this year. The Credit Consensus Indicators index came in at 50.6 in March, the best level since December 2019, said Credit Benchmark, which monitors internal credit risk views from more than 40 global financial institutions. The index in February was at 48.7 and readings below 50 indicate deterioration in credit quality." Markets Insider, March 25, 2021. View original article (external link). ### March Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the March Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The US is the real standout this month. For the first time in an over a year, forward-looking sentiment is above 50. It looks like the strength exhibited early in 2021 may have boosted optimism in the sector. More recent data presents a mixed picture and may tempter expectations. However, the US is seeing great success with its vaccination program. The White House also signed into law its $1.9 trillion fiscal relief package and along with Congress is discussing options for additional spending on infrastructure. Growth expectations for the US are improving, and the Federal Reserve has said monetary policy will remain loose for a while. There may be also be growing optimism for the UK and EU, whose CCI scores inched closer to 50, although the EU’s economy isn’t as strong as the US’ and it has had struggles with vaccinations. UK Industrials: Nearing Neutral The recent plunge in sentiment for UK Industrials has been followed by a sharp recovery. This month’s CCI score is 49.1 compared to 44 the prior month. This change broke the downward trend and is the highest CCI score for the UK since March 2020. In addition to sector-specific issues or general economic problems, Brexit is proving to be an issue for numerous firms.  . EU Industrials: Edging Closer The EU score moved even closer to the neutral 50 mark this month. The March CCI for EU Industrials is 49.3, compared to 47.1 last month. A few months ago, the EU was the first of the three regions to see a score above 50 since COVID began. Beyond problems with vaccinations and overall economic growth, some sectors like airlines are still facing headwinds. But recent data is positive and the EU is looking to the future for local tech manufacturing.   . US Industrials: Some Optimism For the first time since December 2019, the US score finished in positive territory. The CCI for this month for US Industrials sits at 50.6, compared to 48.7 last month. The CCI is far higher now than during mid-2020. Recent problems with industrial production and the economy appear to be more weather-related than anything else. But there considerable supply chain problems could cause trouble in the months ahead. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### March 2021 Industry Monitor Download the March Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for end-February, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the March Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### The Tortoise and the Hare: Volatile Equities Draw Pace with Steady Credit Download PDF Over the past 12 months, equity markets have steadily recovered from their panic-stricken lows in Q1 2020. Consensus credit has also adjusted, but changes in estimates of credit risk have been more measured and sometimes at odds with equity markets in particular. There are many cases where rising credit risk has been eclipsed by stellar equity performance. Equity markets have been buoyed by Central Bank accommodation and Government support programmes, but this overall effect can be stripped out by looking at the relative performance of industries. Figure 1 plots the equity and credit relative trends over the past year for the US Industrial and US Financial industries. The orange line shows the ratio of the equity indices (using the SPDR ETFs as proxies) for these two industries, while the blue line shows the inverted ratio of consensus credit risks for the same industries. Figure 1: Equity and Credit Relative Trends for US Industrials & US Financials This shows that the relative equity performance has been volatile, reaching a minimum (Industrials underperforming Financials) of -7% in May 2020 and a maximum of +15% in October 2020. The ratio of credit risks has been much more subdued, varying by about 5% over the same period. The two series are currently almost perfectly aligned, despite the relative equity ratio having covered considerably greater distance as markets have veered between favouring financials in the early phase of the crisis, moving into industrials during the summer, before shifting back to financials in recent months. Credit trends have favoured financials over much of this period, although recent estimates have been more balanced.As with previous comparisons (between consensus credit and bond indices), this chart suggests further scope to use consensus credit as a stable, “smart moving average” benchmark that indicates when markets are overbought or oversold. In this case, it turns out that the best approach was be increasingly long of industrials and short of financials as Q2 progressed, reversing that position as the gap between the two became increasingly stretched compared with the consensus credit benchmark. ### UK Retail Sector Remains Huge Credit Risk: March 2021 To download the March 2021 Retail Aggregate PDF, click here. UK retail sector credit is in rough shape, according to Credit Benchmark consensus credit data. The divide between US and UK retail sector default risk continues to grow. Similarly, default risk for UK retail, at 105 bps, remains much higher than the equivalent global retail aggregate (now at 74 bps) and the overall UK corporate sector (now at 81 bps). These gaps in default risk are now the widest since Credit Benchmark began tracking this data. In fact, the UK retail sector has some of the highest default risk for any UK industry or sector. Recent news for the sector is mixed and suggests conditions will be arduous for the near future, but there may be some positive signs, as financing costs fall and the UK government unveils additional support. Still, dour consensus views about this sector have yet to abate. Default risk for US retail, at 67 bps remains higher than for overall US corporates (at 65 bps), but the difference of about 2 bps is much narrower than for the UK cohort. US retail sales climbed in January by the most in seven months. US General Retail Firms The recent levelling off in credit quality and default risk for the US retail sector may have staying power. Deterioration was 39% year-over-year and 3% from six months prior, yet there’s been essentially no change for the last few months. Remaining at 67 bps, default risk is still higher than it was six months ago at 65 bps and at the same point last year at 49 bps. About 80% of firms have a CCR rating of bbb or lower, and this sector’s overall rating is bb+. Despite previous troubles, the worst may be over for the US retail sector. UK General Retail Firms The ongoing deterioration in UK retail sector credit may not show huge monthly shifts, but cumulative changes are pronounced. Credit quality has declined another 1% last month, on top of declines of 11% from six months prior and 31% from the same point last year. Default risk is now 105 bps, compared to 104 bps last month, 94 bps six months prior, and 80 bps at the same point last year. About 92% of firms have a CCR rating of bbb or lower, and the sector’s overall rating is bb. Simply put, it remains in much worse shape than the US retail sector. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 55,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### US Hotels: Hardest Hit by COVID but Some Recovery in Sight The US stimulus package should coincide with further lockdown easing as the vaccine is rolled out. With savings rates at historical highs, a major slug of pent-up cash is likely to make its way into the hard-hit leisure sector. And in that sector, hotels have been hardest hit, with average credit risk climbing by a staggering 456% from 58 Bps to a peak of 322 Bps in the past year. This is roughly a 1 in 30 chance of default over a one-year horizon. Figure 1: Changes in Average Credit Risk, US Hotels and US Corporates This move is the largest increase of any sector monitored by Credit Benchmark; Figure 1 shows that the equivalent increase for US Corporates overall is about 25%. But despite occupancy rates below 50% of their norm and revenues down 35%, equity shares in some of these firms have been outstanding recent performers – since hitting bottom in May 2020, Marriot and Hilton are up 100%, Hyatt are up 150%, and Wyndham are up an astonishing 230% - better than Bitcoin. Figure 2 shows the more recent, 6-month impact of COVID on 32 US hotels and casinos [please continue below to access full report]. Figure 2: Six month credit levels and changes for US Hotels and Casinos Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### March 2021 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### COVID Crisis Continues to Shuffle the Deck on Corporate Credit Quality Fallen Angels and Rising Stars The COVID-19 crisis continues to spark a great deal of volatility in corporate credit sentiment, according to Credit Benchmark consensus data. The ranks of the so-called Fallen Angels, or companies that have seen their credit scores fall from investment grade to high-yield status, have swelled over the course of the last 12 months. The latest monthly update finds that a total of 1,009 firms out of a global sample of 6,895 (about 15%) have deteriorated to high-yield status, and, of that group, 733 (about 11%) still carry this label, meaning that 276 (about 4%) that have migrated back to investment-grade. The month-to-month movement in credit quality is most pronounced in sectors influenced by supply chain and consumer disruptions. Beyond the usual suspects like Travel & Leisure, Automobiles & Parts and General Retailers have also seen considerable movement. Each sector saw roughly 20% of firms fall from investment-grade to high-yield status and currently about 13% of each sector is still classified as such. Overall credit quality for the Automobiles & Parts and General Retailers sectors on a global basis have each declined by about 30% over the last 12 months. Of course, just as some firms and sectors see deterioration, others see improvement. The latest update shows that the number of firms whose credit quality was high-yield but then moved to investment-grade – so-called Rising Stars – grew to 396 out of a global sample of 6903 (about 6%) over the 12 month period [please continue below to access full report]. Fallen Angels - Sector Comparison Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Some Global Airlines Are Pulling Out of Credit Default Risk Tailspin Download PDF The COVID-19 pandemic has not been kind to global airline credit quality. As of February 2021, a total of 21 major global airlines have been downgraded to high yield (HY) status since the start of the pandemic, according to Credit Benchmark data. But that grim statistic does not tell the full story. A handful of airlines are starting to see their credit quality improve and two in particular – Singapore Airlines and Ryanair – have recently been upgraded and are sitting squarely in investment grade (IG) territory. Singapore Airlines currently has a Credit Consensus Rating (CCR) in the range of a to aaa and Ryanair has a CCR in the range of bbb to a-. In the quadrant below, Credit Benchmark has mapped the credit risk profiles for the major global airlines over the past 6 months, spotlighting those who have recently been upgraded, those who are at risk of downgrade and those who are hovering in the middle. Global Airline Credit ### The Bust and the Boom: Sectors to Watch as Lockdown Eases The economic damage of the pandemic is far from over, but some sectors are showing the leading indicators of their future recovery. Airlines are reporting a surge in bookings for summer 2021, and major live sporting events are likely to start admitting some fans from early summer. Global savings rates are at levels not seen for decades, a sign of the pent-up consumer spending that should drive strong demand for cars, clothes, holidays, sport and leisure. Booming demand will attract fresh investment and strengthen battered balance sheets. While many of the current Covid winners will continue to benefit from permanently altered business and consumer habits, the losers who have survived so far could have a bumper year. Figure 1 shows the pattern of 12-month consensus credit changes - upgrades and downgrades on the 21-category scale – for global sectors [please continue below to access full report]. Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned in this report can be accessed on CRPR or via CRDT . Get in touch with us to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### February 2021 Industry Monitor Download the February 2021 Industry Monitor infographic below. Credit Benchmark have released the industry update for end-January, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the February Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Predictive Information for Tradable Securities Get unique additional factor model performance by integrating IHS Markit securities lending data with Credit Benchmark consensus credit risk data. Independent research shows that Credit Benchmark credit consensus data complements and enhances IHS Markit’s short factor data when combined in constructing portfolios. This combination provides enhanced signals in both US and European equity markets, and stronger alpha for cheap-to-borrow (CTB) instruments when compared to only using securities finance data fields. The combined datasets between IHS Markit Securities Finance and Credit Benchmark provide unique insights into market sentiment from both securities lending market and consensus credit risk assessments from a macro to individual stock level. One exciting observation about the new combined offering is that the Information Ratio (IR) in US instruments for CTB instruments have improved by 304% and European instruments by 23%. This new data source amplifies and complements data sets which are already widely used by the “sell-side” and the “buy-side”. For those with a quantitative and curious mind, reading the original research is a must. To access the IHS Markit Securities Finance & Credit Benchmark Research Note, download the full research below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### February Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the February Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. Last month suggested improving sentiment for EU Industrials, but this month’s CCI has dropped back below 50 and sits lower than the US CCI. Business confidence in the Eurozone ended last year on a positive note, yet its economy officially contracted in the final quarter, leaving GDP down 6.8% for the year overall. One CEO said the economic situation in the Eurozone was getting “desperate.” Specific problems like production costs have contributed to the difficult climate. A more robust economic recovery and an upswing for Industrials may be hard to come by until mass vaccination is achieved and society can make a return to so-called normal. UK Industrials: Low, Low, Low The CCI score for UK Industrials was trending upwards for a period of five months until last month when it began to drop again, followed by a deeper dive this month. This month’s CCI reading is 43.9, way down from last month’s CCI of 47.2. The UK CCI last sat below 45 in July 2020. Beyond COVID, Brexit is still weighing down on the country’s economy and on sectors like manufacturing. . EU Industrials: Back to Weakness Last month’s modest return to positive territory may have been a blip for EU Industrial firms. This month’s CCI is 47.1, indicating deteriorating credit sentiment for EU Industrials. However, the negative trend remains moderate and has not dropped below 45 since April 2020. Recent Eurozone industrial production data showed a positive trend, and the European Commission has forecast that the Eurozone would return to its pre-COVID state faster than anticipated. . US Industrials: Consistent and Steady The improvement in sentiment seen for US Industrials has levelled off. Scores are way up from the deep drops seen in early to mid 2020 when the CCI occasionally dropped below 40, but a positive score has not been seen since pre-COVID. This month’s CCI is 48.5, almost unchanged from last month’s 48.4. The positive trend for US industrial production may not last, but the US government is negotiating a large fiscal relief package of $1.9 trillion. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### February 2021 Fund Monitor Request your free copy of the latest Fund Monitor below.  The lack of easily accessible, reliable credit rating information on the vast majority of Funds leads to missed commercial opportunities and frustrating backlogs in onboarding, Know Your Customer (KYC), Agency Lending Disclosure (ALD) and Operational Due Diligence (ODD) processes. Credit Benchmark Credit Consensus Ratings fill this important gap for firms looking to do more business with the Buy-Side. The new Fund Monitor from Credit Benchmark shows the growing number of Credit Consensus Ratings available today for the Funds managed by the top 70 global Fund Managers. Less than 1% of these Funds have a traditional public credit rating, despite their relatively high Credit Consensus Ratings. The high Credit Consensus Ratings would mark them out as high priority, attractive counterparts with potentially low RWA. The Fund Monitor also demonstrates detailed analytics available at a Fund level for any of the 20,000+ Funds with a Credit Consensus Rating, under license via the Credit Benchmark Web App, Excel add-in, API or flat-file download. Understanding the creditworthiness of a Fund is of critical importance to the Sell Side, the Fund Manager, investors in the Fund, as well as those responsible for the Fund itself. You can now access exclusive Credit Consensus Rating information and analytics on over 20,000 Funds, providing insight into pricing, liquidity and status as a counterpart from a capital perspective. This valuable data also supports the compliance necessary for “crossing” transactions between different Funds, and facilitating Peer to Peer transactions. To request a free copy of the latest Fund Monitor, please provide your details below.  First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Gap Widens Between US and UK Retail Risk: February 2021 To download the February 2021 Retail Aggregate PDF, click here. Will the Divide Between US and UK Retail Become a Chasm? A growing divide in credit quality and default risk for the US and UK retail sectors emerged in recent years. Since Credit Benchmark began tracking data on the retail sector, default risk has been higher for the UK than for the US, a trend that persists with the latest monthly update. In recent months the gap in default risk between US and UK retailers has been getting wider. Average probability of default for the sector is currently about 104 bps for the UK and about 67 bps for the US, leading to a difference of about 37 bps, the widest gap since the data began tracking in 2015. At the same point last year, that gap was about 31 bps. Two years prior, it was about 29 bps. Though the overall credit trend line looks worse for US firms, this only reflects cumulative change in credit quality in the given time frame (with a steep drop for both groups coinciding with the start of the COVID pandemic). Declining credit quality equates to a rise in default risk, but the recent trend suggests that risk for US firms has levelled off, whereas UK risk continues to increase. The months ahead will reveal if this trend is accelerating or if it will settle into something resembling a new normal. US General Retail Firms The news continues to be relatively positive for the US retail sector. Changes in credit quality and default risk have levelled off. The latest data show declines in credit quality of 40% year-over-year and 7% from six months prior, but essentially no change compared to last month. Default risk for this sector is 67 bps, unchanged from the prior month and compared to 63 bps six months prior and 48 bps at the same point last year. Even with this recent stabilization, prior declines in credit quality have left this sector with a weak overall CCR rating at bb+. Approximately 80% of firms in this sector have a CCR rating of bbb or lower. UK General Retail Firms As a nation-wide lockdown continues, the credit situation for the UK retail sector continues to be grim. The latest update shows a decline of 2% from last month, 14% from six months prior, and 31% year-over-year. Default risk for the UK was already higher than in the US, and at 104 bps, the surge shows little sign of moderating. Average probability of default was 101 bps last month, 91 bps six months prior, and 79 bps at the same point last year. This sector also has a worse overall CCR rating at bb. Roughly 92% of firms in this sector have a CCR rating of bbb or lower. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Consensus Rating (CCR) is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 55,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 90% of the entities covered are otherwise unrated. ### Oil & Gas Sector – Still Not Out of the Woods? Download PDF The Oil & Gas sector was in trouble even before the first Covid lockdown, and it was one of the worst credit performers in 2020.  A perfect storm of falling oil prices, the spectacular rise of alternative energy sources, and the effective collapse of global tourism took many oil companies to the brink of bankruptcy and pushed some of them over the edge.  Recent agency downgrades have cited climate change and permanently higher oil price volatility; agency ratings for some of the US majors are now aligned with the more conservative bank consensus. Figure 1 compares trends and the current credit distributions for Europe and North America. Figure 1: Credit trends for Oil & Gas, Europe and North America, Integrated vs. E&P North American E&P credit risk increased about 80% since the Covid crisis began (US E&P increased nearly 100%) against an increase of 60% for Integrated firms.  E&P credit risk in Europe increased by about 40% - half that of North America – while the risk of Integrated companies in Europe increased by only 10%. As the distribution chart shows, the majority of the constituents of these aggregates are in the bb category, although many of the Integrated firms in Europe are still investment grade.  10% of the North American E&P sector are in the c category. The Oil & Gas sector faces a long recovery, but crude futures are climbing (up 15% - 20% so far in 2021).  If this persists, then companies with the most leveraged exposure to oil prices – such as the North American E&P universe – might be able to put the worst of the 2020 credit deterioration behind them. ### End-January 2021 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### The Robinhood Affair: Are Retail Brokers the Weakest Link? Robinhood Securities LLC has lived up to its namesake’s reputation, as a small army of retail investors seek to profit at the expense of some very large short-selling hedge funds. The GameStop short squeeze took at least one hedge fund to the brink of insolvency and has brought the opaque activities of short selling and stock lending to the attention of the world beyond Wall Street. Robinhood has just completed a $2.4bn fundraising. One major additional challenge is the lack of information on solvency risk due to patchy credit rating agency (CRA) coverage in this area. However, consensus credit risk data draws on multiple well-informed sources to provide wide coverage and much-needed context for this rapidly developing situation.  It can help by comprehensively monitoring counterpart risk and informing and helping to manage client communications. The main players are Retail Brokers (including Robinhood), Prime Brokers who facilitate covered short selling by hedge funds, Agent Lenders who make covering stock available to borrow, and their Beneficial Owner clients – especially large pension funds – who are the ultimate owners of those stocks.  This complex ecosystem results in a network of connections between often unrated counterparts. For Beneficial Owners, counterpart risk can be mitigated by indemnities offered by their agents. But these are only as strong as the firm offering them. Prime Brokers protect themselves by taking collateral from hedge funds which, when eligible, is posted with Agents. Some retail brokers may be lending retail investors cash on margin to purchase stocks, and also lending stocks to cover short positions to their prime broker clients to enhance returns. So how do the main players look from a credit perspective? Figure 1 shows the credit distributions for some of the largest and most influential firms or funds in each of these four groups [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### January Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the January Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The January CCIs show that a long continental trough may be nearing an end. After months of weak sentiment, the prospects for EU Industrials are looking better. News is less rosy but still improved for the UK and US Industrials sector. Additional improvements in sentiment for EU, UK, and US Industrials are certainly possible but heavily dependent on a so-called return to normal. Greater adoption of a vaccine that will speed up the transition to that point is certainly a welcome development. The Financial Times reports AirbusSE CEO Guillaume Faury is "cautiously optimistic" about a recovery in aircraft after a big drop in sales in the last year. At the same time, Bloomberg reports that the global economy will face a new headwind in the form of higher shipping rates that will negatively affect supply chains. The months ahead will be critical in determining the longer-term credit health of the sector.  UK Industrials: Improving but Still Negative The CCI score for UK Industrials is below 50 but much better than it was earlier in the year, when it took a sharp downward turn. From the March through July update, all scores were below 45. The current CCI score for UK Industrials is 47.5, up from 47.3 last month. Though the credit outlook for the sector is still a net negative, it has been gradually improving since the summer. . EU Industrials: A Slight Worsening After nine straight months of net negative sentiment, there may be some light on the horizon for EU Industrials. Credit sentiment for EU Industrials has shifted to neutral, ending the month with a CCI of 50, up from 46.9 last month. This is the first time the outlook for the sector has reached this level since January 2020. In fact, from March through July, the EU CCI score was below 45, suggesting a particularly dour outlook for the sector. . US Industrials: Volatility Remains The outlook for US Industrials has been showing signs of intermittent improvement since the fall of 2020, even as the month-to-month CCI readings have been more volatile for the US than for the EU and UK. The current CCI score for US Industrials is 48.5, up from 46.8 last month. Though now showing promising upwards movement, the US Industrials sector outlook has been net negative for 16 straight months, including the current update. Some months, it went below 40, much lower than scores for the EU or UK. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### New Report Tracks Historic Decline in Credit Quality Across Corporates, Sovereigns and Leveraged Loans New York, NY, January 28, 2021 - Global Corporate Credit Risk Increased 20% in 2020, with More than Half of Corporate Bonds Falling Below Investment Grade, According to Credit Benchmark Year-in-Review While most credit issuers managed to stave off defaults thanks to massive government support programs, the scale of downgrades and overall credit quality deterioration was truly staggering in 2020. According to a new report from Credit Benchmark, The COVID Year: Review of Credit and Solvency Trends in 2020, global corporate credit risk increased nearly 20% over the past year, with the global percentage of investment grade corporate bonds dropping to just 46%. The full report offers a deep dive on 2020 credit risk trends across corporate credit, sovereigns and leveraged loans, drawing on Credit Benchmark’s consensus-based credit risk analytics. “Our credit quality data clearly shows an unprecedented level of economic disruption wrought by the COVID-19 pandemic, but it also uncovers some bright spots where things were not as bad as they could have been and – in some cases – where companies have been able to thrive,” said David Carruthers, Credit Benchmark Head of Research. “Importantly, by offering this differentiated view of credit quality, which captures the views of the world’s largest financial institutions who have real risk exposure to these entities, we’re able to deliver a much more granular, nuanced view of credit trends across the rated and un-rated universe of corporates, sovereigns and leveraged loans.” Following are some of the key findings in the Credit Benchmark 2020 year-in-review: Corporate Credit Risk Surges: Global corporate credit risk increased nearly 20% in 2020. Global financials credit risk increased nearly 10%. Less Than Half of Corporates Now Investment Grade: The global percentage of investment grade corporates dropped from 50% to 46% and the proportion of corporate credits rated “c” has more than doubled. Sovereign Credit Risk Climbs: Overall sovereign credit risk has risen by 5% on a global basis. North American credit risk rose 24%. Fallen Angels/Rising Stars: Across all sectors, roughly 14% of corporate bonds have fallen from investment grade to high yield. For the Travel & Leisure sector, that number jumps to 50%. By contrast, nearly 20% of companies in the Aerospace & Defense sector have moved from high yield to investment grade, demonstrating the significant volatility that has characterized 2020. Leveraged Loans in the Spotlight: Global leveraged loans issued by privately held companies saw their credit quality deteriorate more than 60% over the course of the year. For publicly traded loan issuers, credit quality deteriorated by 40%. The full report delves into detail on the month-by-month trends in all of these areas and more, offering an inventory of the major moves of the past year and a guide to what to watch in 2021. To access the full report, click here. About Credit Benchmark Credit Benchmark is a financial data and analytics company that brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published twice monthly in the form of credit consensus ratings and aggregate analytics to provide an independent, real-world measure of risk on rated and unrated entities globally. The data is available via the Credit Benchmark Web App, Excel add-in, flat file download, and third party platforms. Credit Benchmark was founded in 2012 and is based in New York and London. For more information, visit www.creditbenchmark.com. View press release online. ### The Covid Year: Review of Credit and Solvency Trends in 2020 Download the full whitepaper below. Global corporate credit risk increased nearly 20% in 2020.  Global Financials credit risk increased nearly 10%. The global percentage of investment grade corporates dropped from 50% to 46%.  The proportion in category c has more than doubled. North American credit risk rose 24%.  Sovereign risk has risen by 5%. Fallen Angels:  nearly half of the Travel and Leisure sector dropped from investment grade to high yield.  The average across all sectors is 14%, compared with 8% for the same period in 2019. Rising Stars: nearly 20% of the Aerospace and Defense sector moved from high yield to investment grade, but more than a quarter of the same sector are Fallen Angels – showing how Covid is disrupting traditional business classifications. A number of global industries saw credit risk increase by more than 30%.  In some global sectors, credit risk increased by as much as 70%.  Regional increases have been even higher: US Hotel credit risk rose by a staggering 340%.  Airlines globally deteriorated 160%, equivalent to two notches in the 21-category credit scale.  UK Aerospace insolvency risk rose 56% and is still deteriorating. Global leveraged loan private issuer credit quality deteriorated more than 60%; public issuers by about 40%. CreditBenchmark.com The 2020 pandemic brought various forms of disruption, hardship and human tragedy.  Governments and businesses around the world had to rely on trial and error to find the best response. There have been some high-profile corporate winners – companies that support home working, online delivery and logistics providers, packaging firms, some pharmaceuticals.  But Covid has highlighted economic and social inequalities, and added “health poverty” to the lexicon. There have also been many losers, with almost entire industries being downgraded to junk.  But default rates have been low, due to massive government support programs, and a wave of mergers and acquisitions as larger firms with strong balance sheets swallow their struggling competitors.  Good news for investment banks, who along with insurance companies have weathered the crisis well. This report shows the key credit and solvency trends that emerged in 2020 and provides some pointers towards what we can expect in 2021. Download the latest whitepaper to read the full analysis: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### ‘Fallen Angels’ in Hard-Hit Travel Sector Stage a Recovery Download PDF   Few industries have been impacted more severely by the COVID-19 pandemic than Travel & Leisure. According to Credit Benchmark, which captures the credit risk views of over 40 of the world’s leading financial institutions, 44% of companies in the global Travel & Leisure sector fell from investment grade to high yield between March and November of 2020. That means the consensus credit risk scores for these so-called ‘fallen angels’ fell below the bbb- threshold at some point during the pandemic. Today, however, nearly 10% of those ‘fallen angels’ have managed to claw their way back to investment grade status. As the chart below indicates, the Travel & Leisure sector has seen the largest migration back to investment grade status of any other sector. All told, of the 189 companies included in the Credit Benchmark Travel & Leisure aggregate, 84 companies have earned the ‘fallen angel’ distinction over the course of this year, but 18 of those have recovered, leaving the current number of ‘fallen angels’ in the sector at 66, representing roughly 35% of the sector.   RECOVERED FALLEN ANGELS     While that is still far from a rosy credit quality outlook for the sector, the number of Travel & Leisure companies that have bounced-back to investment grade status suggests that some of the downgrade activity that occurred throughout the pandemic may have been premature. Overall, across all sectors tracked by Credit Benchmark, 13.4% of firms in the sample have been classified as ‘fallen angels’, and just 3.5% have migrated back to investment grade. On the flip side of this equation, Credit Benchmark has also tracked ‘rising stars’, or firms that have seen their consensus credit scores move from high yield to investment grade. Within this group the aerospace and defense sector stands out for having a number of constituents climb into investment grade during the pandemic, only to fall back into high yield territory again.  As the chart below indicates, 18.8% of firms in the aerospace and defense sector rose from high yield to investment grade between March and November of 2020, but 12.5% of them have since been downgraded again.   SPUTTERING RISING STARS Across all industries, 5.3% of firms have been labelled ‘rising stars’, and 3.2% still hold this status. The net between the two indicates 2.2% of firms may have been prematurely upgraded. With COVID-19 cases continuing to surge globally and geopolitical volatility mounting, these numbers are likely to see further dramatic shifts in the coming months. We will be monitoring this data monthly. Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned here can be accessed on CRPR or via CRDT .   Learn more about Credit Benchmark Premium Data and Analytics Please complete the form below and someone from the Credit Benchmark team will be in touch soon First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### Last Year’s COVID Waves May Lead to This Year’s Default Tsunami for UK Corporates Download the full report below. Government support for UK businesses is due to end in early 2021, leaving many at-risk companies in debt. UK lenders have expected to see a significant rise in defaults since Q2 2020 but actual increases have so far been mild, likely due to large boost in credit availability from government packages. A significant increase in default rates may be observed as credit becomes less available. Credit Benchmark data shows that UK companies have an almost 20% higher chance of defaulting in 2021 compared to a year ago. This data suggests that 1 in 150 UK companies will default this year. Consumer Services and Oil & Gas are the worst affected industries, with a 27% and 23% increase in default risk compared to a year ago, respectively. The average monthly drop-out rate (companies disappearing from lenders’ portfolios) has doubled in the last year, particularly in the non-investment grade credit categories, suggesting these companies are no longer considered creditworthy by their lenders and thus signalling rising credit risk. The rate of credit downgrades also increased compared to the rate of credit upgrades across the last year. As the clock struck midnight and 2020 came to a close, the words of ‘Auld Lang Syne’ may have rung hollow for the millions living through another lockdown in the United Kingdom. The tradition of bidding farewell to the old year and welcoming new beginnings seemed like wishful thinking amidst a fresh surge of COVID infection rates and the prolonged economic strangulation of many British businesses. With the vaccination program picking up pace, Brits may look forward to the prospect of a European summer break or at the least, a drink in the local pub. However, the likelihood of that package holiday firm or the favourite ‘local’ staying afloat long enough to meet post-pandemic demand remains in question. The government’s furlough scheme is due to wrap up at the end of April, and the Bank of England’s Covid Corporate Financing Facility (CCFF) closes in late March, leaving the future of many British businesses uncertain as they grapple with a year’s worth of debt and minimal incomings. Credit Benchmark collects internal credit risk estimates from global financial institutions, providing forward looking tracking of changes in the credit risk of existing borrowers and of the impact on the portfolios of the contributing financial institutions. Figure 1: Credit Trend for UK Corporates, December 2019 – December 2020 The data, covering more than 5,000 UK Corporates, show that the average one-year default probability of UK Corporate has risen to 0.67%. In effect, financial institutions expect 1 in 150 corporates to default over the next year. As shown in Figure 1, this represents a 19% higher chance of defaulting compared to a year ago, with Consumer Services and Oil & Gas the most impacted industries. The steepest increase in credit risk was observed between April and August with an average monthly growth rate of 2.4%. The latter months of the year show a stabilization, with credit risk growing only by 0.2% in November. But the third COVID wave brought another steep increase in credit risk in December [please continue below to access full report]. Figure 2: Changes in Average Probability of Default for UK Corporates by Industry, December 2019 - December 2020 Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### International Banker: Are We on the Cusp of a Global Solvency Crisis? Credit Benchmark CCI data on the credit quality of US, UK, and EU Industrial companies has been cited in the International Banker article "Are We on the Cusp of a Global Solvency Crisis?" There are increasing signs that companies are starting to show some resilience as economic conditions gradually begin to improve. According to financial-data analytics firm Credit Benchmark—which polls the forward-looking credit opinions for the industrial companies of the United States, the United Kingdom and the European Union (EU) every month based on the consensus views of more than 30,000 credit analysts at 40 of the world’s leading financial institutions—data for November shows “yet another month of credit deterioration for UK, EU and US Industrial companies.” However, the analysis does acknowledge that each region “showed notable improvement in the severity of the trend.” According to November’s report, UK industrial companies “have entered a sixth consecutive month of net credit deterioration, but the severity has lessened, and the overall position is the best it has been since March—before COVID had begun to majorly impact the global economy.” EU industrials, meanwhile, “have not seen a month of net credit improvement since last December—but unlike their UK and US peers, deterioration has been milder and more consistent.” And US industrials “have seen the biggest improvement in their collective credit quality this month vs. their UK and EU peers.” International Banker, January 11, 2021. To read the original article, please click the link below. View original article (external link) ### January 2021 Bank & Subsidiary Monitor Request your free copy of the latest Bank & Subsidiary Monitor below.  Risk isn’t always where you think it is. When you are dealing with any global institution, the risk doesn’t always reside with “the name over the door” – nor necessarily in the jurisdiction that you think you are doing business in. Understanding the exact legal entity that you have exposure to and the jurisdiction in which that entity operates is critical to those charged with protecting assets and managing risk. The new Bank & Subsidiary Monitor shows the Credit Consensus Rating for 35 of the world’s largest banks and prime brokers, as well as the credit distribution for 700+ subsidiaries underlying these firms – 65% of which are unrated by the major credit rating agencies or do not have a specific Credit Default Swap. The Bank & Subsidiary Monitor also demonstrates the detailed analytics that are available at a single entity level on any of the 45,000+ global entities with a Credit Consensus Rating, under license via our Web App, Excel add-in, API or flat-file download. The data is also now available via the Bloomberg Terminal. Please get in touch if you would like complimentary 30-day trial access. Request your free copy of the latest Bank & Subsidiary Monitor below.  Onboarding and monitoring where your risk lies is a huge logistical challenge, and your principals and investors understandably demand that you to demonstrate your ability to manage your counterpart risk accurately and efficiently. Demonstrate to your investors that you have the right information to your fingertips, and ensure you don’t miss alerts on the changing creditworthiness of your counterparts. Armed with this information, you can do more with less. To request a free copy of the latest Bank & Subsidiary Monitor, please provide your details below.  First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### End-December 2020 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. For full details, download the latest Financial Counterpart Monitor here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### End-December Industry Monitor Download the End-December Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for December, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Compared to the figures seen in the November End-Month Industry Monitor, the December End-Month Industry Monitor shows: Financials and Corporates have both seen an improvement in the deteriorating/improving ratio since the last update (the ratio for Financials has dropped from 1.7:1 to 1.4:1, and the ratio for Corporates has dropped from 2:1 to 1.2:1). Both groups remain biased towards deterioration, however. The majority of Industries and Sectors show a bias towards deterioration this update, but the incidence of positive or neutral credit ratio is growing. Last update, Utilities, showing a neutral credit trend, was the only industry not deteriorating. This month, three industries show a modest positive trend (Basic Materials, 0.8:1; Technology, 0.6:1; Telecommunications, 0.4:1), and Consumer Goods had a neutral deteriorating/improving ratio. Amongst the sectors, the positives included UK Oil & Gas (0.8:1) and Construction & Materials (0.9:1), while Canadian Corporates and Canadian Oil & Gas were neutral. Since last update's neutrality, Utilities has now turned to deterioration, with a ratio of 2.1:1. Utilities was the worst performing industry this update. All other industries showed an improvement or no change in their credit performance compared to the last update. Amongst the sectors, Travel & Leisure was the worst performer, with a 4.1:1 deteriorating/improving ratio. However, this is an improvement from last update, when the sector showed a 7.9:1 ratio. All sectors showed some level of improvement since the last update. Corporates show a higher proportion of Fallen Angels (companies migrating from Investment Grade to High Yield) with 23 Fallen Angels (0.4% of total), compared to Financials, with 6 Fallen Angels (0.2% of total. Both groups saw fewer Fallen Angels than in the last update. The incidence of Fallen Angels fell across most industries and sectors this month. Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the End-December Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Energy Sector Credit Deterioration Carries On: December 2020 To download the December 2020 Oil & Gas Aggregate PDF, click here. . Problems in the energy sector are far from new, and are continuing to worsen slightly each month. This is particularly true for the US and UK energy sectors which have seen a great deal of volatility and distress in the last year or so. The picture isn’t so dire for the EU energy sector however. While far from immune from the problems facing US and UK companies, EU Oil & Gas firms are nevertheless something of a bright star amongst the industry. But the impact of COVID lingers for all three sectors and only time will tell if any of the positive signs emerging at the end of 2020 will have a lasting effect. EU Energy Sector Remains Bright Star The US energy sector continues to bear the brunt of problems in energy markets with greater credit declines and increases in default risk Overall credit deterioration is far less dramatic for EU than it is for US, UK energy sectors . US Oil & Gas Persistent deterioration in credit for the US energy sector continues to add up. The decline in credit quality for large US Oil & Gas firms from the prior update is only around 1%, yet the drop from six months prior is about 24% and the year-over-year drop is even larger at about 54%. Average probability is now 57 bps. While that is a small increase from the prior month’s 56 bps, it’s much higher than the average probability of default six months prior at 46 bps, or 37 bps at the same point last year. Approximately 82% of firms have CBC rating of bbb or lower, and the aggregate’s average CBC rating is bb+. UK Oil & Gas Credit quality continues to get worse for the UK energy sector. Large UK Oil & Gas firms saw a drop in credit quality of about 1% from the prior month, while the six-month decline was about 12% and the year-over-year decline about 25%. Average probability of default is lower than it is for the US, but still rising. It’s still 40 bps, compared to 36 bps six months ago and 32 bps at the same point last year. Approximately 69% of firms have CBC rating of bbb or lower, and the aggregate’s average CBC rating is bbb-. EU Oil & Gas The EU energy sector continues to be in better shape than its US or UK counterparts. Credit quality for large EU Oil & Gas firms remains largely unchanged in recent months, and it’s down by about 9% from six months prior and about 13% year-over-year. Default risk is lower at 25 bps, compared to 23 bps six months ago and 22 bps at the same point last year. A smaller percentage of firms – currently about 65% – have   a CBC rating of bbb or lower. The aggregate’s average CBC rating is bbb. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### December Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the December Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The December CCIs show yet another month of credit deterioration for UK, EU and US Industrial companies. While the overall severity of the downwards trend is lessening, US and EU Industrials both performed worse this month than last month. UK Industrials: More Improvement For the seventh consecutive month, UK Industrial companies have seen credit sentiment in negative territory. But the overall trend continues to be one of improvement, and the overall position remains the best since March. The CCI for this month sits at 47.3, better than the prior month’s 45.7, and still better than the CCI for the EU or US. Despite improving sentiment, there are many lingering threats to the sector, from COVID and its economic turmoil, changes in travel patterns, and ever-looming Brexit. . EU Industrials: A Slight Worsening Net credit improvement has been elusive for EU Industrials. Not once this year has the sector’s CCI score been over 50. But the deterioration in sentiment for this sector has been milder and more consistent than for the UK and US. The latest CCI registers at 46.6, compared to 46.9 last month. Data on Eurozone manufacturing trends continue to paint a mixed picture, with some countries faring better than others. Germany remains the driver of recovery in the region. As is the case around the world, COVID remains an obstacle to more lasting recovery. . US Industrials: Credit Quality Sentiment Drops The CCI for US Industrials dropped this month, thus halting a 3-month upward trend in sentiment. However, the CCI remains in a better position than it has been in for most of this year. The current CCI is 46.8, compared to last month’s 48.6. Like in the UK and EU, COVID continues to act as an anchor to US Industrials’ prospects. While overall output for spaces like US manufacturing remains relatively strong, the recent momentum observed in some areas like vehicle production could slow. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Supply Chain Solvency & Boeing – Consensus Risk Data Now Available on Bloomberg Supply chains – a previously neglected topic – were suddenly all over the news as soon as the COVID crisis began.  Some recent headlines and quotes: “Pandemic prompts rethink of food supply chains” - Financial Times “Using blockchain to monitor the COVID-19 vaccine supply chain” - World Economic Forum “COVID has shown the fragility of…hyper efficient supply chains with very limited slack” - MEP Lara Wolters, via Politico “…the definition of supply chain resiliency has morphed…to include geographic diversification, visibility, and surplus capacity for everything from raw materials to finished goods” - Harvard Business Review, impact of pandemic on supply chains Traditionally, corporate supply chain information has been patchy.  But over the past few years, Bloomberg have collected extensive supplier and purchaser data to shed light on the huge network of linkages between global coporate giants and the myriad of small and/or unquoted and unrated companies that form the fabric of the global economy.  So as supply chains dissolve and reform in response to COVID, it is now possible to combine supply chain network views on Bloomberg with fundamental and market data, giving a more complete picture of the resilience or vulnerability of different sectors and companies. Supply chains are only as strong as their weakest link, and solvency problems in one crucial supplier or customer can lead to the entire chain collapsing.  But traditionally, estimates of supplier and customer solvency are not readily available.  That is now changing – Bloomberg now provide consensus credit risk data to track this solvency risk across a large number of otherwise unrated and usually unquoted companies.  Figure 1 shows an example of this data in the context of Boeing’s supply chain.  And Boeing had a good month last month – EXIM announced a funding facility to support their supply chain, and the 737 MAX was given clearance to start flying again - just in time to deploy vaccines around the world. Figure 1: Boeing Top Suppliers with Solvency Risk Assessments The column headed “CB Rtg 100 Pt Scale” shows consensus credit estimates mapped to a 100 point scale.  Boeing itself is at 41 on the scale, putting it in the bb range on the traditional 7 category scale.  Triumph Group, Gogo Inc. and Korean Air Lines (suppliers of wing tips) are the highest at 73, 70 and 68 respectively.   And all of the 17 key suppliers shown here are higher risk than Boeing. Bloomberg users with Credit Benchmark premium data access can assess the full Boeing table and perform similar analysis of each of these suppliers individually. Get in touch with us using the button below to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Get a Free Trial ### Solvency Risk for GSIBs: CDS Prices vs. Consensus Credit Data Download PDF Credit Default Swap ("CDS") prices are often cited as a proxy for solvency risk.  When CDS are not available, consensus credit estimates can be a robust alternative – provided they are adjusted by the market risk premium. GSIBs[1] are the most scrutinised financials in the world. From a solvency perspective, regulators and investors are as well informed about these firms as it is possible to be. So CDS for these companies should be highly liquid and CDS prices should be an accurate reflection of the collective market view of the risk of default across these key banks – with the addition of the prevailing market risk premium. Figure 1 compares actual CDS prices with proxies[2] based on consensus credit risk estimates for 16 of the GSIBs. There is a moderately positive relationship, but there are clearly some large variations.  The lowest CDS price is 26 Bps; the proxy estimate using consensus data for the same bank is 17 Bps.  The highest proxy is 62 Bps against an actual CDS price of 58 Bps.  But for the highest CDS price – 61 Bps – the proxy is about half that level, at 28 Bps[3].   So even for the most publicly scrutinised financial firms in the world, markets and banks themselves are not in complete agreement about solvency risk.  The fitted line gives an estimate of the basic risk premium (the fitted intercept) of 27 Bps.  The fitted slope shows that for every 2 Bps increase in the proxy, there is an implied 1 Bps increase in the CDS price on top of this base level. This combination of consensus credit risk estimates with CDS prices allows capital market participants to estimate the current risk premium for any group of firms where liquid CDS are trading.  Where no CDS exists, consensus data can be combined with risk premium estimates to assess fair values for Trade Credit Insurance contracts. The current market environment has thrown up many apparent and potentially tradeable anomalies such as those outlined here.  With consensus data now also available on Bloomberg, market practitioners can make detailed comparisons between real world default risks and CDS, Bond and Equity prices for large groups of issuers.  Premium users have access to issuer solvency risk indicators and analytics in up to 100 categories. Learn more about Credit Benchmark Premium Data and Analytics Please complete the form below and someone from the Credit Benchmark team will be in touch soon First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ [1] GSIBs = Global Systemically Important Banks. See https://www.bis.org/bcbs/gsib/.  Current list covers 40 banks. [2] Recovery rate assumed = 40%; One year consensus PD converted to five year using survival rate compounding. [3] This anomaly may be due to abnormal costs of hedging CDS positions linked to this bank’s reference bond.  Or the recovery rate assumption may be inappropriate; or the survival rate approach used to transform a 1-year risk estimate into a 5-year risk estimate may – in this case – be too simplistic.  ### US Retail Sector Credit Quality Remains Stable: December 2020 To download the December 2020 Retail Aggregate PDF, click here. US General Retailers may not yet feel like the proverbial child in the toy store, but for the first time in a long time they have some cause for hope. Sales continue to rise, even if the pace is less than anticipated. A lack of in-store shopping has, in some instances, transferred to online shopping. But with COVID remaining an issue and many still struggling economically, a Christmas miracle may be unlikely for the sector. Retail sales are also rising in the UK, yet consumer confidence remains weak, as does the overall economy as COVID cases remain elevated. Further lockdowns are already happening in both the US and the UK which may further inhibit economic growth, putting additional pressure on retail. Will Levelling Off Continue With COVID Still Prevalent? Credit quality for the US retail sector has stabilized in recent months after a long period of decline Overwhelming majorities of firms in both US and UK retail sectors have Credit Benchmark Consensus (CBC) ratings of bbb or lower US General Retail Firms Flatness is the latest trend in the US retail sector. In previous months, credit quality had declined and default risk had increased. Now credit deterioration has levelled off. Credit quality for US general retail firms is unchanged from the prior month. However, it’s still down about 20% from six months prior and about 34% from the same point last year. Default risk continues to be stable at 57 basis points, unchanged from the prior month but higher than it was six months ago at 50 basis points and at the same point last year at 43 basis points. Past deterioration is evident and approximately 77% of firms in this sector have a CBC rating of bbb or lower. This sector’s overall rating is bb+. UK General Retail Firms The credit situation for the UK retail sector has been dim, but there are signs the negative trend is slowing down. Credit quality for UK general retail firms is down about 1% from the prior update, compared to a decline of about 16% from six months prior and about 24% from the same point last year. Average probability of default remains higher than in the US, at 85 basis points, up from 84 basis points the prior month, 73 basis points six months prior, and 68 basis points at the same point last year. About 92% of firms have a CBC rating of bbb or lower, and this sector’s overall CBC rating is bb. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### End-November Industry Monitor Download the End-November Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for November, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Credit Transition: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Compared to the figures seen in the October End-Month Industry Monitor, the November End-Month Industry Monitor shows: Financials and Corporates have both seen an improvement in the deteriorating/improving ratio since the last update (the ratio for Financials has dropped from 2.1:1 to 1.7:1, and the ratio for Corporates has dropped from 2.2:1 to 2:1). Both groups remain biased towards deterioration, however. Almost all Industries and Sectors show a bias towards deterioration this update, with the exception of Utilities which shows an equal weighting between upgrades and downgrades. The severity of the deteriorations is modest. The industry with the largest, or worst deteriorating/improving ratio this update is Consumer Services (2.9:1, up from 2.1:1 last update). Apart from Utilities which has a neutral ratio, the industries with the lowest, or relatively ‘best’ deteriorating ratio this month are Basic Materials (1.3:1, unchanged from the last update), and Telecommunications (1.4:1, down from 2.5:1 in the last update). Within the sectors, Travel & Leisure shows the highest rate of deterioration, at 7.9:1; a slight worsening since last update’s ratio of 6.1:1. The next worse performer amongst the sectors is UK Oil & Gas, at 3:1 – though this is an improvement from last update, when the ratio was 10:1. Corporates show a higher proportion of Fallen Angels (companies migrating from Investment Grade to High Yield) with 31 Fallen Angels (0.5% of total), compared to Financials, with 10 Fallen Angels (0.3% of total. Both groups saw fewer Fallen Angels than in the last update. Within the industries and sectors, the worst affected were Industrials (12 Fallen Angels; 0.8% of total) and Oil & Gas (8 Fallen Angels; 1.2% of total). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the End-November Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Recovering Fallen Angels and Faltering Rising Stars COVID has led to waves of downgrades across many sectors, with an unprecedented number of Fallen Angels[1]. While there have also been some clear COVID winners, Rising Stars[2] have so far been in a minority.  But with vaccines now being rolled out, an end to the economic crisis could be in sight even for some of the hardest-hit sectors. Table 1 shows the latest data for gross and net cumulative Fallen Angels for a number of global sectors.  The gross cumulative total of Fallen Angels is not adjusted for those firms that then migrate back to investment grade; the net column makes that adjustment.  The table is sorted by the size of the gap between the gross and net figures.  Only sectors with above average differences are shown. Table 1: Fallen Angels March – October 2020 Chemicals and Travel & Leisure stand out as the sectors with the highest difference between gross and net.  This suggests that a relatively high number of companies in these sectors were prematurely downgraded and have subsequently recovered.  This may partly reflect Government support; it may also indicate that some of the economic effects of COVID were more complex and subtle than they initially appeared. These two sectors are closely followed by General Retailers, Autos & Parts, and Mobile Telecomms.  Media, Food & Drug Retailers, and even Oil & Gas Producers show a significant proportion of Fallen Angels that have rapidly recovered. Table 2 uses the same approach for Rising Stars. Table 2: Rising Stars March – October 2020 The largest difference - 12.5% - is in Aerospace & Defence, but the sample is small. Personal Goods, Electricity, and Mobile Telecomms (also a small sample) are the next three highest.  Industrial Metals and Mining, Food & Drug Retailers and Software & Computer Services all appear on both lists.  Sectors which are present on both lists show a mix of COVID winners and losers.  For example, speciality food retailers have suffered from the lack of footfall; drug retailers have seen a contraction in all but their most essential lines (especially with patients unable to visit GPs); but basic foodstuff retailers have seen a boom. These numbers are likely to see further dramatic shifts in coming months.  Credit Benchmark data is now available on Bloomberg – high level credit assessments on the single name constituents of the sectors mentioned here can be accessed on CRPR or via CRDT . Get in touch with us using the button below to request your free trial for Credit Benchmark Premium Data and Analytics on Bloomberg. Get a Free Trial [1] Borrowers moving from Investment Grade to High Yield [2] Borrowers moving from High Yield to Investment Grade ### Energy Sector Credit Quality Corrosion Continues: November 2020 To download the November 2020 Oil & Gas Aggregate PDF, click here. . If there’s one major sector that has borne the brunt of problems during COVID, it’s the US energy sector. Credit quality deterioration may not be as pronounced in the UK or EU energy sectors, but similar industry strains exist in both. Prices remain below their pre-pandemic levels, and demand will likely remain weakened until normal transportation habits and schedules return. The threat of COVID remains ever-present. Default Risk for US Energy Sector Far Higher Than for UK, EU Energy Sectors Credit quality for US-based oil and gas firms continues to shift down and probability of default increases again Overall credit deterioration is far more noticeable for US than for UK, EU energy sectors . US Oil & Gas Continuing declines in credit for the US energy sector are adding up. Compared to the prior month, credit quality for large US oil & gas firms is down about 2%. The longer-term picture is much worse, with quality down about 33% from six months prior and about 55% from the same point last year. Average probability of default is 56 bps, whereas it was 55 bps one month earlier, 42 bps six months earlier, and 36 bps at the same point last year. Approximately 81% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bb+. UK Oil & Gas The UK energy sector is also seeing its credit quality decline, but changes are more minor. Credit quality for large UK oil & gas firms has deteriorated around 1% from the prior month, yet it’s down about 16% from six months prior and about 25% from the same point last year. Average probability of default is 40 bps, while it was 39 bps one month earlier, 34 bps six months earlier, and 32 bps at the same point last year. Approximately 69% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bbb-. EU Oil & Gas Changes for the EU energy sector are less dramatic. Credit quality for large EU oil & gas firms is basically unchanged from the prior month, although it’s down about 12% from both six months prior and the same point last year. Average probability of default for this aggregate is much lower than it is for its US or UK counterparts. It’s now 25 bps, unchanged from the prior month, and compared to 22 bps six months earlier and at the same point last year. Approximately 66% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bbb. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### US Retail Sector Credit Quality Stabilizes: November 2020 To download the November 2020 Retail Aggregate PDF, click here. The outlook for the US retail sector is now less bleak than in earlier months. After disappointing sales data in September, data released in October was more upbeat, even amid ongoing concerns about the economy. The economic situation is similar in the UK, with sales data released in September and October showing gains despite ongoing weaknesses in the economy, but credit quality for the UK retail sector continues to deteriorate. COVID-19 cases are flaring up in both countries.  Is This a Turning Point or a Temporary Reprieve? Credit quality for the US retail sector has finally stopped declining, but credit quality is still weak after previous declines UK retail sector credit quality is still deteriorating and default risk remains far above that of the US US General Retail Firms After a long and persistent downward trend, the deterioration in credit quality for the US retail sector has halted. Credit quality for US general retail firms is unchanged from the prior update, yet it's still down about 26% from six months prior and about 36% from the same point last year. Likewise, default risk has stabilized, but average probability of default for the sector remains significantly higher than it was six months prior or at the same point last year. Average probability of default is now about 57 basis points, compared to about 45 basis points six months prior and about 42 basis points at the same point last year. The decline in credit quality is evident in this aggregate's overall Credit Benchmark Consensus (CBC) rating of bb. Approximately 77% of firms have a CBC rating of bbb or lower.  UK General Retail Firms Unlike the US retail sector, UK retail sector credit quality continues to decline. Credit quality for UK general retail firms is down about 2% from the prior update, about 19% from six months prior, and about 23% from the same point last year. The ongoing decline in credit quality is apparent in the sector's average probability of default, which is currently about 84 basis points. That’s significantly higher than what we’re seeing in the US. It’s also up from 82 basis points in the prior month, about 71 basis points six months prior, and about 69 basis points at the same point last year. An overwhelming majority of firms in this aggregate - about 92% - have a CBC rating of bbb or lower, and its overall CBC rating is bb+.  About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### November Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the November Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The November CCIs show yet another month of credit deterioration for UK, EU and US Industrial companies, though each region showed notable improvement in the severity of the trend. UK Industrials: CCI Jumps in the Right Direction UK Industrial companies have entered a sixth consecutive month of net credit deterioration but the severity has lessened, and the overall position is the best it has been since March – before COVID had begun to majorly impact the global economy. The CCI for this month sits at 45.7; an improvement from last month’s CCI of 42.2. Recent promising developments in the race for a COVID vaccine may see UK credit quality continue to improve, but the spectre of Brexit still hangs over international trade and foreign investment. . EU Industrials: Downgrades Gradually Lessen EU Industrial companies have not seen a month of net credit improvement since last December – but unlike their UK and US peers, deterioration has been milder and more consistent. This month’s CCI is 46.6, an improvement from last month’s CCI of 45.5. The recent trend of net deterioration is gradually lessening. Eurozone manufacturing saw a fourth consecutive increase in factory output last month, with Germany the stand-out performer for the region. But with a second wave of COVID consumer demand will probably struggle to support current output levels. . US Industrials: Credit Quality Moves Closer to Equilibrium US Industrial companies have seen the biggest improvement in their collective credit quality this month vs. their UK and EU peers. This month, the CCI sits at 48.6, a significant improvement from the deep drops observed in recent months. Last month’s CCI was 45.1. As the US struggles to recover after months of dampened economic activity, not all manufacturers are emerging as equals. The Federal Reserve reported that while business-to-consumer sales are booming in areas like recreational vehicles, boats, appliances and trucks, the business-to-business sector remains stalled. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Rising Stars: More Rays of Light Download PDF The rays of light within credit markets are slowly growing. Known as Rising Stars, companies moving from high-yield or “junk” to investment-grade status are increasing across many sectors. According to the latest consensus credit data from Credit Benchmark, which tracks collective credit quality estimates of lenders to firms in various sectors, the total number of new Rising Stars has increased by 24 since the previous update. Each month, Credit Benchmark tracks a global sample of corporations across all sectors to gauge the percentage of firms that have improved to investment-grade status. This month’s report captures consensus credit data for 6,901 companies that were classified as High Yield as at end-Feb 2020 and finds that since that time, 329 (about 5%) have migrated into Investment-grade, based on the internal risk views of over 40 leading global financial institutions. Of the 32 sectors examined, 13 have a higher percentage of Rising Stars than the average for the full sample. Figure 1: Rising Stars % by Global Sector Once again, Aerospace & Defence has the highest percentage of Rising Stars at 19%, followed by Electricity at 14%. Each of those sectors saw their percentages grow. Fixed Line Telecommunications is in third at 9%. Some sectors, like Food & Drug Retailers at 9% and Beverages at 8%, saw their percentages stay the same. Many sectors, however, experienced improvement. Gas, Water & Multi-utilities improved to 8%, while Support Services improved to 7%. Industrial Transportation now has 5% of constituents as Rising Stars. As previously stated, positions in some sectors reflect underlying strength in credit quality. Health Care Equipment & Services is one such sector. Already skewed towards investment-grade names, it is less likely to see notable volatility from update to update. But even some sectors whose credit quality is also strong are seeing improvement. Of course, more thorough improvement across multiple sectors will be harder to come by until a broader economic recovery takes hold. Credit difficulties are certainly not isolated. Airlines have been ravaged by COVID, with thousands of jobs already cut and more possibly on the way. Such distress affects multiple firms, from those in the energy sector to those in the travel and leisure space. For now, at least, some sectors are moving in the right direction. ### Fallen Angels: Smaller Increases Download PDF The number of Fallen Angels – companies whose credit quality has shifted from investment-grade to high-yield or “junk” status – continues to increase, yet each update brings a smaller total number than the last. Each month, Credit Benchmark tracks a global sample of corporations across all sectors to gauge the percentage of firms at risk of losing their investment-grade status. This month’s report captures consensus credit data for 6,894 companies that were classed as Investment-grade as at end-Feb 2020 and finds that 836 (about 12%) are now classified as High Yield, according to the internal risk views of over 40 leading global financial institutions. This is an increase of 64, which is lower than last update’s increase of 93. Of the 32 sectors examined, 15 have a higher percentage of Fallen Angels than the average for the full sample. Figure 1: Fallen Angels % by Global Sector Once again, Travel & Leisure is in the pole position with 42% of firms classified as Fallen Angels, up slightly from the prior month. Following that are Leisure Goods at 32% and Metals & Mining at 25%, each unchanged from the prior month. Also unchanged from the prior update are Aerospace and Defense at 21% and Personal Goods at 19%. Drops in credit quality can be seen in Media, now at 18%; General Retailers, now at 17%; Oil & Gas Producers, now at 16%; and Chemicals, now at 15%. Deterioration can also be seen in Construction & Materials, now at 12%; Support Services and Electronic & Electrical Equipment, each now at 9%; and in General Industrials, now at 7%. The best-performing sectors – those with the lowest percentage of Fallen Angels – are Fixed Line Telecommunications at 4% and Gas, Water, & Multi-utilities at 3%, each at 4%, and Electricity at 3%. As previously noted, widely cited research suggests up to one third of all corporate bonds with the BBB designation might shift to “junk” status, despite a possible reluctant on the part of agencies to downgrade. Consensus credit data from Credit Benchmark supports this thesis. The credit sample examined above is based on issuers instead of issues and includes all investment-grade companies, not just BBB. Still, the growing Fallen Angel rates shown here that covers the first six months of the COVID crisis – indicate that the shift for some sectors by the end of 2020 may be yet higher than has so far been suggested. This is true even if the pace of growth is slowing. ### Office Property and Co-working: The COVID Effect May Persist Download the full report below. “…may be the biggest disruption to real estate since the invention of the elevator.” Rob Speyer, CEO of Tishman Speyer, Wall St. Journal, September 2019, talking about Co-working. Co-working fills an obvious but challenging gap in the office property market - offering maximum flexibility to tenants by removing the duration risk of fixed term / fixed space leases.  From its inception in 2005, exponential sector growth was driven by an increasingly buoyant office property market and a steady stream of start-ups that ensured minimal voids.  With a vaccine on the horizon, the global pandemic may become a non-issue; but has there been a permanent downshift in demand for city center office space? And if so, can the co-working model survive? The sector was showing signs of saturation even before COVID, when heavily indebted WeWork pulled its planned $47bn IPO in September 2019, ending the year in the hands of Softbank with a more modest valuation of $5bn.  CBRE noted a huge drop (75%) in flexible leasing demand in Q4 2019, mainly due to WeWork slamming on the brakes.  Consensus data shows a 30% - 40% increase in default probability over the past 6-8 months for companies with significant co-working exposure.  This corresponds to single notch declines in credit quality on the traditional 21-category scale.  For example, CRAs have downgraded WeWork – one of the few co-working firms assessed by agencies - from lower B to a range of CCC ratings; the credit consensus has followed a similar trend [please continue below to access full report]. Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### End-October 2020 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. Download the Financial Counterpart Monitor to learn more: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### Vaccine in Sight – Sectors to Watch Download the full report below. An effective COVID vaccine may be in sight, and some sectors could see major improvements in their credit fundamentals.  The first COVID lockdown brought hotels, airlines and oil companies to their knees, and second wave circuit breakers are causing major financial damage to pubs, restaurants, sports venues and all aspects of the arts.  Equity markets have been euphoric about a brighter outlook for some of these hard hit areas of the economy, and some sectors could see a rapid recovery.  But the damage wrought by COVID has also disrupted supply chains and some of these will take a long time to recover.  The primary and secondary sectors are lower profile but key to the healthy recovery of the overall economy.   Have some of them held up well? Were some of them heading for serious trouble? Figure 1 shows consensus credit trends for a broad range of global sectors [please continue below to access full report]. Figure 1 Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report Constituent lists, single name credit time series and associated metrics for these aggregates are available to subscribers. Get in touch to request access. ### Impairment Trends: Consensus Point-in-Time Curves Download the full whitepaper below. The COVID-19 crisis has highlighted how sensitive banks impairment numbers are to changes in the economy. PIT PD curves have increased substantially across all industries. Banks have changed their PIT PD curves quicker and more severely than their TTC PDs. Banks have increased the severity of their forward-looking downturn scenarios. Figure 1.1 shows the average cumulative PIT PD curves up to 5 years across different industries. The results from March show that banks did start to recognise the increase in credit risk from the COVID-19 crisis in Q1, with the orange line generally higher than the 2018 and 2019 PDs. The COVID-19 crisis has highlighted how sensitive banks' impairment numbers are to changes in the economy. Under IFRS9 accounting rules, banks have to hold impairment now against their future expected credit losses. When countries shut down large parts of their economies due to COVID-19, banks had to react quickly to reassess the increase in the current and future credit risk of their portfolio. Many banks’ recent half year results show substantial increases in their impairment provisions and the impact this has on their profits. A key component of banks’ IFRS9 impairment calculation is their point-in-time (PIT) Probability of Default (PD) estimates that reflect their prediction of the economic impact on credit risk forecasts forward in time. Higher PIT PDs lead to higher impairment, both directly through the formula for expected credit losses (ECL) and through loans migrating from a 1 year ECL to a lifetime ECL. If banks hold more impairment it reduces their funds available for lending, which can in turn impact the economy causing a negative feedback loop. In this report, we use aggregated PIT PD curves to look at the impact COVID-19 has had on banks' forecasts of credit risk and impairment. Here we focus on the results from the UK banks contributing data to Credit Benchmark. Download the latest whitepaper to read the full analysis: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### End-October Industry Monitor Download the End-October Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for October, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Credit Sentiment: Assesses the month-over-month observation-level net downgrades or upgrades, shown as a percentage of the total number of entities within each category. Ratio: Ratio of Deteriorations and Improvements in each category since last update, calculated as Deteriorations / Improvements IG to HY Migration: The number of companies which have migrated from investment-grade to high-yield since the last update (known as Fallen Angels). Credit Consensus Distribution Changes: The net increase or decrease of entities in the given rating category since the last update. Compared to the figures seen in the September End-Month Industry Monitor, the October End-Month Industry Monitor shows: Financials and Corporates have both seen an improvement in their deteriorating/improving ratio since the last update (the ratio for Financials has dropped from 3.2:1 to 2.1:1, and the ratio for Corporates has dropped from 2.3:1 to 2.2:1). Both groups remain biased towards deterioration, however. All Industries showed a bias towards deterioration this update, however the severity was modest. The industry with the largest, or worst deteriorating/improving ratio this update was Oil & Gas (3.3:1, up from 2.7:1 last update). The industries with the lowest, or relatively 'best' deteriorating ratio this month were Basic Materials (1.3:1, an improvement from 1.6:1 in the last update), and Health Care (1.3:1, having worsened since last update's positive ratio of 0.8:1). Within the sectors, UK Oil & Gas showed the highest rate of deterioration, at 10:1; a jump from last update's ratio of 2.8:1. Travel & Leisure also showed high levels of deterioration, with a ratio of 6.1:1 (up slightly against last update's ratio of 5.6:1). Corporates (45) showed a higher proportion of Fallen Angels (companies migrating from Investment Grade to High Yield) compared to Financials (15), and within the industries, Consumer Services showed the greatest proportion, with 14 companies dropping across the boundary. General Retailers and Travel & Leisure showed the highest proportion of Fallen Angels within the sectors. Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the End-October Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Bloomberg Adds Credit Benchmark Credit Risk Data Bloomberg announced today that it will make Credit Benchmark’s credit risk data—derived from the risk views of the world’s largest financial institutions--available on the Bloomberg Terminal, and also for clients to license the data for an enterprise use case.  The company will make this unique anonymized consensus data available alongside existing credit risk datasets and risk indicators, providing complementary content to help market participants assess the credit quality or risk of default of a counterparty, company or entity, all integrated within their existing workflows. Donal Smith, Co-founder and Chairman at Credit Benchmark, said: “In the current market environment our consensus view of credit quality has been a vital source of insight on where lenders see the biggest risks. We’re excited to be working with Bloomberg to expand availability of this intelligence to additional market participants.” Mark Faulkner, Co-founder at Credit Benchmark, commented: “Teaming up with Bloomberg offers a welcome opportunity to provide much-needed credit transparency in areas such as securities finance, client onboarding, and supply chain risk management.” Read the full press release on Bloomberg.com. ### Auto Sector Credit Troubles Piling Up: October 2020 To download the October 2020 Auto Aggregate PDF, click here. The worst may not yet have arrived for the US auto industry. In fact, there were some signs of recovery in Q3. But when a smaller-than-expected drop in sales is considered a good sign, it’s no surprise the credit quality for the industry is still in poor shape. The UK is experiencing similar issues, and is also dealing with concerns about Brexit. What’s more, a growth in COVID cases continue to weigh on economic recovery in each country. Default Risk Significantly Higher for UK Auto Sector Credit quality for the US, UK auto firms is down by double digits from the same point last year UK auto sector firms are in a worse position; having a greater probability of default US Auto and Auto Parts Industry Deterioration of credit quality for the US auto sector is getting worse. US auto and auto parts firms’ credit quality is down about 2% from the prior month. The minor change obscures the long-term declines, with credit deterioration of about 37% from six months prior. The year-over-year drop is also about 37%, as credit quality was largely stable prior to the COVID-19 crisis. Average probability of default is about 50 bps, compared to about 49 bps the prior month and 37 bps six months prior and at the same point last year. Approximately 82% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bbb-. UK Auto and Auto Parts Industry UK auto and auto parts firms experienced about a 2% decline in credit quality from the prior month, about 24% decline from six months prior, and about 28% decline from the same point last year. This clear drop in credit quality has led to big increases in default risk, leaving the UK aggregate’s risk far higher than that of the US. Average probability of default is about 74 bps, compared to about 73 bps one month earlier, 60 bps six months earlier, and 58 bps at the same point last year. Approximately 87% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bb+. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Energy Sector Credit Quality Deterioration Continues: October 2020 To download the October 2020 Oil & Gas Aggregate PDF, click here. . Challenges in the energy sector are numerous and persistent. These challenges are perhaps most evident in the US energy sector, where strained prices and weakened demand have accompanied months of reduced travelling for professional and personal reasons. Bankruptcies are increasing. Some firms are doing better than others, yet few are in great shape. The near-term outlook remains weak as a resurgence of COVID cases threatens the recovery. A similar scenario is playing out in the UK and EU sectors. Default Risk Remains Far Higher for US Energy Sector Credit quality for US-based oil and gas firms continues to trend lower and probability of default continues to increase Overall credit deterioration is far more pronounced for US energy sector than UK, EU energy sector . US Oil & Gas The US energy sector continues to see large deterioration in credit quality and increases in credit risk. Credit quality for large US oil & gas firms is down roughly 3% from one month prior, about 42% from six months prior, and about 49% from the same point last year. Average probability of default is now about 59 bps, significantly higher than that of the UK or EU. That compares to about 58 bps from one month prior, about 41 bps six months prior, and about 39 bps at the same point last year. Approximately 83% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bb+. UK Oil & Gas The UK energy sector is also seeing its credit quality weaken, but with less severe changes. For large UK oil & gas firms, credit quality has deteriorated roughly 3% from one month prior, about 17% from six months prior, and about 22% from the same point last year. Average probability of default is now about 40 bps, compared to about 39 bps one month prior, about 35 bps six months prior, and about 33 bps at the same point last year. Approximately 70% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bbb-. EU Oil & Gas Like the US and UK energy sectors, the EU energy sector is experiencing credit deterioration, but with less dramatic changes. Credit quality is down roughly 2% from one month prior, about 13% from six months prior, and about 10% from the same point last year, as credit quality improved in the first part of the 12-month period before declining again. At about 28 bps this month and last month, this aggregate’s credit risk remains far lower than that of the US or UK. It was about 25 bps six months prior and about 26 bps at the same point last year. Approximately 66% of firms have CBC rating of bbb or lower. The aggregate’s average CBC rating is bbb. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### US, UK Housing Sectors Continue Slow Decline in Credit Quality: October 2020 To download the October 2020 Housing Aggregate PDF, click here. . Once again, no news may be good news for the US housing sector. There are positive forces, such as interest rates for mortgages at or near record lows, and a potential trend of buyers moving away from urban areas amongst other factors that may buoy demand for housing and support construction. Similar trends are occurring in the UK housing market, where mortgage demand is red hot. But the overall economic picture remains murky, with unemployment still high and much of the economy still not back to its pre-COVID status, and with cases on the rise in each country that could force even more restrictions. Additional economic strife would certainly weigh on the credit prospects for each sector.    Overall Credit Picture Remains Worse for UK Housing Sector Near-term changes in in credit quality and risk are subtle for both the US and UK housing sectors Despite small monthly changes, credit quality remains compromised. Average probability of default is greater than 50 bps for each and the average Credit Benchmark Consensus (CBC) rating for both groups is bb+ US Household Goods and Home Construction Firms US housing credit quality has continued to deteriorate slowly over the past several months. The long-term trend has been decline in credit quality and increase in risk; credit quality is down approximately 17% year-over-year and average probability of default is now 51 bps compared to 43 bps at the same point last year. Compared to six months prior, credit quality is down about 11% and average probability of default was 46 bps. But in the last few months, changes have been more modest. Credit quality is down about 2% in the last three months and average probability of default was 50 bps over the same period. Still, while recent changes in credit quality have been minor, this aggregate's average CBC rating is bb+. UK Household Goods and Home Construction Firms Recent changes in credit quality for the UK housing sector have also shown slight declines. Credit quality is down about 2% month-over-month, about 3% from two months prior, and about 6% from three months prior. It's down around 11% from six months prior and 10% from the same point last year. Average probability of default is currently 58 bps, compared to 57 bps one month prior, 56 bps two months prior, and 55 bps three months prior. It was 52 bps six months prior and 53 bps at the same point last year. As with the US aggregate, the average CBC rating is bb+. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Financial Times: Data Drill Credit Benchmark data highlighting the difference in credit quality between US Oil & Gas Producers vs. US Integrated Oil & Gas firms has been cited in the latest 'Energy Source' newsletter via The Financial Times. Authors Derek Brower and Myles McCormick noted in the column: "The oil crash has been hard on all operators in the sector. But scale offered some shelter, and integration (ie downstream assets) offered a hedge. This is visible in the impact on credit quality, according to data from Credit Benchmark, a financial data provider." The Financial Times, October 27, 2020. View original article (external link). ### Financials Credit Risk Could Grow if Real Estate Woes Infect Wall St Download the full report below. The winners and losers in the virus crisis are becoming clearer.  China reports a strong economic rebound while Western economies continue to struggle.  Hotels and airlines fight for their survival while online fulfilment and delivery logistics firms cannot hire staff quickly enough. And real estate is seeing a “race for space” in residential markets, but serious viability issues in some commercial lines – Bloomberg report that Land Securities will sell a quarter of their total portfolio, mainly lightening up on retail and leisure. And real estate is a critical link between Wall St. and Main St, which have so far shown rather different responses to the crisis.  Figure 1 shows that, in credit terms, global Financials have so far held up better than global Corporates. Figure 1: Global Corporates vs Global Financials Corporate credit risk has increased by more than 15% since early 2020, while Financial credit risk is up by less than half of that.  The bb credit category dominates the Corporate universe, whereas Financials are more evenly spread; with nearly 30% in the a category.  The Corporate deterioration has been steep and relentless; Financials barely moved in the early stages of the crisis and the recent drop in credit quality has been modestly paced. Does this reflect a genuine robustness in the face of the economic damage from the virus, or are financials waking up to some problems of their own? Within Financials, there is another split.  Figure 2 shows Banks, Insurance (Life and Non-Life) and Real Estate Investment Trusts (as a proxy for all Real Estate) as separate series [please continue below to access full report]. . Please complete your details to continue reading this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### October Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the October Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The October CCIs show prolonged credit deterioration for UK, EU and US Industrial companies, though there are signs that the severity is lessening. UK Industrials: Little Variation Seen in Negative Trend UK Industrial companies have continued to deteriorate for a fifth successive month, and with little recent variation in the severity of the deterioration. The CCI for this month sits at 42.2; a minimal improvement from last month’s CCI of 41.3. Output for the UK is still 9% below pre-pandemic levels and the spectre of a second full lockdown hangs over the economy. As the outlook continues to deteriorate there is an increasingly heated debate about the timing and scale of further stimulus packages. . EU Industrials: Downgrades Persist but Severity Lessens Although EU Industrial companies have shown net deterioration for the past seven months, the severity of the trend is gradually lessening. This month’s CCI is 45.7, an improvement from last month’s CCI of 44.2, and the comparatively best position since February 2020. Emergency measures taken by Eurozone governments to counter coronavirus amount to a potential budget deficit of almost €1tn – a powerful short term boost but increases concerns about longer-term sovereign debt challenges. . US Industrials: Downgrades Dominate but Trend Is Moving in the Right Direction The deep drops in credit quality observed over recent months for US Industrials are easing, though the CCI still remains firmly in the red. This month, the CCI sits at 45.3, a modest improvement from last month’s CCI of 42.3. The CCI is comparatively in its best position since February 2020.  US manufacturing dropped by 0.3% in September after earlier increases - suggesting a possible ‘tea kettle’ shaped recovery? . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### US, UK Retail Sector Credit Quality Worsens Yet Again: October 2020 To download the October 2020 Retail Aggregate PDF, click here. Retail sales may be rising, even if the pace in August was lower than anticipated, but retailers themselves continue to struggle. The number of store closings in the US has remained higher than openings most weeks, bankruptcies are at a notable high and there’s potential for more in the months ahead, including many well-known brands. The plight of UK retailers was similar in September. The situation looked better in October, but the British Retail Consortium warned the relief may not last. The hits to each country have been staggering. There are calls for more stimulus in the UK. In both the US and UK, retail sales will be limited until more restrictions can be lifted and the economies of each country improve. UK Retail Sector Default Risk Remains Significantly Higher Credit quality for US and UK retail sectors continues to sink, but remains worse for the UK retail sector. There remains a greater concentration of rated firms with poor Credit Benchmark Consensus (CBC) ratings in the UK retail sector compared to the US retail sector. US General Retail Firms The downwards trajectory of credit quality for the US retail sector over the last year has been relentless. Each month brings a new drop in credit quality and an increase in default risk. Compared to the last update, credit quality has dropped by approximately 2%. It’s down about 7% from two months prior, about 14% from three months prior, and about 34% from six months prior. Year over-year, credit quality has fallen by around 38%. Average probability of default is now approximately 58 bps, compared to about 57 bps in the prior update. It was about 55 bps two months prior, about 51 bps three months prior, and about 43 bps six months prior. At the same point last year, it was around 42 bps. The current overall CBC rating for this aggregate is bb+, with about 78% of firms at a CBC rating of bbb or lower. UK General Retail Firms The UK retail sector has followed a similar trajectory. With the most recent update, credit quality has dipped by approximately 2%. It has fallen by about 6% from two months prior, about 10% from three months prior, and about 17% from six months prior. Credit quality has dropped by around 21% year-over-year. Average probability of default is now approximately 83 bps. It was about 81 bps in the prior update, and about 78 bps two months prior, about 75 bps three months prior, and about 71 bps six months prior. It was about 69 bps at the same point last year. The overall CBC rating for this aggregate is still bb, with about 92% firms at a CBC rating of bbb or lower. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### Leveraged Loans – Light at the End of the Tunnel or an Approaching Train? Download PDF Leveraged Loans continue to divide investor opinion.  Values declined as part of the High Yield rout earlier this year, but they have been slower to recover.  Winnie Cisar, Head of Credit Strategy at Wells Fargo points to a simple lack of liquidity, which is only now filtering back into the Leveraged Loan space with prices closing the gap vs. general High Yield. But there are genuine concerns that, in the coming months, default rates for Leveraged Loan issuers will be higher than for the overall High Yield universe, and these concerns are also reflected in the $760bn CLO market.  Dan Fuss, Chairman of Loomis Sayles, is avoiding CLOs altogether because the component Leverage Loans are issued by companies that are too close to the troubles now facing Main St. Figure 1 shows the recent trends in forward-looking consensus default probabilities for Public and Private Leveraged Loan issuers. Figure 1: Consensus default probabilities for Public and Private Leveraged Loan issuers Publicly owned issuers (left) show steadily rising credit risk, with the average one-year default probability standing at around 350 Bps, up from about 230 Bps a year ago.  Private issuers (right) seem to be stabilising at around 860 Bps, up from about 620 Bps a year ago.  Public firms may be better credit quality, but their risks have risen faster than the Private firm sample and they are continuing to climb. The largest holders of CLOs are Japanese banks, US Life Insurers, and US Banks.  US Life Insurers, for example, hold more than three-quarters of their holdings in tranches rated at A- or better (although these represent only 3% of their $4.5trn in assets).  But the CLO tranches that may hold unpleasant surprises may be skewed towards those with exposure to higher quality loans.  This is consistent with broader consensus credit trends which suggest that some of the bbb and bbb- issuers may be in for a bumpy ride. ### Borrower Consensus Report Risk seems to be everywhere at the moment. Selecting counterparts is a big responsibility and not all borrowers hold a rating from the major credit rating agencies. The decision is critical as the selection of borrowers is at the risk of the beneficial owner as principal. The proposed borrowers are often the unrated subsidiaries of rated parents without formal guarantees. Innovative agents are already incorporating Credit Benchmark Credit Consensus Ratings in their reporting to provide information on all of the potential borrowers a beneficial owner may select. The creditworthiness of the borrowers is updated fortnightly and new counterparts such as those active in the growing Peer-to-Peer business can be included. The Borrower Consensus Report lists some of the borrowers we can provide credit data insights on. The benefits of this transparency have been to expand the approved borrower lists and to increase the diversity of counterparts based upon credible ‘skin in the game’ credit analysis, using supervised models. Download the Credit Benchmark Borrower Consensus Report below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### End-September 2020 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. Download the Financial Counterpart Monitor to learn more: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Financial Counterpart Monitor ### End-September Industry Monitor Download the End-September Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for September, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the September Mid-Month Industry Monitor, the September End-Month Industry Monitor shows: The bias towards deterioration seen in the mid-month update worsened slightly for Corporates (2.3:1 deteriorating/improving, up from 1.9:1 in the last update) and more so for Financials (3.2:1 this update, up from 2:1 in the last update). There was little significant change in the deteriorating/improving ratios among the industries from mid-month to end-of-month. Of the industries, Telecommunications remained the worst performing industry, with a 4:1 deteriorating/improving ratio. All of the industries barring Healthcare (0.8:1 deteriorating/improving ratio) are dominated by deterioration this month, though the ratio for Utilities and Oil & Gas lessened in severity since the last update (Utilities show a 1.7:1 deteriorating/improving ratio, down from 2.4:1, while Oil & Gas has dropped slightly from 2.8:1 in the last update to 2.7:1 this update). Within the sectors, Travel & Leisure again tops the list of worst performers, with a 5.6:1 ratio (up from 3.8:1 in the last update). Canadian Oil & Gas continues to show high levels of deterioration at 4:1 deteriorating improving. The sector with the highest rate of Fallen Angels (companies migrating from Investment Grade to High Yield) is General Retailers, with 3.5% of all firms crossing the boundary. Amongst the industries, Consumer Services shows the most Fallen Angels, with 2% of companies crossing over. Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the End-September Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Rising Stars: Who is Shining Brightly? Download PDF Amid an onslaught of negative credit news, there are some bright spots. So-called Rising Stars, sectors whose credit quality has moved from high-yield or “junk” status to investment-grade, are growing, slowly but surely. According to consensus credit data from Credit Benchmark, which gathers the collective credit quality estimates of lenders to these firms, the total number of new Rising Stars has increased by 49 from the prior update. Each month, Credit Benchmark tracks a global sample of corporations across all sectors to gauge the percentage of firms that have improved to investment-grade status. This month’s report captures consensus credit data for 6,901 companies that were classified as High Yield as at end-Feb 2020 and finds that since that time, 305 (about 4%) have migrated into Investment-grade, based on the internal risk views of over 40 leading global financial institutions. Of the 32 sectors examined, 14 have a higher percentage of Rising Stars than the average for the full sample. Figure 1: Rising Stars % by Global Sector Aerospace & Defence has the highest percentage of Rising Stars at 16%, followed by Electricity at 12% and Fixed Line Telecommunications at 9%. Of these three, Electricity is the sector whose percentage has grown. Other sectors with rising stars include but are not limited to Food & Drug Retailers, now at 9%; Support Services, now at 6%; General Retailers, now at 5%; Industrial Transportation, now at 4%; and Food Producers, now at 3%. In part, the positions of these sectors reflect underlying strength. The Health Care Equipment & Services sector, for example, is heavily skewed toward investment-grade names and is therefore less likely to see a great deal of month-to-month volatility in the number of new rising stars. Ongoing economic malaise and uncertainty continue to make it difficult for many sectors to show significant improvement in credit quality. Travel & Leisure, for example, will face multiple pressure points, including reduced vacationing amid safety concern. Airline job cuts are already close to 50,000. In turn, that will weigh on Oil & Gas Producers and Oil Equipment, Services & Distribution – all of whom have been slow to show any signs of credit quality improvement. Recent news for the energy sector is scarcely better, whether it’s US energy firms or those around the world. ### Fallen Angels: Is the Curve Flattening? Download PDF Fallen Angels – companies whose credit quality has shifted from investment-grade to high-yield or “junk” status – continue to grow in number but at a slower pace than what we’ve been seeing for the past several months. Each month, Credit Benchmark tracks a global sample of corporations across all sectors to gauge the percentage of firms at risk of losing their investment-grade status. This month’s report captures consensus credit data for 6,894 companies that were classed as Investment-grade as at end-Feb 2020 and finds that 772 (about 11%) are now classified as High Yield, according to the internal risk views of over 40 leading global financial institutions. This is an increase of 93 compared to the previous update and 214 compared to the update before that. Of the 32 sectors examined, 15 have a higher percentage of Fallen Angels than the average for the full sample. Travel & Leisure continues to occupy the top slot, with the highest percentage of Fallen Angels at 41%. The second and third positions are still held by Leisure Goods and Industrial Metals & Mining, but their percentages are unchanged at 32% and 25%, respectively. Aerospace & Defense continues to see deterioration, with 21% of firms now classified as Fallen Angels. Following that are Personal Goods at 19% and Automobile & Parts at 17%. Also struggling are Media, General Retailers, and Oil & Gas Producers with 16%, 15%, and 15% of firms now classified as sub-investment-grade. Among the best-performing sectors – those with the lowest percentage of Fallen Angels – are Fixed Line Telecommunications and Health Care Equipment & Services (each at 4%), Gas, Water, & Multi-utilities at 3%, and Electricity at 2%. As previously noted, widely cited research suggests up to one third of all corporate bonds with the BBB designation might shift to “junk” status, despite a possible reluctance on the part of agencies to downgrade. Consensus credit data from Credit Benchmark supports this thesis. The credit sample examined above is based on issuers instead of issues and includes all investment-grade companies, not just BBB. Still, the growing Fallen Angel rates shown here that covers the first six months of the COVID crisis indicate that the shift for some sectors by the end of 2020 may be yet higher than has so far been suggested. This is true even if the pace of growth is slowing. ### No Signs of a Soft Credit Landing for Airlines Download PDF With emergency government funding set to expire at the end of September, US Airlines are planning mass layoffs after a more than 80% collapse in revenues.  The more cash rich carriers – such as SouthWest and Delta – have avoided Federal loans so far, hoping to tough it out until a vaccine arrives, with the prospect of a large increase in market shares for the survivors.  UK Airlines face a battle for their very survival, with the lack of Government support leading industry leaders to the conclusion that this is the “last chance” to save the industry.  Continental European and Asian airlines have seen more Government support, but the immediate global outlook is very bleak. As Figure 1 shows, equity markets were quick to react in early 2020, with US airlines losing more than half of their value by April. Figure 1 S&P Airline Index v Airline Credit Consensus The Credit Consensus also shows a dramatic deterioration, although it lagged behind the equity market until August this year.  While the US airline equity index has recovered (giving a 70% gain to those brave enough to buy at the lowest point in May), the Credit Consensus has continued its relentless decline, with – so far – a 100% increase in credit risk – equivalent to a 50% drop in credit quality so far. With a second wave and selective lockdown measures now being announced across the globe, the recent rally in Airline stocks looks increasingly anomalous against the continued deterioration in credit. ### Credit Quality Continues to Fall for US, UK Auto Sectors: September 2020 To download the September 2020 Auto Aggregate PDF, click here. Much like the beleaguered US energy sector, the US auto industry continues to see credit quality deteriorate. On top of reduced demand and general economic concerns, there are staffing issues that could prevent factories from meeting the demand that is still in the marketplace. The UK, like the US, is also seeing drops in sales. Default Risk Up More Than 30% Over Last Year Credit quality for the US-based auto industry has fallen 34.6% since the start of this year Overall credit quality remains worse for UK auto sector firms, which have higher overall probability of default US Auto and Auto Parts Industry The last six months have seen a clear and persistent downward trend in credit quality for the US auto sector. A decline of 3% over the last month follows a decline of 7% two months prior, of 11.8% three months prior, and of 34.6% six months prior. Year-over-year, credit quality has dipped by 33.4%. Default risk has climbed as credit quality sinks. Average probability of default is now 47.4 basis points. That compares to 46 basis points the prior month, 44.2 basis points two months prior, 38.6 basis points three months prior, and 35.2 basis points six months prior. At the same point last year, average probability of default was 35.5 basis points. This sector’s CBC rating is bbb-, and about 82% of firms with such a rating are at bbb or lower.   UK Auto and Auto Parts Industry Credit quality is also worsening for the UK auto sector. With the latest update, credit quality has fallen by 6% from one month prior, 8% from two months prior, 13.6% from three months prior, and 21.4% from six months prior. Year-over-year, credit quality is down by 24.9%. Default risk is moving higher. Average probability of default is now 71.7 basis points. That compares to 67.8 basis points the prior month, 66.3 basis points two months prior, 63.1 basis points three months prior, and 59.1 basis points six months prior. At the same point last year, average probability of default was 57.4 basis points. The current CBC rating for this sector is bb+, and about 87% of the firms with a rating are at bbb or lower. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Credit Problems Mount for US Energy Sector: September 2020 To download the September 2020 Oil & Gas Aggregate PDF, click here. . The besieged US energy sector continues to see credit deterioration, and with a multitude of problems facing the industry there is little cause for optimism. In the US, energy companies were supplying fewer barrels of gas per day even with the recovery in consumption, and shale producers are facing a cash crunch. Meanwhile, European oil producers are questioning whether it’s worth drilling. Problems that began months ago continue to fester for firms around the world. Demand will likely remain depressed until the economy picks up, and credit will continue to be stressed. Probability of Default for US Oil & Gas Firms Increases by 50% Over Last Year Credit quality for US-based oil and gas firms continues to trend lower and probability of default has surged Percentage of firms with a low CBC rating is much higher for US than for UK, EU energy aggregates . US Oil & Gas The credit deterioration in US energy continues, but at a slower pace than in recent months. With the latest update, large US oil & gas firms have seen credit quality drop just 3% from the prior month. That compares to a drop of 10% from two months prior, 17.4% from three months prior, or 41.5% from six months prior. Credit quality has dipped about 50% from the same point last year. Default risk is surging. Average probability of default is now 58.7 basis points. That compares to 57 bps the prior month, 53.4 bps two months prior, 50 bps three months prior, and 41.5 bps six months prior. At the same point last year, average probability of default was 39.1 bps. This aggregate’s CBC rating is bb+. UK Oil & Gas Credit is also deteriorating in the UK energy sector. For large UK oil & gas firms, credit quality is down 2% from the prior month, 4% from two months prior, 7% from three months prior, and 15.4% from six months prior. Compared to the same point last year, it’s down 17.3%. Default risk is climbing as credit quality drops. Average probability of default is now 38.5 bps. That compares to 37.9 bps the prior month, 37 bps two months prior, 35.9 bps three months prior, and 33.4 bps six months prior. At the same point last year, average probability of default was 32.8 bps. This aggregate’s CBC rating is bbb-. EU Oil & Gas Credit quality is also trending down for large EU oil & gas firms. It’s declined by 1% from one month prior, 3% from two months prior, 7% from three months prior, and 10.6% from six months prior. Year-over-year, it’s down by 8%, indicating some volatility and that the decline in quality is a more recent trend. Default risk is growing. Average probability of default is now 27.3 bps. That compares to 27.1 bps the prior month, 26.4 bps two months prior, 25.5 bps three months prior, and 24.7 bps six months prior. At the same point last year, average probability of default was 25.4 bps. This aggregate's CBC rating is bbb. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Credit Quality for US, UK Housing Sectors Stable: September 2020 To download the September 2020 Housing Aggregate PDF, click here. . With the economic picture still murky, no news may be good news for the US and UK housing sectors. Credit quality has seen little change in each region with the most recent update. Recent positive signs in the US and UK markets may suggest continued stabilization. But as noted last month, the UK is experiencing its worst recession on record and the sector’s credit prospects may limited for some time. There’s more reason for optimism for the US, according to some reports.   Overall Credit Picture Remains Worse for UK Housing Sector Deterioration in credit quality has plateaued for both the US and UK housing sectors While recent movement is minimal, credit quality is still severely compromised. More than three quarters of firms in each aggregate have a Credit Benchmark Consensus (CBC) rating of bbb or worse, highlighting overall credit weakness. US Household Goods and Home Construction Firms The latest update indicates stabilization in credit quality for the US housing sector. There was no change in credit quality from the month prior, and deterioration of about 1% from two months prior. Still, there was a decline of 10.3% from six months prior and 14.1% from the same point last year. Average probability of default for this sector is 49.6 basis points, unchanged from the prior month and compared to 49.3 basis points two months prior. It was 45 basis points six months prior and 43.5 basis points at the same point last year. The declines in credit quality may have levelled off, but the sector does have a large percentage of companies with weak credit quality. About 76% of firms with a CBC rating are at bbb or lower. The aggregate’s average CBC rating is bb+. UK Household Goods and Home Construction Firms Last month, it looked like the holding pattern for the UK housing sector may have ended. But this month’s updates shows little change. Credit quality is essentially unchanged, down just 0.3% from one month compared to a decline of 4% from two months prior. It’s down 8% from six months prior, and from the same point last year. Average probability of default is now 56.1 basis points, compared to 55.9 basis points the prior month and 54.2 basis points two months prior. It was 51.7 basis point six months prior and 52.1 basis points at the same point last year. As with the US housing aggregate, there is a large percentage of companies with weak credit quality. About 83% of firms with a CBC rating are at bbb or lower. The aggregate’s average CBC rating is bb+. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Mid-September 2020 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. Download the Financial Counterpart Monitor to learn more: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Credit Risk Monitor ### Mid-September Industry Monitor Download the Mid-September Industry Monitor infographic below. Credit Benchmark have released the mid-month industry update for September, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the August End-Month Industry Monitor, the September Mid-Month Industry Monitor shows: The ratio of deteriorations to improvements for Corporates has improved since the end-August update (1.9:1 vs. 3.0:1) Travel and Leisure saw a large deteriorating ratio at 3.8:1, though it has improved since the end-August update (5.8:1) Health Care saw a 1:1 ratio of deteriorations to improvements Among the industries, General Retailers show the greatest percentage of Fallen Angels (2.5%) Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the Mid-September Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### September Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the September Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The September CCIs show prolonged credit deterioration for UK, EU and US Industrial companies. UK Industrials: No Improvement Seen in CCI UK Industrial companies have seen no improvement in their credit quality since last month – but nor have they worsened, after three prior months of progressive deterioration. This month, the CCI is 40.9; unchanged from last month. A CEBR report warns that in the event of another coronavirus wave and lockdown, UK GDP could be 3% to 5% lower in the fourth quarter compared to Q3. . EU Industrials: Credit Deterioration is Prolonged but Steady EU Industrial companies have shown a steady pattern of credit deterioration for several months, with little month-to-month fluctuation in the CCI. This month, the CCI for EU firms is 44.2, a slight worsening from last month’s CCI of 44.4. Though Eurozone manufacturing showed some signs of bouncing back from earlier COVID-induced crashes, confidence has taken a hit and any sustained return to growth is some way off. . US Industrials: CCI Stays Negative After a Year of Deteriorations Credit quality for US Industrial companies remains negative, with only a slight reduction in the severity of this month’s CCI. The CCI is currently 42.1, a mild improvement from 38.2 last month. The latest update completes a 12th month of continuous net deterioration, with trade tensions already having affected industrial output ahead of the unanticipated COVID impact in early 2020. While manufacturing activity has recently improved, employment figures are still contracting, supporting economists’ views that the US labor market faces future trouble. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### US, UK Retail Sector Default Risk Continues to Climb: September 2020 To download the September 2020 Retail Aggregate PDF, click here. Except for a few lonesome doves, general retailers in the US continue to struggle. Sales have returned to pre-pandemic levels, but the composition is different and recent sales recoveries were lower than anticipated. Consumer spending increases have been moderate. Something similar can be said for UK retail and for UK consumer spending. COVID-19 remains an issue for each country. Credit quality for each is sliding month after month. A change in direction in the near future seems unlikely unless the underlying dynamics improve. UK Retail Sector Sees Credit Downgrade Credit quality for US and UK retail sectors are down almost 40% and 20%, respectively, from the same point last year There remains a greater concentration of firms with poor Credit Benchmark Consensus (CBC) ratings in the UK retail sector, and this aggregate recently saw a CBC downgrade to bb US General Retail Firms The persistent credit deterioration for the US retail sector that began earlier this year continues. In the most recent update, credit quality for US general retail firms is down 4% from the month prior, 11.5% from two months prior, and 17.3% from three months prior. Longer term, credit quality has dropped by 32% in six months and 37% from the same point last year. This deterioration in credit quality is reflected in rising default risk. Average probability of default is now 56 bps, and this compares to 53.8 bps the prior month, 50.3 bps two months prior, and 47.8 bps three months prior. It was 42.4 bps six months prior and 40.9 bps at the same point last year. The overall CBC rating for this aggregate is bb+, with about 78% of firms at a CBC rating of bbb or lower. UK General Retail Firms Credit deterioration also continues for the UK retail sector. The most recent update shows a slide in credit quality of 4% from the month prior, 8% two months prior, and 10% from three months prior. Credit quality has dropped by 15.4% in six months prior and 18.7% from the same point last year. Average probability of default has increased to 81 bps, compared to 77.9 bps the month prior, 75.2 bps two months prior, and 73.6 bps three months prior. It was 70.2 bps six months prior and 68.3 bps at the same point last year. This aggregate has been in a worse credit position than its US counterpart over this period. The overall CBC rating for this aggregate is bb, a shift down from the previous bb+. About 92% of firms have a CBC rating of bbb or lower. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### Credit Benchmark Webinar: Covid and the Impacts on Banking and Credit Risk Management Click here to access the webinar recording. Financial institutions find themselves again at the center of another global recession, triggered this time by a pandemic rather than a shock to the banking system as in 2008. In this webinar we explore how banks and risk managers can best navigate the challenges caused by the current crisis while continuing to drive efficiencies and innovation. Topics of discussion include: The current economy and outlookThe state of credit markets and ratings migrationRegulatory responses to the crisis and different jurisdictional approachesLeveraging data and technology amidst cost pressures to more efficiently manage risk Panelists: Craig Broderick, Head of Advisory Board, Credit Benchmark, Member of the Board of Directors, Bank of Montreal and Senior Director, Goldman Sachs.Bruce Richards, Advisory Board Member, Credit Benchmark, Chairman of the Board of Credit Suisse Holdings (USA).Jeffery Weaver, Executive Vice President & Head of Qualitative Risk, KeyBank. The Webinar is moderated by Mark Faulkner (Co-Founder Credit Benchmark). If you have issues registering to access the recording of the webinar, please email info@creditbenchmark.com for assistance. ### Credit Risk Changes and Equity Performance During COVID Equity markets used to ignore credit risk, but COVID has changed all that.  There is a growing demand to understand corporate and financial credit risk at all levels, from single issuers and corporate families to sectors, industries and countries. How far do equity market movements reflect credit developments during the COVID crisis? Figure 1 shows S&P equity sector index changes since the pre-COVID peak in February, and the corresponding credit risk changes over the same period. Figure 1: US Equity Sector Performance and Credit Risk Changes during COVID This shows a loose negative relationship between credit risk changes and equity performance, but this is largely driven by the Energy sector with a near 40% decline in value and a credit risk increase of a similar magnitude – which represents, on average, a full notch downgrade for the sector constituents. Other date ranges during the COVID crisis show a very similar pattern – so the rankings of equity performances and credit risk changes over the period have both been remarkably stable. In this simple scatterplot, credit changes only explains a small percentage of the equity sector performance differences.  Clearly, equity performance is still mainly driven by the earnings or M&A outlook. But with the increasing importance of credit in the current environment, this chart highlights some potential anomalies: Financials are down more than 20% in value, but credit risk has only increased by 6%. Real Estate equity values are down just over 10%, but credit risk has increased by 35%. Consumer sectors (combining Staple and Discretionary) are up nearly 10% in the equity market, but credit risk has risen by about one-third. Technology values – after the recent rout – are still up about 16%, while credit risk is also up, about 10%. Utilities are down nearly 20% in the equity market, but credit risk shows little change. Some of these sectors will be influenced by rumours of M&A activity, and individual firms may be receiving forms of temporary state support (through furlough and credit facilities).  These factors will account for some of the anomalies discussed here, but the chart suggests scope for some dramatic equity value adjustments in the near future. ### The Tortoise and the Hare: Consensus Credit Estimates and Corporate Credit Spreads Download PDF With rising infection rates and concerns about the looming virus season, the COVID crisis is clearly far from over.  But with the first wave behind us, it is possible to see the past six months of market volatility in its broader context.   The S&P500 is now higher than it was in February 2020, having at one stage lost one third of its value.  The VIX spiked from a mid-February level of 14% to a mid-March high of 85%, and currently trades at 33%.  The Global BBB spread[1] tripled from 1.5% to 4.5% and currently sits at 1.7%. It is worth noting that while the equity distress measures topped out in March, credit spreads took another month to reach their peak.  Credit rating agencies were also quick to react with unprecedented levels of multi-notch downgrades. Markets were saved by Government policies – cheaper money for corporates and financials, “helicopter” money for furloughed workers; state bailouts and massive fiscal expansion.  The market meltdown must have been a major driving factor in these Government responses, but - with hindsight - many financial commentators see signs of over-reaction. The economic future is obviously highly uncertain and a spike in corporate downgrades and defaults is inevitable, along with a wave of mergers and acquisitions.  But in a world that Joseph Schumpeter would recognize, the COVID winners are already beginning to emerge.  It is not all bad news. Consensus credit data shows a more measured response to the crisis.  Figure 1 shows a comparison between changes in the global bond spread and in the global corporate credit risk over the past year. Figure 1 Global BBB Spread, Global Credit Consensus and Consensus Fitted Trend The spread shows a rapid and huge spike followed by a sharp drop, settling at a cumulative 26% higher at the end of July - an increase of 40 Bps in yield terms – but only up 13% at the end of August.  Consensus credit data shows a similar cumulative increase (15%) over the same period, but along a much smoother path.   The dashed line shows a one month ahead projection derived from the fitted trend[2].  Since credit risk rose steadily over the period, the projected trend lags the actual values, but is projected to increase by a cumulative 12% by the end of August.  The Credit Benchmark flash report (due soon) will reveal how accurate that is. So after six months of extraordinary market volatility, changes in the “real world” consensus tortoise and “market implied” spread hare have more or less coincided.  This suggests that the consensus may provide a smoother and calmer indication of where the credit market is eventually going, and investors with strong nerves may be able to use this as an extra input to their buy/sell indicators. [1] BofAML / ICE BBB Option Adjusted Spread [2] For each month, the time trend is fitted to the current and previous consensus sample; the dotted line ### End-August 2020 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. Download the Financial Counterpart Monitor to learn more: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Credit Risk Monitor ### End-August Industry Monitor Download the End-August Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for August, based on the final and complete set of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the August Mid-Month Industry Monitor, the August End-Month Industry Monitor shows: The bias towards deterioration remained the same from mid-month to end-of-month for Corporates (3:1) and worsened slightly for Financials (2.2:1 this update, up from 1.9:1 in the last update). There was little significant change in the deteriorating/improving ratios among the industries from mid-month to end-of-month. The largest worsening ratio changes are seen in Oil & Gas (5.7:1 this update compared to 4.8:1 last update) and Technology (2.4:1 this update compared to 1.7:1 last update). Though all the industries are skewed towards deterioration this month, some industries showed milder ratios of deterioration compared to the last update. These include Utilities (2.4:1 this update compared to 3.7:1 last update) and Telecommunications (2.1:1 this update compared to 2.8:1 last update). Within the sectors, Canadian Oil & Gas stands out with the heaviest deteriorating ratio, at 50:1. UK Oil & Gas and US Oil & Gas continue to show high levels of deterioration also (10:1 and 5:1 respectively). Outside of Oil & Gas, Travel & Leisure remains the sector with the largest deteriorating/improving ratio, at 5.8:1 (up from 5.3:1 in the last update). Travel & Leisure also shows the highest percentage of Fallen Angels this update (Investment Grade entities migrating to High-Yield), at 4.4% of total entities. Among the industries, Basic Materials show the greatest percentage of Fallen Angels (2.9%). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the End-August Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### Credit Quality Continues to Deteriorate for US, UK Auto Sectors: August 2020 To download the August 2020 Auto Aggregate PDF, click here. While there are some signs the US auto industry is restarting after COVID, numerous challenges remain – and that’s not even factoring in overall weakness in the economy and personal finances. Credit weakness continues, and it’s unlikely to get much better until everything else improves. Similar can be said about the UK, where car sales are on the rise but where the economy is coming off its worst drop on record. Default Risk Surges More Than 30% Over Last Year Credit quality for the US-based auto industry has fallen 31.4% since the start of this year Overall credit quality remains worse for UK auto sector firms, which have higher overall probability of default US Auto and Auto Parts Industry Deterioration for the US auto sector began earlier this year and continues with the latest update. Credit quality has declined by 5% from the prior month, 10% from two months prior, and 21.1% from three months prior. It’s down 31.4% from the start of this year and from the same point last year. Average probability of default for this sector is 46 basis points, compared to 44 basis points the prior month, 42 basis points two months prior, and 38 basis points three months prior. At the start of this year and at the same point last year, average probability of default was 35 basis points. This sector’s CBC rating has remained bbb-, and about 83% of firms with such a rating are at bbb or lower.   UK Auto and Auto Parts Industry The month-to-month trend in credit quality for the UK auto sector has been deteriorating at a slower rate in recent months. The decline from the prior month is 2%, while the drop from two months prior is 7% and the drop from the beginning of the year is 14.6%. Credit quality has declined 18.9% from the same point last year. Average probability of default for this sector is 63 basis points, compared to 62 basis points the prior month, 59 basis points two months prior, and 55 basis points at the start of the year. At the same point last year, average probability of default was 53 basis points. The current CBC rating for this sector is bb+, and about 86% of the firms with a rating are at bbb or lower. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Credit Challenge Grows for US Energy Sector: August 2020 To download the August 2020 Oil & Gas Aggregate PDF, click here. . Problems for the beleaguered US energy sector have continued to mount this year. Demand for oil plummeted, bringing down prices as competition and supplies grew. Bankruptcies continue in the industry as the broad economy continues to struggle, and it’s not clear how many firms will benefit from any improvement in prices. There’s also great uncertainty building around natural gas. The UK and EU energy sectors are also showing signs of stress. Probability of Default for US Oil & Gas Firms Surges by Almost 50% Over Last Year Credit quality for US-based oil and gas firms continues to trend lower Probability of default remains is considerably higher for US-based firms than for UK-, EU-based firms US Oil & Gas The downward trend in credit quality for the US energy sector continues. Large US oil & gas firms have seen credit deterioration of 6.7% from the prior month, 13.8% from two months prior, and 23.7% from three months prior. Since the start of this year, credit quality has fallen by 37.2%. It’s fallen by 45.1% since the same point last year. Default risk continues to climb. Average probability of default is currently 56 basis points, compared to 52 basis points in the prior month, 49 basis points two months prior, and 45 basis points three months prior. It was 40 basis points at the start of the year and 38 basis points at the same point last year. This aggregate’s CBC rating is in the bb+ range. UK Oil & Gas Credit quality for the UK energy sector is down 2.3% from last month, 5.5% from two months prior and 9.6% from three months prior. Indicating prior stability for this aggregate, credit quality for large UK oil & gas firms is down 13.5% from the start of this year and 15.5% from the same point last year. Average probability of default is 36 basis points, compared to 35 basis points two months prior and 33 basis points three months prior. It was 32 basis points at the start of the year and at the same point last year. This aggregate’s CBC rating is bbb-. EU Oil & Gas For the EU energy sector, there has been some volatility in credit quality. It has declined by 2.4% from one month prior, 6% from two months prior and 8.7% from three months prior. Measured from the start of the year and the same point last year, the decline was 9.7% and 7.5% respectively. Average probability of default is 27 basis points, compared to 26 basis points one and two months prior and 25 basis points three months prior. It was 25 basis points measured from the start of the year and the same point last year. This aggregate's CBC rating is unchanged at bbb. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Fallen Angels: Growing, but Slowing? The ranks of the Fallen Angels – firms whose credit quality has made the shift from investment-grade to high yield, or “junk” status – continue to grow, but the pace may be slowing down. Consensus credit data from Credit Benchmark – which gathers the collective credit quality estimates of lenders to these firms – shows that a growing number of companies have now entered the Fallen Angel category. However, the pace of growth is slowing, with 61 new companies earning the Fallen Angel designation this month, down from 152 last month. Each month, Credit Benchmark tracks a global sample of corporations across all sectors to gauge the percentage of firms at risk of losing their investment grade status. This month’s report captures Consensus credit data for 6,894 companies in total and finds that 679 (about 10%) are now classified as sub-investment-grade, according to the internal risk views of over 40 leading global financial institutions. Figure 1: Fallen Angels % by Global Sector Travel & Leisure, Leisure Goods, and Industrial Metals & Mining sectors continue to have the highest percentages of Fallen Angels, with 38%, 32%, and 23%, respectively. Aerospace & Defense and Chemicals sectors have continued to see their credit quality deteriorate, now with 18% and 14% of constituents categorized as Fallen Angels, respectively. Automobiles & Parts, Personal Goods, and Oil & Gas Producers have also shown month-to-month credit quality deterioration with 16%, 15%, and 13% of constituents now classified as Fallen Angels. The same can be said for Household Goods and Home Construction (11%). Widely cited research has suggested that, even though credit ratings agencies have only downgraded a handful of companies from investment grade to high yield so far this year, up to a third of all corporate bonds in the BBB category could shift to “Junk” status. Credit Benchmark Consensus credit data supports this thesis. The credit sample examined above is based on issuers as opposed to issues and includes all investment-grade companies, not only BBB. Still, the growing Fallen Angel rates shown here – which cover just five months of the COVID crisis – indicate that the shift for some sectors by the end of 2020 may be yet higher than has so far been suggested. Click here to download the chart and blog post PDF. ### Bloomberg Opinion: Solvency Is a Serious Issue. It Isn't a Crisis Credit Benchmark CCI data on the declining credit quality of US, UK, and EU Industrial companies has been cited by John Authers in his Bloomberg ‘Points of Return’ column. He writes: The quality of U.S. industrial companies is deteriorating as swiftly now as it was in the earlier stages of the pandemic...Similar trends are at work outside the U.S. Credit quality is still widely seen to be deteriorating [for the European Union], although the picture isn’t quite as bad as it was a couple of months ago. Bloomberg, August 27, 2020. To read the original article, please click the link below. View original article (external link) ### The Solvency Boundary In the Ernest Hemingway novel The Sun Also Rises, Mike is asked how he went bankrupt. “Two ways,” he answers. “Gradually, then suddenly.” COVID-19 seems to have rewritten the financial rules: Central Banks are pushing interest rates further into negative territory and Government support for businesses and their employees has pushed Sovereign debt to levels not seen since the Second World War. But in the real world, fundamentals still matter.  The bankruptcy list lengthens every week, and growing numbers of “Fallen Angels” show that many more firms are likely to suffer the same fate before the crisis is over. The boundary between investment grade (IG) and non-investment grade (non-IG) borrowers, is traditionally defined by agencies and bond markets such that anything rated at BBB- or better is IG, anything at BB+ or worse is non-IG.  Consensus credit data suggests that, in normal circumstances, this boundary corresponds to an approximate forward-looking default risk of 50Bps per annum, or 1 in 200.  Figure 1 shows proportionate yield changes in each credit category over the crisis period (end-February to early August). Figure 1: Effective US Corporate Bond Yield Changes (% of initial yield) during COVID crisisSource: Bank of America / ICE, St. Louis Federal Reserve Investment Grade yields have dropped, especially in the large BBB category; while Non-IG yields have increased, especially in the BB category.  This suggests a flight to quality by credit portfolio managers, with the A and BBB categories gaining at the expense of BB and B.  This is consistent with the traditional and distinct IG/Non-IG split, where credits on either side of this boundary can behave very differently.  Credit spreads for each group often move independently or even, as in Figure 1, in opposite directions.  Consensus credit transition data also shows that better risks are likely to stay in the same category, while bad risks tend to move around more – up or down – depending on the credit cycle. In effect, IG credits are those that are likely to stay solvent and hence remain in the broad IG group; non-IG credits are at more serious risk of insolvency especially during credit downturns. But in times of crisis, this “Solvency Boundary” may not be perfectly aligned with letter-based ratings, especially if a large number of previously Investment Grade firms (particularly those in the large BBB group) are migrating to junk status. Figure 2 is based on the full set of Consensus credit transition matrix data for US Corporates and shows median downgrade percentages both for pre-crisis and COVID crisis periods, with the bbb category split into bbb+, bbb and bbb-. Figure 2: US Corporate downgrades (21 notch scale) by credit category, % of names in each category Pre-crisis, the median downgrade rate was about 2%; during the crisis, it has been in the range of around 3% (c category) to 7% (the other Non-Investment Grade categories).  The aa category is just over 6% while the a and bbb+ categories are just over 4%.  The bbb and bbb- categories are also close to 7%. This suggests a possible boundary between the bbb+ category and the other bbb categories, with bbb+ close to the a- category rate, and bbb/bbb- similar to the bb and b category rates.  This effect is observed consistently for every month between February 2020 and June 2020 inclusive[1]. If this trend continues, it implies that companies within the BBB bond issue categories will show divergent credit trends; the current “Solvency Boundary” may have moved, lying between the issuer risk categories of bbb+ and bbb.  This has important implications for bond and equity investors: in the current environment, not all BBB issues are the same.  Investors need to look at the issuer risk level in detail if they want to remain on the safer side of the solvency boundary. [1] Note that this would be consistent with the over-rating problem recently identified by Professor Ed Altman. ### Credit Quality for UK Housing Continues to Worsen: August 2020 To download the August 2020 Housing Aggregate PDF, click here. . The US housing sector can breathe a (perhaps temporary) sigh of relief. The UK housing sector, however, may be taking a turn for the worse, with credit quality diminishing. There have been some positive signs in recent weeks, like rising sales, increased construction, and regulatory changes that allow for more construction. But with the UK experiencing the worst recession on record, this sector’s credit prospects may be restrained for some time.   Default Risk for US Housing Sector Unchanged Deterioration in credit quality for the US housing sector has stopped (for now), but credit quality is getting worse for the UK housing sector. More than three quarters of firms in each aggregate have a Credit Benchmark Consensus (CBC) rating of bbb or worse, highlighting overall credit weakness. US Household Goods and Home Construction Firms Credit quality for the US housing sector has begun to plateau. There was no change in credit quality from the prior month, and only a 2% decline from two months prior. Year over year, credit quality is still down 16.7%. Average probability of default for this sector is now 49 basis points, unchanged from the prior month and compared to 48 basis points two months prior. At the same point last year, it was 42 basis points. While credit quality may not be getting worse, about 77% firms with a CBC rating are at bbb or lower. The aggregate’s average CBC rating is bb+. UK Household Goods and Home Construction Firms The holding pattern for the UK housing sector appears to have ended. After seeing little to no change since the end of 2018, credit quality has taken a turn for the worse, starting in March this year. The deterioration in credit quality for this sector is 4% compared to one month prior and 6% compared to two months prior, and it’s down by 8% year-over-year. Average probability of default is now 56 basis points, compared to 54 basis points one month prior and 53 basis points two months prior. At the same point last year, it was 52 basis points. About 83% of the firms in the sector with CBC rating are at bbb or lower. The aggregate’s average CBC rating is bb+. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### August Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the August Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The August CCIs have seen significant further credit deterioration for UK, EU and US Industrial companies. UK Industrials: CCI Shows Deeper Drop This Month Credit quality continues to worsen month-on-month for UK Industrial companies, with a third consecutive month of decline. The CCI jumped down several points to register at 40.9 this month, down from 44.2 last month. The deterioration coincides with the recent announcement that the UK entered its first recession since 2009 amidst a 20.4% fall in output and plummeting productivity and consumer spending levels. . EU Industrials: Credit Trend Remains in the Red EU Industrial companies continue their strongly negative credit run, with a fifth consecutive month of net downgrades and little sign of improvement. The CCI for this month is 44.3, following on from last month’s CCI of 44.2. The region has shown less dramatic decline than for US and UK companies, with Germany leading the group’s recovery. Weak international trade with the US and UK remains a barrier to healthier trade volumes. . US Industrials: CCI Plunges Once More The mild easing of downgrades observed for US Industrial companies last month has reverted to parallel previous lows. The CCI has dropped back down to 38, after last month’s less severe 45.2. Industrial production in the US rose by 3% in July; a strong sign of progress after serious declines in March and April. However weak global growth and the threat of a resurgence of COVID-19 are continuing to weigh negatively on the credit outlook. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Rising Stars: Which Sectors are COVID Winners? COVID-19 has caused major economic damage, especially in sectors connected with travel and leisure.  But in manufacturing and technology there will be some strong winners: increased factory automation, major house-building and property conversion programs, increased demand for private cars, new software to facilitate social distancing in a broad range of situations, and major supply chain restructuring. The most recent Consensus credit data gives some insight into how these winners are already emerging. Figure 1 shows the proportion of Global Corporate companies that were in Non-Investment Grade credit categories in February 2020 and are now viewed as Investment Grade. Figure 1: Rising Stars Sectors The overall rate is 3.7% - less than half of the “Fallen Angel” rate.  Top of the list is Aerospace and Defense with a rate of 15.6%; followed by Electricity (9%) and Fixed Line Telecommunications (8.8%).  Mining, Personal Goods, Food & Drug Retailers, Support Services and Beverages are all above 5%.  Construction & Materials (4.5%), and Software & Computer Services (3.9%) are also positive. The bottom of the list includes Tobacco, Forestry & Paper, Alternative Energy, Oil Equipment, Health Care Equipment, Food Producers and Automobiles & Parts. Some of these may seem surprising, but the position of each sector in this list is partly determined by the proportion of companies that are already Non-Investment grade.  Health Care Equipment, for example, is heavily skewed towards Investment Grade.  Aerospace and Defense is dominated by companies in the bbb category, with equal proportions on either side in the stronger and weaker credit categories.  Many airlines are in the process of converting their passenger aircraft to carry freight, which along with financial assistance in the form of government bailouts, may partly explain the strong improvement in some companies in an otherwise badly-hit sector. Construction & Materials is dominated by companies in the bb category, and very few that are better than a.  The trend towards upgrades is likely to continue over the next 12 months with the need for new infrastructure adding to the impact of Government stimulus packages. ### Mid-August 2020 Financial Counterpart Monitor The Financial Counterpart Monitor from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. Download the Financial Counterpart Monitor to learn more: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Credit Risk Monitor ### Mid-August Industry Monitor Download the Mid-August Industry Monitor infographic below. Credit Benchmark have released the mid-month industry update for August, based on a partial subset of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the July End-of-Month Update, the August Mid-Month Industry Monitor shows: The bias towards deterioration flagged by the opinion indicator ratio has decreased slightly for both Corporates and Financials (down from 3.7:1 to 3:1 for Corporates and down from 3.8:1 to 1.9:1 for Financials). Oil & Gas companies remain the worst performers, with a deteriorating/improving ratio of 4.8:1 (down from 5.5:1 in the last update). Telecommunications showed a very slight improving ratio last month, at 0.9:1 - the ratio has now reverted to negative, at 2.8:1. UK Oil & Gas companies are showing heightened levels of deterioration since end-July, jumping from a 2.2:1 deteriorating/improving ratio to now a 8.5:1 ratio. Travel & Leisure companies show a less severe deteriorating/improving ratio than seen in the last update (5.3:1, down from 12.4:1), but are showing a greater number of "fallen angels" (companies dropping from investment grade to high yield), at 4.4% (last update produced no fallen angels for this sector). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the Mid-August Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor Update ### Default Risk for US, UK Retail Sectors Continues to Rise: August 2020 To download the August 2020 Retail Aggregate PDF, click here. Retail woes show no sign of stopping, particularly for the US. Joining chains like JC Penny, Brooks Brothers, and Sure La Table in bankruptcy are The Paper Store, Lord & Taylor, and Tailored Brands. Even with positive signs, like the second monthly increase in retail sales, optimism is hard to come by. The news is no better in the UK, with companies like Ben Sherman and Selfridges closing stores or cutting jobs. COVID-19 is still raging in the US, and new restrictions were imposed in the UK as cases begin to rise. Until the pandemic is under control, economists say, the economy can’t return to normal. Each Month Brings More Deterioration in Credit Quality Probability of default for US retailers is up by more than a third since the same point last year. The pace of credit quality deterioration may be greater for US retailers, but overall average probability of default is higher for UK firms, and a greater concentration of rated firms with poor Credit Benchmark Consensus (CBC) ratings. US General Retail Firms Credit quality for US general retail firms continues to sink and has been getting worse steadily since earlier this year. The latest update shows a drop of 8% from the month prior, 12.5% from two months prior, and 20% from three months prior. But the real inflection point came four months prior; since that point, credit quality has declined by 28.6%. Year-over-year, it’s down 35%. This drop in credit quality is reflected in climbing default risk. Average probability of default is now 54 basis points, compared to 50 basis points the prior month, 48 basis point two months prior, 45 basis points three months prior, and 42 basis points four months prior. At the same point last year, average probability of default was 40 basis points. Approximately 78% of firms this aggregate with a CBC rating are at bbb or lower with the most recent update, and the overall CBC rating for this aggregate is bb+. UK General Retail Firms Starting from a worse credit position than their US counterparts, UK general retail firms have also seen their credit quality declining –  down by 4% from the prior month, 5% from two months prior, and 10% from three months prior. Year-over-year, credit quality is down 14.9%. Average probability of default for this sector is now 77 basis points, an increase from 74 basis points in the prior month, 73 basis points two months prior, and 70 basis points three months prior. At the same point last year, average probability of default was 67 basis points. As of the most recent update, about 92% of firms this aggregate with a CBC rating are at bbb or lower. The overall CBC rating for this aggregate is bb+. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### End-July Industry Monitor Download the End-July Industry Monitor infographic below. Credit Benchmark have released the end-month industry update for July, based on a partial subset of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the July Mid-Month Industry Monitor, the July End-Month Industry Monitor shows: The bias towards deterioration flagged by the opinion indicator ratio has increased slightly in Consumer Services (up from 4.6:1 to 5.3:1) Travel & Leisure remains a heavily impacted industry with a 12.4:1 deteriorating/improving ratio, up from 8.6:1 Telecommunications is the only industry showing a positive ratio of deteriorations to improvements based on the opinion indicator The percentage of Oil & Gas Fallen Angels (Investment Grade entities migrating to High-Yield) increased from 1.6% to 4.0% US Oil & Gas entities migrated from investment grade to high-yield at a rate of 7.4% in the end-month Monitor vs. lower migration rate of 3.7% in the mid-month Monitor Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the End-July Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Industry Monitor ### How should I think about credit risk in a world where Central Banks are buying junk bonds? ### Credit Challenge Grows for US Energy Sector: July 2020 To download the July 2020 Oil & Gas Aggregate PDF, click here. . Problems in credit quality abound, yet few sectors are seeing deterioration like the US energy sector. Supplies remain elevated as demand remains lower, and the economy remains weakened as new COVID-19 cases surge throughout the country. So great is the strain for the sector that Deloitte projects up to $300 billion in write downs or impairments, and the list of bankruptcies is growing. Probability of Default for US Oil & Gas Firms Surges by Almost 40% Over Last Year Credit quality for US-based firms deteriorated by average of 8% in last three months Probability of default remains significantly higher for US-based firms than for UK-, EU-based firms US Oil & Gas The US energy sector continues to see one of the most pronounced declines of all sectors tracked, and this shows no signs of abating. Credit quality for large US oil & gas firms is down 5% from last month, 15.7% from two months prior, and 25.5% from three months prior. Year-over-year, credit quality has plummeted by 37.2%. Default risk is surging. Average probability of default is now 59 basis points, compared to 56 basis points in the prior month, 51 basis points two months prior, and 47 basis points three months prior. At the same point last year, it was 43 basis points. This aggregate’s Credit Benchmark Consensus (CBC) rating remains in the bb+ range. Around 83% of the firms with such a rating are at bbb or lower, significantly higher than aggregates for the UK or EU. UK Oil & Gas Credit quality for the UK energy sector is also deteriorating, although the pace is much slower compared to the US energy sector. Large UK oil & gas firms have seen their credit quality drop by 3% from a month earlier, compared to a drop of 9% over the last three months. Year-over-year, the decline in credit quality was 15.2%. This deterioration in credit quality corresponds with an increase in default risk. Average probability of default is 38 basis points, compared to 37 basis points the prior month and 35 basis points two and three months prior. This aggregate's CBC rating is unchanged at bbb-, and about 67% of the firms with such a rating are at bbb or lower. EU Oil & Gas Credit quality for the EU energy sector is unchanged from the month prior and down only 4% over the last year. Average probability of default remains at 25 basis points, unchanged from the prior month, and compared to 24 basis points at the same point last year. This aggregate's CBC rating is unchanged at bbb, and about 66% of the firms with such a rating are at bbb or lower. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Financial Times: Data Drill Credit Benchmark data on the declining credit quality of North American and European Oil & Gas Exploration & Production companies has been cited in the latest 'Energy Source' newsletter via The Financial Times. Authors Derek Brower and Myles McCormick noted in the column: "The chances of US oil and gas producers defaulting on their debt jumped by 50 per cent in recent months, shifting the sector a notch further into junk territory, according to Credit Benchmark. Their European counterparts — more integrated and less indebted — are doing better." The Financial Times, July 30, 2020. View original article (external link). ### How the Virus Crisis Infected Credit & Solvency: Global Trends Credit Benchmark have released a new whitepaper analyzing the COVID-19 impact on global credit quality and solvency. Download the full whitepaper below. Scientists are still trying to understand the long-term impact of COVID-19 on the human body as the world scrambles to comprehend this novel strain of virus. The longer-term consequences of COVID-19 on the global economy are similarly unknown, but it is evident that significant disruption to manufacturing, trade and consumer sentiment has well and truly been felt. There are serious concerns about inflation, reflected in gold prices close to all-time highs. These concerns are partly driven by the explosion in Government debt, and partly due to major changes in supply chains. Supply chains in the wake of COVID-19 will be shorter, more robust, and companies will try to keep their options open by using multiple suppliers.  Input costs will probably rise as a result, since there is a cost to removing uncertainty – and this will be reflected in consumer prices.  Trade tensions are likely to intensify as Governments aim to protect their economies, so average import prices will probably increase. But every crisis brings winners as well as losers.  Every tragic closure of a long-standing business leaves a potential niche to be filled by a well-funded new entrant. Global investment banks are already seeing Schumpeter-style waves of restructuring M&A; the corporate winners will be those who have stayed sufficiently solvent to continue trading, to invest in one of the newly vacated or created business segments, or to take advantage of financially distressed competitors. A new whitepaper from Credit Benchmark uses Consensus credit estimates for the past few months to assess the impact of COVID-19 on credit and solvency across the global economy.  Credit Trend & Level: Global Corporates, Global Financials, Global Sovereigns & Central Banks The left-hand chart shows the cumulative change in credit risk (average Probability of Default) from the start date. From the start of the COVID-19 crisis, Global Corporates have deteriorated the most, with a net 9% increase in default risk over the period.  Financials and Sovereigns have only dropped a few percent over the same period. The analysis looks at countries, industries, and sectors, as well as individual corporate borrowers. It shows where downgrades are concentrated, and some of the surprising sources of upgrades. The paper demonstrates these effects across the credit spectrum, from the highest to the lowest credit quality. It shows how many obligors are likely to run into solvency problems, as well as case studies where solvency simply ran out. The key observations from the paper are as follows: Corporates have deteriorated much more than Financials. Travel and Leisure, Airlines and Hotels, Real Estate and Retail are hardest hit.  Health Care and Pharmaceuticals, Utilities, Food and Beverages have understandably held up. A number of Sovereigns show downgrades, and seven have dropped out of coverage. Financials – apart from Real Estate – are improving. The “Fallen Angels” rate is well above long run average. Investment Grade categories saw few CRA downgrades, but consensus data shows rising risk. Migration data suggests that the 2020 default rate may be at the top end of current expectations. Download the latest whitepaper to read the full analysis of the COVID-19 impact on credit quality within the global economy.   First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### Credit Benchmark Partners With New Global Peer Financing Association June 23, 2020 -- Credit Benchmark are proud to support the Global Peer Financing Association (GPFA), a new association recently formed by a group of beneficial owners to create a more efficient way of engaging in peer-to-peer (P2P) securities financing transactions. Four leading pension plans, California Public Employees' Retirement System (CalPERS), Healthcare of Ontario Pension Plan (HOOPP), Ohio Public Employees Retirement System (OPERS), and State of Wisconsin Investment Board (SWIB) along with eSecLending, Osler, Hoskin & Harcourt LLP and Credit Benchmark, have come together to create the Global Peer Financing Association (GPFA). The shared goal of the GPFA is to create a more efficient and actionable way to increase and encourage peer-to-peer trading activity in the securities lending and repo markets for the benefit of asset owners. Credit Benchmark are delighted to support the GFPA with unique consensus credit risk data that helps facilitate business between hitherto unrated funds and  counterparts. Click here for the full press release. For more information on the GPFA, visit the website. ### Fallen Angels: Potential Defaults Climb as Ranks Grow Rating agency downgrades have hit unprecedented levels over the past few months, but the majority of these are companies that were already classed as high yield. Fallen Angels – companies that cross the boundary from Investment-Grade to “Junk” – are still in a minority, as agencies (and their corporate clients) display an understandable reluctance to avoid the “BBB cliff”. Consensus credit data from Credit Benchmark – which gathers the collective credit quality estimates of lenders to these firms – shows that a growing number of companies are falling over the cliff edge, providing clues to likely future default rates. Consider the full set of global sectors. In this sample, of 6,894 companies, 578 (about 8%) have migrated to and remained in sub-Investment-Grade territory over this period, as seen in Figure 1. Figure 1: Fallen Angels % by Global Sector The sector showing the most significant deterioration is Travel & Leisure, with about 34% of firms now classified as Fallen Angels. The Leisure Goods and Metals & Mining sectors follow with roughly 23% and 20% of constituents now classified as Fallen Angels, respectively. Other sectors showing double-digit rates in this month’s update include Automobiles & Parts, Media, and Oil & Gas Producers, with about 14%, 13%, and 12% of constituents classified as Fallen Angels, respectively. The deterioration can also be seen further down in the chart. In the Oil Equipment, Services & Distribution sector, for instance, the percentage of Fallen Angels has grown from around 4% to about 5%. Only two sectors – Mobile Telecommunications & Tobacco, each of which is new to the dataset – have no firms in the Fallen Angels category. In the previous update, we noted that Ed Altman suggested that up to a third of all corporate bonds in the BBB category could move to “Junk” status, an estimate consensus credit data supports. Click here to download the chart and blog post PDF. ### July Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the July Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The July CCIs have seen continued credit deterioration for UK, EU and US Industrial companies. UK Industrials: CCI Shows Further Deterioration Last month’s swing from near-neutral credit quality to pronounced deterioration for UK Industrial companies continued for a second month in similar severity. The CCI for this month is 44, a very slight worsening from last month’s CCI of 44.4. Recent output figures indicated that industrial manufacturing and production in the UK improved from April to May against expectations. UK businesses must contend with the dual threats of COVID-19 and the approaching end of the Brexit transitionary period with no deal yet confirmed   . EU Industrials: Credit Downgrades Persist for Sector EU Industrial companies continue a pattern of net credit downgrades which has persisted for 4 months. The CCI for this month is 44.2; a slight improvement from last month’s CCI of 41.9 but still firmly in the red. PMI figures from last month indicate that Eurozone manufacturing is recovering as EU nations move out of lockdown. However, export figures remain well below pre-virus levels as COVID-19 continues to stymie international trade. . US Industrials: CCI Remains Negative But Severity Eases This month saw fewer downgrades for US Industrial companies than the previous two months but the balance still hangs in the negative. The CCI for this month is 45.4; something of a reprieve from last month’s CCI of 38.9. This is the tenth consecutive month of net downgrades for the sector. Though production levels are growing, with an increase of 7.2% last month, factory output in the US is still 11.1% lower than in February. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Basel IV Mark Faulkner, Co-Founder Credit Benchmark talks Basel IV Listen to this podcast on the Pierpoint Perspective website. ### COVID 19 & Chain Reactions: The Transmission of Effects Across Markets & Institutions ### Default Risk Mounts for US, UK Retail Sectors: July 2020 To download the July 2020 Retail Aggregate PDF, click here. The blows to the US retail sector continue. Well-known names declaring bankruptcy include Neiman Marcus, JC Penny, J. Crew, Tuesday Morning and GNC. More recently, Lucky Brand, Brooks Brothers, and Sure La Table have joined the list. One analysis is even suggesting the recent COVID-19-induced hit to retail is worse than that experienced during the Great Recession. The news is no better in the UK, where JD Sports seems likely to enter administration; alongside Victoria’s Secret UK, Debenham’s, Laura Ashley, and DVF Studio earlier this year. Job cuts continue in both the US and UK at all levels and unemployment levels grow as economies struggle to recover. Each Month Sees Worsening Credit Trend Credit deterioration for US retailers has increased by an average of 6% in each of the last three months. Deterioration for UK firms is slower, but the overall probability of default risk remains higher for UK retail sector. Both the US and UK general retail aggregates continue to hit new credit quality lows. US General Retail Firms The decline in credit quality for US general retail firms continues to hasten, with deterioration averaging 6% in each of the last three months. The latest update shows a steep drop of 6% month-over-month, 11.8% over the last two months, and 18.8% over the last three months. On a year-over-year basis, the drop is 23.9%. Average probability of default for this sector is now 57 basis points, compared to 54 basis points in the prior month, 51 basis points two months prior, and 48 basis points three months prior. At the same point last year, average probability of default was 46 basis points. Approximately 80% of firms this aggregate with a CBC rating are at bbb or lower with the most recent update, and the overall CBC rating for this aggregate is bb+. UK General Retail Firms Credit quality also continues to worsen for UK general retail firms. The latest data show a drop of 1% month-over-month and 6% over the last two months. Year-over-year, credit quality deteriorated by 10.3%. Average probability of default for UK general retail firms remains significantly higher than that of their US counterparts. It’s now 75 basis points – just three points away from a downgrade to a CBC score of bb-. At the same point last year, average probability of default was 68 basis points. The percentage of firms in this aggregate with a CBC rating of bbb or lower (92%) is higher than with the US aggregate. The overall CBC rating for this aggregate is bb+. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### Mid-July Industry Monitor Download the Mid-July Industry Monitor infographic below. Credit Benchmark have released the mid-month industry update for July, based on a partial subset of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the June End-of-Month Update, the July Mid-Month Industry Monitor shows: The bias towards deterioration flagged by the opinion indicator ratio has increased slightly in Financials (up from 3.1:1 to 4.6:1) The percentage of Corporate Fallen Angels (Investment Grade corporate entities migrating to High-Yield) increased from 1.0% to 2.6% There is a 5.4:1 deteriorating/improving ratio for Oil & Gas entities (down from 7:1 in the flash update) US Oil & Gas showed the highest percentage of fallen angels, with 3.7% of IG entities migrating to HY Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the Mid-July Industry Monitor infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Flash Update ### Complacency About Prime Broker Risk Could Kill Hedge Funds ### Financial Institutions Credit Risk Monitor: July 2020 The new Financial Institutions Credit Risk from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. Download the Financial Institutions Credit Risk Monitor to learn more: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Credit Risk Monitor ### Basel IV Rules: The Impact Upon Capital Markets and the Securities Finance Industry Download full whitepaper below. The impact of the Covid-19 crisis to the global financial network has accelerated the downward transition of creditworthiness at a rate comparable to the 2008 Global Financial Crisis. In the intervening 12 years, the credit markets have been relatively benign as Central Banks, regulators and policy makers have followed policies designed to achieve that objective. Today, the world faces an uncertain and increasingly malign credit environment despite the efforts of the Governments around the globe to stabilise their economies. In these turbulent times it is not surprising that the regulatory direction of travel has been towards encouraging stronger risk management within key financial networks and demanding more capital dedicated to support the key players and their counterparts. The forthcoming Basel IV regulations were conceived prior to the Covid-19 crisis and are a further step along that regulatory journey. The scale of the challenge for the securities financing industry in preparing to meet this new regulatory framework should not be underestimated. The regulation will not just impact the regulated banking community but also have sweeping ramifications for all asset owners as well as for the broader capital market. One of the new rules that will most affect the securities financing industry is the limitation on banks to apply internal rating models for Risk-Weighted Asset (RWA) allocation purposes. Additionally, the standardised rules state that unrated obligors will attract a 100% risk weight allocation. This affects tens of thousands of high-quality but unrated pension and mutual fund counterparties that most market practitioners think ought to attract a 20% risk weight instead. In this new paper from Credit Benchmark, it is estimated that the savings possible by the reduction of the cost of capital from a 100% risk weight to a 20% risk weight to be 2 million USD per notional 1 billion USD of exposure. The basis of this estimation and the underlying assumptions are outlined below in Figure 1 – making this issue too expensive to ignore. Figure 1: A Cost Comparison of Three Scenarios: Current; Proposed Regulation; and ECAI Such a dramatic increase in the cost of doing business for those impacted by the forthcoming regulations could result in a collapse in securities financing activity, with potentially severe consequences across the capital markets. Hence it is imperative that the industry finds solutions to the challenges that the Basel IV rules will pose. A potential solution to this dilemma is the regulatory-approved use of alternative sources of credit data to supplement the gaps in the “issuer paid” credit rating agency model. External Credit Assessment Institutions (“ECAIs”) are a possible source of alternative credit data. The purpose of this paper is to help raise awareness of these regulations, to highlight their potential impact and to issue a call to action. Download the latest whitepaper to read the full analysis of the forthcoming Basel IV regulations and the potential impact on the securities financing industry: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper ### June End-of-Month Credit Update Download full June End-of-Month Credit Update infographic below. Credit Benchmark has released the latest end-of-month consensus credit data (from May 2020), based on the final and complete set of contributed credit risk estimates from 40+ global financial institutions. This final update takes into account the credit movements of ~26,000 separate legal entities. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in our mid-month flash update, the final update shows: The bias towards deterioration flagged by the opinion indicator ratio has not changed drastically in either Corporates (4.8:1) or Financials (3.1:1) The opinion indicator marks the most impacted industries: There is a 7:1 deteriorating/improving ratio for Oil & Gas entities (up from 6.4:1 in the flash update). Though Oil & Gas has consistently performed the most poorly of the industries in recent updates, the ratio of deterioration is reducing. Consumer Services and Consumer Goods are both still among the industries most inclined to downgrade - the deteriorating/improving ratio for both groups is 6:1 and 5.7:1 respectively (down from 8.4:1 and 6.3:1 in the flash update). Telecommunications has shown a higher rate of downgrades compared to the flash update, with a 4.5:1 deteriorating/improving ratio (up from 2:1). Telecommunications was the only industry with a positive ratio one month ago, indicating that the pervading wave of Corporate downgrades has finally caught up with the group. The percentage of Investment Grade (IG) entities migrating to High-Yield (HY) increased for most of the industry cuts excepting Technology which remained the same since mid-month, as well as UK Oil & Gas in the sector cuts. Consumer Services again showed the strongest tendency to transition to HY with 5.8% of IG entities migrating (up from 2.9%). Travel & Leisure is still the most impacted sector with 10.1% of IG entities being downgraded to HY (up from 5.1% mid-month but lower than at May end-of-month, at 14.9%). General Retailers also fared poorly, with 6.3% of IG entities migrating to HY (up from 3.6% mid-month). Canadian Oil & Gas again showed no upgrades, and 24 downgrades, with 4.4% of IG entities in this group migrating to HY. Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the June end-of-month credit update infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Infographic ### Financial Times: Chances of Default by US Oil and Gas Producers Surges The likelihood of US oil and gas producers defaulting on their debt has jumped 30 per cent over the past year as the industry continues to reel in the wake of the oil price crash, writes Myles McCormick for the Financial Times. The article highlights Credit Benchmark credit risk data on US Oil & Gas companies to illustrate the ongoing challenges faced by the sector in recent months. "A new report by Credit Benchmark suggests credit quality in the sector has slumped 19.3 per cent over the past two months and 29.6 per cent over the past year as producers struggle to turn a profit in the weaker price environment." The Financial Times, June 30, 2020. View original article (external link). ### Supply Chain Credit Risk in the Post-Covid19 World The Covid19 crisis has exposed the risks in single, long and complex supply chains that are only as strong as their weakest link. Companies are moving quickly to multiple, short, simple and robust supply structures wherever possible. Some companies view their supply chain details as trade secrets, but a number of financial data platforms – such as Bloomberg and Factset – provide detailed information on suppliers and customers for many of the largest firms in the world. This data can be combined with consensus credit data to construct supply chain credit profiles for individual companies and even for entire sectors. The extended report showing the full credit profile for a sample of 79 Tesla suppliers can be downloaded at the bottom of the page. Below is an extract showing the credit distribution of the 79 suppliers. As Figure 1 shows, the majority of the sample are in the bbb category, but about a third are in the sub-Investment Grade bb category. A further 30% have no consensus ratings, probably because they are small and specialised suppliers. There are very few suppliers in the b and c categories.  The overall weighted average Probability of Default over one year is 144 Bps, or about 1.4%.  These suppliers are spread across a range of sectors and recent trends for these are shown in Figure 2 (see full downloadable report below). Not surprisingly, all of these show sharp deterioration and a string of consecutive net downgrades. On average, these sectors have deteriorated by about 6% over the past three months. Of these, software and services has only deteriorated by 1%; the worst hit is Oil & Gas, down 13%. Supply chain risk monitoring and management is becoming a high profile topic; consensus credit data has a key role to play in that process. Credit Benchmark can produce custom credit risk reports on a supply chain of your choice - download the Tesla Supply Chain Report below for a sample. Or, request your own free Supply Chain Credit Risk Report. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Credit Risk Monitor ### Default Risk Increasing Quickly for US, UK Auto Sectors To download the June 2020 Auto Aggregate PDF, click here. Fewer cars bought. Fewer miles driven. Less travel. Reduced or eliminated paychecks and massive spikes in unemployment. The problems are legion for the US auto sector. Even with some initial estimates of the difficulties proving to be overstated, credit challenges could remain with the US auto sector for some time. The UK auto sector, where production has been reduced drastically and jobs are being cut, finds itself in a similar situation. Last Two Months Have Brought Default Risk Increase of More Than 20% for US Auto Companies Credit quality for the US-based auto industry has plunged 20.4% in the last two months, far out-pacing decline for UK auto sector. Despite the rapid growth in credit risk among US companies, overall credit quality remains worse for UK firms, which have higher overall probability of default. US Auto and Auto Parts Industry Credit quality continues to plummet for the US auto sector, deteriorating 10% from the prior month and 20.4% over the last two months, compared to a decline of 22.2% versus the same point last year. The average probability of default for the sector is 43.4 basis points, compared to 39.5 basis points in the prior month, 36 basis points two months prior, and 35.5 basis points at the same point last year. While the Credit Benchmark Consensus (CBC) rating for this sector has remained bbb- over the last 12 months, it is now fewer than 5 basis points away from a downgrade to the high yield bb+ category. More than 80% firms with a rating are at bbb or lower. UK Auto and Auto Parts Industry Credit quality is also worsening for the UK auto sector, deteriorating 6% over the last month and 7% over the last two months. Year-over-year, the drop is 9%. Average probability of default for this sector is now 61.6 basis points, compared to 58.1 basis points the prior month, 57.5 basis points two months prior, and 56.3 basis points at the same point last year. The current CBC rating for this sector is bb+, unchanged over the last year, and more than 80% of the firms with a rating are at bbb or lower. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Default Risk for US Oil & Gas Sector Continues to Rise: June 2020 To download the June 2020 Oil & Gas Aggregate PDF, click here. . Each monthly credit update brings more bad news for the energy sector. Even with positive signs, such as increased air travel and the gradual reopening of the economy, demand remains suppressed. Default risk continues to surge and shows no sign of immediate improvement. Probability of Default for US Oil & Gas Firms Surges by Almost 30% Over Last Year Credit quality for US-based firms deteriorated by 19.3% in last two months and 29.6% over last year Probability of default remains far higher for US-based firms than for UK, EU-based firms US Oil & Gas Credit quality for large US oil & gas firms continues to tank. Once again, this sector is seeing one of the most significant declines of all those tracked by Credit Benchmark, with deterioration picking up significantly in the last two months. The month-over-month drop was 9%, and 19.3% over two months. Year-over-year, credit quality has deteriorated by 29.6%. The average probability of default for the sector is now 55.8 basis points, compared to 51.3 basis points last month, 46.8 basis points two months prior, and 43.1 basis points at the same point last year. This aggregate's Credit Benchmark Consensus (CBC) rating remains in the bb+ range after losing its investment grade status in April of this year. UK Oil & Gas A similar pattern has been on display among UK oil & gas firms, with credit deterioration shifting quickly in just the last two months. The month-over-month decline in credit quality was 4%, and 6% across two months. Year-over-year, credit quality deteriorated by 10%. Average probability of default is now 36.8 bps, compared to 35.5 basis points the prior month, 34.8 basis points two months prior, and 33.6 basis points at the same point last year. This aggregate's CBC rating has remained bbb- over the last year. EU Oil & Gas Credit quality deterioration for large oil & gas firms in the EU may also be starting to accelerate. The month-over-month decline was 3%, and the drop from two months prior was 4%. Year-over-year, the drop was only 1.5%. Average probability of default is now 24.5 basis points, compared to 23.9 basis points the prior month, 23.4 basis points two months prior, and 24.1 basis points at the same point last year. This aggregate's CBC rating has remained bbb over the last year. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### The Wall Street Journal: Warehouses Offer Crowded Shelter in Retail Storm Mall landlords face a reckoning. The Covid-19 crisis has pushed the credit quality of the average U.S. general retailer from just inside investment grade a year ago into junk territory today, according to Credit Benchmark. One U.S. owner of shopping malls, Tanger Factory Outlet Centers, said it won't be able to collect rent that was due in April and May until early 2021. Intu, a U.K. department-store landlord, filed for the local equivalent of bankruptcy last week after tenants couldn't make the rent. The Wall Street Journal, June 29, 2020. View original article (external link). ### Credit Quality for US Housing Sector Getting Worse: June 2020 To download the June 2020 Housing Aggregate PDF, click here. . A myriad of problems are confronting the US housing market -- far fewer homes are being built and new construction planning processes are diminishing. The rate of home sales is also falling. While there is some evidence emerging that things are beginning to look up, credit problems persist for this sector.   Default Risk Up Almost 16% in Last Year Year-over-year deterioration in credit quality for US housing sector is far greater than for UK housing sector Despite differences in pace of change, more than 80% of firms in each aggregate have a Credit Benchmark Consensus (CBC) rating of bbb or worse, highlighting overall credit weakness US Household Goods and Home Construction Firms Credit difficulties for the US housing sector are becoming more conspicuous. The deterioration in credit quality has been speeding up, with month-over-month declines of 5% and 8% over the last two months. Year-over-year, credit quality has deteriorated by 15.9%. Average probability of default for this sector continues to move up quickly, rising to 57.6 basis points with the most recent update. It was 55 basis points in the prior month and 53.5 basis points two months earlier. At the same point last year, average probability of default was 49.7 basis points. Around 80% of the firms in the sector have a CBC rating of bbb or lower with the most recent update. Over the last 12 months, the overall CBC rating for this aggregate has remained bb+. UK Household Goods and Home Construction Firms As described in last month's update, credit quality for the UK housing sector has been in a holding pattern over the last year, getting worse slowly over the short-term but still flat over the long-term. The month-over-month decline was a mere 1% and the year-over-year decline was about 2%. Average probability of default is 53.4 basis points, which compares to 52.8 basis points the prior month. At the same point last year, average probability of default was 52.6 basis points. About 82% of the firms in the sector have a CBC rating of bbb or lower. The overall CBC rating for the sector over the last 12 months has stayed at bb+. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Fallen Angels: Growing Numbers Signal 2020 Default Spikes Rating agency downgrades have hit unprecedented levels over the past few months, but the majority of the downgrades have been for companies that were already classed as high yield. Fallen Angels – companies that cross the boundary from Investment Grade to Junk – are still in a minority, as agencies (and their corporate clients) display an understandable reluctance to avoid the “BBB cliff”. But consensus credit data shows that, in the opinion of their lenders, a growing number of companies are falling over the cliff edge, providing clues to likely future default rates. Figure 1 shows, for the full set of global sectors, the proportions of a sample of 6,895 companies that have migrated from Investment Grade to Non-Investment Grade in the past three months.  In total, 426 companies (around 6%) have migrated to and remained in Sub-Investment Grade territory over this period. Figure 1 More than a quarter of the Travel & Leisure sector sample has moved to non-Investment Grade over the past three months.  The Leisure Goods sector rate is 18%, while Industrial Metals and Mining are running at 17%.  Automobiles and Parts, Media and Forestry & Paper are all at about 10%. Sectors with a significantly lower Fallen Angels rate than the overall sample rate of 6% include Food Producers, Pharmaceuticals & Biotechnology, various Utility sectors, and Health Care Equipment & Services.  Oil Equipment, Services & Distribution is also below average, whereas most of the broader Oil sectors are already dominated by below Investment Grade companies. Ed Altman has robustly estimated that up to a third of all corporate bonds in the BBB category could move to Junk status, and consensus credit data earlier this year seemed to corroborate that analysis.  It is worth noting that the consensus credit sample discussed here is based on issuers (rather than issues) and includes all Investment Grade companies, not only BBB. But the Fallen Angel rates shown here – which cover just three months of the COVID crisis – suggest that the transition rate for some sectors by the end of 2020 may be even higher than has so far been suggested. Click here to download the chart and blog post PDF. ### June Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the June Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The June CCIs have seen credit deterioration across the board. The UK Industrials CCI for June is 44.4; CCI Falls Foul of COVID Impact The moderate trend that saw UK Industrial companies hovering near neutral for several consecutive months has come to an end, with a significant swing towards net deterioration this month. The CCI for this month is 44.4; A large drop from last month's just-above-neutral CCI of 50.4. With car manufacturing in Britain dropping by 99.7% in April (compared to April 2019) and total manufacturing output dropping by 24.3% month-on-month, Covid has well and truly infected the UK industrial sector.   . EU Industrials: Strong Bias Towards Deterioration Persists EU Industrials have seen further deterioration this month following last month's deep drop into the red. This month, the CCI for the region’s industrial companies is 41.7; in a slightly worse position than last month's CCI of 42.3. Contractions in demand continues to affect output levels for Eurozone manufacturers but the downwards trend may begin to ease in coming months as Europe emerges from lockdown restrictions. . The US Industrials: CCI Sees Scant Relief from Downgrades The credit quality of US Industrial companies remains largely unchanged from last month’s dramatic downturn.   This month’s CCI sits at 38.8, up from 36.7 last month. It has now been 10 months since an instance of net upgrades in the longer-term trend. Reports of stabilisation for US manufacturers suggest that while the figures look bad, they are at least moving in the right direction. High levels of unemployment will dampen economic growth for some time though, the effects of which will surely remain felt by the industrial sector. month’s CCI sits at 38.8, up from 36.7 last month. It has now been 10 months since an instance of net upgrades in the longer-term trend. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Default Risk for US, UK Retailers Accelerates To download the June 2020 Retail Aggregate PDF, click here. This year has not been kind to the beleaguered US retail sector. Several major chains, including Neiman Marcus, JC Penney, and J Crew have declared bankruptcy, joining a host of smaller retailers that have succumbed to the pandemic-driven pause in brick-and-mortar retail shopping. More are expected, and a similar scenario is playing out in the UK retail sector. Default Risk for US Retailers Up Almost 12% in Last Two Months Probability of default for US retailers has increased 6% in the last month and almost 12% over last two months. Credit Benchmark Consensus (CBC) for US and UK retailers is bb+. Approximately 92% of firms in UK aggregate and 80% of firms in US aggregate have CBC of bbb or lower, indicating depth of credit quality woes. US General Retail Firms Credit quality for US general retail firms is plummeting. The descent for this sector picked up in the last six months, declining by 6% over the last month and 11.8% over the last two months. Year-over-year, the decline is 18.8%. Average probability of default for this sector is now 54.5 basis points, compared to 51.4 basis points in the prior month and 48.6 basis points two months prior. At the same point last year, it was 45.7 basis points. This decline in credit quality and rise in probability of default is reflected further in the CBC ratings. About 80% of firms in this aggregate with a CBC rating are at bbb or lower as of the most recent update. The overall CBC rating for this aggregate is bb+ and has remained as such over the 12 months. UK General Retail Firms Already in a worse position than their US counterparts, UK general retail firms have also seen the pace of credit quality deterioration accelerate. Overall credit quality has declined by 3% over the last month, 4% over the last two months and 8% over the last year. Average probability of default for this sector is now 73.4 basis points, compared to 71 basis points in the prior month and 70.5 basis points two months prior. At the same point last year, the average probability of default for the sector was 68 basis points. Approximately 92% of firms in this aggregate with a CBC rating are at bbb or lower based on the most recent update. The overall CBC rating for this aggregate is bb+, consistent over the last 12 months. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### June Flash Update Download June intra-month flash update infographic below. Credit Benchmark have released the intra-month flash update for June, based on a partial subset of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the May End-of-Month Update, the June intra-month flash update shows: The rate of deterioration for Corporates remains fairly consistent (5.3:1 last update; 5.5:1 this update), but is slightly diminished for Financials - the ratio of deterioration to improvement flagged by the opinion indicator is now 2.5:1 (down from 3.2:1 last update). The opinion indicator marks the most impacted industries and sectors: Oil & Gas companies are starting to see some reprieve after weeks of downgrades. Though this group is still showing a negative ratio, the rate of deteriorations to improvements has dropped from 19.3:1 in the last update to 6.4:1 this update. This ratio still places the group as one of the worst affected industries. The industry with the most negative ratio this update was Consumer Services, with a 8.4:1 deteriorating/improving ratio (up from 6.6:1 last update).The sector with the most negative ratio this update was Travel & Leisure, worsening from the last update with a 21:1 deteriorating/improving ratio (up from 13.6:1) The positive trend for Telecommunications was short lived - this update sees the group back in negative territory, with a 2:1 ratio (down from 0.7:1 last update). Geographically, Canadian companies are performing the worst. Canadian Corporates and Canadian Oil & Gas firms both show a much higher ratio of deterioration to improvement than their US and UK counterparts. Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the June intra-month flash update infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Flash Update ### Financial Institutions Credit Risk Monitor The new Financial Institutions Credit Risk from Credit Benchmark provides a unique analysis of the changing creditworthiness of financial institutions. The report, which covers banks, intermediaries, buy-side managers, and buy-side owners, summarizes the changes in credit consensus of each group as well as their current credit distribution and count of entities that have migrated from Investment Grade to High Yield. The data, which is based on the credit risk views of Credit Benchmark’s contributing financial institutions, is also available at the legal entity level. Users of the data can monitor and be alerted to the changing credit consensus of their financial counterparts. Download the Financial Institutions Credit Risk Monitor to learn more: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Credit Risk Monitor ### Risk On or Off? : Credit Risk and Share Price Correlations Download Equity Fund Credit Risk Report below and request your own free report. The Covid-19 crisis crept up on equity markets, with progressively larger drops in share prices in each month of the first quarter of 2020.  Equity markets usually focus on sales and earnings, not credit risk: when a company becomes a “cash cow” with no avenues for new business investments, it is typically seen as ex-growth and ripe for takeover. High ratings are for high growth firms, frequently making liberal use of leverage. The virus crisis is unique. During the financial crisis of 2008-09, a credit crunch threatened a banking system failure and dented consumer demand for a few quarters. Covid-19 has hit the corporate sector much harder, with a rapid and widespread collapse in revenues. Government and bank lifelines have favoured essential firms, or those with strong balance sheets and sustainable business models in the post-virus economy. The chart shows the relationship between equity market movements and credit risk for 771 US Corporates over a 17 month period. From an overall equity market perspective, the first three months on 2020 all appear in the lower left quadrant – negative index returns, and a negative correlation between individual equity performance and credit risk. For example, across 771 US Corporates, the correlation between credit risk and share price performance in March 2020 is -0.4, with an index return of about -23%. This means that listed companies with high credit risk were much more likely to underperform the market – a classic flight to quality, where “quality” is defined by creditworthiness. By contrast, in December 2019 the correlation was +0.26, with a mildly positive market return of +4%.  Other months fit this overall pattern; there are no months in the upper left quadrant (positive credit risk / share price return correlation and a falling index) and those in the lower right quadrant are very close to the axes. The fit is 73%; this drops to 52% if the March 2020 data is excluded, but is still significant. This was also a period of extraordinary weakness in oil stocks, but excluding them does not change the fit significantly. The conclusion is that rising markets do not just ignore credit risk, they almost embrace it; but when markets turn down – especially in the current environment – they will pivot towards companies with the highest credit quality. When risk is “on” one week and “off” the next, credit risk data shows which stocks are likely to win or lose in each phase. Credit Benchmark can produce custom credit risk reports on an equity fund of your choice - download a sample of our Equity Fund Credit Risk Report, based on a real global growth fund, below. Or, request your own free Equity Fund Credit Risk Report. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Sub-Custodians: Networks Reveal Credit Risk Download full whitepaper "Global Custodians, Sub-Custodian Networks and Credit Risk" below. The rise of the sub-custodian The four largest custodian banks[1] now provide safekeeping for more than $100trn of stocks and bonds – about two-thirds of the world’s listed assets. But to handle millions of day-to-day trade reconciliations and asset ownership changes in hundreds of markets, these global custodians use a growing network of sub-custodians around the world as representatives and asset repositories.  Delegating or sub-contracting custody creates a number of layers of operational and credit risks. These risks are low probability, but potentially high impact: the 2008 Lehman Brothers default left trails of damage and legal claims that are still not fully resolved.  Increasing complexities COVID-19 has put a spotlight on the complex web of interconnections in the modern global economy.  In the custody world, the network of sub-custodians represents multiple potential points of failure.  As usual,  the devil is in the detail. In theory there are important differences in asset security between, for example, a custody delegate and a custody subcontractor – but in practice the legal difference can be fuzzy. The increasing complexity of these global sub-custodial networks means less clarity about where an asset is held – and the credit risk of the legal entity holding it.  A new whitepaper by Credit Benchmark maps this interconnectivity and sheds light on hidden potential credit risks within these networks. The chart below shows the interconnectivity of some of the major sub-custodian networks. Interlink of sub-custodian networks While Citibank and HSBC use their own subsidiaries for 58% and 40% of their sub-custodial relationships respectively, the chart shows that other custodians are far more likely to turn to the services of external sub-custodians. Brown Brothers Harriman and State Street use their own sub-custodians in less than 5% of their relationships. Consensus credit data: solving the scarcity of public credit ratings Public credit rating information on the sub-custodians within these networks is by no means comprehensive. Only 38% of Citibank’s chosen sub-custodians are rated by the main credit rating agencies (CRAs). Credit Benchmark’s Consensus credit data, sourced from over 40 of the world’s leading financial institutions, provides a Consensus rating on 88% of Citibank’s sub-custodial network, and on between 85-99% of the other largest custodians' networks. Asset managers have a fiduciary duty to their beneficial owners to understand where an asset may be held within their chosen custodian’s network. They need to consider if they are willing to entrust some of those assets to institutions that may not meet their usual credit criteria. If a sub-custodian defaults, the asset could become temporarily inaccessible or even frozen indefinitely, with financial fallout ranging from opportunity costs to material losses. Credit Benchmark can help measure, monitor and manage the credit risk that asset owners are exposed to through their custodial networks. Download the latest whitepaper to read the full analysis of the interconnectivity and credit risk of global custodians and their sub-custodian networks. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper [1] Bank of New York Mellon, State Street, Citibank, JP Morgan Chase ### May End-of-Month Credit Update Download full May End-of-Month Credit Update infographic below. Credit Benchmark has released the latest end-of-month consensus credit data (from April 2020), based on the final and complete set of contributed credit risk estimates from 40+ global financial institutions. This final update takes into account the credit movements of ~26,000 separate legal entities. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in our mid-month flash update, the final update shows: The bias towards deterioration flagged by the opinion indicator ratio is roughly unchanged in both Corporates (5.3:1) and Financials (3.2:1) The opinion indicator marks the most impacted industries: There is an 19.3:1 deteriorating/improving ratio for Oil & Gas entities (down from 31.6:1 in the flash update). This is the largest ratio difference of the industries but also the biggest ratio drop compared to the mid-month flash update. There is a 7.2:1 deteriorating/improving ratio for Consumer Goods (up from 6.1:1). There is a 6.6:1 deteriorating/improving ratio for Consumer Services (down from 6.9:1). Telecommunications again shows the only positive ratio in favour of improvements, at 0.7:1 deteriorating/improving (down from 0.8:1 mid-month). The percentage of Investment Grade (IG) entities migrating to High-Yield (HY) increased for most of the industry cuts excepting Healthcare, Technology and Telecommunications which remained the same since mid-month. Consumer Services again showed the strongest tendency to transition to HY with 5.5% of IG entities migrating (up from 4.9%). Travel & Leisure is still the most impacted sector with 14.9% of IG entities being downgraded to HY (unchanged from mid-month). Canadian Oil & Gas showed 43 downgrades and no upgrades, and 6.1% of IG entities in this group migrated to HY. The biggest jump in IG to HY transitions from the mid-month update was in Canadian Corporates which doubled from 2.2% to 4.4%. Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the May end-of-month credit update infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Infographic ### Bloomberg: Oil Firms Raise $171 Billion in Debt as Virus Hits Fuel Demand Oil and gas companies worldwide have raised $171 billion of debt from the loan and bond markets since March after the coronavirus pandemic hit demand for fuel, writes Jacqueline Poh for Bloomberg, citing Credit Benchmark data on the deteriorating credit quality of global firms. "The energy sector remains in a precarious situation as the underlying economy remains weak and people travel far less than they used to, according to a report by financial analytics firm Credit Benchmark." "Default risk for U.S. energy firms is deteriorating fast after credit quality worsened by 10% in last month, the report said. The credit quality score for U.K. oil and gas firms dropped by 1.9% in the month, while European companies suffered a 1.8% decline, according to Credit Benchmark." Bloomberg, May 29, 2020. To read the original article, please click the link below. View original article (external link) ### Default Risk Rising Quickly for US Auto Sector To download the May 2020 Auto Aggregate PDF, click here. Problems for the US auto sector are making themselves known in credit data, and credit data for the UK already reflects ongoing issues. This comes as the US reaches a possible bottom in COVID-19-related sales declines, with some dealers reporting reasons for optimism as the coronavirus-induced shock begins to subside. Despite this optimism, auto sales were down by 39-54% for some brands in the US. In the UK, auto sales had their worst month since 1946. Such a development affects not only the automakers and dealers but those involved in production as well.  In Just One Month, Default Risk Is Up Almost 10% for US Auto Companies Credit quality for US-based firms has fallen 9.6% in the last month. While credit quality continues to worsen at a faster pace for the US than for the UK, the Credit Benchmark Consensus (CBC) rating is worse for UK-based firms, reflecting how much credit quality has already declined. US Auto and Auto Parts Industry Credit quality has been deteriorating steadily for the US auto sector. Over just the last month, credit risk has increased by 9.6%. This compares to a decline of 13.7% over the last year. The average probability of default for the sector rose to 39.2 basis points, the highest in more than two years. It was 35.8 basis points in the prior month and 34.6 basis points at the same point last year. The current CBC rating for this sector is bbb-, unchanged for the last 12 months. As credit quality continues to deteriorate, the majority of firms in this sector have CBC ratings of bbb or lower.   UK Auto and Auto Parts Industry Credit quality for the UK auto sector isn't worsening as quickly as it is for the US, largely due to the fact that it had already deteriorated considerably over the last several months. The average probability of default for the sector is now 58.5 basis points, compared to 57.7 basis points in the prior month and 55.6 basis points at the same point last year. This translates into a decline in credit quality of 1.3% over the last month and 5.2% over the last year. The current CBC rating for this sector is has remained bbb- over the last 12 months. As in the US, the vast majority of firms in this sector have CBC ratings of bbb or lower. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Oil & Gas Credit Risk is Getting Worse To download the May 2020 Oil & Gas Aggregate PDF, click here. . The energy sector remains in a precarious position. Even with a recent upward trend in prices, helped by an OPEC agreement to cut production, the underlying economy remains weak and many are traveling far less than they used to before the pandemic emerged. Supply will remain higher than demand until this changes.  Default Risk for US Firms Surges by Double Digits from Last Month Credit quality for US-based firms worsens by 10% in last month, and by a larger 18.8% year-over-year. Credit position for US-based firms remains much worse than UK-based firms, whose credit quality has also declined. Credit Benchmark Consensus (CBC) rating for US-based firms has changed to bb+. US Oil & Gas Credit quality for large US oil & gas firms is in a tailspin, down not just compared to its UK and EU counterparts, but also experiencing one of the most significant declines of all the sectors tracked by Credit Benchmark. Credit quality for the sector has declined by 10% from the prior month and 18.8% over the last year. The average probability of default for the sector is now 49.9 basis points, compared to 45.4 basis points in the prior month and 42 basis points at the same points last year. The aggregate’s CBC rating has been at bbb- across the last year but after edging close to a downgrade, and has now dropped into bb+. UK Oil & Gas Credit quality for large oil & gas firms in the UK is also weakening. This aggregate saw a drop of 1.9% month-over-month and 5.6% year-over-year, with an abrupt change in quality in the last six months. The average probability of default for the sector is now 36.1 basis points, compared to 35.5 basis points in the prior month and 34.2 basis points at the same point last year. The CBC rating has stayed at bbb- for the last 12 months. EU Oil & Gas Changes in credit quality for large oil & gas firms in the EU remain minor. There was a decline in credit quality of 1.8% month-over-month, yet the year-over-year change was an improvement of 1.6%. Aggregate probability of default is now 24.2 basis points — up from 23.8 basis points in the prior month, but down 24.6 basis points at the same point last year. The CBC rating for the sector is bbb-, unchanged over the last year. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Luxury Goods: A Sector on the Edge Download the full Luxury Goods Aggregate Analytics infographic below. The Luxury Goods sector has had phenomenal success over the past ten years. Growing global middle classes and readily available credit have paved the way for a social media-driven explosion of demand for high quality brands.  Every major city now has at least one destination street devoted to luxury brand outlets.  And with some airports becoming luxury retail malls, and the weekend shopping vacation as a leisure activity in its own right, it is not surprising that projections for this sector have been very optimistic – anything from $500bn to $1.2 trn within 5 years. What a difference three months makes.  GDP is expected to contract by at least 25% in the short term, the stock market is volatile, social distancing is the new normal, international travel is hobbled and the global economy faces protracted mass unemployment. This is clearly a toxic environment for luxury goods, exacerbated by a huge inventory overhang.  The greatest damage comes from shrivelling tourist numbers – expected to cost the industry $80bn.  Chinese consumers represent about 25% of all luxury spending and they intend to spend significantly less this year. Some firms are likely to be resilient; those with strong balance sheets, specialised products and very wealthy customers will weather the worst of the downturn.  But the “mass market in luxury” is likely to shrink for some time, leaving the sector ripe for restructuring. The chart below shows the credit consensus key metrics for 70 companies in this sector. CreditBenchmark.com The majority (more than 80%) of the sample are currently Investment Grade, but the trend is towards downgrades.  The net balance of deteriorations vs. improvements has been negative since early 2019, and the latest reading is the largest negative balance in the past few years.  Average credit risk has risen by 10% in the past six months and further deterioration in credit quality seems unavoidable. Download the full Luxury Goods Aggregate Analytics infographic, broken down by credit trend, consensus spread, activity, distribution by size, baskets and volatility, here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Infographic ### Credit Quality for US Housing Sector Deteriorates Sharply To download the May 2020 Housing Aggregate PDF, click here. . Problems in the US housing sector abound. Credit quality for both US- and UK-based firms continues to deteriorate, but the moves are significantly more dramatic in the US, with average probability of default increasing 3% over the last month and 13% over the past year. Data is likely to be weak for some time, with April housing starts seeing a sharp fall and unemployment likely to remain elevated for months as consumers manage considerable debt burden. One estimate has US housing prices dropping until April 2021. The situation is scarcely different in the UK, with one estimate predicting a drop in prices of 13% in 2020.   Default Risk Increases 13% in Last Year for US Firms Credit quality for both US- and UK-based firms continues to deteriorate, but year-over-year change is far greater for US-based firms. Credit Benchmark Consensus (CBC) sits at bb+ for both aggregates, but continued deterioration will bring them closer to a downgrade to bb. US Household Goods and Home Construction Firms Credit quality for US housing sector firms took another big tumble this month. The month-over-month deterioration is 3%, and the year-over-year change is 13%. Average probability of default for these firms is currently 55 basis points, compared to 53.4 basis points in the previous month and 48.8 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating for this aggregate has remained at bb+ over the last year. UK Household Goods and Home Construction Firms Credit quality for UK housing sector firms is in something of a holding pattern: getting worse in the short-term and flat over the longer-term. The month-over-month deterioration is 0.4%, but year-over-year, this aggregate saw improvement of 0.4%. With the most recent update, average probability of default for these firms is 52.8 basis points, compared to 52.6 basis points in the prior month and 53 basis points at the same point last year. Like with the US aggregate, the current Credit Benchmark Consensus (CBC) rating for this aggregate has remained at bb+ over the last year. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Risk.net: Coronavirus Takes Toll on Corporates Monthly credit movement from April's consensus data. As governments move to ease the lockdowns put in place to slow the spread of the coronavirus, the financial blow to businesses is coming into sharper focus. The latest Credit Benchmark data for April 2020 reveals sharp deteriorations across a swath of industries.   Oil and gas companies were the worst hit, with 92% of credit movement in April to the downside. The sector faces severe challenges.   In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, looks at the industries and sectors most affected by the coronavirus based on credit movement from April's consensus data. Corporates have been hit hard, with deterioration accounting for 82% of total credit movement last month. Oil and gas firms, as well as basic materials, consumer services, and telecommunications, performed poorly. The analysis is broken down across three charts: The opinion indicator marks the most affected industries and sectors. The distribution changes track the rate of credit category migration for industries and sectors. The rate of entities migrating from investment grade to high yield. Distribution changes mark the increase or decrease in the percentage of entities in the given rating category. Read the full article using the below link: View original article (external link)   ### May Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the May Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The May CCIs have seen a dramatic surge of credit deterioration in EU and US industrial companies, while UK companies have been comparatively spared this month. The UK Industrials CCI for May is 50.4; Credit Risk Continues to Toe the Line UK Industrial companies have seen a slight reprieve from last month’s net downgrades but continue to hover near neutral. The CCI for this month sits at 50.4; slipping back into positive territory after last month’s CCI of 49.4. The last six months have seen three of net improvement and three of net deterioration, and no one month has dropped below a CCI of 49 or risen above 51. Recent growth in Health and Food manufacturing may be helping to keep the group afloat – or possibly earlier Brexit-related deteriorations mean there is little remaining ground to lose. . The EU Industrials CCI for May is 42.3; Net Downgrades Rise Sharply EU Industrials have compounded last month’s swing towards downgrades with a significant further drop. This month, the CCI for the region’s industrial companies is 42.3, following last month’s CC of 48.9. A forecast given by Germany’s DIHK chambers of industry and commerce expects the national economy to shrink by at least 10% this year due to COVID-19, and industrial companies are reportedly facing massive liquidity problems. Industrial production across the EU dropped by 10.4% in March 2020. . The US Industrials CCI for May is 36.6; CCI Paints Worrying Picture for US Industrial Credit Health US Industrial companies have seen the largest recorded instance of net deterioration since CCI records began in December 2015. The CCI for US firms has fallen to 36.6 this month from its previous position of 48. The CCI has trended towards deterioration for eight consecutive months now. Manufacturing output plummeted by 13.7% in April according to the Federal Reserve, stoking fears that the US economy will contract at a pace not seen since the Great Depression. Fiat Chrysler Automobiles announced the return of 12,000 manufacturing staff on the 18th May which may prompt some recovery in future months. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### US Corporate Credit Migrations: c-category grows by 70% The BBB cliff has been widely discussed and the growing number of recent “Fallen Angels” shows that a number of corporates are falling over the cliff edge. The chart below shows the recent pattern of US Corporate credit migration across the 7 main credit categories, for a sample of 2219 companies. US Corporate Credit Migrations, Dec 2019 – Mar 2020 In the past three months, 0.5% of the sample has migrated out of the a category and a further 0.5% out of the bbb category.  The c category accounted for just 1.9% of the overall sample at the end of 2019; it now represents 3.2%, an increase of nearly 70%.  Most of this move occurred during March.  Between February and March, 0.25% of the sample moved out of the aa category, with a small additional movement from the a category.  The movement out of bbb has accelerated, with about 0.8% of the sample migrating into the bb and c categories. Further negative migrations are expected in coming months; the cumulative impact of these will push up the average expected default rate of the US Corporate sector.  Addressing the COVID-19 crisis, a recent paper by Professor Ed Altman** summarises predictions from various sources for High Yield borrower defaults in 2020.  These range from 5% to 20% representing levels that in some cases have not been seen for decades.  Defaults on this scale may occur as supply chains collapse while heavily indebted companies are unable to access Government rescue schemes. For our earlier analysis on G5 corporate credit spread (US, UK, Canada, France and Germany), please download our the G5 Corporate Borrower Credit Risk Distributions infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Infographic ### May Flash Update Download May intra-month flash update infographic below. Credit Benchmark have released the intra-month flash update for May, based on a partial subset of the contributed credit risk estimates from 40+ global financial institutions. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in the April End-of-Month Update, the May intra-month flash update shows: The previous bias towards deterioration flagged by the opinion indicator ratio is now even more pronounced in Corporates. In Financials, the previous small bias towards improvements has flipped to a stronger bias towards deterioration. The opinion indicator marks the most impacted industries: There is an 31.6:1 deteriorating/improving ratio for Oil & Gas entities (a large increase from 11:1 in the end-of-month April update update).There is an almost 7:1 deteriorating/improving ratio for Consumer Services (up from 6.2:1). There is a 6:1 deteriorating/improving ratio for Consumer Goods (up from 3.8:1). Healthcare has increased from a modest 1.2:1 deteriorating/improving ratio to a current ratio of 5.2:1. Telecommunications is the one industry showing net improvements; now at a 0.8:1 deteriorating/improving ratio, compared to the previous ratio of 5.5:1. The percentage of Investment Grade (IG) entities migrating to High-Yield (HY) increased for 13 of the 20 cuts. Of the industries, Consumer Services again show the strongest tendency to transition to HY with 4.9% of IG entities migrating (down from 5.3%). Travel & Leisure is also again one of the most impacted sectors with almost 15% of IG entities being downgraded to HY (similar to last update). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the May intra-month flash update infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Flash Update ### Turbulent Equity Markets Mirror Rising Credit Risk Download Equity Fund Credit Risk Report below and request your own free report. Credit risk has never been more important.  But while credit has always been the main driver of corporate bond risk, equity managers have traditionally focused on earnings growth and share price volatility. The Covid crisis has turned this on its head; earnings still matter, but only if a company can survive long enough to renew its revenue growth in the new normal business environment. Equity markets have experienced near-record levels of volatility in the past few months and there have been some savage individual share price drops.  Markets are adjusting to the prospect of a 1930s Depression-like contraction in GDP and a short-term collapse in earnings, but are they also discounting the looming rise in corporate defaults? Consensus credit assessments certainly showed major changes in March, and further revisions are expected in Q2. The relationship between the March movements and US equity market industry performance for the same period is shown in the below chart. Consensus Credit Revisions and S&P Sector Performance March 2020 Consensus Credit Revisions and S&P Sector Performance March 2020 There is a noticeable negative correlation between this small group of industry credit risk changes and the associated US equity performance over this period. The overall fit is 77% and the slope of the fitted line is 1.53. This implies that after allowing for a base level of equity market drop (the intercept of 6%), each 1% increase in one-year consensus credit risk is associated with a 1.5% decrease in equity values. The worst affected industry is Oil & Gas, with a 35% decline in equity value and an 18% increase in credit risk. The least affected is Health Care with a 5% decline in equity value and no change in credit risk. The Consumer Goods industry is an obvious outlier.  Credit risk has increased 6%, while the industry index has only declined 5%. It is possible that the credit consensus was previously too optimistic – or it may now be too pessimistic. It is equally possible that the equity market is not taking sufficient notice of deteriorating balance sheets in the industry. Perhaps a wave of mergers and acquisitions will rescue a number of otherwise heavily indebted companies. The next few months will tell. This chart suggests that the link between credit risk and equity markets may be significant, especially in the current environment.  Credit Benchmark can produce custom credit risk reports on an equity fund of your choice - download a sample of our Equity Fund Credit Risk Report, based on a real global growth fund, below. Or, request your own free Equity Fund Credit Risk Report. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report ### Credit Risk Surges for US, UK Retailers To download the May 2020 Retail Aggregate PDF, click here. Default Risk for US Retailers Up 6% in Last Month The probability of default for US retailers has increased 6% in the last month. Credit Benchmark Consensus (CBC) for US retailers has declined over last year from bbb- to its current position of bb+. Approximately 91% of firms in UK aggregate and 80% of firms in US aggregate have CBC of bbb or lower. US General Retail Firms Credit quality for US general retail firms has plummeted 6% over the last month and 12.3% across the past year. The average probability of default for the sector is now 52.2 basis points. The current CBC for this aggregate is bb+, down from bbb- at this time last year. With the most recent update, about 80% of firms in this aggregate have a CBC of bbb or lower. UK General Retail Firms Credit quality for UK general retail firms has also been deteriorating. The month-over-month decline was 0.8% and the year-over-year decline was 5%. Average probability of default is now 71 basis points, compared to 70.4 basis points the prior month and 67.6 basis points at the same point last year. The CBC for this aggregate has held in the bb+ range over the last year, but it is edging closer to a category downgrade if the average probability of default ticks higher than 78 basis points. With the most recent update, about 91% of firms in this aggregate have score of bbb or lower. About Credit Benchmark Monthly Retail Aggregate This monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. Credit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### Latest Credit Trends April 2020: Covid Crisis Impact Download full Covid Crisis Impact infographic below. April's consensus credit data shows the dramatic global impact of the Covid crisis on risk estimates.  Wall Street vs Main Street The most striking trend is the growing gap between Wall St and Main St: Financials have continued to improve while Corporates show a sharp deterioration.  This is most pronounced in the US, where Corporate credit risk has increased by an average of 10% (and considerably more in some sectors).  UK Corporates were beginning to stabilise after the Brexit-related declines of the past three years, but the trend has turned down again. Within financials, banks and insurance track each other closely in the US, whereas insurance has lagged behind banks in the UK and the EU.  Banks have the advantage of record low interest rates and, in some cases, 100% Government backed loans for small businesses.  Banks will also benefit from an expected wave of mergers, acquisitions and restructuring as companies with heavy debt loads seek out stronger partners.  The Insurance industry has large, captive cash flows and apart from the controversial issue of business interruption payouts, they are likely to see improvements in loss ratios due to the majority of the world’s population being unable to work, fly, or drive. Basic Materials, Technology, Industrials, Consumer Goods, Oil & Gas, Airlines All Show Decline In other industries, Basic Materials show declines in US, UK and the EU as supply chains dissolve and economic activity evaporates.  Interestingly, these trends were already underway before the crisis unfolded.  Technology continues to tread water; technology is likely to be critical in the new normal economy but identifying the individual winners and losers is very challenging at this stage. Quoted technology companies (“Silicon Valley” in the charts) show a sharp decline, mirroring that of “Wall St”.  This may be because the quoted firms are dominated by gig economy and product driven firms, who have been hard hit.  Even Amazon expects a return to losses despite being the undisputed leader in online retail. Industrials and Consumer Goods show sharp declines of roughly equal magnitude in US and EU; there is limited impact in the UK so far although these industries have already been heavily downgraded during the Brexit process. The heavy declines in Oil & Gas and Airlines come as no surprise – the secondary impact on airframe manufactures, parts suppliers, oil-rich Sovereigns and tourism hotspots is likely to appear in coming months. Preview of Covid Crisis Impact infographic - download for all 16 charts comparing industry and geography credit trends. For full details, please download the Covid Crisis Impact infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Infographic ### Petroleum Economist: IOCs Put on Show of Strength in Bond Markets Recent debt issuance by International Oil Companies (IOCs) could be seen as a muscle-flexing exercise as much as a move to bolster balance sheets, writes Paul Gordon for the Petroleum Economist. In its analysis of debt levels for IOCs, the article cites Credit Benchmark oil and gas data to illustrate the comparative credit positions of US, UK and EU firms: "According to financial data analytics company Credit Benchmark’s monthly oil and gas aggregate for April, credit quality for large US and UK oil and gas firms is now in its worst position in more than two years, with the average probability of default for US firms up by 8.6pc from the same period in 2019 and up by 4.3pc for UK firms...By contrast, EU-based oil companies saw their credit quality improve by 4.4pc year-on-year, with their average probability of default less than half that of their US counterparts." Petroleum Economist, May 5, 2020. View original article (external link). ### April End-of-Month Credit Update Download full April End-of-Month Credit Update infographic below. Credit Benchmark has released the latest end-of-month consensus credit data (from March 2020), based on the final and complete set of contributed credit risk estimates from 40+ global financial institutions. This final update takes into account the credit movements of ~26,000 separate legal entities. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades. Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / Improvements Distribution Changes: The increase or decrease in the percentage of entities in the given rating category IG to HY Migration: The absolute and relative movement from investment-grade to high-yield Compared to the figures seen in our mid-month flash update, the final update shows: The bias towards deterioration flagged by the opinion indicator ratio is less pronounced but still strong. The opinion indicator marks most impacted industries: There is an 11:1 deteriorating/improving ratio for Oil & Gas entities (down from 14.7:1 in the flash update). There is an almost 7:1 deteriorating/improving ratio for Basic Materials (down from 8.8:1). There is a 6:1 deteriorating/improving ratio for Consumer Services (down from 7.3:1). And Consumer Goods show the biggest ratio drop, with the ratio now just below 4:1 deteriorating/improving (down from 9:1). The percentage of Investment Grade (IG) entities migrating to High-Yield (HY) increased for almost all the cuts. Consumer Services show the strongest tendency to transition to HY with 5.3% of IG entities migrating (up from 3.4%). Travel & Leisure is one of the most impacted sectors with more than 15% of IG entities being downgraded to HY (up from 9%). Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. For full details, please download the April end-of-month credit update infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Infographic ### Corporate Credit Vulnerability: 5 Major Economies Compared Download full G5 Corporate Borrower Credit Risk Distributions infographic below. A raft of stimulus packages have been announced by Governments globally in an effort to combat the worst economic effects of the COVID-19 downturn. Tax deferrals, debt repayment holidays and income subsidies are some of the measures proposed to help individuals and companies stay afloat. Many nations have unveiled state-backed loan packages for companies in affected sectors, but businesses with weaker balance sheets may struggle to survive even with government support. Credit risk estimates collected from leading global financial institutions can be used to analyse the existing credit category distribution of corporate entities. A new Credit Benchmark infographic focuses on the corporate credit health of five major economies – USA, UK, Canada, France and Germany. Nations with a greater representation of entities in the b and c consensus categories inevitably face an increased prospect of mass corporate defaults. USA Corporate Borrower Credit Risk Distribution 52% of USA corporates in the consensus universe are investment grade, with their borrowing equivalent to 74% of GDP.  Markets have focused on the significant proportion of High Yield debt issued by US Corporates, as well as the sheer scale of US non-financial corporate debt which is now valued at more than $10trn (out of a global total of $13trn).  More than 10% of the consensus sample are in credit categories b and c. For full credit spread charts and analysis of UK, Canadian, French and German corporate entities, please download the G5 Corporate Borrower Credit Risk Distributions infographic here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Infographic ### Oil & Gas Credit Risk is Getting Worse To download the April 2020 Oil & Gas Aggregate PDF, click here. . Companies in the oil & gas sector are currently facing a multitude of problems. A glut in supply and a major decrease in demand is pushing prices to notable lows. US prices as represented by the West Texas Intermediate have recently turned negative for the first time in history. At the same time, debt levels are high as firms remain leveraged. As a result, large oil & gas firms, particularly those in the US and UK, are entering into an increasingly difficult period that will likely heighten risk and strain their credit positions. Default Risk for US Firms Increased by 8.6% in Last Year Credit quality for US-based firms worsens by 8.6% year-over-year. Credit position for US-, UK-based firms now in worst position of past two years. Probability of default remains highest for US-based firms. US Oil & Gas Credit quality for large US oil & gas firms is now in its worst position in more than two years. Credit quality for this sector has declined by 1.3% from the prior month and by 8.6% year-over-year. In the last six months, deterioration in credit quality has picked up, declining 7.5% over that period. Average probability of default has increased to 45.5 basis points compared to 44.9 basis points in the prior month and 41.8 basis points from the same point last year; and is now at its highest point since May 2018. The current Credit Benchmark Consensus (CBC) remains at bbb-. But with an increasing probability of default, this aggregate is on the cusp of dropping into the bb+ range. UK Oil & Gas Like the large US oil & gas aggregate, credit quality for large UK oil & gas firms is now at its worst point in the past two years. Month-over-month, credit quality has declined by 1.8%. The year-over-year decline was 4.3%. Average probability of default is rising and is currently at 41 basis points; the highest point since March 2018. It was 40.3 basis points in the prior month and 39.3 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) also remains at bbb-, unchanged over the last year. While continued decline in credit quality is moving this aggregate closer to a downgrade, it is in a better position than the US group. EU Oil & Gas Changes in credit quality for EU companies continue to be minor. With the most recent update, there was improvement of 0.3% month-over-month and 4.4% year-over-year. Average probability of default is also seeing little change, moving to 22.1 basis points compared to 22.2 basis points last month and 23.1 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) is bbb and has not changed over the last year. . About The Credit Benchmark Monthly Oil & Gas AggregateThis monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Housing Sector Credit Quality Weakens for US, UK Firms as Market Faces Increasing Challenges To download the April 2020 Housing Aggregate PDF, click here. . The economic devastation brought on by COVID-19 is sparing no sector and housing is no exception. While US and UK housing firms began the new year with some moderately positive credit news, that is now over. Both groups have seen credit deterioration this month, and the long-term negative trend is all the more pronounced for the US sector. Unemployment is soaring, and this will put pressure on incomes and personal budgets. The effects of this are likely to linger for some time even after each country begins to return to normal, contributing to further deterioration or limiting gains. Significant improvement in credit quality may be a long way off.    Default Risk for US Firms Up More Than 12% Over Last Year Credit quality for both US- and UK-based firms continues to deteriorate, but year-over-year change is far greater for US-based firms Credit Benchmark Consensus (CBC) sits at bb+ for both aggregates, but continued deterioration will bring them closer to a downgrade to bb. US Household Goods and Home Construction Firms Credit quality for US housing sector firms continues to worsen. While the month-over-month deterioration is only 0.6%, the year-over-year change is a much larger 12.4%. Average probability of default for these firms is currently 54.8 basis points, compared to 54.5 basis points in the previous month and 48.8 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) for this aggregate has remained at bb+ over the last year, yet as credit deterioration continues, the aggregate is moving closer towards a downgrade. UK Household Goods and Home Construction Firms Credit quality for UK housing sector firms is also weakening. The month-over-month deterioration is 0.2%, while the year-over-year deterioration is 1.3%. With the most recent update, average probability of default for these firms is now 55.1 basis points, compared to 55 basis points in the prior month and 54.4 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) for this aggregate has remained at bb+ over the last year. But as with the US aggregate, additional credit deterioration will push the aggregate towards a downgrade. It is already closer to this position than the US aggregate. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. ### Financial Times: UK Bailout: Paper Vapours Take-up of the UK’s emergency commercial paper scheme aimed at big businesses is accelerating, as reported in The Financial Times' Lex column, highlighting Credit Benchmark's role in providing aggregated credit assessment data to the Bank of England. The article notes that only one-third of the FTSE350 have a public credit rating, but that companies may apply for the Covid Corporate Financing Facility (CCFF) utilizing Credit Benchmark data: "Another route into the scheme is via data analytics firm Credit Benchmark, which collects UK banks’ assessments of corporate creditworthiness and provides the BoE with an aggregate figure." The Financial Times, April 23, 2020. View original article (external link). ### April Flash Update To assist our clients and readers in assessing the impact of the COVID-19 crisis on future default rates, the April mid-month credit flash update from Credit Benchmark is now available. In the update, you will find: Opinion Indicator: Assesses the month over month observation-level net downgrades or upgrades.Ratio: Ratio of Deteriorations and Improvements calculated as Deteriorations / ImprovementsDistribution Changes: The increase or decrease in the percentage of entities in the given rating categoryIG to HY Migration: The absolute and relative movement from investment-grade to high-yield Credit Benchmark will continue to provide regular reports on these migration rates. If you have any questions about the contents of this update, please get in touch. Download the April mid-month credit flash update here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Flash Update ### April Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the April Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The April CCIs have seen credit deterioration across the board for UK, EU and US industrial companies. The UK Industrials CCI for April is 49.4; return to credit deterioration The credit risk of UK Industrial companies has been dominated by downgrades in the past month. The CCI for this month sits at 49.4; a return to negative territory after minor respite at the start of the year. Efforts to switch manufacturing output to much-needed ventilator and PPE supplies has been compared positively to past wartime collaboration, but the sector faces an uphill fight against supply chain disruption and a sudden and severe contraction in demand. . The EU Industrials CCI for April is 48.9; back in negative territory After several months of net credit upgrades, EU Industrials have fallen back into negative territory. This month, the CCI for the region’s industrial companies is 48.9. Given Germany’s industrial dominance and relative minimisation of coronavirus impact, the group may yet fare better than their US and UK counterparts – though the hit to Italian and French manufacturing threatens to drag down the average. . The US Industrials CCI for April is 47.9; seventh consecutive month of net downgrades US Industrial companies have seen a seventh consecutive month of net credit downgrades. The CCI for US firms sits at 47.9 this month; the longest continuous run in either direction for the tracked time period. The Federal Reserve recently reported a drop of 6.3% in US manufacturing output; the biggest decline since WW2. This is largely due to the closure of several large auto factories. . To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Corporate Defaults and COVID-19: Credit Migrations Are Key The IMF anticipate a global recession following the COVID-19 lockdowns.  A sharp spike in corporate defaults is inevitable, but this will be mitigated by various Government support programs.  Financial history is littered with economic and financial crashes followed by waves of defaults, but this biological crisis is almost unprecedented.  Perhaps the nearest equivalent is the Spanish Flu pandemic of 1918-20, estimated to have reduced Global GDP at the time by about 18% over a three-year period.  COVID-19 is expected to lead to a 25% reduction in three months.  For historical context, it is useful to look at the 150-year default rate study published by the NBER* in 2010.  Figure 1 shows the NBER series spliced with more recent data from various sources. Figure 1: US Corporate Bond Default Rates 1860-2019, all credit categories, per decade.Sources: NBER, Moody’s, S&P, Bank of America, JP Morgan This highlights the dramatic decline from the late 19th Century to the second half of the 20th Century.  Since then, the average and maximum default rate has risen slightly.  Addressing the COVID-19 crisis, a new paper by Professor Ed Altman** summarises predictions from various sources for High Yield borrower defaults in 2020.  These range from 5% to 20% representing levels that in some cases have not been seen for decades.  Defaults on this scale may occur as supply chains collapse while heavily indebted companies are unable to access Government rescue schemes. If working from home becomes more typical and if social distancing is the new normal, then the recovering economy may have a very different structure.  With echoes of Schumpeter, it is possible that high levels of company departures will be mirrored by the arrival of many new types of technology driven businesses.  Supply chains will be shorter, more diversified, more local; and inventory levels will be higher.  Higher cash levels and strong balance sheets will be back in fashion. Credit migration data provides powerful clues about how default rates are likely to change.  Consensus credit estimates suggest that one-year default probability estimates in the range of 15 Bps to 48 Bps correspond to the BBB category.  Those in the BB category range from 48 Bps to 255 Bps, and in the B category from 255 Bps to 1000 Bps. If 30% of a portfolio of BBB loans migrates to BB, the average Probability of Default for those loans can more than double.  If some of those migrate to the B category, default risk can more than triple.  To assess the impact of the COVID-19 crisis on future default rates, Credit Benchmark will be providing regular reports on these migration rates.  Click here to view the April mid-month credit flash update. . References: *Giesecke, K., Longstaff, F.A., Schaefer, S., Strebulaev, I. (2010),"Corporate Bond Default Risk: A 150-Year Perspective", [Online]. Available at: http://www.nber.org/papers/w15848. Accessed 20th April 2020. **Altman, E. (2020), “The Credit Cycle Before And After The Market’s Awareness Of The Coronavirus Crisis In The U.S", [Online]. Available at: https://www.creditbenchmark.com/wp-content/uploads/2020/04/Altman-2020-Credit-cycle-before-and-after.pdf. Accessed 20th April 2020. ### Ed Altman Discusses Credit Before and After the Virus The Covid crisis is probably the first time in history that a globalised, highly interconnected economy has been effectively shut down for at least one quarter. The economic impact is expected to reduce 2020 global GDP by 20-30%, and rescue attempts will push Government debt to levels not seen since the Second World War.   Government support may be too late for many – the financial damage of the virus will be magnified by Corporate and Personal debt levels that are at record highs. Just how large is the breaking wave of corporate defaults? In a new paper, Professor Ed Altman has summarised various estimates of post-virus default rates for the USD High Yield segment, where observed defaults were running at 2.9% (in 2019).  Across the main ratings agencies, the lowest estimate of High Yield default rates in 2020 is about 5%; the highest ranges from a central case of 10% to a worst case of 20%. Professor Altman uses three complementary methodologies to arrive at a range of estimates between 5.5% and 9.5%, with an average of 6.9%, representing an increase of 2.4x the 2019 rate.  This estimate is closer to 8% if it includes the impact of migration over the edge of the BBB cliff, where it is estimated that more than 30% of the bonds currently classified as BBB are actually non-investment grade.   Download the full paper here. ### Credit Risk Continues to Rise for US, UK Retailers As COVID-19 retail shutdowns persist, a recent study has shown that more than half of the UK's major non-food retailers will run out of cash by the summer if conditions don't change. Sales have dropped by as much as 70% and warehouses are filling up with unsold stock. In the US, a reported 630,000 outlets have had to close in line with COVID-19 restrictions, and the National Retail Federation has estimated that $430bn in industry revenues could be lost in the next three months. Consensus credit data sourced from leading financial institutions shows a long-term deteriorating trend for retailers in the US and UK in the midst of the extended global 'retail apocalypse', now exacerbated by the unprecedented effects of COVID-19 shutdowns. Default Risk for US Retailers Up More Than 6% Over Last Year Credit quality for both US- and UK-based retailers continues to deteriorate. Credit Benchmark Consensus (CBC) rating sits at bb+ for both aggregates, but UK retailers are edging closer to the bb threshold. US General Retailers US general retailers continue to see weakening credit quality, deteriorating 0.5% on a monthly basis and a much larger 6.1% over the past year. The average probability of default for these firms is now 51.5 basis points -- the highest probability of default reading recorded since Credit Benchmark began tracking this data. The current Credit Benchmark Consensus (CBC) rating for this aggregate has remained bb+ over the last year. UK General Retailers The trend has been similar, but more pronounced for UK retailers, which have seen their average credit quality deteriorate 0.8% over the last month and 4.8% year-over-year. The average probability of default for these firms is now 71.9 basis points, compared to 71.3 basis points in the prior month and 68.6 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating for UK retailers has remained bb+ over the last year, but is now within just 6.1 basis points of a downgrade. About Credit Benchmark Monthly Retail Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. To download the April 2020 Retail Aggregate PDF, click here. ### March Credit Update: Pre-Virus Financial Upgrades Outweigh Downgrades Download PDF Credit Benchmark has published the latest monthly credit consensus data (from February 2020) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 360 obligorsimproved their credit standing by at least one notch. 266obligors deteriorated. 69moved more than one notch. Thefrequency of upgrades and downgrades has decreased. Last month showed improvements across 331 obligors and deterioration across 333, with 66 moving by more than one notch. Industries: Upgradesdominate downgrades in just one of the ten reported industries and four out often have more downgrades. Financialsshows an improvement in credit quality with 65 upgrades and 49 downgrades. Theindustries showing deteriorations are: BasicMaterials with 7 upgrades and 15 downgrades. Oil& Gas with 10 upgrades and 22 downgrades. Technologywith 7 upgrades and 17 downgrades. Note: Monthly upgrade / downgrade movement is based on 26,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### US Retail Credit Risk Ranking During this volatile and challenging time, credit risk data is more important than ever. Credit Benchmark is closely monitoring the markets in response to COVID-19 in order to deliver timely information on rapidly changing credit trends. Credit Benchmark works in partnership with 40+ of the world’s leading financial institutions to bring together their internal credit risk views. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Below is a sample of US Retail entities, ranked by their level of credit risk. These observations are valid as of 31st January 2020. Download the extended Credit Risk Ranking tear sheet for US Retail companies below. The most recent data is available upon request. US Retail companies, ranked in order of credit risk. We welcome the opportunity to discuss with you how Credit Benchmark data can help demonstrate relative credit risk in your portfolio. The extensive database allows you to focus on the entities, sectors, and industries of interest to you. To download the extended Credit Risk Ranking tear sheet for US Retail companies and to request access to our full up-to-date database of over 46,000 global entity-level names and corresponding credit risk insights, please fill out your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Credit Risk Ranking ### Reuters: Ramped Up Spending Puts Germany's Triple-A Rating At Risk - Credit Benchmark Shouldering the burden of spending to limit the damage inflicted by the coronavirus outbreak could put Germany’s triple-A credit rating at risk, writes Dhara Ranasinghe for Reuters, citing research from Credit Benchmark. The research suggests that the United States and Italy could also both be at risk of credit deterioration as a result of the large stimulus packages pledged to mitigate economic damage from the virus. “Germany’s massive stimulus package means that it needs to suspend its adherence to its self-imposed balanced budget rule, and the underlying probability of default at 1.24 basis points, puts it very close to being downgraded ...”, said David Carruthers, head of research at Credit Benchmark in London. Reuters, March 27, 2020. View original article (external link). ### Stimulus Promises May Tip the Balance on Sovereign Credit Risk Download PDF Governments around the world are scrambling to rearrange their budgetary plans as COVID-19 turns economic forecasts upside down. Leading economists have likened the current environment to wartime, with an appropriate fiscal response demanded to prevent major financial catastrophe. As the situation unfolds, governments have announced unprecedented stimulus and support packages. Germany, for example, have announced a €608 billion package, representing 15.6% of total GDP. The US government has pledged a $1 trillion stimulus package, about 5% of GDP, at 4.9%. China has granted approval to banks to relax rules on loan repayments and debt reporting. Once the dust has settled and the money has been distributed, what view will lenders take on the creditworthiness of these sovereigns? Using credit risk data collected from leading global financial institutions, Credit Benchmark is able to compare sovereign credit quality against the IMF’s Fiscal Monitor*, showing each government’s current levels of net lending/borrowing (overall balance) (% of GDP). The below chart plots sovereign credit risk on the x-axis and overall balance (% of GDP) on the y-axis (see following page for observations). Sovereign Credit Risk vs Overall Balance (% of GDP) The chart shows: The United States has a Credit Benchmark Consensus (CBC) of aaa, along with Canada, Australia,Luxembourg, Netherlands, Norway and Germany. However, the United States fiscal balanceis noticeably worse than other aaarated sovereigns, with a deficit of -5.6%. Similarly, China (a), Saudi Arabia (a) and India (bbb-) have significantly lower overallbalances than other sovereigns sharing the same ratings bands. Germany also has a consensus rating of aaa and a positive fiscal balance of1.1%, but their stimulus plans may put both measures in jeopardy. Germany’smassive stimulus package means that it is suspending its adherence to itsself-imposed balanced budget rule, and the underlying probability of default –1.24 basis points – puts it very close to being downgraded to aa+.   Italy has higher levels of governmentdebt and lower levels of government investment than its European neighbours, anda negative fiscal balance of -2%. Credit Benchmark data shows a probability ofdefault of 31 basis points, placing them just 2 basis points away from beingdowngraded from a current CBC of bbbto bbb-. The IMF has announced a major addition to its global credit facilities, which is some comfort to the fiscally weak countries on the right hand side of the chart with limited or no capacity to pump prime their economies.   As a footnote, there is some evidence that the virus may be most prevalent in specific latitudes and temperatures; in which case some of the poorest countries may be spared the worst of the direct economic damage.  But supply chains are long and complex, so few countries are likely to be completely unscathed. . This research has been referenced in the Reuters article, "Ramped Up Spending Puts Germany’s Triple-A Rating At Risk – Credit Benchmark", which can be read here. . *Source: IMF. (2019). Fiscal Monitor. [online]. Available at: https://data.imf.org/?sk=4be0c9cb-272a-4667-8892-34b582b21ba6&sId=1390030341854 [accessed 18 March 2020] ### Auto Industry Credit Quality Declines in US & UK The global automotive industry has felt the immediate impact of the COVID-19 economic slump, with factories across the world halting production or being hamstrung by supply-chain disruptions, whilst consumer demand rapidly shrinks. US auto sales are expected to fall by at least 15% this year, and a reported 95% of all US auto production has been shut down as a result of the virus. This slump is reflected in Credit Benchmark's latest consensus data, with US and UK auto companies both reverting to credit deterioration after a recent brief respite. Default Risk Increases After Temporary Respite Credit quality for US- and UK-based firms worsens after a brief respite and overall probability of default remains higher compared to a year ago. Credit Benchmark Consensus (CBC) rating is worse for UK-based firms. US Auto and Auto Parts Industry The recent improvement in credit quality for US auto firms was short-lived. Credit quality for US auto sector firms has worsened by 0.4% from the prior month and by 4.5% from the same point last year. Average probability of default for these firms is 36.7 basis points, compared to 36.5 basis points the prior month and 35.1 basis points at the same point last year. The current Credit Benchmark (CBC) rating for this sector is bbb-, unchanged for the last 12 months. UK Auto and Auto Parts Industry Following last month’s update indicating improvement in UK auto industry credit quality, this month’s reading shows deterioration. Credit quality for UK auto sector firms has declined by 0.7% from the prior month and by 7.5% from the same point last year. Probability of default for these firms is 57.2 basis points, compared to 57.3 basis points the prior month and 53.8 basis points at the same point last year. The current Credit Benchmark (CBC) rating for this sector is bb+ and has not changed for the last 12 months. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. To download the March 2020 Auto Aggregate PDF, click here. ### Oil & Gas Credit Risk is Rising for US, UK Default Risk for US Firms Up More Than 7% in Last Year Credit quality for US-based firms continues to deteriorate, with overall probability of default rising 7.4% on a year-over-year basis. Probability of default currently highest for US-based firms. EU-based firms entering economic strife in strongest position. US Oil & Gas The credit situation for large US oil & gas firms keeps getting worse. Credit quality for this sector has declined by 1% on a month-over-month basis and 7.4% on a year-over-year basis. The majority of this deterioration has happened in the last six months, with credit quality down 6.7% over that period. The average probability of default has increased over the last year, currently at 44.5 basis points, compared to 44.1 basis points the month prior and 41.4 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating remains at bbb- and has not changed over the last year. UK Oil & Gas Compared to the US, the credit situation is only marginally better for UK large oil & gas firms. Credit quality for this sector has declined by 1.7% month-over-month and by 0.8% over the last year. This has been driven by an increase in average probability of default over the last year, albeit at a slower pace than the US. Average probability of default for UK large oil & gas firms is currently 40.8 basis points, compared to 40.1 basis points the month prior and 40.5 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating is bbb- and has not changed over the last year. EU Oil & Gas For EU-based oil & gas firms, there continues to be little month-over-month change in credit quality. After last month’s minor improvement of 0.4%, this month showed deterioration of 0.2%. On a year-over-year basis, credit quality improved by 4.4%. Average probability of default has held largely flat over the last month, increasing from 22.2 basis points to 22.3 basis points on a monthly basis and down from 23.3 basis points a year ago. The current Credit Benchmark Consensus (CBC) rating is bbb and has not changed over the last year. . About The Credit Benchmark Monthly Oil & Gas Aggregate This monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. To download the March 2020 Oil & Gas Aggregate PDF, click here. ### When Is Credit Data Not Credit Data? When It’s Liquidity Data Download PDF Credit Benchmark’s primary focus is the creation of a unique credit dataset. Our clients, both banking and non-banking, use this credit dataset in a myriad of ways to help inform their decision making processes when assessing the creditworthiness of their counterparts and obligors. We are increasingly aware that the data contains another distinct and powerful use case specific to liquidity. Liquidity information is a valuable complement to credit risk information and is proving to be of increasing interest to our clients, especially in times of market volatility and stress. To understand the power of liquidity data, it is important to understand where the information is sourced. Credit Benchmark collects and aggregates credit risk data from a growing number of leading financial institutions around the globe; institutions who have “skin in the game” - whether lending capital to obligors or selecting counterparts. These banks conduct detailed in-house credit analysis for a number of reasons. It is essential to management of economic capital in the day-to-day conduct of their businesses; but there is also a regulatory push to reduce dependency on the traditional credit rating agencies. Effectively, banks have created their own internal, highly regulated and independent rating agencies. Credit risk analysis essentially aims to answer these questions: Should we lend money to or deal with this potential client or counterpart? And if yes:Should we lend to them in size or not? Should we lend to them on open or for term? If for term, for how long? Should we lend at low or high margins? This is the core business of banks globally – making credit and liquidity decisions that are often inextricably linked. These decisions are based on the outputs of highly regulated models and years of banking experience. They inevitably differ from bank to bank, and Credit Benchmark’s role is to collect these views and help our clients understand how their own outputs compare to the consensus of their peers – hence the “Benchmark.” While the views we collect are grounded in core credit, they offer an additional insight into counterpart and collateral liquidity that has proven to be of increasing importance across the past decade. In this time period, the global financial system has been in recovery mode as a result of the 2009/10 financial crisis. Mark Carney, Governor of the Bank of England recently told The Financial Times “the global economy is heading towards a “liquidity trap” that would undermine central banks’ efforts to avoid a future recession". As we collectively brace for another looming crisis, liquidity and access to liquidity is at the forefront on everyone’s mind. In the face of a major global credit and liquidity transition, governments, central banks and policy makers are taking coordinated action, the likes of which have not been seen since the last financial crisis. They are injecting huge amounts of liquidity into the system and reducing rates to historic lows, recognizing that liquidity and confidence need boosting to ensure that the world does not face an unprecedented solvency challenge. During the COVID-19 crisis, the critical question is whether the liquidity and cash flow that all companies need to survive – especially small and medium sized companies – will find its way to the necessary places quickly enough to ensure their survival. The Credit Benchmark dataset can help clients understand how this credit transition is happening. It is now evident that sometimes credit data is not just credit data – it can also provide valuable liquidity and solvency insight too. ### Trade Credit Risk: Which Sectors Are Most Vulnerable During the Virus Crisis? Download Report Private insurers to become increasingly selective in financial crisis The Trade Credit Insurance market currently handles about $2trn of revenue at risk annually. Most of this is focused on smaller companies that may be critical suppliers or buyers, but who also represent significant risks for operational or credit reasons. Some of these risks may arise from the supplier / buyer’s own company profile (such as debt levels) or may be driven by their sector or geographic location. The 48 members of the International Credit Insurance and Surety Association accounts for 95% of private credit insurance around the world, and about 75% of this is handled by three firms – Euler Hermes, Coface and Atradius.  During this crisis, these firms will be increasingly selective about the risks that they can commercially accept, and will need to charge materially higher premiums*. Companies may have to do their own due diligence on their suppliers and buyers; effectively self-insuring.  Credit Benchmark can provide extensive credit estimates on single companies, based on the views of analysts across a large number of financial institutions. This data also gives insight into industry, sector and regional credit trends and comparisons. The chart below depicts the average probability of default and recent historical trend in credit quality for each of the major Industry Groups. Download full report below to see the global sector level data and analysis for 39 separate sectors. Global Industry Level Credit Risk Figure 1: Global Industry Level Credit Risk At the industry-level, Media, Consumer Services and Oil & Gas are among the most vulnerable. At the sector-level (see full report), the data shows that Industrial Metals & Mining, Travel & Leisure, Food & Drug Retailers, Leisure Goods and Media are in the weakest positions. Figure 1, above, shows that 7 of the 10 industry sectors tracked by Credit Benchmark were experiencing credit quality deterioration heading into the coronavirus crisis. The Media industry has the highest overall probability of default, currently more than 57 basis points, and credit quality in the industry has been deteriorating for the last 4 months. Its current Credit Benchmark Consensus rating is bb+. The Consumer Services industry follows closely, with an overall probability of default of around 57 basis points and an 11-month trend of consecutive monthly deterioration in credit risk. Its Credit Benchmark Consensus rating is bbb-. The Oil & Gas industry is also showing significant signs of vulnerability, with an average probability of default of 45 basis points, following 5 months of deteriorating credit quality. The Credit Benchmark Consensus rating for the Oil & Gas industry is bbb-. Figure 2 (within full report) shows the global sector level data. Download full report below to see the global sector level data and analysis for 39 separate sectors. . Access the full report on 'Trade Credit Risk: Which Sectors Are Most Vulnerable During the Virus Crisis?' here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report *Trade credit pricing varies considerably depending on the circumstances, but the usual range is 10 – 30 bps for about one year of cover.  For certain risks, the pricing can be much higher – 100 bps or more.  In the current environment, if trade credit is still available, the pricing will be significantly higher. ### March Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the March Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The March CCIs have seen marginal credit improvements for EU and UK industrial companies. US industrial companies saw continued credit deterioration. The UK CCI for March is 50.2; net upgrades are minimal . The EU CCI for March is 50.2; annual trend is balanced . The US CCI for March is 49.1; net downgrades for a sixth month To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Bank Lenders Sound Alarm on Corporate Credit Risk – One-Third of BBB-Rated Bonds on Precipice of High-Yield Bond Cliff US corporate debt is notoriously overrepresented in the ‘BBB’ rating category, and investors fear that economic pressure could topple these bonds Jenga-style into high-yield status. Enter coronavirus – the rapid spread of the disease has caused a sharp shock to global markets and a swathe of industries are vulnerable to take a profit hit as the economy faces a ‘slowbalisation’ effect. But if the tower of BBB debt is to fall, where will the pieces land? The latest credit risk snapshot from Credit Benchmark, which captures probability of default (PD) estimates from the world’s leading financial institutions to produce a consensus-based credit rating, provides some clues that are not yet showing up in traditional credit ratings agency (CRA) forecasts. The data illustrates the spread in credit quality of US Corporate Borrowers, comparative to the major CRAs’ rating spread of US Corporate Bonds. Whereas the estimates from the traditional CRAs show a sharp drop off from BBB to the high-yield category of BB (gold bars in chart below), the Credit Benchmark consensus estimates demonstrate roughly equal weighting between BBB and BB borrowers before tailing into the B and C categories (green bars in chart below). This means many corporate bond issuers whose bonds are currently rated BBB by the traditional CRAs have already been downgraded to high-yield status in the Credit Benchmark dataset. This is important because the Credit Benchmark dataset captures a larger universe and more frequently updated consensus estimates. The data in the chart below is updated monthly, representing the most current view of credit risk estimates from the world’s largest lending institutions. Credit Risk Distribution of US Corporate Bonds vs US Corporate Borrowers The data suggests a current disparity of 15% between bond ratings from the CRAs vs the Credit Benchmark consensus estimate when it comes to high-yield distribution, suggesting that over a third of BBB rated bonds are highly vulnerable to a downgrade into non-investment territory. The Credit Benchmark BBB/BB/B spread of borrowers may preemptively reflect the future distribution of US Corporate Bonds in the event that a catalyst such as coronavirus topples the status quo. This research has been referenced in the Wall Street Journal article, “Investment-Grade Bonds Could Turn to Junk Amid Global Rout”, which can be read here, plus in the Bloomberg article, "For Battered Junk Bond Market An Old Risk Grows Louder Every Day", which can be read here. Download PDF ### Housing Credit Risk for US, UK Remains Vulnerable The crucial upcoming spring season of home buying and selling may be under threat from the economic downturn posed by the spread of COVID-19. Though low interest rates pose a strong incentive for mortgage borrowers, the economic uncertainty may prove too strong a deterrent for some buyers. Both buyers and sellers are also likely to be wary of traditional house viewing practices on account of health and hygiene concerns. This month saw incremental credit quality improvement for both US and UK Household Goods & Home Construction companies, however the US companies have experienced longer-term credit deterioration. UK companies have fared more evenly in recent months after earlier credit deterioration. It is likely that both groups of companies will be detrimentally affected as COVID-19 puts a dampener on the coming months' housing sector prospects. Default Risk for US Firms Increases Almost 11% in Last Year Default risk for US housing sector firms up 11% year-over-year, despite incremental monthly improvement. UK housing sector credit risk holds steady with bb+ rating. US Household Goods and Home Construction Firms The relentless weakening in credit quality in the US housing sector took a month off, with probability of default for companies in the US Household Goods and Home Construction sector improving 0.6% on a monthly basis. Despite this one-month reprieve, overall credit risk in the sector is up 10.6% on a year-over-year basis. The average probability of default for the aggregate is currently 54.5 basis points, compared to 54.8 basis points the month prior and 49.2 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating for this aggregate has not changed from the prior month nor from the same point last year and remains at bb+. UK Household Goods and Home Construction Firms Credit quality for the UK housing sector is largely stable. There was slight improvement of 0.2% from the prior month and a marginally larger improvement of 1.3% from the same point last year. Average probability of default for this aggregate has not changed greatly over the last year. It’s now 54.1 basis points, compared to 54.3 basis points the prior month and 54.9 basis points at the same point last year. The Credit Benchmark Consensus (CBC) rating for this aggregate has held steady at bb+ over the last year. To download the March 2020 Housing Aggregate PDF, click here. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. About Credit BenchmarkCredit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. ### The Wall Street Journal: Investment-Grade Bonds Could Turn to Junk Amid Global Rout Economic fallout from the novel coronavirus and collapsing oil prices are sparking steep declines in the $3.4 trillion market of corporate bonds with triple-B credit ratings, writes Matt Wirz for The Wall Street Journal, citing Credit Benchmark data. The article suggests that a large proportion of investment-grade bonds could drop into high-yield territory under current economic pressures. "Banks surveyed by Credit Benchmark are rating about 30% of corporate borrowers they lend to at triple-B and 30% at double-B, the top junk category. In contrast, ratings firms still have 42% of their ratings at triple-B and 12% at double-B, suggesting that many triple-B bonds are highly susceptible to rating-firm downgrades, according to Credit Benchmark." The Wall Street Journal, March 13, 2020. View original article (external link). ### Risk.net: Rising Tide Lifts Fund Houses – But Can it Last? Monthly Credit Trends for Top 100 Fund Managers, Global Airlines & Airports, Australian Corporates, and Irish Corporates & Financials. By most accounts, these are tough times for asset managers. Margins have been battered by the double whammy of rising costs and falling fees. Firms of all stripes are cutting headcount and consolidating operations in a frantic bid to build scale and improve efficiency.  The industry faces real challenges, but you would not know it from the recent trend in credit ratings. The credit risk of the top 100 fund managers has decreased by nearly 20% over the past four years, according to Credit Benchmark data sourced from more than 40 financial institutions.    With global markets already in correction territory amid mounting fears of a coronavirus epidemic, a reversal may be on the cards. January saw the first deterioration in consensus credit ratings for assets managers in five months.  In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, looks at the improving credit trend and monthly credit changes of the top 100 fund management firms. Also this month, how COVID-19 is likely to affect an already struggling travel industry with analysis of Global Airlines and Airports credit quality; plus a strong performance for Australian Corporates in the face of the bushfires disaster. We also compare the credit health of Irish Corporates vs Financials amidst Brexit. Read the full article using the below link: View original article (external link)   ### The Wall Street Journal: Coronavirus Fallout Exposes Vulnerability of Junk Debt Debt investors are grappling with the worst selloff in the riskiest corner of the corporate debt market in over a decade, writes Lorena Ruibal for The Wall Street Journal, citing Credit Benchmark data. "An economic downturn caused by the impact of the coronavirus epidemic could wipe out returns and risk tilting debt-bloated high-yield companies into default." "Default risk has climbed 6% for large U.S. oil and gas firms in the past year, according to Credit Benchmark." The Wall Street Journal, March 9, 2020. View original article (external link). ### Retail Credit Risk is Rising for US and UK Companies General Retailers are struggling to get a break, with the long-standing challenge of getting consumers through the door now exacerbated by COVID-19 related worries. If the virus continues to spread, shoppers will be more likely to avoid busy high streets and stores and businesses will in turn suffer. This is not to mention the impact a potential economic recession would have on consumer sentiment and spending. Not all retailers are created equal though, and some sub-sectors may see growth during these difficult times, namely in consumer staples like food groceries, cleaning products and healthcare items, which have already seen a rise amidst concerns of COVID-19 related shortages. Default Risk for UK Retailers Up Almost 5% in Last Year Credit quality for both US- and UK-based firms continues to deteriorate, but probability of default is higher for UK-based firms. Credit Benchmark Consensus (CBC) rating sits at bb+ for both aggregates. US General Retailers The credit slide for US general retail firms has stabilized in recent months with only a small deterioration of 0.4% since last month and little change in either direction for the past four months. On a year-over-year basis, however, credit quality deteriorated by 4.1%. In terms of average probability of default for the group, the current position is 51.1 basis points, compared to 50.9 basis points in the prior month and 49.1 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating for this aggregate is bb+, unchanged from last month and this time last year UK General Retailers The credit situation for UK general retail firms keeps worsening. The recent month-over-month change in credit quality is a modest deterioration of 0.2%, but the year-over-year picture is more concerning, deteriorating by 4.9%. The average probably of default for this aggregate is currently 71.1 basis points, compared to 71 basis points in the prior month and an increase from 67.8 basis points at the same point last year. The Credit Benchmark Consensus (CBC) rating for this aggregate is bb+, and as with the US aggregate, this is unchanged from the prior month as well as the same point last year. However, the UK group sits closer to tipping into the bb CBC band if the credit trend continues to deteriorate. About Credit Benchmark Monthly Retail Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK General Retailers. It illustrates the average probability of default for companies in the sector to achieve a comprehensive view of how sector risk will be impacted by trends in the retail industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. To download the March 2020 Retail Aggregate PDF, click here. ### February Credit Update: Consensus Upgrades and Downgrades are in Balance Download PDF Credit Benchmark has published the latest monthly credit consensus data (from January 2020) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades:  331 obligors improved theircredit standing by at least one notch.  333 obligors deteriorated.  66 moved more than one notch. Thefrequency of upgrades and downgrades has decreased. Last month showed improvements across 559 obligors and deterioration across 378, with 70 moving by more than one notch. Industries: Upgradesdominate downgrades in just one of the ten reported industries and three out often have more downgrades. Oil& Gas shows an improvement in credit quality with 15 upgrades and 12downgrades. Theindustries showing deteriorations are: BasicMaterials with 13 upgrades and 24 downgrades. ConsumerServices with 16 upgrades and 38 downgrades. Telecommunicationswith 2 upgrades and 4 downgrades. Note: Monthly upgrade / downgrade movement is based on 26,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Auto Industry Credit Quality Improves in US & UK The automobile industry is particularly vulnerable to supply chain disruptions, and politically-driven trade issues such as the US/China trade wars and Brexit have hurt auto companies in the past year. The spread of the COVID-19 virus threatens to further undermine production and a lack of preparedness will threaten even the strongest makers and suppliers. Consensus credit data shows early signs of improvement for both US and UK auto companies after extended deterioration, but as the full impact of the COVID-19 virus unfolds, this improvement may be short lived. Default Risk Ebbs After Several Months of Deterioration Credit quality for US- and UK-based firms is no longer deteriorating, although overall probability of default remains higher than a year ago. Credit Benchmark Consensus (CBC) rating holds an average of bbb- for US firms, UK firms are worse off at bb+. US Auto and Auto Industry Credit risk for US auto firms has improved 1.1% on a month-over-month basis to close the month with an average probability of default of 36.5 basis points. On a year-over-year basis, corporate credit quality for the US auto industry has deteriorated by 3.7%. The current Credit Benchmark Consensus (CBC) rating for the companies that make up the auto industry aggregate is bbb-. UK Auto and Auto Industry For UK-based auto manufacturers and parts suppliers, credit quality has improved 0.9% over the past month, following a protracted period of deterioration. The current average probability of default for firms in the UK auto sector is 57 basis points, a deterioration of 7.3% on a year-over-year basis. The current Credit Benchmark Consensus (CBC) rating for the UK auto aggregate is bb+. About Credit Benchmark Monthly Auto Industry AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. To download the February 2020 Auto Aggregate PDF, click here. ### Oil & Gas Credit Risk is Rising for US, More Moderate for UK, EU Default Risk for US Firms Up Almost 6% in Last Year Credit quality for US-based firms continues to deteriorate, with overall probability of default rising 5.8% on a year-over-year basis. Average probably of default is currently highest for US firms. Credit Benchmark Consensus (CBC) rating is similar for all three aggregates. US Oil & Gas Overall credit quality for US oil & gas firms continues to deteriorate. Credit quality for the sector declined by 1.0% on a month-over-month basis and 5.8% on a year-over-year basis. The average probability of default for US oil & gas firms in aggregate is currently 45.1 basis points, compared to 44.6 basis points in the prior month and 42.6 basis points at the same time last year. The current Credit Benchmark Consensus (CBC) rating is bbb-, unchanged from last year. UK Oil & Gas Credit quality has been largely flat for UK oil & gas firms, with average probability of default increasing 1.0% on a month-over-month basis but decreasing 0.6% on a year-over-year basis. The average probability of default for UK oil & gas firms in aggregate is currently 40.4 basis points. The current Credit Benchmark Consensus (CBC) rating is bbb-, unchanged from last year. EU Oil & Gas Credit quality is essentially flat month-over-month for EU-based oil & gas firms, having improved 0.4% on a monthly basis and 5.0% year-over-year. The average probability of default for this aggregate is 21.6 basis points, compared to 21.7 basis points in the prior month and 22.7 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating is bbb+, unchanged from the prior month, but up from bbb at the same time last year. About The Credit Benchmark Monthly Oil & Gas Aggregate This monthly index reflects the aggregate credit risk for large US, UK, and EU firms in the oil & gas sector. It provides the average probability of default for oil & gas firms over time to illustrate the impact of industry trends on credit risk. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. To download the February 2020 Oil & Gas Aggregate PDF, click here. ### UK SME Credit Risk in Flood Zones Download Report Increased Flooding in the UK This month has been one of the wettest Februarys on record and the increased rainfall has seen much of the UK impacted by severe flooding, with forecasters issuing warnings of further deluges in the coming days and weeks. One UK study suggests that there are 70,000 uninsured homes in England built in areas at high risk of flooding. As extreme weather events increase in frequency, these high-risk areas have the potential to become “flood ghettos” populated by unsellable homes and offering no incentive for small businesses to set up shop. While the insurance and mortgage risk of increased flooding is evident, how will banks with exposure to flood-affected businesses fare if extreme weather persists? The Bank of England has recently announced a BES consultation to stress test the financial implications of climate change and to test Banks’ resilience to climate change associated risks. As well as the physical risks of damage to property and infrastructure caused by flooding, indirect risks to businesses and thus their lenders include restricted customer and supply chain access due to road and rail closure, and increased insurance costs reducing profit margins. Credit Risk: UK SMEs in Flood Zones Credit Benchmark collects UK Small and Medium Enterprise (SME) Probability of Default (PD) data from all major UK Banks as part of their credit portfolio benchmarking service. The SME dataset consists of over 140,000 monthly observations and these observations can be linked by postcode to UK Environment Agency Flood Risk data to help analyse sensitivity to flood risk areas across the UK Corporate SME population. The data reveals an interesting disconnect between areas at risk of flooding and the average PD of SMEs in the same geographic area. While roughly 20% of all UK SMEs are located within an area at some risk of flooding, and almost 10% of these present a medium to high risk (see Figure 1), bank data does not reflect comparatively heightened credit risk for these vulnerable SMEs (see Figure 2). Flood Risk & Consensus PD Distribution for UK SMEs While these results suggest that there are other drivers of credit risk influencing the Banks’ credit views of their SME customers, consensus PDs appear to currently show no clear link between different levels of flood risk and differences in portfolio credit risk. Our full report on UK SME Consensus PD Data in Flood Risk Areas is available to download now, and contains further insights into SME flood risk. Access the full 'UK SME Consensus PD Data in Flood Risk Areas' report here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Housing Credit Risk in Freefall for US, Stabilizing in UK US building permits hit a 13 year high this week, supported by a low mortgage rates. Despite this apparently positive outlook for the sector, Consensus credit risk data indicates that credit quality for US Household Goods & Home Construction companies has been steadily falling for some time. In the UK, post-election optimism and increased certainty around Brexit has led to a 'new year bounce' in the number of new buyers and sellers entering the market. UK Household Goods & Home Construction firms have seen greater stability in their credit quality fortunes over recent months compared to their US counterparts. Default Risk for US Firms Up Almost 12% in Last Year Credit quality for US-based firms continues to deteriorate, with overall probability of default increasing 12% on a year-over-year basis. UK-based firms have seen relative credit stability in recent months. Credit Benchmark Consensus (CBC) rating is bb+ for both aggregates. US Household Goods and Home Construction Firms The overall credit picture for US firms continues to worsen. The group saw credit quality deterioration of 2.5% on a month-over-month basis and 12% on a year-over-year basis. The average probability of default for this aggregate is currently 53.5 basis points, compared to 52.2 basis points in the prior month and 47.8 basis points at the same point last year. The current Credit Benchmark Consensus (CBC) rating is bb+, unchanged from the prior month and a downgrade from bbb- at the same point last year. UK Household Goods and Home Construction Firms In contrast to the US, the credit situation for UK firms has stabilized. Credit quality deteriorated by 1.7% on a month-over-month basis but has been essentially flat on a year-over-year basis, dropping by only 0.2%. The average probability of default for this aggregate is 53.7 basis points, compared to 54.6 basis points in the prior month and 53.6 basis points at the same point last year. The current CBC rating is bb+, consistent with last month and the same time last year. About Credit Benchmark Monthly Housing AggregateThis monthly index reflects the aggregate credit risk for US and UK firms in the household goods and home construction sectors. It illustrates the probability of default for a variety of companies in the home construction space as well as firms that would benefit from increased home building and buying. Worsening credit risk means a greater probability of default; improving credit risk means a reduced probability of default. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d. About Credit BenchmarkCredit Benchmark brings together internal credit risk views from 40+ of the world’s leading financial institutions. The contributions are anonymized, aggregated, and published in the form of entity-level consensus ratings and aggregate analytics to provide an independent, real-world perspective of risk. Consensus ratings are available for 50,000+ financials, corporate, funds, and sovereign entities globally across emerging and developed markets, and 75% of the entities covered are otherwise unrated. To download the February 2020 Housing Aggregate PDF, click here. ### February Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the February Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The February CCIs have seen credit improvements for EU and UK industrial companies. US industrial companies saw continued credit deterioration. The UK CCI for February is 50.5; downgrade trend halted The EU CCI for February is 52.2; CCI continues to improve . The US CCI for February is 48.3; CCI remains negative To download the full CCI tear sheets for UK, EU, and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Global Travel and the Contagion Effect Download PDF Coronavirus impact on the global economy The rapid spread of the new strain of coronavirus, now officially known as COVID-19, has made an immediate impact on the global economy. China’s stock market saw an 8% drop after the recent Lunar New Year, the biggest single day drop since 2015. While the world’s supply chains have already been impacted from prolonged trade wars between China and the US, the added disruption to trade and travel routes will reverberate globally. Credit risk: travel industry The worst affected industry in this crisis will undoubtedly be the travel sector. Many major airlines have suspended flights to and from mainland China and world leaders have urged their citizens to avoid travel to the region, stoking fears from neighbouring Asian nations that they in turn will feel the contagion effect of a tourism fallout. Air China, China Eastern Airlines and China Southern Airlines have collectively seen a stock value drop of 20% since early January when the threat of the virus began to be known internationally. The airline industry is highly competitive and has already been rocked by recent high profile setbacks (e.g. last year’s grounding of the Boeing 737 Max) – these have had a significant impact on sector credit quality. Consensus credit data, sourced from leading financial institutions, shows that Global Airlines have deteriorated in credit quality by 8% since the start of 2019. Credit trend & distribution: global airlines vs airports Passenger numbers to the Asia-Pacific region were forecasted to grow by 1,180m by 2024*; double the volume of the next fastest growing region (Europe). But while suspended flights and a reduction in airline passengers will have a clear and immediate effect on the collective fortunes of global airlines, an often overlooked business impact is to the airports that service them. Airports globally have become profitable, high quality shopping precincts, servicing a large and – until now - steadily growing captive customer base. Credit divergence between airlines and airports According to Credit Benchmark's credit risk analytics, Global Airports showed credit deterioration in late 2018, but since the turning point in February 2019, credit quality has improved by 12%. Depending on the spread of COVID-19, the credit divergence between Global Airlines and Global Airports may have run its course. Currently, Global Airports demonstrate higher overall credit quality, with 85% of the companies represented rated as investment grade, compared to only 45% of the airlines analysed; so Airports are well positioned to handle a temporary downturn. But if the coronavirus impact is prolonged, Global Airports may find their previously robust business model under strain. Download the PDF - Coronavirus Contagion Effect on Credit Quality for Global Airline Industry *airport-technology.com ### Retailer Credit Risk Stabilizes in US, Continues Long Slide in UK Retailers continue to feel the long-term effects of the 'retail apocalypse', and the credit quality trends for UK and US general retailer companies prove lenders remain cautious about the sector. And whilst the post-election 'Boris-Bounce' saw an uptick in UK business activity, retailers appear to have missed out on renewed consumer enthusiasm. US retailers ended 2019 on a more positive note, with 0.3% growth in December. The growth capped off an underwhelming year however, and the sector still has some way to go in recovering from earlier credit deterioration. Default Risk for UK Retailers Up 6% Versus Last Year Credit quality for UK-based general retailers continues to deteriorate, with overall probability of default increasing 5.98% on a year-over-year basis. US retailers saw their credit quality stabilize this month, after a prolonged period of deterioration. UK General Retailers UK general retailers saw their credit quality deteriorate 0.28% on a month-over-month basis to close the month with an average probability of default of 70.9 basis points. On a year-over-year basis, UK retailer corporate credit quality has deteriorated 5.98%, continuing a trend that began in 2016. US General Retailers US general retailers have seen their credit quality improve by 0.20% on a month-over-month basis, currently maintaining a probability of default of 51.1 basis points. On a year-over-year basis, credit quality for US retailers is down 2.82%. About Credit Benchmark Consensus AggregatesAggregate Analytics are macro-level risk indicators that assess and compare credit trends and distributions across 105 countries, 300 industries and 75 sectors. Hundreds of trend-tracking, forward-looking Aggregates are available, reflecting Credit Benchmark's expanding universe of 800,000+ contributed credit risk observations from the world's leading financial institutions. To download the February 2020 Retail Aggregate PDF, click here. ### Risk.net: A Sharp Turning Point in CCP Credit Risk For anyone who shudders at the mere thought of a clearing house failure, the latest bank-sourced data from Credit Benchmark could make for uncomfortable reading. After improving by more than 5% from November 2017 to September 2019, the credit risk of 30 central counterparties (CCPs) reversed sharply at the end of last year. The 2.6% deterioration seen in October and November was the worst in two years, and compares with a drop of less than 2% following the default of power trader Einar Aas at Nasdaq Clearing in September 2018. The sudden shift in sentiment defies easy explanation. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, looks at the shifting credit trend and activity of a group of CCPs. Also this month, the Brexit Effect on EU and UK banks; plus a comparison of UK and US Healthcare trends - both regions experienced choppy fluctuations in credit quality in the past two years. We also examine the diverging credit trends of software and hardware tech companies amidst a climate of political pressure. Read the full article using the below link: View original article (external link)   ### January Credit Update: Consensus Upgrades Outweigh Downgrades Download PDF Credit Benchmark has published the latest monthly credit consensus data (from December 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 559obligors improved their credit standing by at least one notch.  378 obligors deteriorated.  70 moved more than one notch. Thefrequency of upgrades and downgrades has increased. Last month showed improvements across 298 obligors and deterioration across 330, with 61 moving by more than one notch. Industries: Upgrades dominate downgrades in nine of the ten reported industries and one industry shows balance. Consumer Goods shows balance with 33 upgrades and 33 downgrades. Theindustries showing improvements include: Financialswith 128 upgrades and 67 downgrades. ConsumerServices with 58 upgrades and 36 downgrades. Industrialswith 77 upgrades and 49 downgrades. Note: Monthly upgrade / downgrade movement is based on 27,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### The Creditworthiness of CCPs and the Global Clearing Member Network To access the full whitepaper, please provide your details in the form below. Jump to Download Form Central Counterparty Clearing Houses (CCPs) have seen increased scrutiny in the wake of a massive $130 million default on the Nasdaq Commodities exchange in 2018. It was revealed that the default was caused by an individual Norwegian trader acting as a direct clearing member of Nasdaq. The European Securities and Markets Authority (ESMA) has since announced that it will consider enhancing supervisory practices for CCPs. It is clear that CCPs lie at the epicenter of the global financial markets and that with the encouragement of global regulators they have consolidated and grown stronger since the global financial crisis. However, there is broad recognition from those in the CCP community that there is room for improvement in enhancing the security and performance of CCPs under severe stress. This whitepaper examines the complex interconnected nature of the “CCP Network” – Central Counterparties, their clearing members, and the underlying clients of these members – and looks at the potential application of Consensus credit data to help bring transparency and alignment to the network.The interconnectedness of the CCP Network is an integral part of the global financial system. It is critical to understand the creditworthiness of these nodes and how they interact, impact and potentially move and mitigate systemic risk. In the paper, we look at some of the Consensus credit risk data available on the three distinct parts of the CCP network and how this data changes over time. These three parts are: 1. Central Counterparty Clearing Houses (CCPs) Credit Activity (29 CCPs) This chart shows the credit activity of a group of 29 CCPs. It is interesting to observe the variation of the market view of CCP creditworthiness month-on-month over time. The green lines indicate where the aggregated credit quality of the group of CCPs has improved over time; the red lines indicate where it has deteriorated. 2. CCP Clearing Members Credit Trend for 49 Clearing Members of CME Group This chart shows the aggregated Consensus credit trend of 49 clearing members of the Chicago Mercantile Exchange (CME) Group. Consensus credit quality shows improvement over time. 3. Clients of CCP Clearing Members (Buy-side / Funds) Credit Distribution of 1,118 Funds Under Management of BlackRock Inc This chart shows the Consensus credit distribution of 1,118 funds under the management of BlackRock Inc. The credit quality of these funds is concentrated in the aa- category. This paper aims to identify how Consensus credit data can play a role in helping participants assess the true risk level that they face, and how – collectively – the network participants can prevent potential triggers of CCP default waterfalls. . To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### CMCAS Annual Chief Credit Officers Panel 2020 Credit Benchmark was pleased to co-sponsor the CMCAS Annual Chief Credit Officers Panel last week at the Societe Generale offices in NYC. Credit Benchmark co-founder Mark Faulkner moderated a panel of prominent senior credit leaders including Vincent DiMassimo of Morgan Stanley, Mary Katherine DuBose of Wells Fargo, Alex Golten of Goldman Sachs, and Penny Tsekouras of UBS. The panellists spoke to a sold out audience of over 200 guests and provided their unique perspectives on the state of the current credit environment and key emerging risks. The panel also discussed how the role of the credit risk professional is evolving and critical competencies to stay relevant. Emerging risks: ESG Mark opened the panel discussion with a question about ESG risks, referencing Blockrock CEO Larry Fink’s annual letter to CEOs, which highlighted that climate risk is the top issue on his clients’ minds. Alex agreed that climate change is one of the top risks facing us in this decade and that it will change the economic workings of companies. He stressed that focusing on traditional stakeholders like shareholders and regulators isn’t sufficient. The banking industry is increasingly facing external demands around climate change action from stakeholders ranging from shareholders to activists, according to Vincent, but there is still much to be decided around metrics, data and disclosures. When an audience member asked about the use of external data to evaluate ESG risk, the panel invoked the classic question of build vs buy, but agreed that, from an efficiency perspective, it will make sense to incorporate external data that is consumable. As an example of practical action around climate risk, Penny shared that evaluating a country’s ability to withstand climate damage is part of her team’s ratings methodology for sovereigns. Mary Katherine noted that the conversation about ESG is an opportunity to bring the enterprise together and think about the impact in aggregate across the business. Where are we in the cycle? Mark reminded the group that it has been 12 years since the last credit crunch. Markets are bracing. He asked - where are we in the cycle? In response, Vincent reminded the group that 2019 saw outstanding returns across asset classes and that markets have been “brushing off” recent events including increasing turmoil in the Middle East. With upcoming elections in the U.S, all agreed with Vincent that they can’t recall this level of disparity in political outcomes. For risk managers, things will be interesting. Evolving role of the credit risk professional Penny advised that in this new world, whether you are in credit risk, market risk, operational risk, or liquidity risk,  putting yourself in a box is dangerous, especially considering the next cycle will look different. Alex stressed that relationship building is key. He also encouraged early career professionals to go beyond subject matter expertise. He notices people on his team who are forward-looking and solutions-oriented. Mary Katherine concurred with Alex that investing in partnerships across lines of business is crucial. She advised young professionals to be willing to raise the dissenting view in the room but also be prepared to move forward regardless of outcome. The best training for leadership is to get out of your comfort zone and get comfortable being uncomfortable, according to Vincent. For more information about CMCAS, click here. ### Energy Sector Credit Quality Deteriorates in US, UK and EU EU and UK Oil and Gas Firms Show Slight Reduction in Credit Risk Credit quality for large oil and gas companies in the US has continued to deteriorate for a fifth straight month, falling 3.8% since December of 2018 and 1.3% since November 2019. The EU (ex-UK) and UK energy sectors have both logged monthly declines in credit quality after showing slight improvement in recent months. EU oil and gas credit quality has deteriorated 0.5% this month and UK oil and gas credit quality is down 1.1%. US Oil & Gas US oil and gas firms have seen their credit quality decline 3.8% since December 2018. On a month-over-month basis, credit quality for US oil and gas firms is down 1.3%. Currently, the average probability of default for US oil and gas firms is 46.7 basis points. UK Oil & Gas UK oil and gas firms saw their credit quality deteriorate 1.1% on a month-over-month basis to close the month with an average probability of default of 37.8 basis points. On a year-over-year basis, however, UK oil and gas corporate credit is up 1.6%, driven by slow-but-steady improvements over much of the course of 2019. EU (ex-UK) Oil & Gas The EU energy sector has been the lone bright spot in the global oil and gas industry, showing steady improvement in credit quality throughout much of 2019. That improvement streak ended this month, with credit quality deteriorating 0.5% and an average probability of default of 21.1 basis points. On a year-over-year basis, credit quality for EU oil and gas corporates is up 6.2%. About Credit Benchmark Consensus AggregatesAggregate Analytics are macro-level risk indicators that assess and compare credit trends and distributions across 105 countries, 300 industries and 75 sectors. Hundreds of trend-tracking, forward-looking Aggregates are available, reflecting Credit Benchmark's expanding universe of 800,000+ contributed credit risk observations from the world's leading financial institutions. To download the January 2020 Oil & Gas Aggregate PDF, click here. ### January Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the January Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The January CCIs have seen continued deterioration in both UK and US industrial companies however downgrades for both regions this month were marginal. EU ex-UK industrial companies have shown a modest recovery this month, with more upgrades than downgrades. The UK CCI for January is 49; downgrade trend enters sixth month. . The EU CCI for January is 51.5; CCI returns to positive territory. . The US CCI for January is 49.1; CCI remains negative but severity is abating. . To download the full CCI tear sheets for UK, EU (ex-UK) and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Risk.net: The Retail Apocalypse Continues US retailers appeared to have turned a corner in 2018. The Trump administration’s tax cuts lifted consumer spending and retail sales grew by more than 6% that summer. After a period of steady decline, the credit ratings of major US retailers began rising again.  The optimism was short-lived. The industry’s fortunes deteriorated sharply in 2019, with 23 major bankruptcies...According to Credit Benchmark data, sourced from financial institutions, credit quality in the US retail sector has dropped 5% since April 2019.  The UK retail sector has fared even worse. With Brexit uncertainty sapping consumer sentiment, and no fiscal stimulus to boost spending, the credit risk of UK retailers has increased by 13% since 2017.  A sustained turnaround is unlikely. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, examines the effect of the 'retail apocalypse' on the credit quality of US and UK general retailers. Also showing recent signs of deterioration, we take a look at the credit activity and distribution of a group of Global Airlines. Not all industries are faring badly though, with positive trends observed in the leisure and recreation industries globally. Plus, notable Sovereign credit movement that you won't find in the news. Read the full article using the below link: View original article (external link)   ### Review of 2019 Credit Trends Download Whitepaper If 2019 were a television series, the past year provided a dramatic season of viewing and ended on a veritable cliff-hanger, leaving onlookers wondering whether 2020 will bring resolution to a number of world issues or whether the stage has been set for renewed theatrics. The United States played a starring role as the rest of the world watched the President become the third leader in history to be impeached by the House in December. Our chief protagonist kept investors guessing by prolonging the ongoing US-China trade wars while simultaneously applying a slew of tariffs across Europe, South America, and elsewhere in Asia. With New Year’s celebrations overshadowed by renewed US-Iran tensions and as bushfires ravage large swathes of Australia, geopolitics and climate change have emerged as key themes for the coming year and decade. One story arc that delighted investors was the rise and rise of bond and equity markets in 2019. In the US, bulls stampeded through Wall Street, with US 10-year Treasury yields falling from 2.6% to below 2%, and the Federal Reserve indicating that rate hikes are unlikely in 2020. US corporate bond spreads were generally stable (except CCC – see report), and the S&P500 equity index rose by a staggering 25%. But such giddy heights have their limitations, and this pace of growth will inevitably slow in 2020 according to investor forecasts. Amidst market speculation, where can we look to find real-world ‘spoilers’ for 2020? This report uses bank-sourced credit risk assessments to show how 2019 unfolded in some key geographies and industries – assessments which, crucially, are based on actual expected default frequencies. Compared with market implied views – such as bond yields and CDS spreads – real world data provides “pure” credit risk estimates from lenders with direct exposures. By reviewing the year that was in credit risk, we can grasp some clues as to how the 2020 narrative may play out. Key findings from the report: Both real world consensus and market implied measures show a significant divergence in the lowest credit quality categories. Most categories – real world and market – improved in 2019. Financials are outperforming Corporates in the US, UK, and EU ex UK. Leveraged Loan credit risks are deteriorating, especially Private Equity owned firms which are also on average of lower credit quality. Credit risk for major German equity issuers show a marked deterioration vs. major French equity issuers, resulting in a clear gap (the two normally track each other quite closely). Basic Materials in the US have shown a sharp improvement while Industrials have stalled.  Basic Materials and Industrials are both showing negative trends outside the US. US Large quoted companies (similar to the S&P500) show a dramatic improvement vs the broader group (similar to the Russell 2000). Integrated US Oil & Gas are stable, but E&P and Pipelines are deteriorating. Airlines show a volatile global decline. Companies with poor ESG scores are typically of lower credit quality although the two groups show a similar credit performance for most of 2019. US General Retailers are stabilizing but UK and EU ex UK continue to deteriorate. . To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### December Credit Update: Consensus Financial Downgrades Outweigh Upgrades Credit Benchmark has published the latest monthly credit consensus data (from November 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades:  298 obligors improved their credit standing by at least one notch.  330 obligors deteriorated.  61 moved more than one notch. The frequency of upgrades and downgrades has slightly increased. Last month showed improvements across 281 obligors and deterioration across 315, with 58 moving by more than one notch. Industries: Upgrades dominate downgrades in just one out of the ten reported industries and six out of ten have more downgrades. Technology shows an improvement in credit quality with 12 upgrades and eight downgrades. The industries showing deteriorations include: Financials with 57 upgrades and 64 downgrades. Oil & Gas with 22 upgrades and 33 downgrades. Consumer Goods with 21 upgrades and 26 downgrades. Note: Monthly upgrade / downgrade movement is based on 26,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Risk.net: Credit Data: Rising Default Risk For Millennial Companies With its sleek aesthetics, fruit-water dispensers and free beer gimmick, WeWork seemed to perfectly capture the millennial zeitgeist. The co-working company catered to the army of entrepreneurs, start-ups and freelancers that define the gig economy. As millennials became the largest demographic in the workforce, WeWork expanded rapidly. In January 2019, an investment from Japan’s Softbank valued the company at $47 billion.  Then, everything came crashing down. WeWork pulled its planned initial public offering in September after investors questioned its business model and profitability. Almost overnight, its valuation dropped to under $8 billion. In October, Fitch downgraded WeWork’s credit rating to CCC+, deep in junk territory, with a negative outlook. WeWork is an extreme example, but its problems could be a harbinger for other companies reliant on millennial customers. Comparing the credit performance of 57 such businesses to more traditional companies – including a subset of the S&P 500 – reveals a worrying trend. Since 2016, companies focused on millennials have seen their credit quality deteriorate by 24% compared with only 7% for the comparator group. Read the full article using the below link. View original article (external link) ### December Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the December Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The December CCIs point to deterioration across the board in UK, EU (ex-UK) and US industrial companies, reflecting an uncertain global economic environment. The UK CCI for December is 49; downgrades persist for fifth consecutive month. . The EU CCI for December is 49.8; CCI remains negative but deterioration is modest. . The US CCI for December is 48.1; has a trend emerged? To download the full CCI tear sheets for UK, EU (ex-UK) and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Trade Credit Insurance: Where is Global Credit Heading? The Trade Credit Insurance market is dominated by a few large companies, but competition is surprisingly healthy due to a large number of smaller firms, with some of them only transient participants. The market broadly follows growth in the global economy, but recent trade tensions (US-China, Brexit) have caused significant disruption to supply chains, with some major realignment in cross-border trade credit risks. The credit insurance market operates on tiny margins. According to AU Group, a specialist trade credit insurance broker, revenues for the largest firms only represented about 0.3% of the underlying insured exposure in 2018. But loss ratios (the proportion of revenues paid out to cover policyholder losses) are currently around 50% (close to their global lows), so the industry is charging a healthy premium for current risks. The current loss ratio is relatively benign, with the industry viewing 70% as the maximum sustainable loss rate. But loss ratios can show dramatic swings, having peaked above 100% in the last major downturn about a decade ago.  Credit data sourced from the world’s leading financial institutions provides some clues about future trends in loss rates. Figure 1 plots percentage changes in credit risk over the past 6 months for a range of industries and regions. 6M Change in Default Credit Probability The red circles show that credit quality is deteriorating and credit risk is increasing. The green circles show that credit quality is improving and credit risk is decreasing. These trends are likely to have some bearing on trade credit insurance premiums. Most of the UK industries shown here are seeing deteriorating credit quality; Industrial and Technology companies across all regions are also deteriorating.  Improvements are concentrated in Basic Materials (North America), Health Care (EU ex UK, and UK) and Financials (EU ex UK). Clearly, trade is suffering as a result of the prolonged US-China tariff war and Brexit-related uncertainty.  The outlook for trade credit insurance in 2020 will be closely linked to global credit trends and the resolution of current global trade tensions will be critical to the future direction. Further insights into how consensus data can assist with mitigating trade credit insurance costs and supply chain credit risk can be found in our previous whitepaper on the topic. If you’d like to learn more about how consensus data can help your business manage trade credit insurance risk, please get in touch with us. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### November Credit Update: Consensus Financial Downgrades Outweigh Upgrades Credit Benchmark has published the latest monthly credit consensus data (from October 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades:  281 obligors improved their credit standing byat least one notch.  315 obligors deteriorated.  58 moved more than one notch. Thefrequency of upgrades and downgrades has decreased. Last month showed improvements across 357 obligors and deterioration across 335, with 61 moving by more than one notch. Industries: Upgradesdominate downgrades in two out of the ten reported industries and four out often have more downgrades. Theindustries showing improvements are: Utilitieswith 20 upgrades and eight downgrades. HealthCare with eight upgrades and five downgrades. The industries showing deteriorations include: Financials with 57 upgrades and 87 downgrades. Technology with five upgrades and 14 downgrades. Oil & Gas with 15 upgrades and 18 downgrades. Note: Monthly upgrade / downgrade movement is based on 26,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### The Wall Street Journal: Lenders Brace for Private-Equity Loan Defaults The default risk of companies owned by private-equity firms is 2.5 times that of their public counterparts, according to data collected from banks, insurers and asset managers by analytics firm Credit Benchmark. Private-equity firms use leveraged loans, rated below investment grade, for the financing of buyouts of target companies. Financial institutions raised their estimates of the average probability of default—or nonpayment—for such loans to about 6% in September from 5.44% a year earlier, according to the data. The Wall Street Journal, November 22, 2019. View original article (external link). ### Leveraged Loans Insight: Diverging Credit Quality Between Public and Private Equity Owned Firms The value of leveraged loans outstanding has more than doubled in recent years, from $600bn in 2012 to $1.4tn in 2018. This jump in issuance indicates that demand by investors for leveraged loans has been strong despite the fact that a significant number of higher risk “covenant-lite” loans have featured in a number of leveraged loan issues. Credit data collected from major financial institutions indicates that the credit risk of leveraged loans has deteriorated since October 2018 by 10%. However this average masks substantial credit quality differences depending on whether the firm issuing leveraged loans or its ultimate parent company is publicly listed or owned by private equity. The default risk of private equity-owned firms that issue leveraged loans is more than double that of publicly listed firms and crucially is responsible for most of the deterioration in credit worthiness of the overall leveraged loan aggregate. Figure 1 plots the recent trend in average default probability for 221 leveraged loan issuers, covering both public and private companies. It indicates that the credit risk of leveraged loan issuers began to deteriorate from an October 2018 low of 301 Bps to 332 Bps where it currently stands – a deterioration of 10%. This corresponds to a consensus rating of b+. Figure 1: Credit Benchmark broad market leveraged loan aggregate As leveraged loans encompass a diverse range of issuers, broad market averages may obscure some major differences between groups of issuers. Figure 2 shows the trend for two groups of leveraged loan issuers – those that are publicly listed (including the ultimate parent) and those that are issued by private equity owned companies. . Figure 2: Public versus private-equity owned leveraged loan aggregates The average probability of default of private equity owned leveraged loan issuers is now 601 Bps which corresponds to a consensus rating of b, compared to 236 Bps for publicly listed firms which corresponds to a consensus rating of bb-. In essence, the credit risk of private equity owned leveraged loan issuers is more than 2.5 times greater than publicly owned issuers which is equivalent to a 2 notch consensus rating difference. In addition, private equity owned issuer credit risk has deteriorated by 15% since the low of October 2018; while public companies have only seen a rise in default risk of 6% over the same period. There are some plausible reasons for these differences. Private firms are subject to less scrutiny, and investors cannot take short positions in the equity of private firms. Both of these factors imply fewer constraints on the debt levels in private firms. If the credit cycle enters a downturn, then the correlation between the default risks of private equity owned firms is likely to increase. The faster rate of deterioration in the credit risk of privately owned issuers suggests that – in the leveraged loan sector – the cycle may have already entered a downtrend. This research has been referenced in the Wall Street Journal article, "Lenders Brace for Private-Equity Loan Defaults", which can be read here. Access the full report including the methodology appendix here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### Bloomberg: Credit: There May Be Trouble Ahead There are plenty of arguments over whether we have reached the end of the long expansionary cycle in the U.S., and whether the rest of the world can stay out of recession. One alarming new data point released Monday comes from Credit Benchmark, which crunches credit upgrades and downgrades by banks. It claims more than 30,000 different bank analysts’ observations are collated into its monthly survey. Credit deterioration is a typical symptom of the end of a cycle — and that is exactly what Credit Benchmark is finding, particularly in the industrial sector. To start with the least surprising name, the direction has been negative for industrials in the U.K. with only brief interruptions since the Brexit referendum in June 2016. Many companies have business models that will be badly affected by exit from the EU. The extent of the problem, however, is alarming and dispiriting. With the Conservatives looking well-placed to take an overall majority in next month’s general election, uncertainty should die down. The country is likely to exit on terms roughly in line with those already on the table. But turning around credit sentiment promises to be difficult.  Excerpt from: Active Managers Just Can’t Win the Loser’s Game. Bloomberg, November 21, 2019. To read the original article, please click the link below. View original article (external link) ### November Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the November Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 20,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The November CCIs point to deterioration across the board in UK, EU (ex-UK) and US industrial companies, reflecting an uncertain global economic environment. The UK CCI for November is 49.3; deteriorating trend persists but net downgrades are moderate. . The EU CCI for November is 46.1; net downgrades continue to increase. . The US CCI for November is 47.8; downgrades outnumber upgrades for a second month. To download the full CCI tear sheets for UK, EU (ex-UK) and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Risk.net: US Slowdown Starts to Bite for High Yield US economic growth has slowed down during 2019, coming in at 1.9% in the third quarter, compared with 3.1% in the first quarter. The decline is starting to be reflected in corporate credit quality as well. The creditworthiness of US high-yield corporates has declined by 3% since the start of 2019, while investment-grade corporates are flatlining.  That’s still a stronger performance than in the UK, where investment-grade and high-yield credit quality is in negative territory – investment-grade credit quality has fallen by around 5% since the end of 2018. Even the top 100 companies, which had been relatively resilient, have now started to slide since the second quarter. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, examines the relationship between global economic slowdown and credit quality weakness, particularly in US and UK companies. In the UK, we take a look at the credit trend and distribution of the largest 100 companies, with some ominous signals ahead. Plus, a comparison of US and UK corporates split between those rated IGb (lower segment of investment-grade) and those rated HYb (the upper end of the high-yield category). An analysis of North American Oil & Gas companies shows some interesting divergence by subsectors. Also on US companies, a value v growth comparison of corporate borrowers split by earnings yield. Read the full article using the below link: View original article (external link)   ### Leisure and Recreation Industries Seem a Sure Bet During Economic Slowdown Download PDF The global economy is in “a synchronized slowdown”, according to the IMF’s latest World Economic Outlook report. Global growth for 2019 is expected to drop to 3%, similar to the rate seen during the global financial crisis. Trade in particular is suffering as a result of the prolonged US-China tariff war.  Not all industries are affected equally during times of economic sluggishness, and certain divergences are evident. The services industry has shown resilience, with the PMI for the sector staying afloat whilst the manufacturing PMI steadily deteriorated and dropped below 50 earlier this year[*]. And while the ‘retail apocalypse’ has led to high-profile store closures in the UK and US, not all areas within the goods and services industries have been equally affected. Leisure providers have seen significant credit quality improvement in the past 12 months, as demonstrated in the Leisure Goods category, as well as in Recreational Services. Leisure Goods[†] globally have seen a 7% improvement year-on-year, whilst US companies in particular have improved by 17%. Recreational Services[‡] have shown even stronger improvements in credit quality, with an already healthy trend line for European (including UK) companies recently improving by a further 14% since early 2019. The drivers behind this strong performance are multi-faceted. The ‘Wellness’ industry is booming, growing by an average of 6.4% between 2015-2017 compared with global GDP of 3.6%. An emphasis on health and fitness has been a boon for gyms and leisure centres, and athleisure has become a phenomenon in the apparel industry, projected to grow to a $350 billion market globally by 2020. Recent major sporting events such as the Football, Cricket, and Rugby World Cups will also have fuelled a greater interest in both viewing and participation amongst consumers. This evident prosperity in the face of negative economic forecasts may have some correlation with the ‘lipstick effect’ theory – that is, when things become financially tough, consumers take comfort from smaller, more affordable purchases. Taking a trip to the cinema, purchasing a game to play at home, or eating out with friends are all more accessible ways to experience a small taste of luxury than shopping for a new car or going on an overseas holiday. There are some parallels with the past - a 1975 article from the New York Times captures the spirit of a nation experiencing an economic downturn: “The country may be in the depths of the worst recession since World War II, but, despite the lean times, a lot of Americans are still having fun”. If predictions of a forthcoming global recession materialize, the Leisure and Recreation industries seem well placed to roll with the punches. [*] IMF World Economic Outlook Report, October 2019, page 4 (https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019) [†] The Leisure Goods companies captured in this aggregate include sportswear, sporting goods, wearable tech, toys and games, pool & spa companies [‡] The Recreational Services companies captured in this aggregate include sporting institutions, arenas, and tournaments, fitness clubs, live entertainment providers, theaters, gaming companies ### October Credit Update: Consensus Downgrades Outweigh Upgrades Download PDF Credit Benchmark has published the latest monthly credit consensus data (from September 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 357 obligors improved their credit standing by at least one notch. 335 obligors deteriorated. 61 moved more than one notch. The frequency of upgrades has slightly increased. Last month showed improvements across 321 obligors and deterioration across 345, with 57 moving by more than one notch. Industries: Upgradesdominate downgrades in just one out of the ten reported industries and six outof ten have more downgrades. Utilitiesshow an improvement in credit quality with 22 upgrades and 12 downgrades. Theindustries showing deteriorations include: BasicMaterials with seven upgrades and 24 downgrades. ConsumerGoods with nine upgrades and 32 downgrades. Technologywith six upgrades and 13 downgrades. Note: Monthly upgrade / downgrade movement is based on 26,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### The IMF Financial Stability Report, Global Debt Trends, and the Rise of Leveraged Loans Download PDF The International Monetary Fund (IMF) recently published their latest Global Financial Stability Report.[1] According to the report, Corporate Debt Growth between 2018 and 2019 has been mainly driven by loans rather than bonds, especially in the US, Germany and Japan.  Figure 1 compares recent growth in Corporate debt with GDP growth across some of the largest economies. Figure 1: Corporate Debt Growth, Contributions from Bonds and Loans, and GDP Growth (Percent, growth from 2018:Q1 to 2019:Q1). Source: IMF GFSR page 27, chart 6. One key finding of the report is that the value of leveraged loans issuance has more than doubled in recent years, from $600bn in 2012 to $1.4trn in 2018, indicating that demand by investors for this type of loan has been strong. In the past year, growth in leveraged buyout loans has significantly outstripped growth in loans for M&A. Figure 2 shows the longer term trend in US leveraged loans (with EBITDA Add-Backs).   Figure 2 US Leveraged Loan Deals with EBITDA Add-Backs 2 (Percent of new issuance). Source: IMF GFSR page 29, chart 6. But as the leveraged loan market grows and evolves, what are the risks? Uncertainties about the soundness of underwriting and risk management processes are starting to give regulators pause. According to the IMF report, the leveraged loan risk profile has been increasing, with the 6x-6.99x category expanding from about 15% to 30% of total issuance between 2015 and 2019 while the lower risk categories are stable or declining. Figure 3 shows the trends and proportions of Leveraged Loans by Leverage Multiple. Figure 3: US Leveraged Loan Issuance by Leverage Multiple (Percent). Source: IMF GFSR page 30, chart 5. In keeping with these trends, fixed income funds have a growing appetite for higher risk bonds. And within high yield funds, an increasing proportion of bonds are unrated. Consensus ratings from alternative data sources such as Credit Benchmark can help illuminate the risks associated with otherwise unrated issuers. Figure 4 shows the credit category breakdown for Low-rated fixed income funds. Figure 4: Fixed-Income Funds: Low-Rated Portfolios by Credit Quality (Percent of fixed-income portfolio). Source: IMF GFSR page 40, chart 2. Concerns about leveraged loans are reflected in consensus risk data from Credit Benchmark. While the negative trend in leveraged loan credit has slowed over the last few months (as shown in Figure 5), the dominance of credit downgrades across five of the last six months (Figure 6) suggests a risk of further deterioration. For information about how Credit Benchmark can help you better understand the credit risk of leveraged loan and unrated bond issuers, contact us here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ [1] https://www.imf.org/en/Publications/GFSR/Issues/2019/10/01/global-financial-stability-report-october-2019 ### October Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the October Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 30,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The October CCIs show a continuation of the previous month's deterioration in UK and EU ex-UK industrial companies, and a sharper increase in downgrades for US industrial companies, reversing a recent run of overall modest improvement. The UK CCI for October is 49.4; trend remains in negative territory. . The EU CCI for October is 48.2; deterioration persists. . The US CCI for October is 44.7; recent run of modest improvement reverses, downgrades dominate. To download the full CCI tear sheets for UK, EU (ex-UK) and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Indian Financials Bear the Weight of a Fragile Economy Download PDF India is the fifth-largest economy in the world (close to $3trn), but with a population of 1.3bn and an average wage of just $2,100 p.a. it ranks 142nd on GDP per capita. Much of the Indian population are financially disenfranchised. Until 2014, only 35% of the nation’s citizens had a bank account, and an estimated 50% are currently employed in the informal economy. Since the election of the Modi government in 2014, reform has been underway to provide better access to formal credit and banking products for the average citizen. Hundreds of millions of basic accounts have since been opened, and the creation of a centralised credit intelligence database is intended to offer greater visibility for lenders on a large potential customer base. The economy will clearly benefit from the unlocking of private cash reserves, but in macro-terms, the Modi government has a long way to go to repair and integrate a fragile banking and finance system. Bad debt has limited lenders from taking on new business, and with a non-performing loan ratio currently at 9.3% of total lending, India ranks the worst among the top 10 economies. Economic momentum is slowing across the board – the second quarter of 2019 saw GDP growth drop to 5%, representing a six year low, and the economy has decelerated for five consecutive quarters. And while businesses have had reason for cheer at the recent announcement of corporate tax cuts, there have been no fiscal measures to boost consumer spending power. This systemic fragility may be one of the reasons for the atypical relationship between the credit trends and quality of Indian Corporate and Financial entities. Credit Benchmark data, sourced from leading global financial institutions, shows a steadily deteriorating trend line in the credit quality for Indian Financials and Indian Banks, dropping by 11% and 22% respectively since late 2015. Indian Corporates, while not exactly flourishing, have seen a much smaller dip and more recent improvement than their financial peers. International comparisons show that Italy and Brazil are the only other countries where Corporates, as a group, demonstrate better credit quality than their Financial peers.   High-profile defaults such as that of high-rated Indian shadow bank IL&FS have strengthened calls for increased scrutiny in the financial sector. Partly in response, the government plans to consolidate 10 state banks into four larger entities, making the bad debt burden more manageable and increasing new loans across the economy. Greater overall transparency into counterpart credit risks could reduce the risk of further debts; consensus credit risk data offers an alternative view across Indian Financials and Corporates at the entity and aggregate level. ### Risk.net: Sustainable Companies are Better Credit Risks The link between sustainable business practices and financial performance is hotly debated.  There is plenty of anecdotal evidence of companies with poor environmental, social and governance (ESG) records – Volkswagen and PG&E, for example – coming a cropper. But establishing a clear statistical correlation between ESG scores and stock returns has proven difficult. In bond markets, the data is more conclusive.  Credit Benchmark analysed the credit performance of global companies with high and low ESG scores. When credit conditions were deteriorating in the first half of 2016, companies with low ESG scores fared especially poorly – with credit risk increasing by nearly 20%. This compares with a 4.5% increase in credit risk for companies with high ESG scores.   In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, compares the credit trends for companies scoring high and low on the ESG scale. Also this month, a look at risk premium cycles for government bond markets, and tracking the credit transition rates for US and UK large corporates. Finally, diverging credit trends seen in small cap v large cap companies as a comparison to the Russell 2000 and S&P 500 indexes. Read the full article using the below link: View original article (external link)   ### September Credit Update: Consensus Downgrades Outweigh Upgrades Download PDF Credit Benchmark has published the latest monthly credit consensus data (from August 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 321 obligors improved their credit standing by at least one notch. 345 obligors deteriorated. 57 moved more than one notch. The frequency of upgrades and downgrades has slightly decreased. Last month showed improvements across 324 obligors and deterioration across 356, with 66 moving by more than one notch. Industries: Upgradesdominate downgrades in four out of the ten reported industries and five out often have more downgrades. Theindustries showing an improvement in credit quality include: Financialswith 112 upgrades and 84 downgrades. Oil& Gas with 21 upgrades and seven downgrades. HealthCare with seven upgrades and three downgrades. Theindustries showing deteriorations are: ConsumerServices with 18 upgrades and 47 downgrades. Industrialswith 21 upgrades and 42 downgrades. Technologywith three upgrades and 12 downgrades. Note: Monthly upgrade / downgrade movement is based on 26,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### US Auto Sales Stalling After Labor Day Acceleration According to the JD Power LMC Automotive Forecast for September, US auto sales are expected to decline 13.3% year on year following record sales results in August, when retail sales rose 6.2%. In addition to the fact that Labor Day sales were counted in August’s report instead of September’s, the decline is likely due to increasing prices hurting consumer spending. Across the third quarter, retail sales are expected to be flat compared with the same time period last year, an improvement from the first half of the year. Looking ahead to the fourth quarter, overall consumer affordability will likely be aided by rate reductions. Consensus risk data from Credit Benchmark, sourced from 40+ of the world’s leading financial institutions, shows credit risk levels increasing for EU, UK and US Automobiles & Parts companies. According to the data, the UK, EU and UK have all seen declining credit quality from July 2018 to July 2019, with the US seeing the biggest decline at 5.3% after earlier improvement. Both the EU and UK auto companies have seen declining credit quality over the past year, dropping by 3.1% and 4.8% respectively. Why are financial institutions taking their foot off the gas in terms of their opinions on auto companies’ credit quality? For one thing auto manufacturers continue feel the impact of global supply chain challenges and ESG risks. For another, delinquencies on auto loans are on the rise.  For these reasons, the auto sector should continue to be closely monitored. ### The Millennial Generation: Room for Growth or a Dud Investment? The millennial consumer is still something of an enigma to the corporate world, but clichés regarding the demographic are well known. Considered flighty and non-committal, home ownership rates for millennials are dropping, the average age of marriage is rising, and the generation is travelling more than their elders did. One thing that businesses are sure of is the importance of capturing the market share of this divisive generation, which is due to account for three-quarters of the US workforce by 2030. The private investment sector has its sights set on the 2bn-strong demographic, which will inevitably grow into the dominant base of wealth as earlier generations retire. But capturing the tastes of this group is also fundamental to crafting profitable investment products, and various funds have been created to specifically target ‘millennial-friendly’ companies. The Indxx Millennials Thematic index is designed to track the performance of companies that cater to this generation, and when compared to the S&P500, it has shown to consistently outperform the more traditional index in the previous 2+ years. But are millennially-focused companies a good credit prospect? Credit Benchmark, using consensus credit data collected from leading financial institutions, have created an index of US- and UK-based businesses that cater to youthful consumers. Included in the sample are well-known apparel retailers, food and beverage providers, social media and tech companies, and travel industry brands. We have contrasted this index with a comparative representative sample of US500 companies. While both indices have seen deterioration in the past 2-3 years, the millennially-focused group has seen a much deeper drop and a more turbulent overall trend than the traditional companies. With an obvious disparity at play, are businesses unwise to devote marketing spend on capturing the minds and wallets of young consumers? And what are the social and economic factors contributing to the lacklustre credit performance of millennial-friendly companies? To find out more about the Credit Benchmark millennial index, access the full report here: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report ### September Credit Consensus Indicators (CCIs) – UK, EU and US Industrials Credit Benchmark have released the September Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 30,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 800,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The September CCIs show further credit deterioration for UK industrials, a dip back into deterioration for EU companies, and the US maintains a positive trend. The UK CCI for September is 48.2, dropping deeper into negative territory and suggesting a return to a downgrade trend. . The EU CCI for September is 49.5; trend continues to hover near neutral baseline. . The US CCI for September is 50.4; improvements are steady but remain modest. To download the full CCI tear sheets for UK, EU (ex-UK) and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Risk.net: Italian Banks Find Themselves at a Crossroads The recent turmoil in Italian politics comes at a precarious time for the country’s banking sector. An audacious effort by Matteo Salvini, leader of the far-right League, to bring down the government and force snap elections in the autumn – when annual budget negotiations were due to begin – appears to have failed. Salvini, who leads in the polls, has called for tax cuts and spending increases at a time when the country needs to find €23 billion ($25.2 billion) in savings to meet deficit goals agreed with the European Union. The prospect of early elections drove up Italian bond yields in mid-August and pressured the shares of domestic banks, which are large holders of the country’s debt. The banking sector can ill-afford another political crisis. Italian banks have spent the past three years raising capital and restructuring bad loans. Those efforts appeared to have reached a turning point last summer. The ratio of non-performing loans in Italy has been cut in half since peaking at 18.1% in 2016. Credit risk in the banking system, which increased by nearly 20% from January 2016 to July 2018, has improved by 8% since then. More than 90% of Italian banks currently sit on the boundary between investment and non-investment grade ratings. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, examines the credit outlook for Italian banks in the midst of political upheaval. Also this month, a look at the credit trends and distributions of the top 500 global companies, as well as a focus on top German and French companies and their credit performance in the face of Euro-specific headwinds. Oil & Gas trends for US, UK and the EU are also highlighted in this month's column. Read the full article using the below link: View original article (external link)   ### August Credit Update: Consensus Financial Upgrades Outweigh Downgrades Download PDF Credit Benchmark has published the latest monthly credit consensus data (from July 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 338obligors improved their credit standing by at least one notch. 356obligors deteriorated. 66moved more than one notch. Thesize of upgrades and downgrades has increased. Last month showed improvements across 324 obligors and deterioration across 416, with 58 moving by more than one notch. Industries: Upgrades dominate downgrades in four out of the ten reported industries and four out of ten have more downgrades. Theindustries showing an improvement in credit quality include: ConsumerServices with 37 upgrades and 26 downgrades. Telecommunicationswith 12 upgrades and six downgrades. Financialswith 61 upgrades and 53 downgrades. Theindustries showing deteriorations are: ConsumerGoods with 13 upgrades and 30 downgrades. Industrialswith 30 upgrades and 40 downgrades. Technologywith nine upgrades and 15 downgrades. Note: Monthly upgrade / downgrade movement is based on 27,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Consensus Sovereign Credit Data and Tradeable Anomalies in Government Bond Prices Government bonds are the largest, most liquid asset class in the world. Traditionally, developed economy yields and prices were driven by inflation expectations; but Central Bank QE policies now dominate. A growing proportion of Government bonds (currently $15trn) now trade at negative yields (despite positive inflation), and this total is expected to increase. Within this “Bonds Through the Looking Glass” world, Sovereign credit risk remains a constant feature. In less developed or distressed economies it has always been present, but for developed countries, Sovereign risk has historically been very low. It is true that bond yields have, at times (e.g. the 1970s), been very responsive to fiscal deterioration – an element in Sovereign risk. But the growth of Central Bank balance sheets in the wake of the 2008/09 financial crisis has put developed economy Sovereign risk under scrutiny. The larger, developed economy Government bond markets are very liquid. This, together with historically low price volatility, has made them the first choice as collateral for most financing trades. It also means that they can provide a benchmark for the market price of credit risk, without distortions due to the liquidity risk premium and other technical sources of pricing noise. But the market price of credit risk is itself subject to short-term variations and noise. Consensus credit data, sourced from leading financial institutions, provides a new type of medium-term estimates of credit risk that are typically more stable than market implied estimates but also updated more frequently than ratings from Credit Ratings Agencies (CRAs). The latest whitepaper from Credit Benchmark presents promising evidence that, in some markets and under certain assumptions, simple trading rules applied to the differences between the two metrics may offer scope for excess trading profits. This suggests that consensus credit risk data can be used in some markets to identify tradeable short-to medium-term anomalies in Government bond prices. To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper Now ### Does US Small-Cap Weakness Send an Ominous Signal?   Download PDF Precarious politics are causing flux in global stock markets, with trade wars, Brexit, political shocks in Argentina and protests in Hong Kong all causing investor jitters. Market indicators around the world have been flashing red as US, European and Asian stocks all dropped last week. Investor risk appetite seems to be waning, with the US Treasury yield curve inverted for the first time since June 2007 – a red flag for a possible recession. Another well-known financial indicator in uncertain times is the relationship between the S&P 500 and Russell 2000 indices, and their relative performance is closely monitored by investors. These two indices have experienced diverging trends over the last 6 months, with the S&P 500 registering healthy growth of nearly 20%, compared to 7% for the Russell 2000. With the S&P 500 representing large multinational companies, it is strongly correlated with the global economy; the smaller, more volatile businesses in the Russell 2000 are more dependent on domestic trends. Does the weakness of the Russell 2000 show that investors are turning bearish? The divergence could be a temporary slow-down in small-cap companies, or it may signal a more ominous turning point. Credit Benchmark’s consensus credit risk dataset, sourced from the world’s leading financial institutions, provides a valuable comparison to the S&P 500 and Russell 2000 indices. By comparing the credit risk trend of 450 large-cap and 700 small-cap US companies (all of which are members of the S&P 500 and Russell 2000 indices), a similar pattern of divergence can be seen. The credit quality trends were aligned in 2018 but started to move in opposite directions at the start of 2019, with credit quality for large-caps increasing by 3% over the last 6 months while small-caps deteriorated by 2% over the same time period. The relationship between the deterioration of the Russell 2000 and the Credit Benchmark small-cap index may be signaling a fundamental problem affecting smaller US companies, and potentially a market turning point. ### GlobalCapital: Default risks accumulate in Brexit-plagued UK market UK corporate debt is at an all-time high as the risks posed by a traumatic departure from the EU in October peak. Default risk among UK industrials has deteriorated sharply in recent years while at the same time their EU counterparts have lowered their risk profile. Karoliina Liimatainen reports. The average default risk of UK industrial companies has risen about 24% since January 2016, according to Credit Benchmark index data, while the risk for their EU peers, has declined by about 9%. The Credit Benchmark data is based on a cross-section of data provided by major banks and includes “low thousands” of UK companies and “high hundreds” of EU firms, explained David Carruthers, the head of research at the data company. While Brexit is a major factor, the decoupling of the credit risk for the UK and the rest of the EU has not solely been down to the divorce, Carruthers said. “In Europe, many companies have been quite concentrated on paying down their debts," he said. "European balance sheets have been improving in recent years but in the UK, if anything, the corporate debt has increased.” GlobalCapital, August 15, 2019. To read the original article, please click the link below. View original article (external link) ### Credit Quality Sours as UK Restaurants & Bars Feel the Brexit Squeeze Download PDF Sterling has continued its downward summer slide, dropping from USD1.32 to USD1.21 since May. Analysts warned of future weakness in the event that Boris Johnson became Prime Minister, taking the view that his leadership will increase the chances of an economically risky no-deal Brexit. Market onlookers will be watching keenly now that Johnson’s victory has been secured. As previously reported by Credit Benchmark, UK industry has been suffering under the ‘Brexit Effect’ for some time now, with downturn observed across both large and smaller businesses around the country. One of the hardest hit industries has been the UK services sector, with IHS Markit reporting a below-forecast PMI of 50.2 for UK Services in July 2019. A weakened pound has put additional pressure on UK restaurant and bar businesses by making ingredients more expensive, and adding to rising staff costs as a result of increased minimum wage rates. Oversupply has also been an issue in recent years, with 4,000 new openings across the UK over the past 4 years, often in areas with insufficient footfall. High profile closures include Jamie’s Italian, Strada, Prezzo, Carluccio’s, Byron Burger and Gourmet Burger Kitchen. Credit Benchmark Consensus data, sourced from 40+ leading global financial institutions, tracks the credit quality of a group of UK Restaurants & Bars, with 50 constituents ranging from small localised ventures to large well-known chains. Credit quality for the group has steadily deteriorated since December 2015, barring a small respite in Q1 2017. Overall, there has been a 35% drop in credit quality in this time period. Additionally, the Consensus credit level for the vast majority of companies represented here (>70%) are in the non-investment grade category of bb, speaking to the decreased confidence lenders are feeling towards the sector in the current economic climate. Boris Johnson has begun to unveil some of his policy plans, but Brexit will remain a moveable feast for the foreseeable future - and UK restaurateurs will continue to feel the heat. ### The Observer: Industrial Exports are the Engine of Developed Economies. Ours Has Stalled Downing Street must add the likelihood of a UK recession to its list of possible scenarios after official figures showed that the economy contracted in the second quarter by 0.2%... ...UK companies have been borrowing heavily since the 2008 crash. Most of the funds have been used to pay generous dividends, rather than being ploughed into new equipment or research and development. According to analysis of industrial companies by US risk assessment company Credit Benchmark, British firms have allowed their financial situation to deteriorate to such an extent that they are much more vulnerable to a shock than their peers in Europe or the US. Credit Benchmark’s risk indicator shows that EU companies, acting prudently to shore up their finances, have cut their borrowing since 2016 to the extent that their credit risk has improved by 10%. Over the same period, UK industrial companies have allowed their credit risk to deteriorate by 25%. The Observer cites Credit Benchmark data in this opinion piece on the the weakening state of UK Industrial companies in the lead up to Brexit. The Observer, August 11, 2019. To read the original article, please click the link below. View original article (external link) ### Risk.net: No-deal Brexit Threatens UK Retail Sector   The UK retail sector could be particularly vulnerable to a no-deal Brexit.  New UK prime minister Boris Johnson’s vow to leave the European Union on October 31 with or without a withdrawal agreement has driven fresh weakness in sterling, reducing local purchasing power and quite possibly undermining consumer sentiment. The GfK consumer confidence survey for July shows expectations for the general economic situation over the next 12 months stranded at –32, substantially worse than the level of –26 recorded in the same month of 2018.  In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, reports on the deteriorating state of the UK Retail sector, particularly in UK Restaurants & Bars. Also in UK news, a Credit Consensus Indicator (CCI) for Industrials. In Europe, we compare the credit levels of Corporate and Financial entities for several European countries, highlighting Italy's bad loan problem. US Basic Materials also show signs of a negative credit trend in the midst of ongoing trade tensions with China. Read the full article using the below link: View original article (external link)   ### Will Trade Tensions Cause Trade Credit Insurance Costs to Rise?   Book a Demo A chain is only as strong as its weakest link – and with international political tensions causing disruption to trade networks worldwide, global supply chains are being put to the test. The US-China trade war has triggered major readjustments to existing global supply chain networks. US Farmers have seen a 38% drop in exports of U.S. farming produce to China since the first measures were announced, while China has seen 30% of their exports severely hit by tariffs. But nature abhors a vacuum, and new suppliers are filling the gaps. Vietnam has been a major winner, with increased exports to both the US and China growing adding 2% to the nation’s GDP. This has not gone unnoticed – Vietnam is already in focus for the US to impose similar tariffs. So smaller nations may benefit, but only if they can stay off the US radar. And they will face the additional challenge of remaining competitive if trade tensions are resolved. The looming prospect of Brexit is another factor affecting global supply chains. Brexit has already created disruption, with far-reaching consequences regardless of how the negotiations play out. The UK also plays a key role in a number of global supply chains [Read our whitepaper on supply chains credit risk here]. So in the event of a no-deal Brexit, the effect of border delays, import/export tariffs and fluctuating exchange rates could have an impact on supply chains far beyond the UK. In the midst of all this disruption, Trade Credit Insurance companies become an ever more vital cog to keep supply chains moving. One of the purposes of trade credit insurers is to mitigate geopolitical risks by assuring businesses of ongoing income in the face of disruption. Higher risk means higher premiums so trade credit insurance costs could rise. So far this year, the number of insurance claims made by UK businesses facing bad debts has reached its highest level in ten years according to latest figures from the Association of British Insurers (ABI). The figures show a 6% increase in company insolvencies in the first quarter. Credit risk transparency is key to terms and pricing for trade finance policies, and increased transparency is especially critical for smaller companies where publicly available information does not exist. Credit Benchmark’s unique coverage of 50,000+ individual entities and forward-looking Loss Given Default (LGD) data allows insurers to price more accurately and conduct business more confidently with more trading companies. Credit Benchmark Aggregates offer insights into the credit trends of industries and geographies, pinpointing credit deterioration in sectors and supply chains of interest to insurers and helping inform future underwriting strategies. Comparing the recent credit trends of UK, US, and EU ex-UK Industrials shows that UK companies have struggled recently, with a steady decline in credit quality over the past 3+ years. Post-Brexit vote uncertainty has had a far-reaching effect on the sector. US companies have also deteriorated over this period but to a lesser extent, and have in fact shown modest improvement in the last year. European Industrials have fared much better, and though the sector will certainly experience disruption to UK trading as Brexit progresses, EU companies can rely on the security of a network of pre-existing trade agreements. . Further insights into how Consensus data can assist with mitigating supply chain credit risk can be found in our previous whitepaper on the topic. If you are interested in learning more about how Consensus data can help your business manage trade credit insurance risk, please get in touch with us via the below form to request a demo. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download PDF   ### July Credit Update: Consensus Upgrades and Downgrades are in Balance Download PDF Credit Benchmark has published the latest monthly credit consensus data (from June 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 324 obligors improved their credit standing by at least onenotch. 416 obligors deteriorated. 58 moved more than one notch. The frequency of upgrades has decreased while the frequencyof downgrades has increased. Last month showed improvements across 356 obligors and deterioration across 367, with 57 moving by more than one notch. Industries: Upgrades dominate downgrades in one out of the ten reportedindustries and three out of ten have more downgrades. The industry showing an improvement in credit quality is: Technology with sevenupgrades and three downgrades. The industries showing deteriorations are: Basic Materials with 15upgrades and 17 downgrades. Consumer Services with 26upgrades and 36 downgrades. Industrials with 34upgrades and 42 downgrades. Note: Monthly upgrade / downgrade movement is based on 27,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Lenders Tap the Brakes on Auto Companies as Sales Lose Momentum Download PDF Auto sales for July are expected to decrease by 1.8% compared to a year ago, according to the most recent J.D. Power and LMC Automotive forecast. The gloomy outlook is supported by Cox Automotive, who have reported a 2.2% decrease in sales for the first half of 2019 and are expecting an even larger reduction of 3.4% in the second half of the year. Car manufacturers are steeling themselves for reduced demand. Continental tentatively projected stable production levels back in March, despite the apparent risk factors of an unresolved Brexit plan and ongoing trade disputes between the US and China. The large automotive supplier has since revised its forecast, taking the view that global auto production will fall by 5% in 2019. While sales figures are dropping, the average price of new vehicles continues to rise to record levels, reaching a high of USD$33,182 this month as reported by J.D. Power. Consumers may be discouraged by reduced availability of affordable vehicles, coupled with the habit of deferring expensive purchases in uncertain economic times.   Auto manufacturers are highly susceptible to the ebbs and flows of global supply chains, and the ongoing uncertainty stemming from global trade tensions has dented the risk appetite for lenders over recent months. Falling sales figures are not going to help restore confidence in the sector. Consensus risk data from Credit Benchmark, sourced from 40+ of the world’s leading financial institutions, shows credit risk levels increasing for EU, UK and US Automobiles & Parts companies. Both the EU and UK companies have seen declining credit quality over the past year, dropping by ~4% and ~6% respectively. US companies have fared better, possibly due to the Trump administration fiscal package. In the past year however, the improving trend stalled and began to decline in early 2019. As lenders take stock of revised sales forecasts for the year, credit risk levels may rise further in response. . ### Risk.net: China, US Corporates Feeling Trade Tensions The G20 meeting in Osaka at the end of June brought a clutch of positive developments in the trade war between China and the US – a resumption of talks that had broken down in May, an accompanying ceasefire on new tariffs and a partial lifting of the US blockade of telecoms giant Huawei. No-one should be getting too excited. For one thing, the official line on both sides is to expect a drawn-out negotiation...For another, China and US corporates have already been feeling the strain for months – at least, if bank estimates of default risk are to be believed. Data on 2,375 US companies shows credit quality started to deteriorate in January this year... ...Data on China corporates tells a similar story – a near-20% improvement in credit quality since the start of 2016, which peaked at the end of the first quarter of 2019 and is now deteriorating. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, reports on the corporate credit impact of the China-US trade war. Also this month, credit trends and distribution of Brazilian corporate and financial entities, insights into UK corporate small and medium sized enterprises (SMEs), and the ongoing troubles facing US and UK retailers. Read the full article using the below link: View original article (external link) ### July Credit Consensus Indicators (CCIs) – US, UK and EU Industrials Credit Benchmark have released the July Credit Consensus Indicators (CCIs). The CCI is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 30,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 750,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The July CCIs show a slight recovery in credit risk for UK industrials, the EU is in balance, and the US maintains a positive trend. The UK CCI for July is 50.8 and is in positive territory after prolonged deterioration. . The EU CCI for July is 50; sitting at neutral. . The US CCI for July is 50.8, continuing a minimal trend of improvement - in line with US Industrial output figures. To download the full CCI tear sheets for UK, EU (ex-UK) and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### June Credit Update: Consensus Corporate Downgrades Outweigh Upgrades Credit Benchmark has published the latest monthly credit consensus data (from May 2019) based on contributions from 40+ financial institutions, covering 50,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 356obligors improved their credit standing by at least one notch. 367obligors deteriorated. 57moved more than one notch. Thefrequency of upgrades and downgrades has increased. Last month showed improvements across 261 obligors and deterioration across 297, with 66 moving by more than one notch. Industries: Upgradesdominate downgrades in two out of ten reported industries and five out of tenhave more downgrades. Theindustries showing an improvement in credit quality are: BasicMaterials with 23 upgrades and 16 downgrades. Technologywith six upgrades and four downgrades. Theindustries showing deteriorations include: ConsumerServices with 22 upgrades and 29 downgrades. Oil& Gas with 20 upgrades and 32 downgrades. Utilitieswith three upgrades and 17 downgrades. Note: Monthly upgrade / downgrade movement is based on 28,000 individual Consensus PDs. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Download PDF ### Global Credit Chartbook Download Chartbook Political and economic factors have driven some major changes in credit over the last year. Trade disputes, geopolitical tensions and climate change have all played a role in steering the credit quality of international industry. Credit Benchmark’s global credit Chartbook draws on the credit risk views of 30,000 expert analysts from 40+ leading financial institutions to explore the impact of these global influences. This exclusive analysis provides a comprehensive overview on Corporate and Financial credit trends across 20 individual countries and associated regions. Illustrated across 30+ detailed charts displaying credit trends, changes, levels and distributions, we explore: United States: Has the positive “Trump Effect” on Financial and Corporate credit risk run its course? Americas: Corporates and Financials show improvements in nearly all countries – with one exception. United Kingdom: What is the impact on UK Industries following the Brexit vote? Europe: Most of the European Countries analysed show overall improvements in Corporate and Financial credit risk over the last year, with a couple of key highlights. Asia: All countries show improving Corporate credit risk over the past year. Most Financials also have improving trends, with a couple of exceptions. UK and US Oil & Gas: The most recent data shows a dip in credit quality - but is a turning point in sight? . For access to the full Chartbook, please enter your details below First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Full Report   ### Credit Benchmark Launches Credit Consensus Indicator – New Monthly Measure of Credit Risk for US, UK and EU Industrials New York, NY, June 24, 2019 -- June CCI Shows "Cracks in Foundation" for US and European Industrial Corporate Credit Quality. Credit Benchmark, the leader in consensus based credit analytics, today announced the launch of a new monthly measure of credit risk for US and European corporates in the industrials sector. The Credit Benchmark Credit Consensus Indicator (CCI) is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 30,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 750,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. “Credit Benchmark has become the largest source of credit risk data for rated and un-rated entities, and we are committed to leveraging that unique level of visibility to create the kinds of timely, insightful benchmarks market participants need to accurately evaluate their credit risk exposures,” said William Haney, CEO of Credit Benchmark. “With the CCI, we’ve developed a timely snapshot of credit risk for US and European industrials that offers a tremendous amount of insight in a concise, easy-to-follow index.” The June CCIs show rising credit risk in the UK and EU, but a slight improvement in the US. The UK CCI for June is 49.6 and has been in deteriorating territory for the past 6 months. The EU CCI for June is 49.6, the first dip below 50 in three months. The US CCI for June is 50.9, after two months of deterioration. Most months in 2018 showed improvements in the US but the picture is now more mixed. “Recent CCIs indicate pessimism among analysts tracking industrials, especially in the UK, and less optimism in the EU,” said David Carruthers, Credit Benchmark Head of Research. “And the long term trend for US industrials suggests that the positive bump associated with the Trump tax cuts has now worked its way through the system, and we’re now seeing some cracks appearing in the credit quality foundations.” The Credit Benchmark CCI will be published monthly on the third Monday of each month. It can be accessed here. About Credit Benchmark Credit Benchmark is a financial data and analytics company offering the world’s most comprehensive market view of credit risk. By bringing together credit risk inputs from 40+ of the world’s leading banks, Credit Benchmark provides monthly insights across geographies and sectors and a unique measure of risk on rated and unrated entities globally. Credit Benchmark was founded in 2012 and is based in London and New York. Media Contact information Caitlin MulkeenHead of Marketingcaitlin.mulkeen@creditbenchmark.comTelephone: +1-646-779-1143 John RoderickJ. Roderick Public Relations (Representing Credit Benchmark)john@jroderick.comTelephone: +1-631-584-2200 ### Credit Benchmark Launches Credit Consensus Indicator – New Monthly Measure of Credit Risk for US, UK and EU Industrials Credit Benchmark, the leader in consensus based credit analytics, today announced the launch of a new monthly measure of credit risk for US and European corporates in the industrials sector. The Credit Benchmark Credit Consensus Indicator (CCI) is an index of forward-looking credit opinions for US, UK and EU Industrials based on the consensus views of over 30,000 credit analysts at 40 of the world’s leading financial institutions. Drawn from more than 750,000 contributed credit observations, the CCI tracks the total number of upgrades and downgrades made each month by credit analysts to chart the long-term trend in analyst sentiment for industrials. A monthly CCI score of 50 indicates neutral credit quality, with an equal number of upgrades and downgrades made over the course of a month. Scores above 50 indicate that credit quality is improving. Scores below 50 indicate that credit quality is deteriorating. The June CCIs show rising credit risk in the UK and EU, but a slight improvement in the US. The UK CCI for June is 49.6 and has been in deteriorating territory for the past six months. The EU CCI for June is 49.6, the first dip below 50 in three months. The US CCI for June is 50.9, after two months of deterioration. Most months in 2018 showed improvements in the US but the picture is now more mixed. “Recent CCIs indicate pessimism among analysts tracking industrials, especially in the UK, and less optimism in the EU.” said David Carruthers, Credit Benchmark Head of Research. “And the long term trend for US industrials suggests that the positive bump associated with the Trump tax cuts has now worked its way through the system, and we’re now seeing some cracks appearing in the credit quality foundations.” The Credit Benchmark CCI will be published monthly on the third Monday of each month. To download the full CCI tear sheets for UK, EU (ex-UK) and US Industrials, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download CCIs Now ### Risk.Net: More Trouble in the Oil and Gas Pipeline Oil and gas lenders tend to be a stoic bunch. But even the hardiest among them could be forgiven for feeling rattled these days... ...Brent crude has risen by a fifth in the past few months, see-sawing between just below $50 a barrel and as high as $86.74 in a wide 52-week range... ...On paper, the supply side looks strong: US shale oil production is in rude health – to the extent the US is now energy self-sufficient – with more improving credits among producers than deteriorating ones for more than two years straight. Meanwhile, the Organization of the Petroleum Exporting Countries has opened the taps on Middle East crude supply to record levels. In the medium term, though, supply-side strength could have a negative effect on the credit quality of borrowers betting on high prices. The net balance between improvements to deteriorations began to decline in October 2018. In March 2019, it turned negative, and the data suggests more difficult times are in the pipeline. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, reports on the current volatility affecting the credit quality of US Oil and Gas. Also this month, credit changes for Canadian industries, transition rates for BBB rated borrowers, and an examination of the credit changes of high-debt and low-debt companies. Read the full article using the below link: View original article (external link) Download PDF ### Credit Quality of US Housing; Is Market Built From Bricks or Straw? Download PDF Cracks are beginning to show in the foundations of the US Housing market, with the National Association of Realtors reporting a reduction of 4.4% in total sales from a year ago, and a rising housing inventory up by 3.6% in the same year. Excess housing stock plus falling sales is an unwelcome combination for vendors, and data from real estate brokerage Redfin shows that property offers subject to bidding wars dropped from 60% down to 15% between April 2018-April 2019. Consumer confidence has been dealt a blow by the ongoing US/China trade wars, and the housing market is one of many sectors feeling the pinch. Rob Dietz, chief economist at the National Association of Home Builders told MarketWatch “We estimate that the 25% rate on the existing tariffs represent a $2.5 billion annual tax increase for the housing sector in terms of materials used for construction”. Tariffs affect a wide range of everyday goods, and rising living costs can also mean that renters or mortgagees have less available cash to fulfill their housing payment obligations. Home buyer demographics are also in flux. Millennials may well aspire to home ownership, but ballooning student debt levels coupled with high rent can preclude young buyers from affording a down payment. Added to this, a generational lifestyle preference for the convenience of inner city living - at a price - and later ages for traditional home buying catalysts like marriage and children.   Credit Benchmark consensus credit risk data, sourced from 40+ global financial institutions, shows that lenders have been bracing for credit quality deterioration in the US housing sector for some time now. Credit quality for US Household Goods and Home Construction companies has dropped by over 7% in the last three months, and by 9% since October 2018. The number of month-on-month credit downgrades has also steadily increased, with 10 of the past 12 months showing more credit downgrades than upgrades, and the percentage of total credit downgrades roughly doubling in this time period. While market conditions are not at the level of the 2008 housing crisis, the economic uncertainty currently affecting a number of sectors has undoubtedly been felt by the US Housing market. To download the full aggregate analytics for US Household Goods & Home Construction, please enter your details below: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Aggregate Now ### May Credit Update: Consensus Upgrades and Downgrades are in Balance Credit Benchmark has published the latest monthly credit consensus data (from April 2019) based on contributions from 30+ financial institutions, covering over 27,600 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 261obligors improved their credit standing by at least one notch. 297obligors deteriorated. 66moved more than one notch. Thesize of upgrades and downgrades has slightly increased. Last month showed improvements across 267 obligors and deterioration across 241, with 43 moving by more than one notch. Industries: Upgradesdominate downgrades in one out of ten reported industries and three out of tenhave more downgrades. Theindustry showing an improvement in credit quality is: BasicMaterials with 16 upgrades and six downgrades. The industries showing deteriorations are: Consumer Goods with 13 upgrades and 30 downgrades Consumer Services with 24 upgrades and 26 downgrades. Health Care with three upgrades and eight downgrades To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Download PDF ### Is Brexit Driving Major Regional Credit Differences in UK SMEs? The Brexit vote has had a major impact on the credit quality of British industry over the past three years. Credit Benchmark has regularly reported on the declining credit health of a range of UK Sectors, including Auto Companies, Retailers, Large Corporates, Healthcare, and Telecomms. The UK has experienced uncertainty since the vote took place in June 2016, and with no deal or certain exit date yet agreed, big business will continue to feel the ‘Brexit Effect.’ The ‘Leave’ campaign emphasised the return of economic power to regional areas. But how will Brexit affect Small and Medium Enterprises (SMEs) across the United Kingdom? Gauging the credit quality of SME businesses around the UK is a useful measure of how the prospect of Brexit has already affected local economies, and gives some clues as to future performance. Credit Benchmark collects, anonymises, and aggregates internal credit observations from 40+ of the world’s leading financial institutions. There are ~245,000 SMEs in the UK (excluding sole proprietorships, non-employing businesses and micro enterprises). Credit Benchmark currently collects over 140,000 individual credit observations on UK SME companies, representing coverage on over half of the UK SME sector. This rich dataset offers unique insights into the credit quality of UK SMEs across countries and regions.  Credit quality for England, Scotland and Wales hovered around a zero net effect between June-December 2018. Wales then began to trend downwards at the end of last year, and this trend has persisted - echoing Welsh First Minister Carwyn Jones’s assertion that Brexit will have a negative effect on the Welsh economy. In Northern England – one of the heartlands of the Leave vote – there are mixed credit trends for each region. The North West shows a modest deterioration, while Yorkshire & Humber has trended downwards more sharply. On the other hand, the North East - despite dire post-Brexit economic forecasts and the highest credit risk in the UK - actually shows a credit improvement in the past 12 months. Credit Benchmark SME data and analysis covers all regions across England and further insights into Scottish and Welsh credit quality are available. For more, please get in touch with us at info@creditbenchmark.com Download PDF ### Automotive Bubble Shows Signs of Deflation for US, UK, EU Companies The challenges facing the automotive industry are well known. Investment into electric and driverless vehicles presents a formidable looming cost for car manufacturers, and some companies have announced partnerships in order to manage the enormous sums required for future development. Fiat-Chrysler and Renault have recently proposed a €36.2bn transformative merger, while Daimler and BMW have signed a memorandum of understanding to develop autonomous-driving technology together. The German automotive industry is determined not to be left in the dust cloud of US technological innovation, with plans to invest around €60bn into electric vehicles over the next 3 years. Estimates place US maker Tesla 2-3 years ahead of their German rivals, with electric vehicle sales reflecting their competitive edge – Tesla even outsells some of the luxury combustion engine models made by BMW and Lexus. Tech revolution aside, the ripple of unease caused by ongoing US trade conflict has not left Global Auto unaffected. Firms like BMW who manufacture in the US and export to China are seeing their sales suffer as a result of trade sanctions, and car makers are eying off alternative parts producers in countries like Mexico in the event that tariffs for Chinese suppliers persist. Despite the daunting outlook, auto sales have been quite robust in recent years, with sales from the combined top 17 global manufacturers hitting a record €107bn in 2017. Even Volkswagen has weathered their diesel emissions scandal better than expected, announcing a 3.1% rise in revenues in Q1 2019. But the bubble is showing signs of deflation – the May J.D. Power and LMC Automotive Forecast reported that US sales have declined for a fifth consecutive month, down 5.2% compared to May 2018. Credit Benchmark consensus credit risk data, sourced from 40+ of the world’s leading financial institutions, supports this hint of pessimism. The credit trend for US Automobiles & Parts companies has been stagnant over the past year, following a steep ascent towards improvement between late 2016-mid 2018. European companies saw growth over the same period as their US counterparts, but their decline in credit quality starting in April 2018 has been more pronounced. UK auto companies, much like many of their corporate compatriots, have not fared well with Brexit pressures adding to the aforementioned Auto climate – a sharp descent in credit quality can be observed from early 2018 and persists today. . Download PDF ### Who are the Winners and Losers in Retail & Consumer Goods? Another day, another store closing – this is the current environment for UK retailers, with the Arcadia Group announcing this week the closure of 23 stores including Topshop, Dorothy Perkins and Miss Selfridge. These closures follow recent announcements that M&S will close 100 stores by 2022, and Debenhams’ ongoing administration woes. Some retailers are determined to fight back – in response to flatlining Q1 sales, Urban Outfitters has announced the introduction of a new ‘clothes rental’ program, which it hopes will stymie the rising (and profit-damaging) practice of consumers purchasing and returning worn clothing. And discount retailers are frequently known to flout an economic trend as consumers turn to cheap and cheerful products – take for example Walmart’s growth of net income in 2008, 2009 and 2010 following the financial crisis. In the UK, discount retailer B&M plans to open 50 new stores over the next year, and has reported an annual profit increase of 8.7%. While Brexit and a weak pound are the main explanations for the UK downtown, trade squabbles between the US and China are continuing to impact the retail & consumer goods industries in both of these large economies. The IMF has criticised tariff increases on the grounds that companies are likely to pass the cost directly onto consumers.   The charts below demonstrate the credit quality of international retail and consumer goods. Chart 1 shows the comparative credit trends of UK and US general retailers since January 2016. In the wake of the Brexit vote, UK retailers have seen a steady deterioration in credit quality. US retailers saw a similar but more modest decline and this has levelled off since July 2018. Charts 2 & 3 show the credit activity for Chinese and US consumer goods respectively. China has seen fairly stable activity since January 2016, modestly trending towards downgrades – until a sharp increase in downgrades in late 2018, coinciding with heightened trade disagreements with the US. The US sees a similar pattern until the swing towards upgrades in late 2018. Whilst China appears to be returning to equilibrium, the US has turned back to a negative balance - suggesting that the benefits of the trade war are still unproven. Download PDF ### Political Tensions Create Uncertainty in Global Oil & Gas Oil is a temperamental commodity at the best of times, with prices heavily influenced by the slightest fluctuations in supply. The US is currently acting as the proverbial cat amongst the pigeons, with its sanctions on Iran and ongoing trade negotiations with China. If the talks go sour, diminished Chinese economic activity and thus a reduced demand for oil could threaten oil prices further. Amongst all of this, the US’s own oil coffers continue to grow, and allies like Saudi Arabia, the UAE and Russia have been encouraged to step up production to meet supply shortfalls resulting from the Iranian sanctions. Relying on domestic oil production is not fail-safe, however – unanticipated events such as extreme weather, disruptions at oil-fields or geopolitical conflict could adversely impact an already reduced network of oil suppliers, in turn causing price spikes. This uncertainty is reflected in recent consensus credit risk data. While the overall credit quality of Global Oil & Gas has been steadily rising since mid-2017, Chart 1 (Credit Trend) below shows this improving trend line stalling in the previous 3 months. Chart 2 (Credit Activity) supports this stagnation, with an approximate net zero effect between deteriorations and improvements in the same time period. Download PDF ### Risk.Net: Worrying Trends in Sovereign Risk Sovereign credit risk is a complex beast. It is often country—specific, but can also be driven by regional and global themes.  Currently, all three factors are in play. Looking ahead, changing geopolitical alliances, trade flows and supply chains will have a more profound and far-reaching effect. It all adds up to a more volatile environment for sovereign credit risk. From mid-2017 to late 2018, sovereign credit volatility more than doubled. And while it has come down recently, sovereign credit volatility remains worryingly high, at just above 4%.  In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, reports on the increasingly volatile state of Sovereign credit risk. Also this month, the global airline industry suffers some major setbacks, and a look at the contrasting credit fortunes of US large oil vs Opec sovereigns. We also examine similarities and differences in basic materials vs utilities credit quality. Read the full article using the below link. View original article (external link) Download PDF ### ICE Data Services Launches New Service with Credit Benchmark Data to Provide a Comprehensive, Daily Market View of Credit Risk New analytics from ICE Data Services and Credit Benchmark measure credit risk by combining daily market credit risk analytics with monthly fundamental credit views from financial institutions. “ICE’s expertise in delivering rich fixed income analytics to the market makes them a natural collaborator with Credit Benchmark,” said William Haney, Credit Benchmark’s CEO. “Our consensus data will help power the new ICE Credit Risk offering, further extending the use of our network-sourced analytics. Given where credit markets are trending, this launch is well timed and gives investors an important edge.” View original article (external link) ### Point-in-Time PD Curves: IFRS9 / CECL Applications In the era of increased regulatory scrutiny, banks and other lenders have a growing need for Point-in-Time default risk estimates to satisfy IFRS9 and CECL accounting standards. However, the methodology and construction of these estimates vary significantly between different institutions. These institutional differences mean a simple impairment calculation for a standard loan could potentially vary by several million dollars, putting some firms at an obvious disadvantage during auditing periods. Consensus credit data presents an opportunity for lenders to assess their internal models and identify where calibrations and methods differ from their peer group. Credit Transition Matrices (CTMs), created using Consensus data from Credit Benchmark, record the frequency of Consensus changes in 7-category credit notches over a set period of time. These CTMs can then be powered up to give estimated “Real World” Cumulative Probability of Default term structure curves for each credit category, which can in turn be converted into approximate Point-in-Time curves. The latest whitepaper from Credit Benchmark details the creation of these PIT equivalent curves and examines their applicability for IFRS9 and CECL purposes. To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper Now ### April Credit Update: Consensus Upgrades and Downgrades are in Balance Credit Benchmark has published the latest monthly credit consensus data (from March 2019) based on contributions from 30+ financial institutions, covering over 27,400 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 267obligors improved their credit standing by at least one notch. 241obligors deteriorated. 43moved more than one notch. Thefrequency of upgrades and downgrades has decreased. Last month showed improvements across 415 obligors and deterioration across 295, with 39 moving by more than one notch. Industries: Upgradesdominate downgrades in three out of ten reported industries. Theindustries showing an improvement in credit quality include: BasicMaterials with 11 upgrades and five downgrades. ConsumerGoods with 27 upgrades and 20 downgrades. Utilities with 10 upgrades and five downgrades. The industries showing deteriorations are: Health Care with five upgrades and four downgrades. Telecommunications with two upgrades and three downgrades. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Download PDF ### Credit Benchmark Taps Ex-Goldman Sachs CRO to Lead Advisory Board Waters Technology reports that Credit Benchmark has appointed former Goldman Sachs chief risk officer Craig Broderick to set up and lead a new advisory board. By Max Bowie, April 25, 2019, Waters Technology To read the original article, please click the link below. View original article (external link) ### FOMC Meeting and Consensus Credit Views on US Financials The Federal Reserve's Federal Open Markets Committee is set to meet this week for the third time this year. Although no interest rate movements are expected, investors will still be watching to see if the Fed will continue its ‘wait and see’ approach. Considering the outcome of the March FOMC meeting reflected a change in expectations from two rate hikes this year to zero, it’s likely that the new ‘patient’ approach will remain this time around. In light of the upcoming meeting, in the data below from Credit Benchmark we take a look at the consensus credit risk views of 30 global financial institutions on US large non-bank financial companies in aggregate. Chart 1: Credit Level shows the largest rating category is a, which increased since last year. Chart 2: Credit Activity shows that net downgrades outnumber net upgrades in 14 of the previous 39 months. December 2018 showed a pronounced spike but a swing towards improvement has occurred since then, which is reflected in Chart 3: Credit Trend. Download PDF ### U.S. Auto Sales Poised for a Turn? Following the March J.D. Power and LMC Automotive Forecast showing the slowest Q1 for U.S. auto sales since 2013, the industry hopes to see recovery in sales volumes in the coming months. According to a recent report from global research institute TrendForce, car manufacturers are hoping to see growth in the electric vehicle market. Electric vehicle shipments are predicted to hit 5.15 million this year, reaching a YoY growth of 28%. And although auto companies face mounting pressure from the Trump administration to manufacture in America, they are pushing forward with plans to use China as an export hub, particularly for electric cars. With the pivot toward hybrid and electric vehicles underway and expectation that the U.S. Federal Reserve will keep rates stable in 2019, the deferral of purchases in Q1 could lead to a surge in auto demand in Q2 and beyond. This possibility is reflected in the Global Car Manufacturers aggregate credit data from Credit Benchmark below. Credit Benchmark’s credit risk data, sourced from 30+ of the world’s leading financial institutions, shows that global auto manufacturer credit continues to improve modestly. Chart 1 (Credit Level) highlights the Credit Benchmark consensus designation for Global Auto Manufactures year-to-year. Most borrowers are in the bbb categories, with the number of entities rated bbb decreasing by 5% from Feb 18 – Feb 19. Chart 2 (Credit Activity) shows that upgrades outnumber downgrades in 21 of the previous 39 months. This positive trend has balanced over the last year with 4 of the last 12 months showing a net upgrade and 4 showing a net downgrade. Chart 3 (Credit Trend) shows that after waves of upgrades in some months followed by waves of downgrades in others, the credit risk average of Global Auto Manufacturers began to indicate a modest improvement from November 2018, which is continuing. Download PDF ### Credit Benchmark Announces Craig Broderick Head of New Advisory Board New York, NY, April 24, 2019 -- Credit Benchmark, the leader in consensus credit data and analytics, announced the establishment of a new advisory board led by Craig Broderick, former chief risk officer (CRO) of Goldman Sachs & Co. Mr. Broderick retired from Goldman Sachs in January 2018 after 32 years, having served as CRO from 2008-2018, and remains a Senior Director. The advisory board that Mr. Broderick chairs will provide guidance on the company’s strategy and market positioning. Donal Smith, chair of Credit Benchmark, noted: "Mr. Broderick brings a wealth of expertise to Credit Benchmark. His experience helping to manage Goldman Sachs’ risk over an extended and challenging period will be invaluable, and we look forward to working with him to build an advisory board that helps us develop our unique market insight." Credit Benchmark brings together the credit views of experts to provide an entirely new source of credit risk data and analytics. Now receiving contributed credit risk inputs from more than 40 of the world’s top financial institutions, Credit Benchmark publishes monthly consensus credit risk data on over 46,000 rated and unrated counterparties globally across corporates, sovereigns, financial institutions, and funds. Following an announcement of a $7 million investment in October 2018, Credit Benchmark continues to develop new technology and research capabilities to expand its data and analytics offering for banks, asset managers, insurers and corporates. In addition to the consensus and entity-level insights, Credit Benchmark provides 600+ Aggregates to help customers monitor risk, sentiment, and drivers of change across countries, industries and sectors. "Across the buy- and sell-side, we’ve seen wide interest in our analytics, particularly for counterparty risk management and investment decision-making. Our clients use the consensus and sector aggregates to monitor and understand credit trends," said William Haney, Credit Benchmark’s CEO. About Credit Benchmark Credit Benchmark is a financial data and analytics company offering the world’s most comprehensive market view of credit risk. By bringing together credit risk inputs from 40+ of the world’s leading banks, Credit Benchmark provides monthly insights across geographies and sectors and a unique measure of risk on rated and unrated entities globally. Credit Benchmark was founded in 2012 and is based in London and New York. Media Contact information Caitlin MulkeenHead of Marketingcaitlin.mulkeen@creditbenchmark.comTelephone: +1 646 779 1143 John RoderickJ. Roderick Public Relations (Representing Credit Benchmark)john@jroderick.comTelephone: +1 631 584 2200 ### UN World Happiness Report: Does High Sovereign Credit Quality = Happy People? The UN recently released their 7th World Happiness Report, which ranks 156 countries by how happy their citizens perceive themselves to be. The results of the report are not altogether unsurprising – nations with strong social welfare systems and high GDP per capita tend to sit at the top (the Nordics take 5 of the top 7 rankings, with Netherlands and Switzerland separating Sweden from the remaining 4). At the bottom, we see a cluster of nations experiencing conflict, political upheaval, and poverty, with war-torn South Sudan in the unenviable position of being the country with the unhappiest citizens. But does a nation of happy (or unhappy) people mean that Sovereign credit quality will follow suit? Credit Benchmark consensus credit risk data, which is sourced from 30+ of the world’s leading financial institutions, shows that the relationship between the two factors is not always linear. The below chart measures the results of the UN World Happiness Report (with happiness tracked on the x axis) against Credit Benchmark’s dataset of Sovereign credit quality (Sovereign consensus rating is tracked on the y axis). We observe that the Nordics, Central Europeans, US, UK, Australia, Canada and New Zealand, averaging an aa consensus rating, rate highly in both categories and are therefore clustered in the upper right of the chart. However, there are a subset of countries that seem conversely happy, but of a low credit quality. Central and Southern American nations feature strongly in this category, with Costa Rica (bb-) demonstrating high levels of happiness and low credit worthiness. Guatemala (bb-) and El Salvador (ccc+) display a similar relationship. Costa Rica, for example, has recently experienced wide fiscal deficits, high near-term financing needs and budget restraints, with the government passing a fiscal reform in late December 2018. But Costa Rica also enjoys a reputation for a relaxed pace of life and relatively good levels of health and welfare – clearly a recipe for happiness. East Asian nations including China (a+), Hong Kong (aa) and Malaysia (a) offer an alternative picture, veering towards the lower end of the happiness scale but boasting relatively high credit quality. Despite robust financial health, these populations score low on happiness. It is worth noting that the results of the Gallup World Poll, which the Happiness Report is based on, takes into consideration data gathered between 2016-2018, whereas Credit Benchmark’s consensus Sovereign credit data is updated monthly. It is possible that recent Sovereign-specific factors (e.g. radical political reform in Malaysia, and fiscal tightening in Costa Rica) may lead to a longer-term changes in reported national happiness – both for good and for bad. Download PDF ### Credit Benchmark Data Validates the Improving Health of US Oil and Gas While oil demand is expected to grow moderately in 2019, it is still below the strong growth expected in the non-OPEC supply forecasted for this year. This highlights the continued responsibility of participating oil-producing countries to avoid a relapse of the imbalance, and to continue to support oil market stability in 2019. Recent healthier data from the United States and China is easing concerns about the economy and bolstering prices. Last week, oil prices hit their highest level so far in 2019 as the US considers new sanctions against Iran, while further Venezuelan disruptions could deepen an OPEC-led supply cut. These trends collectively have been consistently reflected in the sector consensus credit risk views of 30+ global financial institutions on 353 US Large Oil and Gas companies in aggregate. Chart 1 (Credit Level) shows the largest category is bb, with the proportion decreasing over the last year. Chart 2 (Credit Activity) shows that overall downgrades outnumber upgrades in 17 of the previous 39 months; the net balance was positive throughout 2018 but this has dropped sharply in recent months. Chart 3 (Credit Trend) shows steady improvement since May 2017. From trough to peak, the swing towards improvement represents about a 15% decrease in credit risk. However, if the net balance in Chart 2 continues to drop, credit risk improvements are also likely to stall. Download PDF ### Risk.Net: UK Banks Hold Firm as Brexit Looms The UK’s bumpy Brexit joyride has left London’s financial firms on edge. UK banks have set aside more than half a billion pounds to cover Brexit-related credit losses. Liquidity buffers have been reinforced, to the tune of £53 billion, at the insistence of the Bank of England. Assets are being shifted to the European Union, en masse. The credit market’s reaction to all this falls somewhere between sanguine and sleepy. Since the UK voted to leave the European Union in June 2016, the credit status of UK financials has barely changed. That may seem surprising, but it suggests banks can limit any Brexit damage, and is consistent with the views of regulators and rating agencies. The banking sector is the exception, not the rule. The credit status of other large UK industries has turned sharply negative since the referendum. Consumer services and industrials have seen the largest downgrades, with only telecommunications showing any material improvement.  In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, reports on the state of UK Large Industries in the aftermath of the Brexit vote. In the US, a comparison of credit trends for Large Financials and Large Corporates, plus a look at the credit distribution of US corporate bonds and borrowers. Also this month, the relationship between national tax revenues and the corresponding sovereign credit risk. Read the full article using the below link. View original article (external link) Download PDF ### Will Chinese Investment in Italy be a Game Changer? Recently Italy and China signed a “memorandum of understanding” announcing their intentions to work together on China’s massive investment and infrastructure project, the Belt and Road Initiative (BRI). This would make Italy the first G7 country to agree to a cooperation package under the BRI program covering transport, infrastructure and – controversially – an extension of China’s soft power globally.  The EU and the US are united in their opposition to this, primarily on security grounds, but Italy has downplayed these fears.  A number of other EU countries have already signed up to a more limited deal aimed at improving transport links, and some commentators see the Italian move as part of a trend towards wider EU-China cooperation. But some developing countries have become dependent on Chinese loans. Italy’s very public debt issues raise speculative concerns that this could be the first step towards them embracing China as new creditor to avoid painful short term adjustments required by the EU. The chart below shows consensus credit risk ratings for the main EU countries sourced from 30+ global financial institutions.  Italy is a founding member of the EU, but in credit terms it has remained far below the other five original members. This suggests that – while EU membership may lead to more synchronised growth, inflation and interest rates amongst member states – national appetites for debt can be very entrenched.  Will closer ties with China allow Italy to maintain its appetite? Download PDF ### March Credit Update: Consensus Upgrades Outweigh Downgrades Credit Benchmark has published the latest monthly credit consensus data (from February 2019) based on contributions from 30+ financial institutions, covering over 27,200 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 415obligors improved their credit standing by at least one notch. 295obligors deteriorated. 39moved more than one notch. Thefrequency of upgrades has increased while the frequency of downgrades has decreased. Last month showed improvements across 365 obligors and deterioration across 322, with 62 moving by more than one notch. Industries: Upgradesdominate downgrades in seven out of ten reported industries. Theindustries showing an improvement in credit quality include: Financialswith 84 upgrades and 40 downgrades. ConsumerGoods with 41 upgrades and 12 downgrades Oil & Gas with 17 upgrades and ninedowngrades. Theindustries showing balance are: ConsumerServices with 23 upgrades and 19 downgrades. Telecommunicationswith four upgrades and four downgrades. Industrialswith 44 upgrades and 42 downgrades. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Download PDF ### Q1 U.S. Auto Sales Stalling According to the March J.D. Power and LMC Automotive Forecast, U.S. auto sales are off to the slowest Q1 start since 2013. The forecast cites weather, mixed economic data and lower tax refunds as factors causing the falling sales. Further, auto companies face mounting pressure from the Trump administration to manufacture in America. While sales are down in terms of volumes, demand for higher-priced vehicles remains strong, with the average price of a new vehicle ‘‘on pace to reach $33,319 in Q1—the highest ever for the first quarter.’’ With the pivot toward hybrid and electric vehicles underway and expectation that the U.S. Federal Reserve will keep rates stable in 2019, a surge in demand is possible if consumers have deferred purchases. The industry hopes to see recovery in sales volumes in the coming months, and this hopefulness is reflected in the Global Car Manufacturers aggregate credit data from Credit Benchmark below. Credit Benchmark’s credit risk data, sourced from 30+ of the world’s leading financial institutions, shows that global auto manufacturer credit continues to improve modestly. Chart 1 (Credit Level) highlights the Credit Benchmark consensus designation for Global Auto Manufactures year-to-year. Most borrowers are in the bbb categories, with the number of entities rated bbb increasing by 5% from Jan 18 – Jan 19. Chart 2 (Credit Activity) shows that upgrades outnumber downgrades in 21 of the previous 38 months. This positive trend was particularly noticeable in the past year, with 7 out of 12 months showing a net upgrade.  Chart 3 (Credit Trend) shows that after waves of upgrades in some months followed by waves of downgrades in others, the credit risk average of Global Auto Manufacturers began to indicate a modest improvement from November 2018, which is continuing. Download PDF ### Credit Outlook: US Large Consumer Goods The charts show Credit Benchmark’s credit risk data on Large Consumer Goods companies in the US sourced from 30+ of the world’s leading financial institutions. After a period of steady deterioration, the credit outlook for US Large Consumer Goods industries has recently improved.  Consumer-driven sectors have been hit by some heavy corporate debt burdens and changes in shopping habits, but Chicago Fed President Charles Evans recently pointed to the continuing strength in the labor market and corresponding robustness in overall consumer demand. Major financial institutions draw on a broad range of data sources and model factors in estimating industry credit risks, so consensus data from Credit Benchmark provides a more robust view of the credit outlook for companies in consumer-driven sectors, rather than consumer confidence alone. Chart 1 (Credit Level) highlights the Credit Benchmark consensus designation for US Large Consumer Goods year-to-year. Most borrowers are in the a, bbb, and bb categories, with the number of entities rated a increasing modestly by 3% from Jan 18 – Jan 19. In contrast, the number of entities rated bbb or bb decreased slightly over the same time period.   Chart 2 (Credit Activity) shows that downgrades outnumber upgrades in 23 of the previous 38 months. This negative trend was particularly noticeable in the past year, with 10 out of 12 months showing a net downgrade.  Chart 3 (Credit Trend) shows that after a steady ten-month deterioration, the credit risk average of US Large Consumer Goods began to indicate a modest improvement from November 2018. From peak to trough, the swing towards deterioration represents about a 5% increase in credit risk. The Conference Board Consumer Confidence Index® for February showed an increase (from 121.7 to 131.4) following volatility in recent months around the government shutdown, trade tensions, and interest rate increases, according to the Conference Board. The Present Situation Index, which is based on consumers’ assessment of current business and labor market conditions, improved from 170.2 to 173.5. The Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, moved from 89.4 to 103.4. Download PDF ### Sovereign Credit Increasingly Volatile Sovereign credit risk is important: not only do changes in government borrowing rates affect public funding, these same rates impact investment portfolios broadly. Sovereign risks serve as fundamental inputs to the analysis of most entities, especially corporate and financials. Sovereign credit risk is typically driven by country-specific factors, like the current situation in Venezuela, although sometimes it may affect an entire region, as in the 2011 Eurozone funding crisis. Recently changes in globalization and trade arrangements are having a profound effect on Sovereign risks. Economic alliances, trade flows, and supply chains are changing or breaking down, and new patterns are emerging, with winners and losers. As data from Credit Benchmark shows, the overall environment for Sovereign credit is increasingly dynamic and volatile. OPEC: Cumulative Deterioration 30% in the Past 2 Years The Organization of the Petroleum Exporting Countries (OPEC) has had a challenging few years. The US is now energy self-sufficient and oil demand is dropping. It has been difficult for OPEC to maintain production cuts, and Qatar recently left the group. Venezuela, despite huge reserves, is in a state of near-total economic collapse. Saudi Arabia has shelved plans to float Saudi Aramco. Latin America: Showing Erratic Improvement Latin America has had mixed fortunes recently. Brazil is in the early stages of major political change while the economic collapse in Venezuela is creating tensions and refugee problems in Colombia and Central America. While Argentina is making a disciplined recovery from default, upcoming elections will be critical. Overall, the continent is likely to see a significant increase in Chinese investment, and Chile, with the world’s largest copper output, is an early beneficiary. Turkey and Greece: Converging According Credit Benchmark data, Greek sovereign risk has recovered steadily from ccc- in 2016 to its current level of b. Greece is recovering from the near-collapse of its economy and in March 2019 it successfully returned to the global bond market. But steady progress on the Sovereign rating needs to be balanced by the legacy of a public and private debt overhang. The recovery in Greek sovereign risk is a direct contrast to the Turkish trend which has seen a move from bbb- (i.e. investment grade) to bb-. Turkey’s government survived the 2016 coup attempt but has faced intermittent US sanctions and trade restrictions. Turkey’s geopolitical position has also brought it into periodic conflict with Russia, but the two countries have recently found common cause. Turkey’s allegiances are shifting and the implications could be far-reaching. For more sovereign credit risk trends including Developed Economies vs. Emerging and Frontier Economies, Brazil, Mexico, China, and more, continue below to read the full whitepaper. Please provide your details to download the whitepaper: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper Now Download PDF ### Recent Trends in Sovereign Credit Risk Sovereign credit risk is important: not only do changes in government borrowing rates affect public funding, these same rates impact investment portfolios broadly. Sovereign risks serve as fundamental inputs to the analysis of most entities, especially corporate and financials. Sovereign credit risk is typically driven by country-specific factors, like the current situation in Venezuela, although sometimes it may affect an entire region, as in the 2011 Eurozone funding crisis. Recently changes in globalization and trade arrangements are having a profound effect on Sovereign risks in a number of regions. Economic alliances, trade flows, and supply chains are changing or breaking down, and new patterns are emerging, with winners and losers. In this whitepaper, we look at data from Credit Benchmark that shows the overall environment for Sovereign credit is increasingly dynamic and volatile. To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper Now ### Risk.Net: A New PD Story for Brazil and Mexico? For the past two years, there has been a clear story about the credit risk of Brazil and Mexico – a story that may now be on the verge of a twist. According to banks’ probability of default estimates, the former has been getting steadily riskier – slipping from bb+ to bb in early 2017 – while the latter earned an upgrade from bbb to bbb+ at around the same time and has since been stable. But each country faces a very different set of challenges and opportunities. Economically, for Brazil, there may be greater upside under the regime of its new populist president Jair Bolsonaro. The government is tackling its infamously generous state pension schemes and has a clear ambition to become a key ally of the US in the region. Stock markets have, so far, responded positively, climbing 12.5% since October’s election. For Mexico, in contrast, challenges seem to outweigh opportunities. The country is being squeezed by hardline US trade and border policies as well as its own immigration crisis because of the Venezuelan collapse. The Mexican government response so far is fiscal support for its border states and a major drive to attract foreign investment – but these are complex problems with no quick fix. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, reports on recent Sovereign trends in Brazil and Mexico, and compares credit trends for US, UK & EU (ex UK) Large Corporates. Also covered this month is a look at the latest credit data for car manufacturers, and an updated outlook for South African Banks. Read the full article using the below link. View original article (external link) Download PDF ### African State-Owned Enterprises: Credit Trend Reflects Profitability Issues State-owned enterprises (SOE) in Africa play a vital role in their respective economies – managing natural resources, energy, transportation, and telecommunications – but they often rely heavily on regular capital injections from their governments. South AfricaSouth Africa recently rescued Eskom, the state power monopoly, in the largest bailout in the country’s financial history.  Eskom’s financial problems had led to years of neglected maintenance and rolling national blackouts, and the company was close to collapse. There are also challenges with Transnet, state airline SAA, and the South African Broadcasting Corporation. More here on economic challenges in South Africa from the Financial Times. Nigeria & GhanaSOE problems are not unique to South Africa: in 2018, Nigeria suspended plans to relaunch its national airline, seemingly because of the inevitable need for support from the Nigerian government. Ghana has announced an Action Plan to tackle SOE governance, while the Electricity Company of Ghana has just been taken over by the Philippines-based Meralco, who have promised to invest $600m in transmission. Foreign investment – to the rescue?The Meralco example is one of many where foreign investment, especially from resource-hungry China, has come to rescue. Concerns about Chinese influence in Africa are probably exaggerated – the growing number of Chinese/African joint SOEs have a good track record of delivering effective projects on time and budget.  Africa accounts for only 6% of Chinese foreign direct investment (FDI) so there is considerable scope for more, although China’s current domestic and trade challenges are likely to lead to a pause in their global expansions plans. The charts below are based on Credit Benchmark’s credit risk data on 13 Sub-Saharan African SOEs, sourced from 30+ of the world’s leading financial institutions. The Credit Trend chart shows that credit risk of the sub-Saharan African SOEs has more than doubled over the last two years. The Credit Activity chart on the right shows a negative bias in 9 out of the past 12 months. Amongst the current challenges for African SOEs, they may need to fall back on their own resources, which could be a key driver in the current credit deterioration. Download PDF ### February Credit Update: Consensus Upgrades Continue to Outweigh Downgrades for Financials Credit Benchmark has published the latest monthly credit consensus data (from January 2019) based on contributions from 30+ financial institutions, covering over 25,500 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 365 obligors improved their credit standing by at least one notch. 322 obligors deteriorated. 62 moved more than one notch. The frequency of upgrades and downgrades has increased. Last month showed improvements across 346 obligors and deterioration across 312, with 62 moving by more than one notch. Industries: Upgrades dominate downgrades in four out of ten reported industries. The industries showing an improvement in credit quality include: Financials with 99 upgrades and 54 downgrades. Oil & Gas with 20 upgrades and 14 downgrades. Utilities with 18 upgrades and 12 downgrades. The industries showing deteriorations are: Consumer Services with 24 upgrades and 32 downgrades. Telecommunications with four upgrades and eight downgrades. To learn more about consensus ratings and analytics from Credit Benchmark, email info@creditbenchmark.com. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Download PDF ### Gauging The Credit Risk Of Global Car Manufacturers 2019 will be a big year for the auto technology space, with the pivot towards hybrid and electric vehicles underway. Europe, especially Germany, looks to be taking the lead in the auto tech race. VW Group is expecting to sell 3 million full-electric cars by 2025, and Porsche has announced that buyers of its new all-electric Tesla rival Taycan will receive free charging for three years. But is 2019 the year of all-electric or will hybrids continue to be the optimal choice? Meanwhile, the US is making protectionist noises vs. European cars, with President Donald Trump looking likely to move ahead with tariffs on imported vehicles and US car costs benefitting from the protection. As potential buyers wait for a clearer picture of which technology to back, a surge in demand after deferred purchases could happen. There is a lot at stake this year – the best technology will be the main factor in winning market share, but protectionism could be a source of major market distortion.  And if the US agree a trade deal with China then it is likely to include a big increase in Chinese auto imports from the US and from Europe. These uncertainties are reflected in the Global Car Manufacturers aggregate credit data from Credit Benchmark below: A modest improvement in credit has been driven by a volatile pattern of upgrades and downgrades. Credit Benchmark’s credit risk data,  sourced from 30+ of the world’s leading financial institutions, shows waves of upgrades in some months followed by waves of downgrades in others, sometimes in  the same name. This is unusual, but shows that the uncertainty about which auto manufacturer is currently seen to be winning the tech race is at a maximum right now. Download PDF ### Housing Association Magazine: Brexit And Its Effect On Housebuilding David Carruthers discusses factors affecting the credit quality of the housing association sector : ''Brexit is on the horizon, and depending on the outcome, credit quality could sink. There are also the lingering effects of austerity, which has affected the affordability of social housing.'' By Victoria Galligan, February 2019, Housing Association Magazine. To read the original article, please click the link below. View original article (external link) ### Business Insider: The Credit Of British Companies Is Declining In Quality In Business Insider, David Carruthers discusses the declining credit quality of British companies is declining in quality, and austerity and Brexit are largely to blame. The weakness of the pound — which has declined 10% since the month of Britain's fateful referendum decision to leave the EU — hasn't helped either, he says. By contrast, the credit of European and US companies has largely held up, his analysis shows. The analysis comes in the context of the Bank of England's warnings that the riskiest sectors of the corporate debt market have grown very quickly, even though the quality of the debt has declined. By Jim Edwards, February 21 2019, Business Insider. To read the original article, please click the link below. View original article (external link) ### Financial Times Alphaville: Taking Stock Of Venezuela's Economic Crisis Amid today's total economic collapse, any internal insights into the financial situation are hard to come by. And, unless some kind of regime change takes place, the IMF will probably remain shut out of any opportunity to scrutinise the country's finances. Venezuelans have one hope to hold on to, though: oil, which accounts for roughly 95 per cent of its export earnings and a sizeable portion of its GDP. The country, whose economy David Carruthers at Credit Benchmark says “barely exists as a functioning entity,” is blessed with the world's largest oil reserves, topping not only Saudi Arabia (SAR) and Iran (IRR), but also Iraq (IQD), Kuwait (KWD) and Russia (RUB). David Carruthers, Credit Benchmark Head of Research, in an article on the economic crisis in Venezuela. By Colby Smith, February 20 2019, Financial Times. To read the original article, please click the link below. View original article (external link) ### Will Oil Output Cuts Mean Stronger OPEC Sovereign Credit? OPEC production cuts agreed in December 2018 as well as US sanctions on Iran and Venezuela have pushed the price of WTI futures to more than $55, the highest level this year. But the group faces major headwinds: Qatar recently left the organization, and some other countries appear to be increasingly ambivalent about membership. OPEC’s main problem is that US supply continues to increase, and – according to the IEA – global oil demand is in trend decline.  On most projections, OPEC members will need further production cuts just to maintain the status quo. Declining demand is partly cyclical as the global economy slows, but there are structural drivers as well: alternative energy sources, increased fuel efficiency, and the growing shift to hybrid and all-electric vehicles. The chart shows levels and trends in Sovereign credit risk for 12 of the 14 OPEC member countries. OPEC member Sovereign ratings are an unusual mix of very high and stable credit quality (the proportion of aa and a is unchanged over the past year), but with a growing majority rated as Non-Investment Grade. Saudi Arabia – the core of OPEC – has seen its consensus rating decline from aa- to a over the past three years.  Its plan to capitalize the financial value of its reserves by floating Saudi Aramco was shelved last year; the global oil supply/demand outlook may mean that the window of opportunity has passed for now. The largest category is b, and the proportion has increased in the past year.  Average Sovereign credit risk for OPEC members has deteriorated by more than 30% over the past three years. OPEC’s own demand forecasts are similar to the pessimistic IEA projections – so it seems that even OPEC recognize that their power is waning. Against this background, OPEC members will need concrete plans to diversify away from oil if they are to avoid further credit deterioration. Download PDF ### Chinese Banks: Will Improving Credit Support Trade Pledges To The US? The US-China trade talks this month could be critical to the global economic outlook for the next few years.  One Chinese proposal is for a sustained reduction in its trade surplus though a combination of monetary and fiscal expansion, in addition to targeted trade incentives. China’s debt levels have been a persistent concern, doubling over the past decade.  But GDP has grown in tandem, helped by the large shadow banking sector. The recent crackdown on shadow banks and the easing of reserve requirements for traditional banks gives some assurance that the monetary base is being monitored and is under some form of control; but further expansion to satisfy the US demands over the trade surplus will require careful handling. Continued GDP growth is the best route to increased imports, but this does not have to be all consumer-led; investment spending – public and private - can be used as initial drivers provided they lead to employment growth. However, slowing population growth is a potential brake on this; China’s recent infrastructure investment boom has been an attempt to draw in rural workers but this may not be enough to satisfy the ambitious plans for the next decade. The charts below are based on credit data for 64 mainstream Chinese banks. CreditBenchmark.com The majority of Chinese banks in this sample are investment grade, and the proportion in category a has increased in the past 12 months.  Average credit deteriorated until late 2017 but it has been steadily improving since then.  The balance of improvements vs. deterioration has been volatile but generally positive. This suggests that Chinese banks are increasingly well-placed to handle an expansion in their balance sheets – they key will be for this to be channelled into sectors that will help the trade position. Download PDF ### Risk.Net: Falling Default Risk For China’s Banks On London’s Shaftesbury Avenue, a chain of red lanterns hangs outside a branch of the Bank of China, marking the transition to the Year of the Pig – a symbol of fortune and wealth. But growing economic clouds suggest this will be a nervy year for China’s banks. After growing 6.8% in 2017, China’s economy slowed to 6.6% in 2018, according to GDP data released on January 21, with fourth-quarter growth of 6.4% the lowest quarterly rate since 2009. The data stoked fears that a wave of defaults could capsize the country’s lenders and sink the global economy at the same time. Crowd-sourced default probabilities, in contrast, tell a story of growing confidence in China’s banks. After a 4% deterioration during 2016 and 2017, credit risk for the 62 banks in our sample actually rebounded 6% during 2018. Across the course of the year, a number of bb-rated banks were effectively upgraded to bbb – where roughly half the group now sits. The proportion of a-rated lenders remained steady. The improvement may reflect a belief that China’s government has the tools and the capacity to support growth for the immediate future, at least – reserve requirements for banks have been cut five times in the past year, part of broader stimulus efforts. Follow the link below for the full article, where we look at recent data on German financials versus corporates, the global tobacco industry, as well as credit trends among US electrical utilities. View original article (external link) Download PDF ### Brazil and Mexico – Are Sovereign Risk Trends About to Change? The new leaders of the 9th and 15th largest economies in the world face major challenges in 2019, but both are riding waves of popular support and cautious optimism in financial markets. Brazil Brazil’s stock market has risen more than 10% (in USD) so far this year, and the 10-year Government bond yield has dropped from over 11% in Q3 2018 to about 9%. After sluggish 1% growth in 2018, the 2019 forecast is for more than 2%. Staunchly conservative President Bolsonaro, who was stabbed on the campaign trail last year and is currently in hospital, is the latest outspoken and potentially divisive politician on the global stage. He wants to tackle Brazil’s infamously generous public pension system with reforms which include raising the retirement age. His controversial vision and business-friendly agenda would present a decisive economic and social break from the country’s left-wing past and potential to displace Mexico as the USA’s closest ally in the region. Mexico Mexico’s stock market is up a more modest 6% since the start of the year, and bond yields have backed up slightly from 3.7% to 4.3%. US foreign and trade policies dominate the outlook, but President Obrador and Finance Minister Marquez are taking active steps to adapt to the new economic order. Mexico is now discussing tax cuts for the Mexican states in the border areas, less co-operation with the DEA, and a push for Foreign Investment (including, ironically, from the US). With a growing immigration problem of their own - mainly from Venezuela - the new administration are hoping to set an example to their Central and Southern American neighbours on how to tackle the underlying causes of migration. This involves ambitious plans for cultural changes to turn the tide of drug-related violence and related corruption. Credit turning points ahead? Brazil has some immediate and high-impact policy decision-making on the horizon. Mexico, on the other hand, is preparing to attempt a shift in its economic and social structure. The chart shows that, in sovereign risk terms, major financial institutions have been increasingly positive on Mexico and increasingly negative on Brazil over the past three years. Mexico now sits comfortably at bbb+ in the Investment Grade zone; Brazil has slumped towards bb. With new political leaders and shifting alliances in the Americas, there may be some credit turning points ahead. Download PDF ### January Credit Update: Consensus Upgrades Outweigh Downgrades for Financials Credit Benchmark has published the latest monthly credit consensus data (from December 2018), with 30 contributor banks. The set of bank-sourced credit views (CBCs*) now covers over 25,300 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix.   Monthly consensus upgrades and downgrades: 346 obligors improved their credit standing by at least one notch. 312 obligors deteriorated. 38 moved more than one notch. The frequency of upgrades and downgrades is larger than usual. Last month showed improvements across 190 obligors and deterioration across 163, with 26 moving by more than one notch.   Industries: Upgrades dominate downgrades in five out of ten reported industries. The industries showing an improvement in credit quality include: Financials with 102 upgrades and 60 downgrades. Health Care with 10 upgrades and four downgrades Oil & Gas with 28 upgrades and 14 downgrades. The industries showing deteriorations are: Consumer Services with 23 upgrades and 35 downgrades. Industrials with 27 upgrades and 43 downgrades. Telecommunications with five upgrades and seven downgrades.   * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Download PDF ### UK Corporate Credit Risk Rising – But Is It Just About Brexit? Debate about the likely economic impact of Brexit has dominated UK news for weeks.  Location changes and business warnings from some high profile UK stalwarts – such as Jaguar Land Rover, Bentley, Dyson and Barclays – suggest growing risks. And the corporate credit risk picture appears to confirm that UK plc faces some challenges which are not affecting the wider world. The chart below plots average credit trends for a very large sample (more than 7,000 companies) across the UK, US and EU ex UK.  This shows a steady improvement in the EU (ex UK) although recent German growth concerns may cause this to stall. The US decline in 2016 reversed, in part because of the fiscal package.  But the UK shows a steady decline; average UK credit risk is now close to breaching the Investment Grade threshold. But – as always – the devil is in the detail.  Per data from Credit Benchmark, bank-sourced credit views on many of the companies in the UK sample haven’t changed recently, and the overall number of upgrades almost matches the number of downgrades.  What is happening is that specific sectors – consumer goods, consumer services, and technology – are seeing large changes in credit risk, which is pushing the average risk up and the average rating down. Brexit-related uncertainty is clearly an important factor in corporate credit risk assessments and consumer demand, but there are other factors involved.  With Brexit looming, the UK Government has also focused on improving its finances; the UK Sovereign rating is currently at aa according to major banks (albeit down from aa+ a few months ago).  The associated fiscal austerity has hit some consumers very hard, and this has dented demand for consumer goods and services as well as consumer technology and software. Public spending cuts have also contributed to the woes of the Government outsourcing sector, with the Carillion bankruptcy as a particularly high profile example.  But austerity has had a negative impact on a broad range of IT consultants and contractors. A little-known factor here is IFRS 15.  This accounting standard became effective in early 2018, and means that revenue recognition rules are now much more closely aligned with US-based FASB standards.  IFRS 15 makes it more difficult to recognize large accrued income values as current revenues, and has generally resulted in much shorter amortizations periods for capitalized development costs – with a significant impact on some technology companies, especially in the UK. By contrast, the credit position of many FTSE 100 companies has benefited from overseas earnings and Sterling weakness.  The average consensus rating for this group has improved modestly, with risk dropping by about 5% over the past year. And Oil & Gas, Utilities and Health Care all show a recent balance in favor of Upgrades, while Industrials are in balance. Whatever form Brexit takes, credit risks for the typical FTSE 100 constituent are unlikely to be affected, with Energy and Utilities in particular looking more like safe havens. And if austerity is coming to an end, then even the Consumer and Technology sectors might provide some positive surprises. Download PDF ### Bloomberg: U.K. Firms’ Finances Worsening, Internal Bank Data Shows Bloomberg cites Credit Benchmark data in an article on UK Corporate credit risk. Bank-sourced data suggests that the financial health of UK companies is deteriorating toward a point where their debt risks being classed as junk. By Thomas Beardsworth, January 31, 2019, Bloomberg. To read the original article, please click the link below. View original article (external link) ### Wall Street Journal: PG&E Bankruptcy Hits Green Energy Suppliers "PG&E Corp. quickly took steps after filing for bankruptcy protection Tuesday to renegotiate power deals with green energy projects that rely on the California utility for most or all of their revenues." "PG&E’s commitments under power purchase agreements are roughly three times its 2017 gross revenues, according to the filing. The complaint reflects how PG&E’s bankruptcy is rippling across California energy markets and will likely affect the state’s efforts to reduce carbon emissions, potentially undercutting legislative mandates that encourage renewable production." "“A lot of companies are in that position, where PG&E is responsible for 100% of their revenues,” said David Carruthers, lead researcher at Credit Benchmark." Wall Street Journal quotes David Carruthers, Credit Benchmark's Head of Research, in an article on the bankruptcy of Pacific Gas and Electric (PG&E). By Andrew Scurria, January 29, 2019, Wall Street Journal. To read the original article, please click the link below. View original article (external link) ### Taking the Pulse of Healthcare Credit Global Healthcare has had a difficult time in recent years, with Deloitte reporting that global healthcare spending grew by less than 3% in the period 2013-2017. Governments face the challenges of aging populations, increasing longevity, a growing list of chronic health conditions, and increasingly expensive traditional medical technology. The sector has also been hit by trade disputes with added uncertainty over the impact of US healthcare policy on global pharmaceutical prices. Data from Credit Benchmark charted below shows that credit trends in the US, UK and EU (excluding UK) reflect the recent Healthcare difficulties, with all regions showing various rates of decline in credit quality in 2016 and early 2017. The decline has persisted in the UK. However, per the data, the US has stabilized, and in the EU (excluding UK) there has been a sustained recovery in recent months. Indeed, the outlook for healthcare in 2018-2022 is looking brighter, with spending projected to grow at more than 5%, reaching an annual level of $10trn. In addition, increased use of digital technology – such as AI and nanotechnology – raises the prospect of cheaper but more efficient healthcare over the next decade. The European Commission recently announced plans to boost the development and use of AI in Europe, with specific focus on healthcare and other sectors. The aim of the initiative is to reach €20bn of private and public investments by the end of 2020. The healthcare sector is also seeing a surge in venture capital investment and M&A; Pitchbook reports that investment deals in healthcare devices and supplies rose 150% in 2018. Download PDF ### German Corporates Well Positioned to Weather Any Downturn German growth numbers are at a five-year low and a recession looks increasingly likely.  German exports are still growing but the rate has been hit by China’s internal and external economic challenges, as well more global trade-related problems.  The global auto sector is facing a pause in demand as technology pivots towards electric cars, and Brexit-related uncertainty has had a negative impact on manufacturing related output. As the top chart below shows, a sample of 195 German corporates are typically of high credit quality; the majority are in the bbb category but the aa category is the second largest.  The bottom chart shows a modest but consistent improvement in German Corporate credit quality over the past two years.  This improvement may plateau or even reverse if the economy goes through a protracted downturn, but bank-sourced credit data from Credit Benchmark suggests that the German Corporate sector is strongly positioned to weather this.   Download PDF ### Credit Benchmark Named on TechWorld List of UK RegTech Startups to Watch Credit Benchmark has been named in a list compiled by TechWorld of 'UK RegTech Startups to Watch'. To read the full article, please click the link below. View original article (external link) ### US Corporate Bonds and Borrowers – Real Risks May Lurk in the B Category The large proportion of US Corporate debt in BBB bonds has raised concerns in the financial press that any economic weakness could see a significant proportion of these downgraded to Non-investment Grade.  But bonds are only part of the Corporate debt picture; bank-sourced data shows the credit distribution of corporate borrowers that use bank financing, even if they are unrated by the main agencies and/or do not issue bonds.  The chart shows major differences in the credit distribution of bonds compared with S&P issuer ratings and bank ratings of their own borrowers. Source: S&P, Bloomberg, Citigroup, Credit Benchmark In particular: There are high proportions of bonds in the A and BBB categories, and a relatively low proportion in the BB category. Relative to bonds, borrowers from banks show a much higher proportion in bb (equivalent to BB) and a significant number in the b category. S&P issuers have a very high proportion in the B category.  This group seems to be under-represented in the US Corporate bond and bank borrower distributions. This suggests that many of the B rated issuers are self-funding, or use peer-to-peer borrowing, and have more limited access to bond issuance or bank borrowing.  Although the financial media has focused on BBB bonds, this data suggests that there is a large number of B-rated issuers that may be most at risk in any credit downturn. Download PDF ### December Credit Update: Consensus Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from November 2018), with 29 contributor banks. The set of bank-sourced credit views (CBCs*) now covers nearly 24,500 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 190 obligors improved their credit standing by at least one notch. 163 obligors deteriorated. 26 moved more than one notch. The frequency of upgrades and downgrades has decreased. Last month showed improvements across 307 obligors and deterioration across 298, with 62 moving by more than one notch. Industries: Upgrades dominate downgrades in five out of ten reported industries. The industries showing an improvement in credit quality include: Consumer Goods with 20 upgrades and 10 downgrades. Oil & Gas with 19 upgrades and 10 downgrades. Technology with five upgrades and two downgrades. The industries showing deteriorations are: Telecommunications with zero upgrades and three downgrades. Consumer Services with 12 upgrades and 16 downgrades. Industrials with 20 upgrades and 22 downgrades. CreditBenchmark.com * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Risk.Net: December Credit Data Review In the recent US mid-term elections, both parties claimed enough of the spoils to declare victory – the Democrats regaining control of the House of Representatives, the Republicans tightening their grip on the Senate. But at the halfway point in a deeply divisive administration – one that saw many sectors benefit from a huge fiscal stimulus last year, and others do less well under the gradual return towards monetary orthodoxy – it’s worth running the rule over the credit data for key sectors, and seeing how each has performed under Trump.  In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, analyses which US industries have prospered under the Republican administration, and which have seen a worsening of credit quality. Also covered this month is a glance at credit risk movement in Japanese Corporates, and new credit insights into traditionally unrated UK housing associations. Plus, a comparison between PD curves for US Oil & Gas, and US Healthcare. Read the full article using the below link or in the December edition of Risk Magazine. View original article (external link) ### Corporate & Financial Credit Trends in Bank-Sourced Data 2016-2018 The latest whitepaper from Credit Benchmark reports on major credit trends for the period 2016-2018. It covers the main industries in the US, UK and EU ex UK, as well as Technology, Oil, Airlines and Sovereigns. The main conclusion is that credit risk assessments are becoming more volatile – which may signal increasing concern about the uncertain timing and scale of any forthcoming increase in credit spreads. Credit Volatility 2016-2018 Some other key conclusions: USA, Inc.: The Republican administration has been credit-positive for most US financials and corporates, but Silicon Valley companies have lagged. Brexit: Uncertainty appears to have been negative for most UK industries, although UK Banks have seen less impact. During this period of uncertainty, EU ex UK industries show some very divergent trends. Global: The Oil credit recovery may have run its course, but Airlines continue to improve. Sovereigns: Trade wars and geopolitical tensions have been negative for Emerging and Frontier Sovereigns; Developed Sovereigns have seen little impact. To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper Now ### November Credit Update: Consensus Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from October 2018), with 29 contributor banks. The set of bank-sourced credit views (CBCs*) now covers more than 24,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 307 obligors improved their credit standing by at least one notch. 298 obligors deteriorated. 62 moved more than one notch. The data shows increased credit activity as the frequency of changes is larger than usual. Last month showed improvements across 172 obligors and deterioration across 142, with 26 moving by more than one notch. Industries: Upgrades dominate downgrades in six out of ten reported industries. Two industries are biased towards downgrades and one is balanced. The industries showing an improvement in credit quality include: Basic Materials with 30 upgrades and 14 downgrades. Health Care with 13 upgrades and seven downgrades. Consumer Services with 36 upgrades and 22 downgrades The industries showing deteriorations are: Telecommunications with four upgrades and eight downgrades. Consumer Goods with 27 upgrades and 35 downgrades. Oil & Gas with 30 upgrades and 33 downgrades. * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Tech Credit Foundation Still Solid Recent stock market declines have been led by Technology stocks.  In early October, Apple became the first company in history to reach a market value of $1trn; but since then the combined market cap of the FAANG* stocks has lost more than that amount.  Apple, in particular, is now officially in bear market territory.  Investors were initially rattled by stalled sales of the newest iPhone model; but the sell-off rapidly extended to social media stocks, online retailers, chip manufacturers and online payments companies.  This is the first time that all 5 FAANGs have been in a bear market at the same time, reflecting the combined headwinds of peak iPhone, data ownership, tax treatment, tech company governance and even possible anti-trust action. The below chart shows cumulative credit trends for the US technology sector.  A rising line implies improving credit quality, a falling line implies a deterioration in credit.  The blue line represents a sample of around 1000 NASDAQ listed companies, and the green line represents the 47 Technology companies in the S&P500, including the FAANGs.  Interestingly, excluding the FAANGs has very little impact on this trend line.  Credit risk for the S&P technology companies has improved by about 10% since June 2016; for the NASDAQ sample, it has deteriorated by about 3% over the same period.  This suggests that the smaller technology companies – many of them suppliers to the giants – are more vulnerable in the event of a sustained tech downturn. If the tech headwinds continue, stock market pessimism may be justified, especially for the smaller suppliers.  But for now, bank analysts view the tech giants as solid credits. *Facebook, Apple, Amazon, Netflix and Google ### Global Oil & Gas Credit Improvement is Slowing The price of oil has officially entered a bear market, down 25% this year.  This includes a drop of 7% this week, surprising many analysts and funds who had been expecting a tighter market for a host of supply-related reasons. The simultaneous dramatic drop in the price of oil alongside an unprecedented 20% gas price spike this week led to speculation that a major hedge fund was liquidating positions to stay afloat. In any case current oil price volatility seems to be driven by global politics: ahead of U.S. sanctions on Iran, the White House persuaded Saudi Arabia to boost production, coinciding with a major increase in US shale output.  And Russia is pumping more oil than at any time since the end of the Soviet Union. Some of these developments are very recent, but banks began turning cautious on the sector a few months ago.  The chart shows the proportion of Global Oil & Gas companies with credit improvements (green bars) and credit deterioration (red bars) highlighting a consistent drop in credit improvements from the middle of 2018 onwards.  The net effect (black line) is close to turning negative. After two years of recovery, global oil companies face an increasingly challenging credit outlook. CreditBenchmark.com ### Risk.Net: November Credit Data Review The guillotine and the rack are very different instruments. One does the job quickly: the blade comes down and the head comes off. The rack applies pressure – and pain – for a long, long time. Rate hikes are often seen more as guillotine than as rack, and for equity investors, that’s probably fair enough: each decision to hike has an immediate impact on implied growth prospects and stock prices. But for existing borrowers, a hiking cycle is a slow, steady increase in pressure. That pressure can be seen in a divergence in banks’ estimates of default risk for US companies with a low debt ratio and those with a higher ratio. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, analyses the effect of Fed rate hikes on already heavily indebted US companies. Also covered this month is a comparison of credit risk for UK & EU ex-UK large financials and corporates amidst "Brexit anxiety".  Plus, US Oil & Gas credit trends; and a one-year credit transition matrix for large corporates. Read the full article using the below link or in the November edition of Risk Magazine. View original article (external link) ### US Midterm Results Reflect Major Economic Changes The US Midterms have been claimed as a victory by both sides, but Trump and Pelosi were both quick to propose a bipartisan approach with a likely focus on infrastructure , trade and healthcare. The Dow jumped on the result, with the expectation of a second, spending-based fiscal boost for the domestic economy as well as some softening of the trade stance before any international backlash gathers too much momentum. The chart shows that USA Inc. has seen some major credit improvements while the GOP has had full control of Congress.  Oil & Gas is at the top, with its 25% improvement mainly driven by the global oil price recovery, but improvements in Basic Materials, Utilities and Financials are more directly linked to Trump policies. Previous Credit Benchmark research showed that the “Trump Effect” has been real and far-reaching. The deterioration in Consumer and Telecoms industries highlights the recent fiscal focus on business as well as the impact of the “Retail Apocalypse”. But commentary this week suggests a growing optimism that increased Democrat influence will be good for basic consumer spending.  If Trump can find common ground with the Democrats, then a second wave of the “Trump Effect” is a real possibility. ### October Credit Update: Consensus Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from September 2018), with 28 contributor banks. The set of bank-sourced credit views (CBCs*) now covers more than 22,500 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 172 obligors improved their credit standing by at least one notch. 142 obligors deteriorated. 26 moved more than one notch. The frequency and the size of upgrades and downgrades has decreased. Last month showed improvements across 204 obligors and deterioration across 163, with 50 moving by more than one notch. Industries: Upgrades dominate downgrades in five out of ten reported industries. The industries showing an improvement in credit quality include: Basic Materials with 14 upgrades and three downgrades. Industrials with 19 upgrades and eight downgrades. Oil & Gas with 18 upgrades and 10 downgrades The industries showing deteriorations are: Consumer Goods with six upgrades and 15 downgrades. Health Care with six upgrades and seven downgrades. Technology with four upgrades and five downgrades. Financials with 28 upgrades and 35 downgrades. CreditBenchmark.com * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Italian Credit Data Tells An Improving Story The Italian financial position has been a major driver of market volatility, but credit data suggests that banks are turning more positive.  Moody’s now has Italian Sovereign debt at one notch above junk, with a stable outlook; S&P has so far kept it at BBB, but with a negative outlook. The main concern is the new government’s plan for a public deficit of 2.4% of GDP (against the previous government’s target of 0.8%).  Italy currently has EUR 2.5 trillion (132% of GDP) in outstanding Government debt, with EUR250bn due to be issued in 2019.  Reflecting this risk, Italian 10-year bonds trade 300 Bps above the Eurozone average. This difference is unsustainable in a common currency bloc, and coalition member parties have even suggested launching a parallel currency to help in tax collection.  But if this became a widely-accepted reality then Italy would at the very least need to leave the Euro, re-issue the Lira, and would be at risk of a major credit downgrade. If the Italian Sovereign rating did drop into junk territory, the ECB would withdraw funding from Italian banks, who need to refinance EUR 18bn in 2019.  Banks who cannot maintain their liquidity coverage ratio would be merged or wound up under an EU-wide bail-in, because recapitalisation is increasingly difficult under EU rules. But despite these apparently intractable problems, there has been a modest improvement in the global bank credit consensus for Italian bank counterparties.  Italy are not the only Eurozone member who regularly breaches EU fiscal rules, and both the corporate and household sectors are potential sources of significant amounts of alternative funding.  The optimistic global bank view suggests that they expect the EU to manage Italy’s “too-big-to-fail” problem with temporary waivers and possible rule changes. The chart shows the credit improvement in Italian banks compared with the broader EU and the Globally Systemically Important Banks (GSIBs).  EU bank credit risk has improved by 5% since early 2016. Large Italian banks deteriorated by more than 10% until the end of 2107 but have improved by 5% since the beginning of this year. ### Risk.Net: October Credit Data Review Rising global rates, coupled with trade tensions, have contributed to the recent bout of volatility in emerging markets. Venezuela now has hyperinflation, Argentina is struggling with a renewed currency crisis despite emerging from default two years ago, while Turkey is grappling with high levels of dollar debt and a prolonged devaluation. Even Italy – still investment grade and a member of the euro – is at risk of a sovereign downgrade.  During these periodic and contagious crises, a key investment question centres on the link between sovereign, corporate and banking credit risk: put simply, can local companies chart their own course, or does everything become contaminated by sovereign risk? In the eurozone debt crisis, this dangerous embrace between banks and sovereigns was dubbed a ‘doom loop’. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, analyses the credit trends of banks and corporates in 59 countries to determine whether local companies can remain immune from sovereign credit risk contagion. Also covered this month is the growing divergence in credit risk between Main Street and Silicon Valley companies, a comparison of credit trends for Eurozone and Turkish banks,  and a view of increasing volatility observed across equity indexes. Read the full article using the below link or in the October edition of Risk Magazine. View original article (external link) ### Ex-Goldman Banker Michael Sherwood Invests in Credit Benchmark Global Investor Group reports on Michael Sherwood's investment into Credit Benchmark. Ex-Goldman Sachs banker Sherwood also now joins Credit Benchmark's board of directors. By Andrew Neil, October 17, 2018, Global Investor Group. To read the original article, please click the link below. View original article (external link) ### Credit Benchmark CEO William Haney Appears on Bloomberg TV Credit Benchmark CEO William Haney talks about expansion plans on Bloomberg TV with Caroline Hyde and Romaine Bostick. Watch Now ### Credit Benchmark Plans Expansion of Consensus Credit Risk Analytics Offerings Now Publishing Credit Risk Views on 22,000 Entities - Credit Benchmark Raises Capital to Fuel Next Phase of Growth New York – October 18, 2018 -- Credit Benchmark, the leader in consensus based credit analytics, has announced plans to expand its offerings and scale its contributed data model, solidifying its standing as the largest source of credit risk data for rated and un-rated entities. The expansion will be fueled by a $7 million investment led by Index Ventures, Balderton Capital, Communitas Capital and a group of private investors that includes former Goldman Sachs Vice Chairman and the co-chief executive officer of Goldman Sachs International Michael Sherwood. Mr. Sherwood will also join the Credit Benchmark Board of Directors. Having grown rapidly since publishing its first credit risk views in 2015, Credit Benchmark is the first financial data company to provide consensus credit risk estimates on a global range of corporates, sovereigns, financial institutions, and funds. The company draws its credit risk insights from a contributed data model that harnesses the collective intelligence of the world’s leading financial institutions. Now receiving contributed credit risk and probability of default data from a collection more than 30 of the world’s top financial institutions – a list that includes all of the largest banks in North America and the UK – Credit Benchmark is now publishing credit risk views on roughly 22,000 counterparties, the largest and most unique coverage globally. “We have created the conditions to support rapid adoption of our products and data, and this new round of funding will help us reach our goal of becoming a global standard for credit and risk management,” said Donal Smith, Credit Benchmark Executive Chairman. “I look forward to working closely with our investors, contributors, and board members to seize this opportunity.” With this new infusion of capital, Credit Benchmark plans to grow its contributor base – with the goal of reaching 50 contributor banks by the end of 2019. It also plans to add non-bank contributors, such as insurance companies, which maintain rigorous credit risk analytics, to broaden its credit risk purview. Additionally, Credit Benchmark is developing new technology and research capabilities that will expand its analytics product offerings for banks, asset managers, and insurers. The company will also continue to expand its team following the recent appointments of industry veterans William Haney as CEO and Nicholas Pastoressa as Chief Product and Technology Officer. “Over the course of the last three years, Credit Benchmark has expanded its coverage from c.1,000 entities based on the consensus estimates of just six contributors to more than 22,000 entities with insights derived from three dozen of the world’s largest financial institutions,” said William Haney, CEO of Credit Benchmark. “The appetite for our consensus view of credit risk is so enormous because it is differentiated from the traditional credit rating; it is truly comprehensive, with deep reach into the un-rated universe; and it is trusted because it is based on the internal regulatory processes of the world’s leading financial institutions.” Both Balderton Capital and Index Ventures were involved with Credit Benchmark’s previous rounds of funding. To-date, Credit Benchmark has raised a combined $34 million in venture backing since its launch in 2015. About Credit Benchmark  Based in London and New York, Credit Benchmark is a financial data analytics company offering an entirely new source of credit risk data: the credit risk assessments of the world’s leading financial institutions. Credit Benchmark was founded in 2012. The company offers an objective, dynamic and forward looking measure of risk that reflects the aggregated views of multiple financial institutions that have direct exposure to the underlying entities. Its coverage includes a sizable and granular universe of tens of thousands of unrated entities where no market-accepted credit metrics exist today. Media Contact information Yaprak de Beaufort Head of Strategy and Business Development yaprak.debeaufort@creditbenchmark.com Telephone: +442070990562 John Roderick J. Roderick Public Relations (Representing Credit Benchmark) john@jroderick.com Telephone: +1.631.584.2200 ### Banking Industry Credit Trends Underpin Recent Equity Moves and Give Clues to Basel 2017 Winners Bank stocks fell behind the main indices in 2017; but as interest rates rise they are now seeing renewed investor interest across the globe. In revenues and especially in profitability, US banks have dominated the global banking industry in recent years, but European banks are beginning to show signs of earnings improvements.  Analysts are still concerned about restructuring, litigation and developing market headwinds in Europe, but this is now being mitigated by multiple rumours of mergers and acquisitions. European banks are particularly sensitive to a positively sloping yield curve, and the ECB is lagging behind the Fed in tightening short rates. However, investors need to be selective: Dodd-Frank amendments and Basel 2017 rules have created an uneven transatlantic playing field, and both American and European banks have been lobbying regulators on competition issues. For European banks, a key challenge is the Dodd-Frank reform that can ease stress tests and capital requirements for US banks with assets of less than $250bn.  This puts a number of medium to large European banks – Deutsche, Credit Suisse, Barclays, and most of the large French banks – at a potential disadvantage vs. their US competitors.  Some Canadian and Japanese banks will also fall into this category. But US banks face some competitive distortions in the Basel 2017 rules on RWA weights.  European banks now enjoy considerable capital relief for lending to companies with low credit risk (AA, AA and A); which will encourage a much-needed skew towards improved loan book quality.  US banks have a modest RWA advantage in the large BBB category, and have a strong incentive to lend to the low-quality B and C categories. It is only in the BB category that they compete on equal terms. The chart below shows that the past 12 months have seen a modest improvement in global bank credit risk, and the EU (ex UK) is the main beneficiary. Basel 2017 rules appear to be opening up opportunities for high quality balance sheet expansion in Europe.  US banks are eyeing up opportunities in lower quality European borrowers, and the Dodd-Frank reforms will help them compete against medium to large European banks across the credit spectrum.  With interest rate tightening still in its early stages and rumours of multiple mergers,  the global banking sector is likely to see some dramatic changes over the next 12 months. A recent Credit Benchmark report, “Wholesale Credit Regulations: An Uneven Playing Field for All” looks at the implications of these regulatory differences in detail, and uses bank-sourced credit data to highlight transatlantic differences in bank assessments of credit risk. ### Wholesale Credit Regulations: An Uneven Playing Field for All The Basel 2017 reforms have highlighted transatlantic differences in the implementation of wholesale banking regulation. There exists a significant gap between banks in the US and the rest of the world; this gap is due to genuine regional, business mix and obligor differences, as well as varying interpretations of the regulations in different jurisdictions, and differences in calibration. Whilst the intention behind current US regulation is to foster broad and deep credit markets and prevent moral hazard and undue risk taking, some unintended outcomes have arisen as a result. Risk.net recently reported that “Five of the largest US banks are below the so-called Collins floor, meaning their modelled risk-weighted assets (RWAs) are lower in value than those calculated by regulator-set standardized approaches. A Risk Quantum analysis across the eight US global systemically important banks (G-Sibs), shows that Morgan Stanley, JP Morgan, Citigroup, State Street and Wells Fargo had higher standardized RWAs than modelled RWAs as of the first quarter 2018.” Full implementation of Basel 2017 will partly redress the RWA penalty; but the inability to use NRSRO Credit Agency ratings, or internal modelling will be an ongoing disadvantage for US banks. In addition, current IFRS9 rules place additional charges on non-US banks but the introduction of CECL will place a heavier relative penalty on US banks. One crucial implication of Basel 2017 is that US banks need to become quasi-rating agencies while European banks will be penalized for lending to higher quality but unrated borrowers. If local regulators recognise the value of pooled credit assessments from global banks, it is possible that they can encourage competition and reduce funding costs for a large number of high quality small and medium sized businesses on both sides of the Atlantic. A new Credit Benchmark paper reviews the impact of this transatlantic gap upon balance sheet management, risk profiles, capital requirements and the allocation of credit. Understanding the impact of these regulations is not only important to understand the response of the banks, but for their ramifications upon their clients, counterparts and the broader economy. The paper uses a number of proprietary sources, including bank sourced credit estimates, as well as public data. To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper Now ### “Zombie” Companies: Credit Risk Shows The Strain Of Rising Interest Rates The recent Fed hike has brought renewed focus on the broader impact of rising yield curves. While bond markets have been pushing long term bond yields higher for some time, short term interest rates have been close to zero (or even negative) for a prolonged period. The Fed is not alone in tightening policy – an increasing number of G20  Central Banks are following suit.  The combination of QE withdrawal and rising yield curves means that heavily indebted companies face an increasingly challenging environment.  After years of loan extensions, commercial banks see a significant opportunity cost in continuing to support so-called “zombie” companies. The chart shows credit trends over the past two years for around 500 US companies at either end of the debt spectrum.  An upward sloping Credit Risk Indicator line means that average credit quality for that group of companies is improving (i.e. the probability of default is falling).  A downward sloping line means that average credit risk is deteriorating (i.e. the probability of default is rising).  The left hand axis shows the percentage change in default risk over the period. Companies with low (<10%) debt ratios (Debt as a percentage of Enterprise Value) have seen their credit risk improving by more than 10% in the past 18 months.  Those with high debt ratios of more than 75% - typically with already poor credit ratings - have deteriorated further, by nearly 40%. This rate tightening cycle will probably take some time.  For heavily indebted companies and their lenders, it looks as if this could be a particularly challenging period. ### September Credit Update: Consensus Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from August 2018) from 27 contributor banks. The set of bank-sourced credit views (CBCs*) now covers more than 22,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 204 obligors improved their credit standing by at least one notch. 163 obligors deteriorated by at least one notch. 50 moved more than one notch. The frequency and the size of upgrades and downgrades has decreased. Last month showed improvements across 283 obligors and deterioration across 283, with 80 moving by more than one notch. Industries: Upgrades dominate downgrades in five out of ten reported industries, one industry is biased towards downgrades and four are balanced. The industries showing an improvement in credit quality include: Oil & Gas with 17 upgrades and four downgrades. Industrials with 45 upgrades and 29 downgrades. Basic Materials with 11 upgrades and seven downgrades. Technology with 11 upgrades and seven downgrades. The industry showing deterioration is: Health Care with no upgrades and three downgrades. * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Trade Wars Highlight Supply Chain Credit Risks Global supply chains are only as strong as their weakest links, and current trade tensions are shining a spotlight on operational and financial supply chain risks. Ratings agency Fitch has already cut its growth forecasts due to the knock-on effect of tariffs across the global economy, while the US-China trade war enters a new phase this week: an additional $250bn of Chinese imports are now subject to US tariffs, while China is threatening to respond with duties on $60bn of US exports to China.  Previous tariffs are having an effect: Maine fisherman are throwing live lobsters back into the ocean (Chinese tariffs make Canadian lobsters much cheaper). US tariffs are likely to push up Hurricane Florence rebuild costs, encouraging some construction firms to switch to US-sourced building materials. The Brexit negotiations are also having an impact: the UK government has advised drug companies to stockpile medicines due to the risk of a no-deal Brexit; the pharmaceutical supply chain involves multiple journeys between the UK and the EU during the manufacturing process. And BMW have provisional plans for maintenance shutdowns next year to coincide with the Brexit deadline – again to avoid supply chain issues. In a recent whitepaper, Credit Benchmark shows how bank-sourced data can be used to analyse differences in supply chain credit risks for a sample of 17 global OEMs. The report also provides details on the geographic and industry distribution of their extensive list of suppliers. Some of the results are surprising – the US and the UK are both critical to the current global supply chain for these 17 companies; and some little-known companies are actually important suppliers to many of these global OEMs. Download the paper using the below link, and to contact us for more information, email us at info@creditbenchmark.com Download Whitepaper Now ### US and European Telecoms: Credit Trends Beginning to Reflect Technology and Pricing Power Risks Credit risk for the Telecoms sector has been relatively stable but the next few months will be critical in understanding how the balance of power in and around Telcos, Corporates or Big Tech will play out.  Major changes in credit risk for Telcos are likely. The global Telecoms sector faces a significant transformation.  5G technology is now in advanced testing and 5G mobile devices are due early next year.  Corporates are interested – they increasingly want their own fast, secure and private networks to support their processes and products.  For example: safe autonomous vehicles require the rapid exchange of huge data volumes. The bottleneck in all of this is network coverage.  5G should mean no more buffering – if you can get a 5G signal.  Responsibility for that sits with Telecom companies, and it is understandable that they are reluctant to let Corporates have a free ride on their networks. US Telcos face some unique new challenges: low US population density has historically meant a lack of competition (providers often have local monopolies), making US internet access very expensive (3x) compared to Europe.   But Big Tech (especially Amazon and Google) are aiming to grab a free 5G ride, by creating a network of networks.  This would give them the super-fast broadband they need to provide exponentially increasing volumes of streaming content.  The EU does not yet face the same threat from Big Tech, but European Corporates are now competing – they will be significant bidders in the next bandwidth auction. These changes may also provide an opportunity for traditional Telcos, with 5G giving them the bargaining power that they need to charge for access. And the controversial repeal of US Net Neutrality laws could generate capital for Telcos to ramp up investment in fibre infrastructure and overall coverage, but they need to ensure that they get a sustainable return on that increased investment. Bank-sourced credit data is beginning to reflect these uncertainties. The chart below shows a modest but sustained deterioration in US Telco credit quality (-6%) over the past year.  Credit risk for large EU and UK Telcos have deteriorated so far this year, especially the UK. The next few quarters will no doubt further exaggerate these trends. ### August Credit Update: Consensus Upgrades and Downgrades Balanced Credit Benchmark has published the latest monthly credit consensus data (from July 2018), with 25 contributor banks. The set of bank-sourced credit views (CBCs*) now covers more than 21,000 separate legal entities. The monthly upgrades and downgrades overview is now based on data adjusted for changes in contributor mix. Monthly consensus upgrades and downgrades: 283 obligors improved their credit standing by at least one notch. 283 obligors deteriorated. 80 moved more than one notch. The frequency and the size of upgrades and downgrades has increased. Last month showed improvements across 299 obligors and deterioration across 159, with 35 moving by more than one notch. Industries: Upgrades dominate downgrades in three out of ten reported industries, three industries are biased towards downgrades and four are balanced. The industries showing an improvement in credit quality include: Oil & Gas with 22 upgrades and five downgrades. Basic Materials with 16 upgrades and nine downgrades. Telecommunications with two upgrades and one downgrades. The industries showing deteriorations are: Technology with six upgrades and 15 downgrades. Consumer Goods with 13 upgrades and 21 downgrades. Health Care with six upgrades and eight downgrades. * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Supply Chain Credit Risk Global supply chains have become increasingly complex, and supply chain risk management (“SCRM”) is a major issue for most large corporates. Globalization of trade flows means that SCRM increasingly features in trans-national trade discussions.  For example, a key issue in the current Brexit negotiations is the complexity of the supply chain across the UK and Continental Europe; some larger product sub-assemblies contain components which have repeatedly crossed borders during the manufacturing process. This is one of the main reasons that the EU is keen for the UK to stay within the Customs Union. The development of “Just-in-Time” production processes began in the 1980s; it has squeezed working capital costs to a minimum and reduced the risk of overstocking.  Supply chains are leaner and more agile as a result, but they are also potentially longer and more fragile. This paper looks at some of the largest global corporations and uses bank-sourced data to assess the level and distribution of credit risks across their supply chains. To access the full whitepaper, please provide your details below. First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Whitepaper Now ### Risk.Net: September Credit Data Review “An eye for an eye will make the whole world blind,” Gandhi is said to have observed. Sadly, behavioural economists would probably agree he was not far wrong: recent tit-for-tat episodes of tariff imposition by the US, the EU and China demonstrate just how hardwired retaliatory behaviour is. But how do banks accurately gauge and price the risk of such arbitrary measures pose to their loan book? Trade and tariff disputes have focused attention on the length and fragility of supply chains. Supply chain risk is often seen as an operational problem, but typically supply chain disruption becomes a financial and credit problem. In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, looks at supply chain risk for 17 large global original equipment manufacturers (OEMs), and their network of some 500 suppliers across the globe. Also covered this month are credit trends for UK corporates, the regional differences in credit ratings raised in Basel 2017, and the distribution of senior unsecured loss given default estimates. Read the full article using the below link or in the September edition of Risk Magazine. View original article (external link) ### US Equities Extend Bull Run, But Credit Improvements Lag Behind Europe US equities have now had 3,453 days without a correction of 20% or more - the longest bull run in US financial history.  And since mid-2016 alone, the Dow index is up more than 40%. European equity returns have been more modest but still respectable: France, Germany and the UK are all up about 25% (in local currency) over the same period. However, the credit trends for the constituent companies in each index are very different.  The chart* shows average credit risk levels for each country, based on the constituents of the Dow Jones, the CAC40, the DAX30 and the FTSE100.  The credit risk of the Dow constituents actually increased slightly until mid-2017, and has since marginally improved. Credit risk for the UK and German indices also increased before modestly dropping from March 2017 onwards; for the FTSE100 constituents, the prevalence of Dollar earners combined with a weak currency has been credit-positive. But France has shown a dramatic drop in credit risk, starting back in late 2016 and currently standing at close to a 25% improvement. In early 2017, the French financial markets were worried about a Far-Right election victory; CDS spreads expanded but bank credit views remained stable to optimistic over this period. The continued improvement is probably a reflection of French economic growth and employment picking up, closing the gap with Germany.  And some commentators think that France could be a major beneficiary from the UK’s withdrawal from the EU. Equity and credit can diverge for long periods: equities reflect earnings growth while credit trends reflect balance sheet strength. But if equity markets reverse, the credit position in each country becomes increasingly important. *rebased to 100%, vertical scale reversed ### Credit Benchmark Grows Bank Contributors, Eyes Non-Bank Credit Data Inside Market Data (via Waters Technology) reports on Credit Benchmark's plans to expand its dataset beyond banks, by beginning to collect and create consensus rating datasets from companies that create proprietary counterparty credit assessments. By Max Bowie, August 17, 2018, Waters Technology To read the original article, please click the link below. View original article (external link) ### MarketWatch: Contagion From Turkish Currency Collapse to European Banks is ‘Overblown,’ Says Analyst "Amid fears that the Turkish lira’s swoon will result in further pain outside the country’s borders, one analyst says investors can take the European banking sector off the list of hotzones at risk of contagion from the emerging-markets crisis." "Despite the widespread selling in European bank stocks seen earlier this week, David Carruthers, head of research at Credit Benchmark, says the balance sheets of the European financial sector are in better shape than market participants give credit, and could withstand souring loans from Turkey" MarketWatch references Credit Benchmark analysis in an article on the credit quality of European banks amidst the Turkish currency crisis. To read the original article, please click the link below. View original article (external link) ### Sovereign Credit Risk: Developing Country Bonds Diverge The decline of the Turkish Lira has raised a number of financial contagion worries. Initially these focused on European banks, but closer analysis suggests that the direct effect on Europe is manageable (MarketWatch). There are more fundamental concerns about some of the Developing markets, with South Africa in particular seeing a sharp currency drop.  Investors are worried that the recent trade friction will hit the Developing countries especially hard: if the US is willing to turn its back on strategic lynch pin Turkey, then what does that say about its stance on other countries?  As bilateral deals begin to erode the WTO framework, there will be winners and losers amongst Developing countries; some may seek closer trade links with Russia or China. For Europe, this environment creates opportunities as well as threats.  Merkel has maintained good relations with neighbours Russia and Turkey; and the EU has earmarked a growing budget for aid to Developing countries as part of a long run, sustainable approach to tackling the economic migrant issue. The chart below shows the relationship between bank-sourced views of Sovereign credit risk and the nominal 10-year Government bond yield for a sample of Developed and Developing countries.  (Real yields distort the chart too much due to Venezuela’s hyperinflation; with the exception of Venezuela, the charts looks similar for real and nominal yields.) Source: Bloomberg, Credit Benchmark The fitted line tracks the stable, positive relationship between credit risk and nominal yields.  Argentina and especially Greece – both recovering from years of crisis – are trading on low nominal yields compared with their credit risk. Turkey and Venezuela are on particularly high yields, and neither of these have been adjusted for the higher expected inflation due to currency weakness.  Venezuela is already firmly in the hyperinflation zone, while Turkey is likely to see a significant one-off increase in inflation due to the sharp depreciation of the Lira this year. Emerging market crises are a periodic feature of financial markets; typically these trigger sell-offs in currencies, bonds and equities across the Developing Economies.  The chart suggests that Russia, India, South Africa and Indonesia are all clustered around the Investment Grade boundary, with bond yields trading in the range 7% - 9%.  Mexico is on a similar yield but is well within the Investment Grade category.  In credit terms, China sits between the UK and Spain; its bond yield is about 1 percentage point above the US. This suggests that there is increasing economic diversity within the Developing Economies; as a result, any blanket market sell-off is likely to create selective investment opportunities. ### Risk.Net: August Credit Data Review “US President Donald Trump says the package of tax cuts he signed into law last year unleashed an “economic miracle”, and with growth leaping to 4.1% in the second quarter, he has at least this one number on his side. The question is whether it can be sustained." “US states will be hoping it can. For the states, fiscal stimulus is a double-edged sword; constraining their tax receipts in the short term, while potentially spurring more growth over the longer term. For now – as with the aggregate impact of the cuts themselves – things look good." In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, discusses the effect of Trump administration tax cuts on US states, plus compares the recent credit performance of US basic materials, oil and gas, and industrials. Also covered this month is a comparison between the credit trends and distribution of South African vs African (ex-South African) banks, in addition to global credit industry trends. Read the full article here or in the August edition of Risk Magazine. ### July Credit Update: Consensus Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from June 2018), with 24 contributor banks. The set of bank-sourced credit views (CBCs*) now covers almost 21,000 separate legal entities. Monthly consensus upgrades and downgrades: 407 obligors improved their credit standing by at least one notch. 244 obligors deteriorated. 70 moved more than one notch. The frequency of upgrades and downgrades has increased. Last month showed improvements across 319 obligors and deterioration across 297, with 75 moving by more than one notch. Industries: Upgrades dominate downgrades in eight out of ten reported industries. The industries showing an improvement in credit quality include: Oil & Gas with 30 upgrades and seven downgrades. Health Care with 13 upgrades and two downgrades. Utilities with 20 upgrades and six downgrades. The industries showing deteriorations are: Telecommunications with four upgrade and six downgrades. Technology with seven upgrades and eight downgrades. * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Main Street vs. Silicon Valley: Diverging Credit Trends? The latest GDP numbers from the US show a blistering real growth rate of more than 4%, implying that the Trump tax cuts are having the desired effect across the US economy. But as the equity results season gets into full swing, some of the technology giants have been suffering huge share price drops: Facebook and Twitter were down nearly 20% last week, and Netflix is down 15% from its June high.  Amazon and Alphabet have so far ridden out the storm and saw their share prices rise following their recent results. It is possible that the differences between Main Street and Silicon Valley are more nuanced than the simple labels suggest.  Amazon is now a key part of the physical distribution chain while Alphabet (i.e. Google) is effectively an information distributor at the heart of the online economy. But social media companies and streaming services are at the mercy of trend changes by fickle (mainly young) users – these companies may have been the prime movers in their spaces, but they have less protection from barriers to entry than the infrastructure stalwarts like Amazon and Alphabet. Meanwhile, the traditional US economy is booming. Trade wars remain a moderate risk, but the US economy has a strong domestic focus; exports account for just 12.5% (Germany is at 46%). It will take time for corporate tax cuts and other fiscal boosts to pass through, so Main Street growth – especially in the industrial sector – is likely to be sustained. Looking at the chart below, it is clear that the credit risks for Main Street and Silicon Valley are behaving very differently. Towards the end of 2016, technology showed a slight improvement while the broader measure of the 500 largest US companies was steadily deteriorating. These trends began to reverse in early 2017; technology has now given up its gains, while the broader group has made a huge swing from a 10% deterioration to a 15% improvement. Credit trends in technology seem to be reflecting the nuances described here.  If US GDP growth continues at its current pace, some of the core technology companies are likely to share in the benefits; but some of the largest Silicon Valley companies may begin to see Main Street pull further ahead. ### Credit Anomalies in Sovereign Bond Yields For the past decade, Sovereign bond yields have been held down by Central Bank funding facilities.  But with interest rates now rising as various forms of QE are phased out, a new set of potential anomalies has appeared. The chart plots real yields for 10-year Government Bonds against the Ratio of Government Debt to GDP, for 12 major developed economies including the G7 countries. These are colour coded by consensus credit rating: blue shows aaa, green are aa categories.  Spain and Italy are plotted in red and their consensus ratings (a- and bbb) are labelled. The cluster of economies in the lower left quadrant are those with Government Debt to GDP ratios of less than 100%, and real yields of -1% or lower.  These include three aaa countries (Switzerland, Netherlands and Germany), two aa countries (UK and France) as well as Spain at a-. US and Canada – both aaa – share similar Government Debt ratios with these other countries; but their real yields are close to zero, reflecting the more aggressive interest rate policies in those two countries, with Canada typically following the US lead.  US Sovereign bond yield levels are partly driven by concerns about the impact of fiscal expansion on debt, as well as the attendant inflation risks.  If these concerns are overdone, then there is a possible anomaly compared with the lower left quadrant. There are even more striking anomalies in the South Korea (aa-) and Australia (aaa) Sovereign bond markets, with both showing high real yields and low debt ratios.  South Korean real yields may anticipate that a closer relationship with North Korea raises the risk of a one-off economic hit to the South Korean economy, in a milder version of that experienced by Germany after full unification in the 1990’s.  Australia looks like an outlier, with its low debt and a consensus rating of aaa, but has real yields of close to 0.8% - the third highest of the 12. One significant apparent outlier is Japan (aa-) with negative real yields and a seemingly staggering debt ratio of more than 250%.  Against this, Japan has significant positive foreign exchange reserves and most of the Government’s bonds are held by the Central Bank.  Inflation remains a minor risk, since it is a tempting route to reducing the real debt burden; but Japan is unlikely to risk the wrath of a large and aging population by deflating their savings.  Japan’s Government debt is an intractable but apparently manageable problem. This leaves Italy (bbb), with the highest real yield (more than +1%) and a debt ratio of 130% - high, but not  unmanageable.  The bond yield and the consensus credit rating reflect concerns about the new ruling coalition and the resulting scope for further debt growth.  The main contrast is with Spain, which has lower debt (around 100%) and fewer immediate political challenges.  But nervous investors in Italy are currently being offered a real yield differential of more than two percentage points vs. Spain, while the two countries are only two credit notches apart. Previous research by Credit Benchmark (https://www.creditbenchmark.com/sovereign-bond-risk-management/) showed some evidence of mean-reversion in real Sovereign bond yields, with them moving into alignment with consensus credit ratings.  As the “Great Normalisation” in interest rates gathers pace, it will be interesting to see if the same process unfolds. ### Amidst Brexit Uncertainty, Default Risk Rises: Credit Benchmark Analysis Referenced in Barron's Article "The U.K. is due to leave the European Union in less than a year, but hasn’t agreed on just how do it. And that could be creating more risk for companies based in the U.K." "The uncertainty around Brexit might already be taking a toll. Since the vote to leave the E.U. in June 2016, confidence in the credit of large U.K. corporations has been deteriorating, according to Credit Benchmark, a financial data analytics company that tracks banks’ views of credit risk." Barron's references Credit Benchmark analysis in an article on the credit risk of UK companies amidst Brexit. To read the original article, please click the link below. View original article (external link) ### US Oil Credit Risk Improving Against Uncertain Global Backdrop Oil price volatility has jumped.  Annualised daily volatility reached a near term low of 19% earlier this year, but it is currently close to 30%, mainly because of a high level of uncertainty about supply.  For example, Brent Crude recently fell 7% in one day (from a recent high of around $80) due to Libyan production returning to the market.  The oil industry faces long term structural headwinds, but geopolitics are currently causing price spikes as well as drops.  Recent price highs were driven by renewed US sanctions on Iran, which will reduce global output later this year; OPEC have very limited spare capacity to offset this.  Research by Bank of America Merrill Lynch estimates that complete removal of Iranian output – without any replacements from other oil-producing countries – could lift the price per barrel to $120 from the current level of around $80.  Iran has even threatened to retaliate against US sanctions by closing the Straits of Hormuz – which some commentators think could take the oil price as high as $250.  But in practice there are likely to be some sanction waivers, and China has already announced plans to take Iranian oil in response to their current trade friction with the US.  And that trade friction also threatens to depress demand.  So although the balance of geopolitical risks is still towards higher prices, volatility is likely to persist. US oil companies have successfully distanced themselves from some of the extremes of the global market. The US is now a net exporter of oil, but recently announced domestic stockpiles are below the seasonal average levels – so there is scope to switch supply between local and global demand sources.  The more favourable environment for US oil producers is reflected in bank-sourced credit data for nearly 400 companies in the US oil and gas industry.  The charts below show that the credit distribution for these companies has improved in the past year; the proportion of companies in the b and c categories has reduced, with 40% of the US Oil & Gas sector now in the bb category.  There have also been minor increases in the a and aa categories.  This reflects a slow but steady improvement in average credit quality of around 25% over the past 18 months. ### Risk.Net: July Credit Data Review "Since the 2008 financial crisis, Italian banks have seen particularly rapid growth in non-performing loans (NPLs) compared with other eurozone countries. In the past decade, the ratio of Italian bank NPLs to total loan value increased from 5.8% in 2007 to 18.1% in 2016." "The problem is particularly acute in construction and real estate loans; these sectors make up more than 40% of corporate NPLs in Italy. While nearly three-quarters of Italian bank loans are secured by personal guarantees or real estate collateral, the Italian House Price index has fallen by more than 15% since 2010." In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, discusses the growth of default risk for Italian banks, distressed debt in Sub-Saharan Africa, the Global 500 vs the US 500 and SME corporate credit distribution in addition to global credit industry trends. Read the full article here or in the July edition of Risk Magazine. ### Credit Benchmark Hires Nasdaq Tech Expert Global Investor Group reports on Nick Pastoressa's appointment as Credit Benchmark's chief product and technology officer. By Andrew Neil, July 9, 2018, Global Investor Group. To read the original article, please click the link below. View original article (external link) ### Credit Benchmark Taps Pastoressa for Product, Technology Waters Technology reports that Credit Benchmark has hired Nick Pastoressa as chief product and technology officer. By Max Bowie, July 9, 2018, Waters Technology To read the original article, please click the link below. View original article (external link) ### June Credit Update: Consensus Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from May 2018), with 24 contributor banks. The set of bank-sourced credit views (CBCs*) now covers more than 19,500 separate legal entities.   Monthly consensus upgrades and downgrades: 319 obligors improved their credit standing by at least one notch. 297 obligors deteriorated. 75 moved more than one notch. The frequency of upgrades and downgrades has decreased. Last month showed improvements across 556 obligors and deterioration across 375, with 97 moving by more than one notch. Industries: Upgrades dominate downgrades in seven out of ten reported industries. The industries showing an improvement in credit quality include: Basic Materials with 17 upgrades and 5 downgrades. Industrials with 27 upgrades and 16 downgrades. Technology with 11 upgrades and four downgrades. The industries showing deteriorations are: Health Care with seven upgrades and 10 downgrades. Telecommunications with one upgrade and two downgrades. Utilities with 10 upgrades and 11 downgrades.   * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Credit Data Anticipates Emerging Market Stresses Last week, the FT reported on recent signs of stress in Emerging Markets.  These include weakness in a number of key currencies and stock markets, and increasing local currency yields for Sovereign bonds. Rising yields can compensate, in part, for currency losses; but investors usually need to see a currency floor being established before they take advantage of higher rates.  The chart below shows the credit distribution and trends for 90 Sovereign governments in the Emerging and Frontier economies. A surprisingly large proportion (nearly 40%) are Investment Grade, although the most recent data shows an increase in the proportion in the “tails” of the distribution (i.e. CBC* categories aa and c have both increased).  The time series chart below shows an improvement in credit risk in the latter half of 2016, but credit has been deteriorating ever since with a particularly sharp decline in early 2018.  This predates and confirms the recent warning signals in currency, equity and bond markets. ### UK Retailers: Has Credit Decline Run Its Course? In March we reported on the challenges facing UK Retailers. Retail sales in May were unexpectedly good (possibly due to the Royal Wedding), but recent store closure announcements from Carpetright, Debenhams, House of Fraser and John Lewis show that traditional companies in this sector continue to suffer. As can be seen in the charts below, more than 70% of the Credit Benchmark UK Retail universe is now classed as below Investment Grade, with a CBC of bb or worse. Credit deteriorations have outnumbered improvements in most of the past 12 months, and the cumulative deterioration in credit quality has been around 35%. But the most recent data appears to show a slight reduction in credit risk, although it also shows that banks have been rebalancing loan portfolios towards baskets of the higher quality borrowers in the sector. This selection effect will be one reason for the apparent improvement in the aggregate trend, so it is probably too early to say that UK Retailers are close to a turning point.  But Credit Benchmark will continue to monitor the sector and publish regular updates. ### Credit Benchmark Promoted To FinTech50 Hall Of Fame Credit Benchmark is promoted to the FinTech50 Hall of Fame in recognition of its innovation, pioneering spirit and achievements. To read the full article, please click the link below. View original article (external link) ### Autoparts Supply Chain Credit Improvement May Reverse The automotive industry is undergoing a major transformation.  Sales continue to grow at 2% - 3% pa, but environmental concerns and new technologies means a prolonged period of uncertainty and re-alignment for manufacturers, including the entrance of new technology suppliers and decline of legacy component providers. Environmental drivers include the phasing out of diesel and the spread of low emission legislation; technological changes include the advent of viable, fast-charging long-distance electric cars and the introduction of self-driving software. But the timing and reach of these changes is still very uncertain. This industry also has a complex global supply chain, making it particularly vulnerable to trade disputes and disruptions – including the looming Brexit deadline as well as Trump’s tariffs on imported cars, trucks and automotive parts. Modern “cars” are wheeled computers, increasingly built by robotic factories running AI software and optimizing component inventories; and even predicting future potential mechanical problems within the manufacturing process. For autoparts companies, the need to stay competitive and innovate during the current wave of technology change has prompted a wave of mergers and acquisitions. This has so far been good for credit quality and – in a number of cases – share price performance. Bank-sourced data covers more than 60 global automotive companies and suppliers. As shown in the chart below, auto supply chain credit quality steadily improved from early 2017 to early 2018, moving from High Yield to Investment Grade on the CBC* scale in August 2017. CreditBenchmark.com However, this trend appears to have slowed and possibly peaked with the most recent data showing a modest deterioration. The impact of this improvement on the industry credit distribution can be seen below.  This shows that the distribution has moved to the left over the past year, with significant numbers of autoparts companies making the transition from b and bb to bbb and a. CreditBenchmark.com In credit terms, the global autoparts supply chain has adopted a defensive stance and this has improved industry credit quality; but with a steady stream of new entrants from the technology sector, and with the new shape of the industry still very uncertain, we can expect credit in this area to remain volatile. ### World Cup 2018: Betting Odds and Credit Risks The 2018 FIFA World Cup again brings together most of the winning teams since 1930 – Argentina, Brazil, England, France, Germany, Spain and Uruguay – and each in their own group, for a change.  In a previous blog  we highlighted the link between Sovereign credit and Winter Olympic medal wins; here we compare credit quality and outright winner online betting odds. The link between country wealth and Olympic performance seems intuitive – golf is now an Olympic event, which has to be good news for the USA, while the British are famously good at sports like rowing and horseriding that involve sitting down on expensive equipment or animals.  Having spare cash for special training facilities leverages the broad skill sets that are the signature of developed economies.  In football, the link is not as clear and demonstrates the eclectic and democratic nature of the beautiful game. Brazil and Argentina continue to produce a steady stream of naturally gifted team players and have regularly met Germany and France in previous World Cups. Scotland have been known to argue that their lack of any World Cup success is due to their small population, ignoring regular strong performances from Netherlands, Denmark and Croatia. But the sport is changing – the use of Big Data techniques and real-time player tracking has disturbed the previously level playing field.  Brazil would probably argue that their 7-1 demolition at the hands of Germany in the 2014 semi-final was due to such dubious tactics… The chart shows that previous World Cup winners are still well-favoured, and are joined by Belgium (another small country that has managed to put together a decent team). Labelled countries are those with odds shorter than 100/1. Of the favourites, Germany, France, Belgium and the UK also have strong Sovereign credit quality.  Former winner Uruguay is joined by Croatia, Portugal, Colombia and hosts Russia in the midfield for credit and odds. Brazil, Argentina and Spain are the obvious outliers.  Hopefully Brazil will have learnt from their 2014 clash with Germany, although Pele would probably take a dim view of any Big Data techniques…  Argentina can argue that they have the best current player in the world. Spain have managed to lose their manager on the eve of the tournament, although it is thought that this could improve team morale.  It has had little impact on the Spanish odds so far. England have resolved to be aggressive and brave in this tournament so they will not be upset by this joke from jealous, non-qualifying countries: What is the difference between the England team and a teabag?  A teabag stays in the cup longer.   ### Risk.Net: June Credit Data Review "Prospects for the diesel car do not look good. Attempts to rehabilitate the fuel continue, but appear to be running out of time. New emissions tests reportedly show that even new diesel vehicles are pumping out too much nitrogen oxide, and a court in Germany – Europe’s largest car market – recently ruled that cities can ban diesel cars in an attempt to control pollution." "It’s just one of the stresses facing autoparts companies – along with the rise of viable electric cars, the introduction of self-driving software, changes to manufacturing processes and the arrival of more innovative designs." In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, discusses the global auto industry and sovereign credit risk across the Middle East in addition to global credit industry trends. Read the full article here or in the June edition of Risk Magazine. ### Credit Quality of Sub-Saharan Sovereigns Affected by High Risk of Debt Distress The IMF Regional Economic Outlook report from April 2018* discusses the recent increase in debt levels across Sub-Saharan African countries. This growth is partly in response to very favourable borrowing terms available to frontier markets in the current low interest rate / low credit spread environment. The issuance of foreign currency debt by these countries has reached record highs across the region; but many of these countries rely on public investment to drive growth. The IMF report estimates that 40% of low-income Sub-Saharan African countries are in debt distress or assessed as being at high risk of debt distress. If US interest rates continue to rise as part of a wider normalisation in the cost of capital, the refinancing pressure on the indebted frontier countries will increase. As the chart below shows, the increasing risk of debt distress has already affected the credit quality of Sub-Saharan African countries.  This is based on bank-sourced estimates for 21 of the Sovereigns in the region, and plots the balance of sovereigns with improving vs deteriorating credit quality. Currently it shows a sustained trend towards credit deterioration. Over the past 20 months, credit risk has increased for 10 countries and has improved for only 5. * Regional Economic Outlook: Sub-Saharan Africa, World Economic and Financial Surveys, International Monetary Fund, Washington, DC April 2018, http://www.imf.org/en/Publications/REO/SSA/Issues/2018/04/30/sreo0518 ### May Credit Update: Consensus Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from April 2018), with 24 contributor banks. The set of bank-sourced credit views (CBCs*) now covers almost 19,500 separate legal entities. Monthly consensus upgrades and downgrades: 556 obligors improved their credit standing by at least one notch. 375 obligors deteriorated. 97 moved more than one notch. The frequency of upgrades and downgrades has decreased. Last month showed improvements across 885 obligors and deterioration across 764, with 216 moving by more than one notch.   Industries: Upgrades dominate downgrades in seven out of ten reported industries. The industries showing an improvement in credit quality include: Oil and Gas with 40 upgrades and 16 downgrades. Technology with 18 upgrades and six downgrades. Financials with 164 upgrades and 118 downgrades. The industries showing deteriorations are: Consumer Services with 14 upgrades and 26 downgrades. Industrials with 36 upgrades and 47 downgrades. Utilities with eight upgrades and nine downgrades. * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Forest Products: Credit Quality Improves Due To Plastics Backlash Over the past year, the iShares Global Timber & Forestry ETF has risen by more than 35%, with the S&P 500 flat over the same period. This surge in investor interest in a previously moribund sector is being driven by a number of factors. These are discussed in detail in a McKinsey podcast from December 2017: https://www.mckinsey.com/industries/paper-and-forest-products/our-insights/how-the-paper-and-forest-products-industry-thrives-in-the-digital-age. A major driver is the boom in online deliveries, usually wrapped in paper and cardboard. Much of this is recycled, but the online packaging market will show sustained growth for many years, so it will need a steady source of new supply as well. In addition, the growing global middle class is driving demand for viscose textiles and tissues in various forms – another market which shows no signs of slowing. The most recent development is the new focus on recycling and sustainability, as the plastics backlash gathers pace. Much of the world’s plastic waste ends up in the oceans; the size of the “Great Pacific Garbage Patch” alone has been estimated to be equivalent to the area of France and Germany combined. Alternatives to plastic need to be developed urgently just to slow its rate of increase. If timber-based products are a credible alternative to plastics, new sustainable sources of timber are required. That means conversion of land to timber-growing, research into faster growing timber types, and more efficient recycling (currently recycling provides about 50% of supply). At the other end of the paper supply chain, research has begun into “smart packaging” to tackle counterfeiting and the development of carbon fibre from timber-based lignin. This increasingly positive outlook is reflected in the credit quality of Forest Products companies. The charts below show recent trends in bank-sourced credit risk for more than 100 companies in this sector. The uppermost chart shows that the balance of upgrades vs. downgrades strongly favours upgrades; the bottom chart shows that there has been a moderate but steady increase in credit quality since early last year. Based on recent equity performance and the sector drivers discussed here, further credit improvements seem likely. ### Benchmark Risk and Portfolio Analytics Credit Portfolio Management and Bank-Sourced Benchmarks   Overview   This paper demonstrates the role of bank-sourced benchmarks and indices in credit portfolio management (“CPM”). All banks aim for optimal risk-adjusted returns across their book of business, but there is an increasing focus on credit portfolio diversification in comparison with their competitors. Bank-sourced data provides benchmarks that measure this diversification and allow banks to make better-informed portfolio construction decisions. This paper presents a number of benchmark risk and portfolio analytics worked examples based on current IRB bank use cases.   Download the PDF "Benchmark Risk and Portfolio Analytics"   Introduction   IACPM regularly publishes updates and survey results on CPM Principles and Practices. These typically cover:   Criteria for measurement of performance and risk   Setting objectives e.g. maximum risk appetite   Establishing and managing limits for RWA, RoE, RAROC etc.   Managing concentrations, P&L volatility, liquidity risk and hedging   Use of scenario analysis and stress testing   Banks implement these in different ways depending on their size and business mix, but there is enough overlap in CPM practices across banks to support development of meaningful bank-sourced peer group benchmarks. This paper makes extensive use of these.   CPM Benchmarking Framework   The portfolio approach to risk diversification was developed in the 1950s for traded equities, and it is now ubiquitous amongst asset managers. Application to credit exposures has been more challenging. Some of the major issues - asymmetries in credit pay-offs and loan duration, legal idiosyncrasies in individual loans, limited secondary liquidity and a lack of suitable hedging instruments – have been addressed (e.g. by Bohn and Stein *  ). But Randy Miller, former IACPM treasurer, has shown that some asset management concepts, especially in performance and risk monitoring, can be applied directly to credit portfolios.    The basic framework decomposes the credit risk of a portfolio into major, common drivers and then analyzes obligor specific risks. With the addition of bank-sourced credit data, it is possible for a bank to compare key elements of their portfolio to a set of peer group benchmarks.   Example   For high level exposure analysis, a bank can compare its own exposures with those of its peer group. Peer group exposures can be estimated from public data, such as Reports and Accounts and Pillar 3 reports. The following example shows hypothetical relative (i.e. arithmetic differences) loan exposures for a sample bank (“Bank A”) across the main industries in the US Investment Grade universe, grouped by 7-category NRSRO credit ratings.   Exhibit 1: Hypothetical Relative (Arithmetic Difference) Exposures for Bank A Notes: Data for illustration only. Industry categories based on schemas from typical US bank report and accounts.   Bank A has higher than average exposures to State and Municipal Governments in the A and BBB categories. They have a significantly lower than average exposure to Oil & Gas in the BBB category. They also have a significantly higher exposure to AA Industrials.    These relative exposures will be strongly influenced by Bank A’s view of credit risk in each category. Their stance on Oil & Gas, for example, may be based on a view that Oil & Gas companies are at risk of being downgraded; or that market rates in this segment do not justify the credit risk.    Bank-sourced data provides more insight into these industry views. Exhibit 2 compares the Oil & Gas credit distribution for Bank A and the Peer Group, grouped by bank-sourced Credit Benchmark Consensus (“CBC”) 21-category ratings.    Exhibit 2: Hypothetical Comparison of Bank A and Peer Group Credit Distribution; Oil & Gas Industry   Note that it is possible for NRSRO and CBC ratings to differ; some of the obligors which are classified as Investment Grade by an NRSRO may be classified as Non-Investment Grade by banks, and vice-versa. Banks also provide estimates for a large number of obligors that are not rated by NRSROs. For this example, it is assumed that these two sources are aligned.   In this example, Bank A has skewed its credit portfolio towards the higher quality names because of its concerns about downgrade risks.   Within any of these categories, Bank A can compare its own obligor level estimates of credit risk with those of the peer group. Exhibit 3 shows an example. Note that this comparison is restricted to like-for-like comparisons.    Exhibit 3: Hypothetical Comparison between Credit Risk Estimates for Bank A and Peer Group; Single Obligors   Note that this framework can be extended to show how many of the group obligors do not feature in Bank A’s book; and how many of the Bank A exposures are not quorate (i.e. Bank A may be the only bank doing business with that obligor). Note that credit comparisons can be made in whole notches, fractions of notches, or actual PD estimates. Banksourced data provides underlying average PDs, so it is possible to show notches as approximate fractions.   The green bars show that Bank A holds a conservative view on the majority of the obligors where like-for-like comparisons are available. For example, Bank A views Obligor Q, as having credit risk which differs from the Group view by more than 2 notches. Red bars indicate that Bank A is more optimistic than the group for those obligors.    This framework allows Bank A to understand the structure of its credit portfolio relative to its peers; the framework can be populated with a combination of public data and bank-sourced estimates.   Applications   This framework can be used for risk and return analysis. As with asset management, it is possible to decompose the overall yield on a loan book (net of defaults and write-downs) and attribute variations which arise due to differences in overall strategy, industry selection, credit distribution within an industry, obligor selection, or risk assessment of individual obligor risks which may affect loan pricing.    For risk assessments, banks can apply measures of credit cycle volatility, correlation between credit movements across industries, and upgrade/downgrade trends. These metrics can also be estimated from bank-sourced data, and are illustrated in the following sections.   Bank-Sourced Risk Metrics: Indices   Bank-sourced data can be used to construct a variety of benchmarks at the obligor, sector and strategic level. One practical approach is to use the CDS index methodology, where the index constituents are based on regularly updated samples (“baskets”) of obligors. This approach is detailed in a separate paper †  ; Exhibit 4 shows an example.    Exhibit 4: Oil & Gas Index Baskets   Exhibit 4.1 Time Series of Oil & Gas Baskets   Exhibit 4.1 shows seven baskets and the published index (dashed line) over a 20 month period against an inverted PD scale. The first basket shows a slight deterioration, followed by an extended improvement and all subsequent baskets reflect these moves. It is worth noting that during the deterioration phase, the second basket is of higher credit quality; the following baskets are of similar quality as the cycle turns. During the improvement phase, the baskets again show an increasing higher level of credit quality.    In response to the decline in the credit quality, contributing banks focused on less risky obligors. They seem to have become even more cautious in recent months.   Exhibit 4.2 Oil & Gas Index “Sleeve” and Average     Exhibit 4.2 shows corresponding sleeve (or bands) and midpoints. The midpoints are the best representation of the level of credit quality net of selection effects; the published index shows the current level of credit quality including selection effects. The original basket shows a fixed constituent index (with some survivor bias), with the constituents fixed at the beginning of the display period but dropping out if they do not meet the eligibility criteria.    The width of the sleeve is reducing over time. The width of the sleeve indicates the scale of the credit difference between baskets. The rolling volatility of the midpoints is a proxy for the volatility of credit spreads.   Source: Credit Benchmark data   The choice of basket constituents is critical to the construction of suitable indices for benchmarking. The next section discusses this in more detail.   Bank-Sourced Risk Metrics: Universe Subsets   Ideally, any comparison of portfolio and benchmark should be based on the union set of every obligor in the portfolio and every obligor in the benchmark. This gives three subsets of obligors: common obligors, benchmark only obligors, and portfolio only obligors. However, bank-sourced data can only support obligor-level metrics if there are multiple banks contributing to the same name; so benchmarking has to be based on a hybrid of index and obligor level information. Exhibit 5 shows the various levels of information available in bank-sourced data.   Exhibit 5: Universe Subsets: Comparison of CB Universe and Contributed Client Data Sets     The left-hand Venn diagram shows that contributed data consists of the overall (“Sent”) universe, most of which is mapped (“Mapped”) to existing reference data such as LEIs and DUNS numbers. A subset of these names will match those sent by at least one other client (“Like for Like”) and a further subset will match those sent by at least two other banks (“Quorate”).    The right-hand Venn diagram shows that the combined bank-sourced dataset has the same structure, but the universe consists of all data received from each client, as well as an additional subset in the form of “Semi-Quorate and Quorate” – the latter consists of any obligor where credit risk data is available from more than one bank. The Semi-Quorate and Quorate subset forms CB Index.    Exhibit 6: Alternative approaches to CPM benchmarking   Exhibit 6.1 Portfolio Benchmarking   This approach compares the relevant index with the (usually large) mapped subset of the Bank A obligor universe. This has the advantage of using the largest possible samples to represent the portfolio and the benchmark, but it may be unrepresentative if the overlap between the two sets is small. This will be less of an issue if the portfolio and benchmark are decomposed into the type of categories shown in Exhibit 1.   Exhibit 6.2 Semi Quorate and Quorate Like for Like This approach compares only semi quorate and quorate obligors that are also part of the Bank A loan book. The advantage of a direct comparison has to be weighed against the disadvantage of a potentially small (and possibly unrepresentative) comparison set   Bank-Sourced Risk Metrics: Additional Metrics   Using either approach, a number of additional metrics can provide a basis for CPM decisions. Some of these are shown in the following Exhibits.    Exhibit 7: Additional CPM Metrics: Upgrades and Downgrades – Hypothetical Example   Exhibit 7.1 Sector Specific Upgrades and Downgrades – Bank A (Like for Like Universe)   This shows the pattern of upgrades and downgrades over time in the Consumer Services sector, based on a Like for Like universe. A strong balance in favor of upgrades in the last four months is likely to push the PD lower, but the overall effect on PD will depend on the size of the changes.  Banks A had a pessimistic view on Like for Like Consumer Services in 2016 and H1 2017 downgrading more entities than upgrading in 12 out of 18 months. Upgrades dominate downgrades in the last four months.   Exhibit 7.2 Sector Specific Cumulative Upgrades and Downgrades – Bank A vs Peer Group (ex Bank A) (Like for Like Universe)   This shows the cumulative impact of upgrades and downgrades over time, with Bank A and the Peer Group shown as separate time series. The Peer Group series has had the client data removed in order to provide a controlled comparison.  Compared to Bank A, the Peer Group has had mostly optimistic view on the Like for Like Consumer Universe over the observed period. There were several periods of downturn shared by Bank A and the Peer Group including March – June 2017.   Exhibit 7.3 Sector Specific Upgrades and Downgrades –Bank A (Full Portfolio Universe)   This shows the pattern of upgrades and downgrades for Bank A’s full Consumer Services portfolio. The set of obligors is larger than that of the like for like universe, so it is more representative of Bank A’s portfolio.  The Banks A’s view of the full Consumer Services portfolio was less negative in 2016 and H1 2017 with downgrades outnumbering upgrades in only 8 out of 12 months.   Exhibit 7.4 Sector Specific Cumulative Upgrades and Downgrades – Bank A vs CB Index (Full Portfolio Universe)   This shows the cumulative effect of upgrades and downgrades for the full Consumer Services portfolio of Bank A compared with the CB Consumer Services Index (based on all semi-quorate and quorate entities). Selection bias plays a role in this comparison as the obligors of Bank A’s portfolio differ to those in the CB Universe.  The overall trend is positive for both Bank A and CB Index but Bank A was more optimistic in 2016 and has become more cautious in the last 2 months while CB Index improved mainly in 2017.   Exhibit 8: Additional CPM Metrics: Index Time Series and Distribution Comparisons – Hypothetical Example   Exhibit 8.1 Sector Specific Index Time Series – Bank A vs Peer Group (ex Bank A) (Like for Like Universe)   This compares the Published Index Average (seen also in Exhibit 4) for the Consumer Services Sector based on the opinions of Bank A to that of the Peer Group on the Like for Like universe. A divergence between the lines shows differing opinions between Bank A and the Peer Group for the same set of obligors.  The trends are in line with Exhibit 7.2, Bank A is rather pessimistic about the Like for Like Consumer Universe while the Peer Group shows an upward trend. The absence of the uptick in Bank A’s index at the end of the observed period means that the size of the upgrades was smaller than the size of the downgrades. The difference in levels in October 2017 indicates that Bank A is more conservative than the Peer Group.   Exhibit 8.2 Sector Specific Credit Distribution – Bank A vs Peer Group (ex Bank A) (Like for Like Universe)   As in Exhibit 2, this shows the Credit Benchmark Consensus distribution of obligors’ credit quality level in the Like for Like Universe based on Bank A’s opinion versus the opinion of the Peer Group in October 2017. The chart confirms the conclusion on levels from Exhibit 8.1, Bank A has higher concentration of entities in categories b and c compared to the Peer Group. Interestingly, the distribution of Bank A is wider as it is well spread across all categories while the peers rate more than 70% of the entities from the Like for Like Consumer Universe as bbb and bb.   Exhibit 8.3 Sector Specific Index Time Series – Bank A vs CB Index (Full Portfolio Universe)   This shows the Published Index Average for the full Bank A Consumer Services portfolio in comparison to CB Consumer Services Index (based on all semi-quorate and quorate entities). Here we can compare the selection of names in the portfolio of Bank A and see how they compare to the market (represented by the CB Index).  Both of the lines show a downward trend meaning that the average credit quality of Bank A’s portfolio and CB Index is deteriorating. The difference between this chart and Exhibit 7.4 implies that the size of downgrades outstripped the more numerous upgrades. The differences in levels show that Bank A is more conservative.   Exhibit 8.4 Sector Specific Credit Distribution – Bank A vs CB Index (Full Portfolio Universe)   This shows the credit distribution of Bank A’s Consumer Services Portfolio compared with that of the CB Consumer Services Index across the Credit Benchmark Consensus. It indicates if Bank A’s portfolio consists of more/less risky obligors of the market (represented by CB Index) in a particular point in time.  The distributions is in line with the level difference in Exhibit 8.3, Bank A covers more b and ccc entities while CB Index is more concentrated in a and bbb.   Exhibit 9: Sector Specific Shift in Credit Distribution Driven by Selection Changes – Bank A vs CB Index (Full Portfolio Universe) – Hypothetical Example     This shows the annual changes in the credit distributions of Bank A and the CB Index for the Consumer Services sector, driven by selection. The chart compares the most recent credit data on obligors covered by Bank A and the CB Index in two particular points of time (e.g. in September 2016 represented by Basket 4 and September 2017 represented by Basket 8) and indicates if Bank A or the market (represented by CB Index) has moved to entities with higher or lower credit quality. This approach eliminates the effect of credit risk trends and focuses on selection changes.    This example compare Baskets 4 and 8. Bank A chose better rated obligors for Basket 8 when compared with Basket 4, while the CB Index shifted towards bbb and bb obligors or more center intensive distribution.    Exhibit 10: Industry Breakdown of Fixed Entities 12 Months Upgrades and Downgrades – Bank A vs Peer Group (Ex Bank A) (Like for Like Universe) – Hypothetical Example     This shows the net effect of 12 months upgrades and downgrades of fixed set of quorate entities for industry breakdown of the Like for Like universe. Column Delta shows the difference between the net effects of Bank A and the Peer Group. At a glance, one can see an overview of all sectors to gain an idea of their credit quality movements across the past year. The chart on the right shows the diversification of the Like for Like universe across the industries.    Both Bank A and the Peer Group has downgraded more Consumer Services entities from the Like for Like universe than upgraded. This analysis considers subset of entities used in Exhibits 7 and 8 with full history and the results may differ.   Exhibit 11: Industry Breakdown of Fixed Entities 12 Months Upgrades and Downgrades – Bank A vs CB Index (Full Portfolio Universe) – Hypothetical Example     This shows the net effect of 12 months upgrades and downgrades of fixed set of quorate entities for industry breakdown of Banks A’s full portfolio and CB Index (based on all semi-quorate and quorate entities). The views of Bank A and their portfolio selection can be compared on industry level with the market (represented by CB Index). In addition, the chart on the right shows the diversification of Bank A’s portfolio across the industries.    Bank A has upgraded more Consumer Services entities in their full portfolio than upgraded, while downgrades dominated in the market (represented by CB Index). This analysis considers subset of entities used in Exhibits 7 and 8 with full history and the results may differ.   Conclusion   This paper presents applications of bank-sourced benchmarks and indices in credit portfolio management. The banksourced data allow banks to compare the key elements of their portfolio to a set of peer group benchmarks, decompose the credit risk into common drivers and analyze obligor-specific risks, which leads to better-informed portfolio construction decisions.    The bank-sourced indices represent the market and can be used for setting criteria and objectives of credit portfolio management based on credit cycle volatility, correlation between credit movements across industries and upgrade/downgrade trends.   Download the article "Benchmark Risk and Portfolio Analytics" on PDF.   More from Credit Benchmark   We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn more.   Reporting was contributed by   David Carruthers - Head of ResearchBarbora Makova - Senior Research Analyst   Footnotes   * Active Credit Portfolio Management in Practice, Jeffrey R. Bohn and Roger M. Stein, 2009, Wiley† Bank-Sourced Credit Indices, Credit Benchmark Whitepaper   Restricted Distribution   Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### US Sanctions On Iran Likely To Hit Credit Rating, Could Benefit Saudi Arabia The US decision to withdraw from the current nuclear deal with Iran is a new factor in the complex political re-alignment occurring across the Middle East. Overall US policy in the region increasingly favours Israel, indirectly boosting the electoral performance of populist Shia candidates in Lebanon and Iraq. The decision has also highlighted the risk of increased tension between Saudi Arabia and Iran as they vie for regional leadership. It has been one factor behind the recent surge in the oil price – a welcome boost for Saudi Arabia ahead of the enormous ($2trn) Saudi Aramco flotation planned for later this year. Saudi Arabia has a CBC* of a, generally in line with or slightly below the main rating agencies.  If oil price rises are sustained, there will be a positive impact on Saudi reserve values. Iran’s nuclear program has been a perennial problem for Israel, but Iranian military involvement in Syria is the more immediate concern and source of direct conflict. One view is that Iran needs a friendly regime in Syria to support its projected (and Russian-backed) Iran-Iraq-Syria-Lebanon gas pipeline, and that this is the main reason for the increased Iranian presence.  On this view, the proposed Iranian pipeline is polarising the region along a new axis, pushing Saudi Arabia closer to Israel and Turkey. Iran does not have a traditional credit agency rating, but bank-sourced data shows a historically stable CBC* of b+.  The Iranian economy will inevitably suffer from renewed US sanctions, so this is likely to deteriorate.  This strengthens Iran’s motivation for the gas pipeline which is intended to supply Europe via the Lebanon.  If it continues to pursue that route, there is a risk of further conflict with its regional rivals. *Credit Benchmark Consensus (“CBC”): this is a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates.  It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s ### Risk.Net: May Credit Data Review "A burgeoning area of research in the past two decades has been the relationship between gender balance and corporate performance. Studies have variously found that companies with more women in their senior management ranks outperform – but only if the firm’s strategy is focused on innovation; that replacing a senior man with a senior woman produces an uplift of around 8–13 basis points in return on assets, and that greater gender diversity at board level results in improved corporate governance." In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, discusses the relationship between gender pay gaps and credit risk in addition to global credit industry trends. Read the full article here or in the May edition of Risk Magazine. ### April Credit Update: Consensus Downgrades Outnumber Upgrades In Corporates And Financials Credit Benchmark has published the latest monthly credit consensus data (from March 2018), with 22 contributor banks. The set of bank-sourced credit views (CBCs*) has increased by 25%, and now covers almost 19,000 separate legal entities. Monthly consensus upgrades and downgrades (including Funds): 885 obligors improved their credit standing by at least one notch. 764 obligors deteriorated. 216 moved more than one notch. The frequency of upgrades and downgrades has increased. Last month showed improvements across 326 obligors and deterioration across 237, with 37 moving by more than one notch. Industries: Downgrades dominate upgrades in eight out of ten reported industries. Industries showing a deterioration in credit quality include: Consumer Goods with 14 upgrades and 50 downgrades. Health Care with 7 upgrades and 27 downgrades. Financials with 124 upgrades and 183 downgrades. The industries showing improvements are: Basic Materials with 32 upgrades and 26 downgrades. Technology with 16 upgrades and 15 downgrades.   *Credit Benchmark Consensus (“CBC”): this is a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates.  It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Where Will The Next Crisis Occur? “Mr Brazier also found that the cost of insuring against a bond issuer failing to repay, as measured by the credit-default-swap market, fell by 40% over the past two years. That makes it seem as if investors are less worried about corporate default. But a model looking at the way that banks assess the probability of default, compiled by Credit Benchmark, a data-analytics company, suggests that the risks have barely changed over that period.“   To read the original article, please click the link below View original article (external link) ### Tobacco Stocks May Be Volatile But Remain Good Credit Risks Tobacco stocks dropped sharply last week after Philip Morris reported declining sales volumes and disappointing results from recent investments in "healthier" nicotine delivery systems. Big Tobacco is at a crossroads, and recent share price drops show how nervous investors are about the outlook for this sector. But Tobacco still has some advantages: profit margins benefit from a ban on advertising, production requires limited investment, and regulation discourages new entrants. Governments have a conflict of interest where tobacco regulation is concerned; for example, some estimates suggest that UK smokers contribute £4 for every £1 that they cost the NHS. There are 1 billion smokers globally - 13% of the world's population. And while smoking is in decline across the developed world, the proportion of smokers is increasing in a number of developing countries, especially in Africa and the Middle East. Tobacco remains cash generative and - according to research by Dimson, Marsh and Staunton - has been the best performing US equity sector since 1900. But the challenge of transforming that cash into productive investment remains. New nicotine delivery technologies - such as vaping - were initially seen as a competitive threat, but became the new hope for a high margin growth opportunity. However, vaping has brought few new users; most vapers are former smokers. Some investors hope that the increasing legalization of cannabis provides an opportunity to rejuvenate the sector, but there are various regulatory, political and cultural obstacles to marijuana directly replacing tobacco as a major revenue stream. Bank-sourced data shows that most tobacco companies are viewed as stable investment grade obligors. The chart shows the credit distribution for 10 tobacco parent companies or subsidiaries (only some of these are quoted). Most of these have a CBC* of bbb or better and 2 of them have a CBC of a; just two of these companies are below investment grade. Tobacco companies may be a volatile equity investment, but they are good credit risks. *Credit Benchmark Consensus (“CBC”): this is a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates.  It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s ### Big Tech Could See Credit Premium Eroded if Regulation Bites Big Tech is having a rough time in 2018.  After providing about a quarter of the 2017 stock market gains, the recent #techlash against Silicon Valley has seen Senators grilling Facebook CEO Zuckerberg, and President Trump calling out Amazon for alleged abuse of the US Postal Service.  The privacy and anti-trust issues raised have also focused public concerns on Google (Alphabet), Apple and New Tech in general; tougher regulation may be on the horizon.   In this environment, some investors have turned to "Old Tech" (Intel, IBM, Microsoft etc) and even traditional, non-Tech companies as safe havens.  Although - ironically - Zuckerberg's handling of the first day of Senate Committee questions actually increased his personal wealth by about $2bn thanks to a Facebook price rally. The chart below is based on bank-sourced data. The four GAFA giants (Google, Apple, Facebook and Amazon) currently have a healthy average CBC* of aa-, whereas the Dow 30 has an average of a+.   The CBC for the Dow is very close to a if Apple is excluded.  But current administration rhetoric favours traditional American businesses, like Coal and Steel; and this has already had a positive effect on credit (see The Trump Effect).  Big Tech has seen off the threat of increased regulation before now, but there is scope for the credit gap between Old and New Economies to narrow. *Credit Benchmark Consensus (“CBC”): this is a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates.  It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s. ### Gender Pay Gap May Signal Credit Risk Companies increasingly face a legal requirement to disclose their Gender Pay Gap. According to the FT, the majority of large UK businesses pay more to men than women, with an average median difference of 9.7%. The average male/female % split in each company is close to 50/50, but the top quartile is 63% male. The US Congress Joint Economic Committee reports that, in 2016, women earned 79 cents for every dollar paid to men. The Gender Pay Gap is real and global, but its causes and solutions are currently the subject of intense debate. For example, the salary distribution in most companies depends on employee age; in some companies specific age brackets will be dominated by one gender. But academic studies that have attempted to correct for age, educational attainment and lifecycle factors (e.g. women with / without families) have usually found that a significant gap persists. The chart below plots credit risk ranges for bank-sourced data across 128 companies in the UK Financial sector, and this appears to show a trend difference between gender-based pay measures and credit risk. The 15 companies where the top quartile pay band is more than 50% female show significantly lower credit risk, with a median CBC* of a+. The 35 companies with a very high (>80%) proportion of males in their top quartile pay band have the highest credit risk with a median CBC of bbb. The critical threshold seems to be 50%-60%; it has a very large interquartile range and a median CBC of a-. Where males represent more than 60% of the top quartile pay band, the median CBCs are bbb+ or bbb, and the ranges are narrower. These differences reflect a complex set of related factors which simultaneously affect gender pay and credit risk.  For example, old and established companies may employ more males, especially in senior positions but may also, for historic but unrelated reasons, have lower credit quality. Younger companies may embrace a culture which employs more women in senior positions and may also be well funded because they have not had to weather as many credit cycles.  But they may also arise directly from gender differences in attitudes towards risk.  It is more than a decade since McKinsey showed that the best performing companies have strong female representation at senior levels, and in 2013 consultants Rothstein Kass showed that hedge funds that are majority-owned by women had outperformed the broader peer group for more than 5 years. Correlation does not imply causation; but the data suggests that – for UK Financials – the Gender Pay Gap may be one of a number of proxies for credit risk.  Further research will look at this effect in other industries. *Credit Benchmark Consensus (“CBC”): this is a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates.  It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s ### Risk.Net: April Credit Data Review “If Britain is a nation of shopkeepers, it is not presently a happy one. The UK’s looming exit from the European Union has been widely blamed for damaging confidence among employers, which has had the knock on effect of damping wage growth and, in turn, eroding consumer confidence. The rise in import costs stemming from the collapse in sterling that followed the vote certainly hasn’t helped.” In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, discusses UK retailers’ credit woes amongst other global credit industry trends. Read the full article here or in the April edition of Risk Magazine. ### March Credit Update: Upgrades Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from February 2018), with 21 contributor banks now providing bank-sourced credit views (CBCs*) on almost 15,000 separate legal entities over the past 12 months. Monthly consensus upgrades and downgrades: 326 obligors improved their credit standing by at least one notch. 237 obligors deteriorated. 37 moved more than one notch. The frequency of upgrades and downgrades has increased. This compares with the previous month, which showed improvements across 265 obligors and deterioration across 254, with 63 moving by more than one notch. Industries: Upgrades dominate downgrades in six out of ten reported industries. The improvements in credit quality are: Basic Materials with 10 upgrades and five downgrades. Consumer Goods with 21 upgrades and 16 downgrades. Consumer Services with 26 upgrades and 22 downgrades. Oil and Gas with 36 upgrades and seven downgrades. Technology with 17 upgrades and 11 downgrades. Financials with 74 upgrades and 61 downgrades. The deteriorations in credit quality include: Health Care with 10 upgrades and 11 downgrades. Industrials with 32 upgrades and 35 downgrades. Telecommunications with one upgrade and four downgrades. Utilities with 14 upgrades and 20 downgrades. * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Credit Diversity: Latest Reports from the Banking Perspectives journal The US Small Business Administration regularly report that small and medium sized enterprises – especially new companies – are responsible for the majority of US employment growth.  This sector needs creative access to capital, including debt, and access to capital is crucial for any modern, healthy economy. With a growing global entrepreneurial culture, investors and lenders increasingly need robust credit assessments for small and medium sized innovative businesses. These diverse borrowers need reliable and cost-effective sources of credit.  The traditional way of solving this problem – the purchase of a credit rating from S&P, Moody’s or Fitch for example – is too expensive for this segment. But pooled credit data, as supplied by major banks with large and diverse loan books to small and medium-sized companies, provides a new opportunity for banks and investors to make faster, more informed credit decisions. Two recent reports, published in the Q1 2018 edition of Banking Perspectives magazine, address some of these issues. Greg Baer, President of the Clearing House Association, makes the case for a serious review of the new BCBS “Basel IV” capital standards.  He cites Credit Benchmark as an example of pooled credit data serving as a continuous Shared National Credit examination.  With this type of data, he says, “The supervisory process could be used to prevent what the Basel Committee fears – a bank understating its risk-weighted assets and thereby holding inappropriately low capital, while preserving the ability of private sector banks to measure risk for capital purposes.“ In an article by Mark Faulkner and David Carruthers, Credit Benchmark show that pooled bank data is now giving insight into the unrated universe of companies and funds, and is already being used by contributor banks to assess their own credit risk estimates by comparison with their peer group. The pooled data approach also supports diversity of lending, by allowing banks to identify sectors and firm types that are over- or under- represented in credit portfolios. In addition, pooled credit data gives an opportunity for regulators to adopt a light-touch approach to oversight while ensuring that systemic risk is monitored and managed.   To download both reports, click here. ### Donald Trump and the Economy The "Trump Effect" Donald Trump and the Economy - The first year of the Trump administration has not been dull. Radical domestic and foreign policy announcements, dramatic White House personnel changes, and allegations about Russian interference in the election – these have captivated traditional and social media. But behind the scenes, Donald Trump has had another, quieter, but potentially much more far-reaching impact. This “Trump Effect” is economic, and it is having profound and tangible effects across a range of industries in the US and beyond. Download the PDF "Donald Trump and the Economy" A brief summary of the key economic changes in 2017: Macro: The US economy grew 2.3% in 2017 and unemployment dropped to 4.1%, with 3 million new jobs created.1  By mid-March, the S&P500 index had risen 19%, the Dow Jones 25%, and the Nasdaq 28% - although the first quarter of 2018 has been characterized by bouts of extreme stock market volatility.   The 10-year US Bond yield rose to 2.4% and three-month rates rose to 2%.   Inflation dropped to 2.1%. Credit spreads tightened to 1%. 2   The US Dollar depreciated by 5% - 10% against major currencies.  Jerome Powell took over as Federal Reserve chairman in early February 2018. Corporate & Fiscal: An estimated 1.4trn tax package was passed by Congress in December 2017, with particularly major reductions in the tax burden for S-Corporations (LLCs etc.)   A major push to repatriate tax revenues from domestic technology companies with foreign tax domiciles.   The US has announced its intention to withdraw from the Paris Accord, and there are proposals for the abolition of the Environmental Protection Agency.   With cross party support, the debt ceiling has been raised to avoid Government shutdowns.  Tariffs announced on steel and aluminum imports. Financial: The 2010 Dodd-Frank Act is being rolled back. The Financial Choice Act is intended to “create hope and opportunity for investors, consumers, and entrepreneurs by ending bailouts and Too Big to Fail, holding Washington and Wall Street accountable, eliminating red tape to increase access to capital and credit.” It has already been passed by the House, and the follow-up “deregulatory” bill S2155 could cut the number of SIFIs3 from 38 to 25. From an economic point of view, the immediate impact of the Trump administration has been business-friendly for American companies of all sizes. Policies show a willingness to temporarily expand the Government deficit in order to stimulate the economy and encourage direct investment by US corporations. There is a commitment to reducing red tape and encouraging access to capital. It also endorses a hawkish Federal Reserve stance to normalize the cost of borrowing, in part to encourage the private supply of credit.  Current policies reflect a belief that American business needs a stable and temporarily protected environment in order to encourage sustained investment, and that what is good for business and the economy is also good for jobs, and – in the longer term – good for the Government fiscal position.  The view that a strong economy is key to fiscal strength echoes the Reagan-Laffer policies of the 1980s, but the tariffbased protectionism of the current administration has worried markets and sparked the resignation of chief economist Gary Cohn. Holman Jenkins of the Wall Street Journal compared the tariff approach with Reagan-era quota-based protection: “Reagan slapped import quotas on cars, motorcycles, forklifts, memory chips, color TVs, machine tools, textiles, steel, Canadian lumber and mushrooms. There was no market meltdown.”  This report uses bank-sourced credit data to assess the Trump Effect on a number of sectors and key economic indicators. It concludes that the Trump Effect has so far had a positive impact on perceptions of credit risk across a number of US industries. The longer-term impact of protectionist policies measures may undermine some of these gains, but that will depend on the scale of the measures that are actually implemented, as well as the scope of any international response. 1. Sovereign Credit Quality and the US Fiscal Position When Donald Trump was running for President, banks became increasingly concerned at some of the campaign rhetoric which, at one point, included the threat of a US debt default. This seems to have prompted banks to modify their credit views of the US Government, showing that they took the prospect of a Trump victory seriously. Exhibit 1.1 shows the bank-sourced view of US Sovereign credit risk over the past 20 months. Exhibit 1.1 US Sovereign Credit Rating: Consensus Bank views This shows that banks moved US Sovereign risk from a CBC4 of aaa to aa+, a one notch downgrade. However, even before Trump had gained the White House, his actual policy announcements became more pragmatic and banks quickly moved the US Sovereign rating back to aaa. Looking forward, the tax package will have an initially negative impact on the Government fiscal position, adding 1.4trn to the deficit over 10 years; various infrastructure projects will also boost borrowing. Both of these will be partially offset by the resulting stimulus to the economy and repatriation of offshore corporate profits. The effect of protectionism is likely to be a short-term boost to tax revenues, but the long-term effect is difficult to quantify. The US economy is relatively closed so it will suffer less from the impact on trade volumes of protectionism than some of its trading partners. A number of country exemptions have already been announced, as well as offers of tariff reductions from trading partners. So – ironically – the announcement of higher tariffs may actually spark a round of tariff reductions.  It is also worth noting that the unusual combination of rising bond yields and a simultaneously strong equity market provides a double benefit for traditional defined benefit pension schemes; funds of this type still dominate public sector pension arrangement and can be significant in some municipal finances. 2. The Stock Market Donald Trump has pointed to the US stock market as an independent yardstick for the performance of his administration. To put this in a credit context, Exhibit 2 shows the Dow Jones index and associated credit data for the past two years.  Exhibit 2.1 Dow Jones Industrial Index and Average Credit Consensus for Constituents Note: y-axis reversed to show credit risk rather than credit quality Source: Credit Benchmark. The Economist published a similar chart in January 2017 which also used Credit Benchmark data. This shows that over the past two years the average CBC of the Dow Jones Industrial Index constituents has moved a full notch, from a+ to a. There was a steady deterioration during most of 2016 and in the first half of 2017. However, the credit estimates have improved slowly but steadily from September 2017 onwards. Over the same two-year period, the Dow Jones has steadily risen.  The US stock market has had a volatile start to 2018. The VIX has risen from an abnormal low of less than 10% and is now typically trading around 15%, having briefly spiked to 38% on the day that the new Federal Reserve Chairman Powell took office. The main concern seems to be higher interest rates and the impact of tariffs, and the recent bouts of volatility seem set to continue this year. Exhibit 2.1 illustrates the old adage that “Bull markets climb a wall of worry”. While worries remain, they are focused on interest rates; in credit terms, those worries are currently receding. 3 Corporate America The stock market boom is not just the consequence of Quantitative Easing. Fortune magazine recently reported that S&P500 Earnings are expected to grow by more than 10% in 2018 and 2019.  They do, however, caution that those earnings now represent 9.5% of GDP, against a long-run average of 6.6%. Interest rates are also rising, but equities are anticipating a prolonged business-friendly regulatory environment and a fiscal-led boom.  Exhibit 3 compares credit trends for US and European non-SME corporates. Exhibit 3.1 US and non-US Large Corporates: Credit Distributions, January 2018 Exhibit 3.2 Credit Trends for US and non-US Large Corporates (Rebased), January 2018 Exhibit 3.3 Credit Comparison for US and European Industries, January 2018 Exhibit 3.4 Credit Comparison for US Industries, Jan-17 to Jan-18 Exhibit 3.1 shows that large US corporates have a higher concentration in the aa and a categories as well as in the b and c categories; but on average are typically one full credit notch below their non-US equivalents. Closing this gap is part of the administration’s stated policy to “Make America Great Again”.  Exhibit 3.2 shows the trends for large US corporates compared with their non-US equivalents. Both show a credit deterioration over the past 15 months but the US series has recently levelled out, while the non-US index has continued to modestly decline.  Exhibit 3.3 shows the current credit comparison for US and European industries. This shows that Utilities are the only US industry which has an overall credit rating that is stronger than its European equivalent. It is worth noting that the industry rankings are similar in both regions.  Exhibit 3.4 shows the credit comparison for US industries between January 2017 and January 2018. This shows that some industries are beginning to improve, in particular, utilities, basic materials and oil & gas. The credit rank of the industries has stayed mostly the same, with the exception of basic materials which is now above industrials. The next three sections review the credit trends in more detail for three key sectors: Coal, Defense and Steel. 4. Coal The Trump campaign was vocal in its support for the coal industry, despite widespread criticism by environmental groups. In the first year of the administration, coal production and employment have steadily risen. These trends are reflected in credit data covering a universe (across various tracking baskets) of about 20, mainly US, coal companies. However, the sector has a long way to go before it reaches investment grade and the economics of coal production are still very challenging. Exhibit 4.1 shows the credit trends for these multiple baskets. Exhibit 4.1 Coal: Credit Trends Exhibit 4.2 Coal: Credit Quality Movements Each line in Exhibit 4.1 represents the simple average credit risk of a basket of coal companies. There are about 20 obligors in each basket but the actual number varies over time depending on the pattern of bank business. Each line represents the “on-the-run” basket for a three-month period. The initial basket (1) shows a one-notch credit risk improvement from mid b to b+.   The most recent basket (5) is in credit category b with a similar risk to the opening value of the first basket. This is a good example of a pattern that is often observed in bank-sourced credit data: as the overall credit risk improves, banks tend to take more risk with their choice of borrowers. However, the most recent Basket (6) shows an improvement; partly reflecting the overall trend towards upgrades as well as a change in the mix of the basket; weaker borrowers have now been dropped.   Exhibit 4.2 shows the proportions of the basket universe with improving and deteriorating credit. This shows a moderate but clear swing towards improvements over the past year. 5. Defense The Defense sector will benefit from the new “National Defense Authorization Act”. This increased spending coincides with an increase in geopolitical risk. There is tension with Russia over the Middle East and the Eastern European border; and with China in the South China Sea island dispute. But the war of words with North Korea seems to have had a positive effect without shots being fired, and the current administration see that as a vindication of their policy to always negotiate from a position of strength.  The stronger outlook for the sector is reflected in the credit data, with each basket covering a universe of around 25 defense companies around the world (US companies are the single largest group in this index, although increased defense spending is likely to benefit non-US companies as well. Exhibit 5.1 Defense: Credit Trends Exhibit 5.2 Defense: Credit Distribution Over Time Exhibit 5.1 shows that over the past 15 months, the typical basket of defense names has been in the bb category. However, the most recent basket has improved to the bb+ category.   The improving environment initially prompted banks to deal with higher-risk names (e.g. basket 5) but the most recent basket is of significantly better quality. As with coal, this mainly reflects a change in the composition of the basket; some long-standing weaker borrowers have again been dropped. If the current improvement in the fortunes of defense companies is sustained, then the next phase could see previously high-risk borrowers move closer to investment grade.  Exhibit 5.2 shows the distribution of the defense universe across the credit spectrum. This shows there has already been a significant improvement in the credit standing of the companies in the sector with a move from bb to bbb. 6. Steel Trump’s campaign promised to protect the Steel (and Aluminum) industries and the recently announced tariffs aim to achieve that.  The quota approach of the Reagan era has been described as “cartel-like” – the targeted countries may share in the higher prices that result from volume restrictions, and those higher prices are at the expense of domestic consumers.  By contrast, direct tariffs encourage domestic supply because foreign supply becomes more expensive; so, although they can prompt retaliation, it is also possible that it results in lower tariffs, if other countries fear that they would otherwise be completely shut out. This is the ideal outcome for domestic consumers and ultimately for global trade volumes as well.  Exhibits 6.1 shows the credit trends for the Iron and Steel industry based on median credit risks for about 30 US companies and 70 non-US companies. Exhibit 6.2 shows the credit distribution for US Iron and Steel companies at the beginning and end of 2017. Exhibit 6.1 US and non-US Steel Companies: Credit Trends Exhibit 6.2 US Steel Companies: Credit Distribution Now and 12M Ago These charts illustrate a number of key trends: Bank views of median credit risk for the US Steel industry have been deteriorating since May 2017.   For non-US companies, there has been a steady improvement between February and August 2017.   This highlights one of the reasons for US administration concerns about the industry. If the tariffs are successfully implemented, US Steel companies could see a significant improvement in their credit standing; non-US companies are likely to see a deterioration. Exhibit 6.2 shows: More than 70% of steel companies are currently non-investment grade.   At the beginning of 2017, there were a large number of companies in the b category.   However, over the past year the distribution has shown a slight shift to a and bb categories.   So, while the median US Steel company saw a credit deterioration in the middle of last year, the credit distribution for the industry is now beginning to improve. If the tariffs are successful, the next phase is likely to be an improvement in the median and a further increase in the number of investment grade steel companies. Conclusion Based on 2017 credit data, the Trump Effect is real and positive; bank perceptions of credit risk have improved in a number of specific sectors, particularly those that have been the focus of favorable policies.  This is particularly marked in the Coal and Defense industries where the administration has already announced concrete steps to help those sectors. The Steel industry has seen a deterioration in credit over the past year but recently announced tariffs could reverse that, with possible corresponding and opposite effects on Steel companies outside of the US.  The stock market has weathered the uncertainties of the early days of the administration, as well as geopolitical tensions, and some radical policy announcements – including some which have alarmed the traditional republican supporters of free trade and globalization.  Despite these traditional republican concerns, corporate “Animal Spirits” seem to have been revitalized by the new administration and there are increasingly good reasons to expect a wave of corporate investment. If that also reduces the collective US corporate debt position, then America could close the credit gap with Europe.  The unusual combination of rising interest rates and a booming stock market is also good news for the currently stretched pension industry – ballooning deficits may begin to shrink; which in turn could help a number of state and municipal budgets, as well as corporates who still offer large defined benefit pension schemes.  The Trump Effect has so far had some significant and positive direct impacts on US business confidence and bank perceptions of US corporate credit risk. The indirect global effect will unfold this year and this could have some further consequences – positive or negative – on the US economy. Status quo is not a likely outcome. Download the article: "Donald Trump and the Economy on PDF." More from Credit Benchmark We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn More Reporting was contributed by David Carruthers Barbora Makova Sheliza Siddiqui Footnotes 1 Economist Intelligence Unit. 2 St. Louis Federal Reserve quoting ICE BofAML US Corporate Master Option-Adjusted Spread (BAMLC0A0CM). 3 Systemically Important Financial Institutions – current asset cut-off is $50bn but would rise to $250bn. 4 Credit Benchmark Consensus (“CBC”): a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates. It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s. Restricted Distribution Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report ### Australian Mining Companies: Credit Steadily Improves The past few years have been volatile for the global mining industry. Yields are declining as existing ore bodies are worked out, which is constraining supply. At the same time, battery-driven demand for “tech metals” is set to accelerate due to the wider global adoption of electric vehicles, solar cells and mobile phones. The changing dynamics of mining and global trade are likely to require significant investment. A new report published by Credit Benchmark shows that from a credit perspective, Australian mining companies are well-positioned for the new environment.  In an extract from the report, Figure 1 and 2 show the credit risk trends and credit distribution for 17 Australian and 167 international companies in the Gold and General Mining sectors. Exhibit 1 Gold & General Mining: Australian and International Credit Trends CreditBenchmark.com It is clear that the credit quality of Australian mining companies steadily improved during 2017. Canada and Latin America have also improved, especially in the final quarter of the year.  Europe has been very volatile, while the US is showing a slight recovery after a decline in the first half of the year. Figure 2 shows the CBC* distribution for Australian mining companies compared with the Rest of the World. Exhibit 2 Australian and Global Mining: Comparison of Credit Distributions CreditBenchmark.com Based on credit risk, Australian miners are currently the strongest in the sector. For more detail, download the full report here. *Credit Benchmark Consensus ### UK Retail Credit Trends Highlight Broad Weakness Recent UK sales data shows continued weakness. Rising costs and weak demand has led some chains to consider closing stores (Debenhams, New Look) while others have fallen into administration (Toys R Us, Maplin). In a newly published report, Credit Benchmark shows that these trends have been well anticipated by the credit analysts at some of the largest international banks.  In an extract from the report, Exhibit 1 and 2 show credit risk trends and the credit distribution for 370 large UK companies in the General Retail sector. Exhibit 1 Credit risk trend - UK General Retailers This shows that the credit risk of UK General Retailers has been increasing over the last 20 months, and the sector was downgraded from bb to bb- in April 2017. Exhibit 2 Credit risk distribution - UK General Retailers The distribution shows that more than 70% of the UK General Retailers are viewed as non-investment grade in January 2018, an increase from 65% in January 2017. For more detail, download the full report here. ### Tariffs: US/EU Credit Distribution The US has announced measures to protect the Steel and Aluminium sectors in the US. If implemented, the policy will impose tariffs of 25% (Steel) and 10% (Aluminium) on imports into the US, without exceptions. This is good news for the domestic metal producers, but potentially bad news for US manufacturers who are heavy importers of either metal – such as Boeing, Ford, Caterpillar, Anheuser-Busch and MillerCoors. These companies will benefit from recent tax cuts and other domestic economic policies, but tariffs will squeeze their margins unless they are able to fully substitute in favour of domestic metal supplies.  This will be less onerous for the Steel companies (who import about 30% of raw metal) than for the Aluminium companies (who import 90%). The EU is now threatening to retaliate by imposing a range of import tariffs, including those on US auto imports.  There are now significant concerns about a full blown and multilateral trade war. Aggressive price competition is, in the short term, damaging for all participants, and not just those directly involved in trade – tariff hikes push up costs across the supply chain.  In the longer term, the relative winners of a trade war will be those who have the strongest financial reserves.  As a proxy for this, this note compares the credit distribution of US and EU Corporates. Exhibit 1 shows the distribution of US and EU (ex-UK) Corporates according to their Credit Benchmark Consensus (“CBC*”) ratings. Exhibit 1: Comparison of Corporate credit distribution – US vs EU (ex-UK) Source: Credit Benchmark.  US sample = 2374 Corporates, EU (ex UK) sample = 546 Corporates This shows that, based on the bank-sourced data sample, the typical EU (ex-UK) Corporate has higher credit quality than the typical US Corporate. Based on a weighted average CBC, the typical EU Corporate is at the lower end of Investment Grade and the typical US Corporate is just below Investment Grade. This suggests that EU Corporates are in a stronger financial position in the event of a broad trade war; but it also shows that, in credit terms, they have most to lose. *Credit Benchmark Consensus (“CBC”): this is a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates.  It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s. ### February Credit Update: Upgrades and Downgrades are Balanced Credit Benchmark has published the latest monthly credit consensus data (from January 2018), with 20 contributor banks now providing bank-sourced credit views (CBCs*) on almost 14,500 separate legal entities over the past 12 months. Monthly consensus upgrades and downgrades: 265 obligors improved their credit standing by at least one notch. 254 obligors deteriorated. 63 moved more than one notch. The frequency of upgrades and downgrades has decreased. This compares with the previous month, which showed improvements across 449 obligors and deterioration across 324, with 78 moving by more than one notch.   Industries: Upgrades dominate downgrades in four out of ten reported industries; and three industries are balanced. The improvements in credit quality are: Basic Materials with 13 upgrades and 11 downgrades. Health Care with seven upgrades and six downgrades. Oil and Gas with 27 upgrades and 24 downgrades. Financials with 99 upgrades and 85 downgrades. The deteriorations in credit quality include: Consumer Goods with 14 upgrades and 18 downgrades. Consumer Services with 21 upgrades and 22 downgrades. Utilities with six upgrades and eight downgrades. The number of upgrades and downgrades is balanced in Industrials (24), Technology (five), and Telecommunications (three). * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Winter Olympics: The Credit Factor Is there any relationship between credit quality and sporting performance? Previous research by Credit Benchmark has shown a possible link using data from the 2016 Summer Olympics.  Higher credit ratings are typically associated with mature economies, consistent growth, low inflation and a sound fiscal position; it seems likely that countries with high GDP per capita can devote more resources – public and private – to training for sport. With the Winter Olympics over for another four years, there is another opportunity to run an informal check on this hypothesis. Exhibit 1 compares bank-sourced views of credit quality with the total number of medals achieved by participant countries. Exhibit 1: Bank-sourced views of credit quality and Winter Olympics medal totals Source: Credit Benchmark, www.pyeongchang2018.com Exhibit 1 suggests that a relationship does indeed exist, and is similar to that of the Summer games.  The typical medals/credit relationship passes through Norway, Germany, France, Japan, China, Slovenia, Hungary and Ukraine. It is not surprising to see Norway at the top of a list of Winter Olympics winners, but there are less stellar performances from winter sports stalwarts such as Switzerland and Sweden, and a disappointing one from Finland.  Canada is another unsurprising winner, whereas success for Germany and the Netherlands clearly required rather more dedication from a group of enthusiasts. The US benefits from a large population and a diverse geography to produce a steady stream of winter athletes. The Korean home team reached a respectable total, in line with the overall medals/credit relationship.  But joining Finland in the underperforming category are Belgium, Australia, New Zealand and the UK; all these countries have strong credit quality but winter sports training is clearly not a tradition or a priority. The obvious outlier is Russia, and this was true for the Summer games as well.  But unlike that competition, the official Russian team is currently banned from Olympic participation. However, the “Olympic Athletes from Russia” have still succeeded in gaining more medals than their credit quality would imply.  These are mainly silver and bronze, but it could suggest – to those who believe that the spirit of fair competition is still alive – that a large population can overcome economic challenges to produce a decent set of sub-zero athletes if their winters are reliably cold enough. ### Risk.Net: February Credit Data Review "Cyril Ramaphosa has a lot on his plate. The new South African president succeeded Jacob Zuma on February 15, after allegations of corruption triggered his predecessor’s resignation, and will now have to grapple with the Zuma legacy, severe and spreading water shortages, and entrenched inequality." In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, discusses South African Financials and Global credit industry trends. Read the full article here or in the March edition of Risk Magazine. ### The Dow's Wall of Credit Worry Has Topped Out Bull markets are said to “Climb a Wall of Worry” – and in 2017 the Dow Jones did just that.  Despite a new President, rising interest rates, tensions with N. Korea and impending changes at the Fed, the key US equity indices continued to climb.  They ran into some volatility recently – just in time to welcome Powell as the new Fed Chairman.  But Trump’s tax cuts are unequivocally good news for most of corporate America.  The recently announced infrastructure plan aims to build “new roads, bridges, highways, railways, and waterways” - although there is intense debate about the actual scale of the net impact. In addition, recent Dollar weakness could mean that the US will also benefit from exports to the currently booming European economy. The chart below compares the Dow-Jones Industrials equity index with the credit equivalent based on bank-sourced risk estimates for the Dow-Jones constituents. This shows that credit was another source of concern in 2017, with a fairly steady increase in the estimated credit risk of large US companies until the end of the third quarter of 2017.  Over the year, the average credit risk of the Dow-Jones Industrial constituents increased to the point where the index average deteriorated by a full credit notch. But in Q4 2017– ahead of the Trump tax cuts - the average credit risk stabilized and has now moved into a modest decline.  This could imply renewed optimism that Trump will be able to get new policies through and that these will have a material and positive impact on the US economy. Credit Benchmark will post regular updates on this and other equity indices throughout 2018. ### Vienna Summit Highlights Cyber Risk, Climate Impact, IFRS9 issues and Tail Risk The 11th Annual Banking and Credit Risk Summit in Vienna this week included discussions around IFRS9 implementation challenges, and how lessons learned in Europe can be applied to CECL solutions for US banking subsidiaries.  Another key theme was the increasing prevalence of new sources of credit risk, such as  Climate Change.  Dr. Georg Musil from RBI showed that the frequency of insurance losses attributed to Hydrological and Storm events has risen dramatically in the past 30 years.  Cybercrime is also a growing source of credit risk – Jacqueline Johnson from Nordea highlighted the need for pooled industry data documenting the frequency and scale of Cyber-related problems.   A number of presentations covered the practical issues raised by IFRS9.  One key IFRS9 issue is the identification of “significant” credit deterioration.  Conference discussions confirmed that there is no standard definition, but Credit Benchmark demonstrated that bank-sourced credit index and volatility data can provide an objective set of criteria.   A related IFRS9 topic is the need for robust credit migration data to provide realistic PD term structures, especially to avoid artificial inflation of PDs and impairment estimates due to the inclusion of liquidity risk premiums.  Credit Benchmark presented some bank-sourced datasets that can provide very large samples for transition matrix estimation.   A controversial topic was the increasing prevalence of tail risks.  Dr. Musil’s data showed that climate-related tail risks are already being quantified and reflected in insurance premiums, but other risks are less quantifiable.  The new consensus seems to be that tail risks cannot be avoided if the business is to thrive, so data – probably pooled across banks – is key. ### Bank-Sourced Estimates Pass The Observed Default Rate Test Bank-sourced data provides a broad cross section of forward looking default risk estimates.  This dataset now also includes sufficient history to address a key question – how realistic are these estimates?  Rating agencies, such as S&P, publish historically observed default rates.  The publically available Annual Global Corporate Default Study and Rating Transitions, published by S&P last year, shows observed default rates from 1981 to 2016. Exhibit 1 shows the default rates for the seven main credit categories (AAA, AA, A, BBB, BB, B, C) over this period of time. Bank-sourced consensus ratings published by Credit Benchmark are derived from ex-ante Probability of Default (“PD”) estimates.  These are based on a Through-the-Cycle view, calibrated to the default experience of each contributing bank across their entire loan book.  The defaults observed by S&P cover a number of credit cycles and are based on the S&P rated universe over the entire 1981-2016 period. S&P ratings mainly cover medium and large corporates and financials, whereas the CB dataset includes a large number of SMEs. However, for approximate comparability, the PD ranges for the Credit Benchmark Consensus seven-category scale (“CBC-7”) can be plotted against the average observed S&P default rates across the full reported history. Exhibit 1 shows the average S&P observed default rates for 1981-2016 as well as the CBC-7 PD ranges; these are plotted on a log scale. Exhibit 1: Average S&P Default Rates and CBC-7 Scale Source: S&P 2016 Annual Global Corporate Default Study and Rating Transitions, Credit Benchmark data This shows that the average S&P observed default rate is within the CBC-7 range for most of the categories, so the CBC-7 scale is broadly in line with observed default rates. The S&P default rate average is closer to the lower bound, suggesting that the CBC-7 scale is slightly conservative.  This is consistent with the company size differences between the S&P and CB data samples. The chart also shows the log-linear regression fit, which passes through, or very close to, most of the plotted S&P data points.  The notable exception is the S&P observed default rate for companies in the aa category, plotted in red; the CBC-7 aa range is much more conservative.  Since this is a regression outlier, the observed default data for aa can be viewed as an anomaly, suggesting that some of the companies rated as aa are actually closer to aaa. In conclusion, analysis of observed S&P defaults and the CBC-7 scale shows that the Credit Benchmark ranges, calibrated to a broad cross section of contributed bank estimates, are aligned with most observed default rates. ### January Credit Update: Upgrades Significantly Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from December 2017), with 20 contributor banks now providing bank-sourced credit views (CBCs*) on more than 14,000 separate legal entities over the past 12 months. Monthly consensus upgrades and downgrades: 449 obligors improved their credit standing by at least one notch. 324 obligors deteriorated. 78 moved more than one notch. The frequency of upgrades and downgrades has increased. This compares with the previous month which showed improvements across 304 obligors and deterioration across 223, with 58 moving by more than one notch.   Industries: Upgrades dominate downgrades in eight out of ten reported industries. The improvements in credit quality are: Oil and Gas with 20 upgrades and nine downgrades. Basic Materials with 16 upgrades and eight downgrades. Consumer Goods with 27 upgrades and 15 downgrades. Utilities with 15 upgrades and eight downgrades. Industrials with 33 upgrades and 24 downgrades. Telecommunication with four upgrades and three downgrades. Health Care with nine upgrades and eight downgrades. For Financials, upgrades outnumber downgrades by seven to six. Technology is the only industry where downgrades dominate, with 11 upgrades and 14 downgrades. The number of upgrades and downgrades in Consumer Services is balanced. * CBC = Credit Benchmark Consensus; a 21-category classification which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Bank-Sourced Credit Improvements Mirror Recent Emerging Market Debt And Eurozone Moves The current U.S. economic stance favours a weaker dollar but rising U.S. interest rates – a policy mix that would typically be bad for Emerging Market debt. But the Financial Times reports that the latest EPFR data (https://www.ft.com/content/b242b974-02aa-11e8-9650-9c0ad2d7c5b5) shows a continued appetite for Emerging market and Peripheral Eurozone debt.  The main focus for inflows is local currency bonds, taking advantage of relatively undervalued exchange rates as well as a recovery from a five-year bear market.  But the budget position for Peripheral Eurozone economies is also improving and the truncated ECB bond-buying program has recently concentrated on Spanish and Italian debt. Bank-sourced data shows a credit improvement for many of these Sovereigns over the past four months,.  In particular, the average level of Sovereign credit risk in the Eurozone periphery has declined by about 15%, with the core declining 6%.  There is a near-identical improvement for the G7 Sovereigns.  Apart from the G7, the full bank-sourced sample of more than 100 Sovereigns shows credit risk to be unchanged in recent months.  But within that large set there has been a broad-based improvement.  Countries like Brazil, Uruguay, Peru and Colombia; Morocco, Algeria, Tunisia, Egypt, Lebanon and Tunisia; Russia, Ukraine, China, Taiwan, Malaysia and the Philippines have all improved.  Across these countries, credit risk has dropped by an average of 6% in the past 4 months. Some asset managers are nervous about sheer weight of money as the main driver of Emerging Market performance. But bank-sourced data focuses on fundamentals, including fiscal outlook and the synchronised improvement in global growth prospects. Monthly updates to Sovereign trends are available through CB Connect. ### Credit Benchmark Named In Top 10 Of UK's Fastest-Growing Startups London can boast with renewed vigour of its startup credentials today, as new research has revealed that the capital is home to 71 of the UK's 100 fastest-growing startups. Investment platform SyndicateRoom has today revealed the UK businesses which grew most rapidly in terms of value between 2014 and 2017. With some well-known names on the list, the impressive 100 companies span 12 different sectors, employ around 10,200 people and generate more than £600m in revenue. To read the full article, please click the link below. View original article (external link) ### Recent BIS Reforms: Implications for RWA modelling The latest BIS reforms were announced in December 2017, and are mostly expected to be in place by 2022. These will: Remove the option to use the Advanced IRB (A-IRB) approach for certain asset classes Adopt input floors for probability of default (PD) and loss given default (LGD) Provide greater specification on parameter estimation to reduce risk-weighted asset (RWA) variability   Removal of A-IRB approaches Corporates with consolidated revenues > €500m, banks and financial institutions will no longer be eligible for A-IRB from 2022, so at a minimum they will have to use standardised LGD estimates for these exposures. These asset classes will be treated using either (1) Foundation IRB (F-IRB) approach (i.e. banks can still use their own PD estimates) or (2) the Standardised approach. The reforms also propose to shift all equity exposure towards the Standardised approach.   Specification of input floors New minimum parameter estimates will be applied to probability of default (PD), loss given default (LGD) and exposure at default (EAD) estimates. PD: Corporates, banks, mortgages, QRRE transactors and other retail will have a 5bp floor, equivalent to a CBC of a+.  QRRE revolvers will have a 10bp floor, equivalent to a CBC of a- Unsecured LGD: Corporates will have an unsecured floor of 25% Secured LGD: depends on collateral type: Financials 0%, Receivables 10%, Commercial & Residential real estate 10% & Other Physical 15% EAD: EAD is subject to a floor of the sum of the on-balance sheet exposures using the applicable Credit Conversion Factor in the Standardised approach   Additional Enhancements Adjustments were also made to the supervisory specified parameters including: Increasing haircuts and reducing the LGD parameter for non-financial collateral exposures Reducing the LGD parameter for unsecured non-financial corporates exposures from 45% to 40% A revised output floor where the banks’ risk-weighted assets must be calculated as the higher of total risk-weighted assets calculated and 72.5% of the total risk-weighted assets calculated using only the Standardised approach   Related Developments in Credit Benchmark data The Credit Benchmark consortium was originally launched to give banks greater insight into credit risk with respect to regulatory requirements. However, the outputs are increasingly being used in a broader set of use cases and there are situations where good risk management needs to go beyond the regulatory requirements. To reflect this, Credit Benchmark typically collect data that reflects pre-regulatory overrides for both PDs and LGDs.  The overall aim is to maximise the value of credit risk estimates in maintaining and improving high standards across credit risk management in all of its forms. ### November Credit Update: Downgrades And Upgrades Balanced Credit Benchmark has published the latest monthly credit consensus data (from October 2017), with 18 contributor banks now providing bank-sourced credit views (CBCs*) on more than 13,000 separate legal entities over the past 12 months. Monthly consensus upgrades and downgrades: 282 obligors saw improved consensus in their credit standing by at least one notch 248 obligors deteriorated 55 moved more than one notch Compared with the previous month, downgrades and upgrades are less frequent This compares with the previous month which showed improved consensus across 320 obligors and decreased consensus across 291.  Overall, 76 moved by more than one notch.   Industries: Upgrades dominate downgrades in 4 out of 9 reported industries. The industries where improving credit ratings out-weigh downgrades are: Basic Materials with 15 upgrades and six downgrades Utilities with 25 upgrades and 15 downgrades Industrials with 34 upgrades and 22 downgrades Technology with nine upgrades and eight downgrades The most significant deterioration of credit quality occurred in: Telecommunications with two upgrade and seven downgrades, Consumer Services with 13 upgrades and 24 downgrades, Health Care with 11 upgrades and 15 downgrades, Oil & Gas with 19 upgrades and 20 downgrades Consumer Goods shows a balance with 17 upgrades and downgrades. For Financials, upgrades outnumber downgrades by 5 to 4. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Retail Industry Trends     US Retail Sector: Credit Trends   December 2017Retail Industry Trends “The number of people visiting U.S. stores on Thanksgiving and Black Friday fell 4% from last year, according to RetailNext Inc., which analyzes in-store videos to count shoppers. Meanwhile, online sales increased 18% over that period, said software company Adobe Systems Inc., a shift that is forcing traditional retailers to adopt new tactics.” - Wall Street Journal, Nov. 26 2017   Download the PDF "Retail Industry Trends"   Executive Summary   The Global Retail sector is in a state of flux. Developing economies are showing strong growth, but the picture in Developed economies is more mixed. Retailers are experiencing rapid changes and some traditional companies are suffering as a result, especially in the US. This phenomenon has been called “The US Retail Apocalypse”. In the Developed economies, and in the US in particular, there are growing challenges due to the rising popularity of online shopping. Online sales represent more than 30% of US Retail sales growth in the past year. Credit Benchmark data show that there is a noticeable divergence between US Retail credit quality (bb-) when compared to Western Europe (bb). Every sector of the US Retail industry showed a credit quality decline in the first nine months of 2017. Apparel and Broadline players showed the largest credit deterioration. The over-expansion of physical stores in the US in the last two decades has resulted in a highly competitive environment and significant department store closings. The credit quality of department stores is much lower when compared to discount stores.   This report uses bank-sourced data to track recent credit risk trends in the Global and US Retail Industry Trends. The data covers 389 US Retail sector players, including those without stock market listings or without ratings from major agencies.    This dataset provides transparency for global, regional, corporate hierarchy and individual legal entity factors. It can also be used to estimate a range of metrics which track monthly changes in the position and shape of the distribution of bank credit risk estimates.    The dataset provides an independent dimension for sector credit analysis as well as for detailed comparisons with fundamental and macro- factors.   Table of Contents     Introduction   This report provides a detailed analysis of recent credit trends in the US Retail sector. It also shows the current credit status of the Global Retail sector, in both cases using data contributed by global IRB and CCAR-regulated banks.    The Global Retail sector is subject to a number of conflicting influences. The global “middle class” now represents nearly half of the global population. The associated rising disposable income and increased discretionary spending is good news for retailers in the developing nations, which have seen steady growth in new shopping malls1  .   The position is very different in developed nations. One common view is that the suburban middle class are being squeezed; that elderly rural populations have a decreasing propensity to consume; and that young urban millennials who face high accommodation costs now value experiences over possessions.    For all groups, online shopping provides a cheaper and more convenient alternative to traditional bricks and mortar outlets. This “Amazon effect” is a major factor: e-commerce is growing at annual rates of 10% - 20% depending on the segment; traditional retail growth is barely keeping up with GDP, at around 1.5%. E-commerce is having a significant impact on malls and department stores. US Retail store closures have been running at double the rate of openings, even though consumer confidence remains high. Somewhere between a quarter and a half of all US shopping malls are expected to close over the next five years.   The credit worthiness of traditional retailer chains has also been impacted as a result of high self-imposed debt burdens to support over-expansion of physical stores in the past two decades. Additionally, over the last several years, private equity firms have significantly increased the amount of leveraged buyouts of traditional retailers. These rising debt levels will soon be subject to rising refinancing rates.    The combined impact of these factors has been called a “Retail Apocalypse”.   1. Bank-sourced Data   Credit Benchmark aggregates and anonymizes 1-year forward-looking through-the-cycle Probabilities of Default (“PD”) at the individual obligor level, based on the views of a growing number of global IRB and CCAR-regulated banks. The dataset is updated and published monthly. Exhibit 1.1 shows the current coverage.    Exhibit 1.1 Credit Benchmark Coverage   Exhibit 1.1.1 Global Coverage   CreditBenchmark.com Exhibit 1.1.2 Dataset Growth     As of December 2017, consensus quorate2  estimates are available on 13,000 obligors including sovereigns, corporates, banks, funds and non-bank financial entities, spanning multiple geographies and entity sizes. The dataset also includes close to 300,000 additional mapped entities that can be leveraged to produce top-down portfolio views, indices and transition matrices.    The single name estimates represent the consensus of the collective views of credit risk from experts in global banks. This approach leverages the Diversity Prediction Theorem3 , with single PD estimates aggregated and mapped to the Credit Benchmark Consensus (“CBC”) category scale.4      2. US Retail in Context: Comparison with Global Credit Status   This section compares credit risk trends for quorate and semi-quorate5  large general retailers in three regions: US, UK and Western Europe6  .    Since the 1970s, US retail mall expansion has been four times higher than the population growth rate.7  This has resulted in a very competitive environment, and has left the sector vulnerable to the new challenges of online shopping and a shrinking middle class.   The UK currently faces specific retail issues: retail sales have been depressed by rapid food price inflation, and wavering consumer confidence. Data from credit-card provider Visa shows that traditional face-to-face retail sales in the UK are affected much more than e-commerce.8  Traditional retail sales have shown sluggish growth over the last three years, turning negative last year. UK e-commerce sales are growing steadily at around 5%.   Online shopping has had an impact in other European countries. For example, Zalando (the German version of Amazon), reported sales growth of 25% in Q3 2017 alone.9  Traditional German retailing has so far handled the challenge well; stronger consumer confidence and innovative retail experiences have slowed the penetration of e-commerce.   Exhibit 2.1 plots retail square footage per-capita for seven major economies, taken from the 2015 Cowan Research study.   Exhibit 2.1 Retail Square Footage per Capita Source: Cowan Research This shows, for example, that per-capita retail square footage in the US is ten times higher than in Germany.    The following analysis summarizes the banks’ view on credit risk in the Retail sector.   Exhibit 2.2 shows credit quality trends and distributions in the Retail sector for the US, the UK and Western Europe (ex-UK).   Exhibit 2.2 Credit Risk in the US, the UK and Western Europe (ex-UK)   Exhibit 2.2.1 Credit Risk Trends   Exhibit 2.2.2 Credit Risk Distributions   CreditBenchmark.com Exhibit 2.2.1 shows that US Retail credit quality is the lowest of these three groups, and Western Europe is the highest. There is a trend towards increasing credit risk in the US and the UK, rising by almost 10% over the last nine months. Western Europe (ex-UK), by contrast, shows a decrease.    Exhibit 2.2.2 analyses credit risk distribution of entities in the different regions. This shows that most of the Western European borrowers are in the bbb category, while both the UK and the US show a peak in the bb category. The dispersion of borrowers across the credit categories is significantly higher for US borrowers than for the UK entities.    Exhibit 2.3 charts the distribution of borrowers across Retail segments.    Exhibit 2.3 Index Composition   Exhibit 2.3 charts the distribution of borrowers across Retail segments. This shows that the distribution is comparable across the three regions.   3. US Retail Trends   There are some key trends recently impacting the Retail Industry Trends in the US. Prolonged low interest rates have encouraged debt-led expansion, contributing to market oversaturation. The popularity of online shopping is increasing (currently representing 9% of overall retail sales) 10  and traditional brick and mortar retail outlets are also suffering from an increasingly squeezed middle class.   Despite negative headlines, retail sales have been growing in recent years; the sales during the first six months of 2016 increased by $110bn compared to the same time period last year. 11  However, research by IHL Group shows that there are significant differences between segments. Sales in Furniture, Cosmetics, Mass Merchants and Dollar Stores are growing, while sales in Department stores, Sporting goods, Clothes, Shoes and Electronics are decreasing. Department stores in particular are struggling, with store closures outnumbering openings.    Our analysis consists of almost 400 quorate and semi-quorate large US General Retailers, mainly focused on Specialty Retailers, Specialized Consumers Services, Broadline Retailers and Apparel Retailers.   Exhibits 3.1 and 3.2 show the distribution and notch changes of the analyzed entities.    Exhibit 3.1 Distribution of Constituents     Exhibit 3.2 Analysis of Upgrades and Downgrades     Exhibit 3.1 indicates that the US General Retailers are concentrated in the bb credit categories. Over the last 9 months, 21% of these companies were upgraded or downgraded. The bb category showed the smallest percentage (14%) of notch changes. The c category showed the largest percentage (25%) of notch changes.    Exhibit 3.2 shows that most of the downgrades occurred between the bbb and bb category. For non-investment grade, upgrades dominate.   Exhibit 3.3 shows the composition of the US Retail index analyzed in this paper, and Exhibit 3.4 shows credit trends in various US Retail segments.   Exhibit 3.3 US Retail Index Composition     Exhibit 3.4 Credit Trends in US Retail     Exhibit 3.4 shows that all of the General Retail segments have been deteriorating. Specialized Consumer Services and Specialty Retailers show a moderate decline. Apparel Retailers showed the highest credit risk at the start of 2017 by a considerable margin, but Broadline Retailers have now overtaken them.    It is worth noting that the US Retail sector is probably more exposed to the underperforming Apparel and Broadline segments; this will contribute to the overall decline noted in Exhibit 2.2.1.    The steep decline in Apparel and Broadline Retailers credit quality is in line with the IHL group finding about the segments under stress – Broadline Retailers include some of the main department stores like Sears, Dillard’s, Macy’s and Kohl’s and the credit risk in this sector has risen by 29% since the beginning of the year.   Exhibit 3.7 shows the time series of the percentage of entities with deteriorating or improving credit quality by sector.   Exhibit 3.7 Credit Quality Improvement and Deterioration by Segments     This shows that the net effect was close to being balanced over the 9 month period for Specialty Retailers and Specialized Consumer Services. Apparel Retailers had a difficult Q2 but appear to be more balanced in recent months. In Broadline Retail, entities with deteriorating credit quality outnumbered entities with improving credit quality in six out of the eight observed months.    Online shopping is growing, representing more than 30% of the retail sales growth over the last year. The average annual growth rate of e-commerce sales over 2011-2017 is close to 15%, while traditional retail grows by 3% per year.12  But the share of e-commerce in retail sales overall is currently only 9% (albeit up from 5% in 2011).    The online effect can be seen in the recent Black Friday sales. Footfall in US stores on Thanksgiving and Black Friday was down 4% on last year,13  while online sales increased by 18%. 14  Generally, the clear winner of rising online sales is Amazon; its online revenue was $95bn in 2016, representing almost one quarter of all e-commerce sales.    “Clicks and Mortar” is another expanding segment. The top 50 US e-commerce retailers include eight department stores, with online sales standing at $16.4bn. For four of these stores, e-commerce represents more than 15% of their total revenues and exceeds 5% for the rest. However, according to HRC Advisors this concept is less profitable for department stores than in-store sales. They estimate that e-commerce variable costs reduce department store profits by over 20%.    The department store sector is analyzed in more detail in the next section.   3.1 Discount Stores vs Department Stores   IHL Group report that discount stores are opening more stores than they are closing, while department stores struggle and their net difference of opens and closures is negative. Discount and convenience stores dominate the list of store openings with Aldi and Lidl expanding to the US from Europe.    Exhibit 3.1.1 shows credit risk for seven discount stores and seven department stores. In this graph, the larger bubbles indicates two companies with the same rating.    Exhibit 3.1.1 Credit Risk of Discount Stores vs Department Stores15  This shows that the credit quality of department stores is much lower compared to the credit quality of discount stores. All of the discount stores are in the investment grade category, while five of the seven department stores are considered non-investment grade.   4. Case study    4.1 Introduction   Credit Benchmark (“CB”) is currently working with contributing banks to develop a new service for benchmarking and monitoring their credit portfolios. The Credit Benchmark Portfolio Monitoring report allows clients to: Compare their portfolio selection within a market against an appropriate benchmark.   Compare their aggregate credit view against other IRB and CCAR-regulated banks’ credit view for the same portfolio.   Compare differences within the portfolio at the segment and entity level.   4.2 Case Study   Bank A has submitted a portfolio of 200 US Retailers to CB along with historical data on the creditworthiness of the entities. Bank A wants to learn three things about their US Retailer Portfolio:    How has the credit quality of Bank A’s portfolio evolved? How has the credit quality of Bank A’s portfolio changed compared to the broader market?  How do Bank A’s internal credit assessments on the portfolio compare to the views of other IRB and CCAR-regulated banks on the portfolio?   Exhibit 4.1 Credit Evolution: US Retailers Portfolio of Bank A vs CB US Retailers Index   How has the credit quality of Bank A’s portfolio evolved?   In Exhibit 4.1, the consensus credit quality (represented by the green line) of Bank A’s portfolio has declined from 2016 through 2017. This consensus view on the portfolio includes credit data from Bank A alongside the credit data from other banks participating in the CB service.   How has the credit quality of Bank A’s portfolio changed compared to the broader market? Also on Exhibit 4.1 is the historical credit quality of the CB US Retailers Index (dark blue). 16  Compared to the US Retail Portfolio of Bank A, the CB US Retail Index has deteriorated less over the last two years. This indicates that the US Retail portfolio of Bank A is deteriorating faster than the broader US Retail market. Because both trends are formed using all IRB and CCAR-regulated banks’ credit opinions, the reason for this faster deterioration can be largely attributed to the counterparty selection of Bank A   Exhibit 4.2 Bank A’s US Retailers: Bank A’s Credit View vs IRB and CCAR Bank’s Credit View (Excluding Bank A)      How do Bank A’s internal credit assessments compare to the views of other IRB and CCARregulated banks on the portfolio? Exhibit 4.2 compares credit view of Bank A on their US Retail Portfolio with views of other IRB and CCAR-regulated banks. The orange line charted above represents the credit view of Bank A only; this shows that Bank A views the credit quality of their US Retail Portfolio to be stable over the last two years. However, the other IRB and CCAR-regulated banks (represented by the blue line) report that the credit quality of Bank A’s portfolio has deteriorated from 2016 through 2017. Because the two trends are looking at the same list of names, the trend difference highlights differences between internal credit opinions of Bank A and the other IRB and CCAR-regulated banks.   In addition to answering the three questions about Bank A’s US Retail portfolio at an aggregate level, Credit Benchmark can help Bank A further analyze portfolio differences at the segment and entity level.   Exhibit 4.3 Distance of Bank A’s Credit View vs IRB and CCAR Bank’s Credit View at the Segment Level     The Exhibit 4.3 shows that Bank A’s view of credit worthiness is very similar to other IRB and CCAR-regulated banks; with the exception of Broadline Retailers where Bank A has a more optimistic view (higher credit rating) on the names within this segment as compared to the peer banks. The difference for Broadline Retailers could have emerged as the other IRB and CCAR-regulated banks downgraded the segment with Bank A’s credit view either remaining the same or improving for the same group of entities.   Exhibit 4.4 Distance of Bank A’s Credit View vs IRB and CCAR Bank’s Credit View at the Entity Level   N.B. The S&P Ratings shown here relate to Long Term, Foreign Currency ratings for the specific legal entity. Some of these firms may have local currency ratings, subsidiary ratings or issue ratings which are often used as proxies.   Exhibit 4.4, further refines the analysis to highlight specific entities where Bank A’s credit view is more optimistic than the view of other IRB and CCAR-regulated banks. In this case, Bank A’s credit view is more favorable than the view of the peer banks across all 15 of Bank A’s US Broadline Retail names. The entity level analysis is available for all contributing banks where Credit Benchmark has at least two other risk estimates contributed by the other IRB and CCAR-regulated banks.   4.3 Case Study   The Credit Benchmark service provides clients with the ability to compare how a select portfolio, in this case US Retail names, has evolved compared to the broader market and the other IRB and CCAR-regulated banks participating in the CB service. This type of analysis provides a unique way of understanding counterparty selection and rating accuracy.   5. Conclusion There is no doubt that traditional US Retailers are facing a number of difficulties. Some of their issues are shared in other Western economies, but they are particularly acute in the US. Over-expansion and heavy debt burdens accumulated during an extended period of low interest rates have left some of them vulnerable to competitive pressures from pure e-commerce companies as well as from newly entrant discount stores.    This is reflected in bank-sourced credit data; the consensus rating for US Retailers is noticeably lower than for those in Western Europe and all segments have shown recent declines. The Broadline and Apparel segments show the largest decline in credit quality.    But the global outlook for retail looks healthy, especially in developing economies. And many of the traditional retailers are finding ways to adapt – the “Clicks and Mortar” model, improved physical retail experiences, partnerships with pure e-commerce, and the growing demand for niche, specialty retailers.    A recent report by IHL group summarizes the position:   “Despite the headwinds and the negative headlines, retail as a whole is quite healthy. Retail Sales are up $121.5b through the first 7 months of 2017. To put that growth into perspective, that is about the size of the annual retail trade for the Netherlands….It is obvious that some of online retail’s strengths fit with the categories that are shrinking in sales in bricks and mortar stores. At the same time, much of the consumer products that drive the bulk of online sales are in categories that are also growing quite well at the store level. Which brings us to the statement that it’s all retail, and those that focus on the customer experience in retail will succeed and those who refuse to change will be in trouble going forward.”   - Debunking the Retail Apocalypse, IHL Group   This report has also presented an extended case study, showing some examples of the type of peer group benchmarking which is available to Credit Portfolio Managers in banks which contribute to the Credit Benchmark dataset.      Appendix 1: The CBC Scale   Appendix 2: List of US General Retail Quorate Names   Apparel Retailers ALEX & ANI LLCAMERICAN EAGLE OUTFITTERS INCARDEN ELIZABETH INCASCENA RETAIL GROUP INCAVON INTERNATIONAL OPERATIONS INCBROOKS BROS GROUP INCCARTER WILLIAM COCOLUMBIA SPORTSWEAR COESTEE LAUDER INCFOOT LOCKER INCFOREVER 21 INCG III LEATHER FASHIONS INCGENESCO INCJ CREW GROUP INCKORS MICHAEL USA INCL BRANDS INCLAUREN RALPH CORPMENS WEARHOUSE INCTALBOTS INCTIFFANY & COTIFFANY & CO CANADATJX COS INCTOO FACED COSMETICS LLCUNIFIRST CORP   Broadline Retailers AMAZON COM INCBELK INC*BIG LOTS STORES INC*COSTCO WHOLESALE CORP*CST BRANDS INCDILLARDS INC*DOLLAR GENERAL CORP*DOLLAR TREE INC*EBAY INCFAMILY DOLLAR STORES INCGAP INCGROWMARK INCHSN INCKOHLS CORP*KOHLS DEPARTMENT STORES INCKRISPY KREME DOUGHNUTS INCLANDS END INCLORD & TAYLOR ACQUISITION INCMACYS INC*MACYS RETAIL HOLDINGS INCMEIJER INCNEIMAN MARCUS GROUP LTD LLC*NORDSTROM INC*PRICELINE GROUP INCRODAN & FIELDS LLCROSS STORES INC*SEARS HOLDINGS CORP*SHUTTERFLY INCSTAPLES INCTARGET CORP*UNITED SUPERMARKETS LLCVINEYARD VINES LLCWALMART STORES INC*ZULILY LLC   Specialty Retailers ACETO CORPACUITY BRANDS INCADMI CORPADVANCE STORES CO INCAMNEAL PHARMACEUTICALS LLCAUTONATION INCBARNES & NOBLE INCBEST BUY CO INCBROOKS AUTOMATION INCBUILDERS FIRSTSOURCE INCCARMAX AUTO SUPERSTORES INCCLOROX CO COACH INCCOMMUNICATIONS TEST DESIGN INCDAKTRONICS INCERAC USA FINANCE LLCESTEE LAUDER COS INCGAMESTOP CORPGENERAL NUTRITION CENTERS INCGLUCK E CORPGROUP 1 AUTOMOTIVE INCHAWORTH INCHOFFMANN LA ROCHE INCIMMUCOR INCINTERFACE INCITRON INC, WAJORDACHE ENTERPRISES INCKAR AUCTION SERVICES INCLIFETIME BRANDS INCLITHIA MOTORS INCMCCORMICK & CO INCMCJUNKIN RED MAN CORP   Home Improvement Retailers BED BATH & BEYOND INCHOME DEPOT INCLOWES COS INC   Specialized Consumer Services ADVANCE AUTO PARTS INCALEXANDER PROUDFOOT COALSCO INC ANALOGIC CORPBLACK & VEATCH HOLDING COBOSTON CONSULTING GROUP INCBRIGHT HORIZONS FAMILY SOLUTIONS LLCBROADRIDGE FINANCIAL SOLUTIONS INCCARDTRONICS INCCARDTRONICS USA INCCAREERBUILDER LLCCDM SMITH INCCHENEGA CORPCOVANCE INCDAYMON WORLDWIDE INC DELOITTE LLP, NYDUKE ENDOWMENT EBAY PARTNER NETWORK INCEHI INTERNATIONAL FINANCE SARLEMERALD EXPOSITIONS HOLDING INCERAC IRELAND LTDHDR INCHEICO COS LLCHEIDRICK & STRUGGLES INTERNATIONAL INCHOTELBEDS USA INCHUNTON & WILLIAMS LLPINVENTIV HEALTH INCLEGALZOOM COM INCLOCKE LORD LLPMARCUM LLPMARITZ HOLDINGS INCMATTHEWS INTERNATIONAL CORPNIELSEN HOLDINGS PLCPAE HOLDING CORPRPX CORPSAPIENT CORPSERVICE CORP INTERNATIONALSERVICEMASTER CO LLCSNAP ON INCSOTHEBYS INCTEMPLETON JOHN FOUNDATIONTOWERS WATSON DELAWARE INCVICAR OPERATING INCWEIGHT WATCHERS INTERNATIONAL INCWHEELS INCWILLIS TOWERS WATSON PLC   Specialty Retailers MICHAELS STORES INCNEIMAN MARCUS GROUP INCNISSAN NORTH AMERICA INCOFFICE DEPOT INCOWENS CORNINGOWENS CORNING SALES LLCPARTY CITY HOLDINGS INCPETCO ANIMAL SUPPLIES INCPETROLEUM WHOLESALE LPPETSMART INCPEYSER DAVID SPORTSWEAR INCPILOT TRAVEL CENTERS LLCPRESTIGE BRANDS HOLDINGS INCPRICESMART INCQVC INCRADIO SYSTEMS CORPRESMED INCRESTORATION HARDWARE INCROGERS CORPSA RECYCLING LLCSCHINDLER ELEVATOR CORPSENSIENT TECHNOLOGIES CORPSONIC AUTOMOTIVE INCSTRAUSS LEVI INTERNATIONAL INCTECHNIC INCTI GROUP AUTOMOTIVE SYSTEMS LLCTOYOTA MOTOR SALES USA INCVISHAY INTERTECHNOLOGY INCVOXX INTERNATIONAL CORPWARNER MUSIC GROUP CORPYAMAHA MOTOR CORP USAYURMAN DAVID ENTERPRISES LLC   Download the article "Retail Industry Trends" on PDF.   More from Credit Benchmark   We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn more. Reporting was contributed by   Barbora MakovaJacob HibbertDelia Nunez   Footnotes   1 Theresa Agovino. ”Property Investors Bet on Emerging-Market Mall Culture.” The Wall Street Journal 3 Oct. 2017. Web. 29 Nov. 2017 https://www.wsj.com/articles/property-investors-bet-on-emerging-market-mall-culture-15070284032 Based on Probability of Default estimates from three or more contributing banks.3 The ‘Wisdom of Crowds’ was initially observed by Francis Galton and is the basis for the value in crowdsourced datasets. It is the popular version of the Diversity Prediction Theorem which can be stated as: "The squared error of the collective prediction equals the average squared error minus the predictive diversity" - implying that if the diversity in a group is large, the error of the crowd is small.4 The Credit Benchmark Consensus (“CBC”) is a 21-category scale explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s.5 Quorate entities have observations from three and more banks, semi-quorate entities are entities with observations from two banks.6 Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland7 IHL Group - Debunking The Retail Apocalypse (August 2017)8 VISA - Visa's UK Consumer Spending Index, Compiled by IHS Markit on behalf of Visa (November 2017)9 Yoni Van Looveren. ” Zalando grows more than 25 % in third quarter.” Retail Detail 7 Nov. 2017. Web. 29 Nov. 2017 https://www.retaildetail.eu/en/news/fashion/zalando-grows-more-25-third-quarter10 US Census Bureau11 US Census Bureau12 US Census Bureau13 RetailNext Inc14 Adobe Systems Inc.15 The entities used in Exhibit 3.1.1 are marked by a star in Appendix 2.16 The US Retail Index is constructed using Credit Benchmark Index Methodology as discussed in White Paper “Bank-Sourced Credit Indices”, which is available on Credit Benchmark website.   Restricted Distribution   Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Bank-Sourced Credit Indices Executive Summary   Credit indices constructed from bank-sourced data show median PDs declining for most of the major Corporate and Sovereign groups in the past 12 months.  UK credit risk increased over the last 12 months, but has improved recently for the largest companies. Over 12 months, upgrades outnumber downgrades for most of the indices discussed here. In recent months, downgrades have dominated for Sovereigns and some of the largest, traditional, US corporates. GSIB and CCP credit risks are closely related, based on correlations between index levels for these two groups. Correlations between changes are lower but show similar patterns to levels. Index levels show strong trending; index changes show moderate mean-reversion. Credit volatility has been increasing over the past few months. The Credit Volatility Index shows moderate correlation with the Equity VIX. The methodology presented here shows how robust credit indices and metrics can be derived from bank-sourced data for a growing number of issuer groups.   Download the PDF "Bank-Sourced Credit Indices"   Overview   This paper presents a new and unique way of tracking real-world credit risk, using bank-sourced data to construct indices based on forward-looking credit risk estimates.   Indices derived from real-world credit estimates tend to show low correlations with other risk-related macroeconomic data, providing an independent and additive source of data. In addition, unlike market-derived credit risk estimates, real world Probability of Default (“PD”) indices do not contain composite risk premiums * .   Bank-sourced credit data is currently updated monthly. The published obligor-level data set provides One-Year PD estimates for around 12,000 borrowers, based on credit risk estimates from 3 or more banks for each obligor. The indices presented here are based on the much larger mapped dataset, which covers more than 170,000 obligors where at least one bank has contributed a PD.†    Bank-sourced risk estimates provide a frequently updated view of credit trends across a broad set of issuers. This paper discusses some of the challenges presented by bank-sourced credit data and describes the current Credit Benchmark methodology for constructing appropriate indices as well as supporting and derived metrics.    It shows how bank-sourced credit indices can be applied in a number of ways to monitor trends across groups of obligors, as well as in tracking changes in the general level of credit risk. It also shows the correlations between those indices and the volatility of each index, raising the intriguing prospect of monthly credit volatility indices.   Table of Contents     Introduction   There are now a very large number of financial indices available to track the price movements of equities, bonds and derivative metrics across a very large and diverse set of sub-categories. These indices are widely used as benchmarks for portfolio management, and play a pivotal role in the analysis and management of investment performance. With an agreed set of indices, it is possible to decompose portfolio performance into allocation, selection, and timing components.   Some sub-categories consist of similar, near-homogeneous instruments or issuers. For example, a single time series of an index representing UK Short Dated Gilts typically provides a very effective summary of the collective behavior of all UK Government bonds in that maturity category. Other sub-categories are more diverse, and the single index approach can be limiting or even misleading. For example, the movements of oil stocks or overseas earners may at times dominate changes in the S&P500 and FTSE100 indices.    Credit portfolio managers who use investment-style performance and risk measurement frameworks need equivalent metrics for the credit use case. However, the measurement of credit trends across a range of issuers or obligors can be challenging. It is possible to build a foundation of “mirror” credit indices, which track the credit risk of the constituents of standard equity or bond indices. These can be based on stable groups of obligors, and provide a set of base cases for understanding the behaviour of credit indices.   In this paper, we discuss some of the unique characteristics of bank-sourced credit data and illustrate some of the approaches that can be used to track changes across groups of obligors. Index construction rules are proposed along with additional metrics used to assess credit trends in this type of dataset. We present some examples of “mirror” indices, and also introduce some indices based on more dynamic sets of constituents.   N.B. The term “index” is used here primarily in the sense of linked sets of sampled baskets consisting of variable and incomplete groups of equally weighted constituents, with the aim of tracking trends in an underlying universe of legal entities. However, some of the indices discussed in this paper use the more conventional structure of a fixed set of constituents but these are again equally weighted and are only intended to approximate the behaviour of the underlying universe.   Outline   Section 1 looks at the characteristics of bank-sourced credit data and highlights the dynamics and challenges inherent to this type of data. Section 2 discusses various methodological issues in calculating representative index levels. Section 3 presents the proposed CB methodology for index calculation and chain linking indices through time. Section 4 provides a worked example of this methodology and presents the first of what is expected to be a growing set of regularly updated, standardized indices. Section 5 describes supporting metrics that provide additional insight into the behaviour of the constituents of an index. It also discusses derived metrics that can be used to corroborate and calibrate other models. Section 6 summarizes some conclusions from this paper and identifies likely next steps for further research leading to more specialized and bespoke of indices.   1. Key Features of Bank-Sourced Credit Data   Bank lending is a dynamic process, with frequent adjustments to ensure that the structure of credit portfolios reflects the risk and reward objectives of each bank. This can result in trend shifts in the list of specific obligors which feature in typical bank portfolios. Credit indices need to be designed to track these changes in order to provide a relevant peer group benchmark.   In addition to changes in the obligor set, the set of banks providing loans to the same obligor group can also change over time. This dynamism raises statistical issues of survivor bias, selection bias, and like-for-like comparisons. Some examples:   1.1 Survivor Bias   Collectively, the contributing banks in the database can experience significant changes in their loan books each month. This may be due to a decision by an obligor to change bankers; in which case it can result in individual obligors dropping out of the dataset, even if they reappear in the loan books of other banks in subsequent months.    Bank decisions can also result in changes, with obligors dropping out because the lending banks make a conscious decision to not renew their facilities. In either case, the set of up-to-date credit risk estimates for a fixed set of obligors will tend to shrink over time, and the diminishing sample will become increasingly volatile.   1.2 Selection Bias   This is related to survivor bias. As credit conditions evolve, banks change the structure of their loan books across industries and geographies. They are also likely to change the individual obligors in their loan books as overall credit conditions change.   1.3 Like-for-like comparisons   Over time, changes in credit conditions and credit portfolio objectives will alter the supply, demand and pricing for credit in various industries, geographies and individual names. This will cause variations in the number and identity of banks contributing data for each obligor. In some cases, this may change the average estimates of credit risk for a number of obligors, especially if there are significant differences in the credit risk estimates provided by different banks for the same name.   The next section will address methodology in general, including the selection of the constituent universe. It will also discuss specific approaches for handling the three issues outlined above.   2. Possible Methodologies   This section discusses the selection of constituents and then reviews the specific adjustments required to address the issues outlined in the previous section.   2.1 Choice of Constituents   Index constituents share common characteristics. These may be geographic, industrial or they may be based on specific factors or drivers of share price or business performance. For example, an equity “Value” index is based on dividend yields; a high yield bond index is based on credit risk.‡    The set of possible investment indices is almost unlimited but in practice a limited number of groupings are used based on correlations and dominance. For example, equities and bonds tend to show a low correlation; and the investment choice between these asset classes is more important than the individual instruments in each.    Subdivisions within each asset class are also based on related “clusters” of instruments. For example, bonds may be classified according to short, medium and long duration.   A purely empirical approach would identify related clusters based on correlations, common factors or principal components in the PD data. However in many cases, historic PD data may not be available; common obligor behaviour may need to be inferred from fundamental or classification data.    In credit data, the classification between investment grade and non-investment grade is often the most important dimension. Within these two categories, the industry level may dominate in global businesses (e.g. oil and gas) while the geographic level – especially regional breakdowns – will dominate domestic issuers. As the bank-sourced dataset grows, an increasingly number of indices will be available for different credit, geographic, industry and sector sub-groups.   The indices described in this paper use all relevant mapped obligors in the bank-sourced dataset, whether these are derived from one, two or more than three contributing banks. This is in contrast to the quorate rules used for single name obligor PDs, where the requirement is to use data from at least three contributing banks. The broader data set can be used for indices, because the aggregate nature of the outputs preserves contributor anonymity. In addition, the broader dataset provides a more representative set of indices.   2.2 Index Construction Using Bank-Sourced Credit Data   Exhibit 2.2.1 illustrates some of the challenges of using bank-sourced credit data to track trends. This example is based on PDs for a group of airlines over an 18-month period. Each column represents one month; each row represents an airline obligor. If a PD estimate is available for the obligor for a specific month, then the cell at the intersection of the row and column has a value of 1 and the cell is coloured blue; otherwise it is coloured green.   Exhibit 2.2.1 Typical bank-sourced credit data (Airlines sector)   This shows that 7 of these obligors have a continuous series of PDs. All of the others have missing data points. Some of these are isolated instances; others are for extended periods or show intermittent gaps. Exhibit 2.2.1 highlights the issues of survivor bias, selection bias, and lack of like-for-like comparisons. The challenge in building an index from data with these characteristics is to ensure that the essential trends are captured and that optimal use is made of all of the information contained within this heterogeneous dataset.   A pragmatic approach applies an eligibility filter, removing data points that have insufficient history (at least 2 months are required). The remaining data points can be grouped into “baskets” these are sets of constituents which are reset at regular time intervals, maintaining most but not all of the same constituents. The examples in this paper use quarterly basket resets. (See section 3.3. for details)   2.3 Methodologies for Calculating Main Index Metrics   A credit index level provides a single value summary to track the direction and scale of changes in the credit risk of the constituents. It will typically take the form of an average and there are multiple averaging methods available§  . The most suitable methods are:   Method 1 – Arithmetic Mean or Simple Median of obligor PD averages. Taking the average of the Probability of Defaults (“PD”) of obligors gives a single index PD with equal weight assigned to each obligor. Taking the median will assign full weight to the obligor PD in the centre of the distribution.   Method 2 – PD equivalent of average of obligor notches, where notches are derived from the obligor PD average using the CBC Scale**Assigning each obligor to a “notch”, approximately based on a log-normal scale††, will reduce the influence of larger PDs.   2.4 Comparison   Exhibit 2.4.1 compares the described methods directly for an EU Retail Index.    Generally, using the arithmetic mean of the PD averages (Method 1) produces an index that has a lower credit quality than that created using the PD averages converted into notches (Method 2). This is expected due to the greater pull a larger PD has on the average in comparison to using its respective notch.   Exhibit 2.4.1: Methods 1 and 2 (EU Retail example)   3. Current Credit Benchmark Methodology   Credit Benchmark currently uses Method 1, as described in the previous section. Both metrics are calculated for each basket, since each has some value in tracking the behaviour of the index constituents. However, for index comparisons in later sections this paper will focus on the Median.    To preserve contributor anonymity and ensure that indices are representative, a number of quorate rules are used.   Quorate Rules:   A minimum of 4 Banks contributing risk estimates towards the underlying index constituents  No contributing bank should be represented in an index by more than 40% of the total contributed observations ‡‡   The minimum number of constituent obligors in an index is 50.     3.1 Arithmetic mean:   This is the unweighted sum of each obligor PD (averaged across bank contributions) divided by the number of obligors. For full details see Appendix 2. An alternative approach could be based on the actual contributions; but because multiple banks may provide different estimates for the same obligor, the result would effectively assign more weight to obligors with multiple contributions. The “average of averages” approach assigns equal weight to each obligor, and reduces sampling variation.   3.2 Median:   This is the central measure of the ordered obligor PD (again after averaging across bank contributions). This is normally at or close to the 50th percentile, depending on whether the number of observations is even or odd. For full details see Appendix 2.   3.3 Time Series construction and Chain Linking of Baskets   For fixed constituents (the “mirror” indices which reflect an established index such as the Dow Jones 30) the time series construction is straightforward; in effect there is only one overall basket although this will shrink over time as obligors drop out§§  . The median and average of each basket is reported for each monthly publish date.    The basket approach is used to address noise arising from survivor and selection bias, where obligors drop in or out of eligibility across time. Each basket consists of the obligors that are eligible for the index at the time of construction.   Eligibility Rules:   1. For Fixed Constituent Indices, all active risk estimates are included in the calculation, including obligors with a single bank contribution. 2. For all CB Indices using basket approaches, the “On the Run” credits are defined as those which at the time of the index rollover have:  - A minimum of two contributing banks providing a risk estimate for each obligor.  - Three months of consecutive history from the same contributor (with a minimum of 2 contributors) in the quarter coming up to the index rollover month.     Once constructed, new obligors cannot enter a basket.    Exhibit 3.3.1 illustrates the formation of multiple baskets over time.    Exhibit 3.3.1: Index Benchmark Construction Using Basket-based Series   New obligors can enter a new basket, and all currently eligible obligors from the previous basket can also be used in the succeeding basket. While a new basket is formed on a quarterly basis, the index is updated monthly, and hence each basket will be the most current basket for three months.    This period is known as the “On the Run” period of the basket and the index is formed by the “On the Run” values of each basket. Each basket forms its own series, which is also calculated on a monthly basis since its time of construction. The use of multiple baskets addresses the Selection bias issue, by showing the credit quality trends of each specific basket over time.    If a PD contribution drops out, the last valid contribution is rolled over for a maximum of five months, thus the obligor count for each basket is constant for at least its “On the Run” period.    The example in Exhibit 3.3.1 assumes a time series of 15 months, represented by 5 baskets that include the 5th and most recent “On the Run” basket.    Combining these multiple basket outputs into a single adjusted index involves a “Chain Linking” process, which rebases the previous index to the start of a new series (coinciding with the formation of a new basket)***  . This assumes that the change in the new basket would also be observed in the old basket, despite selection effects. (See Appendix 2 for the formalization.)   3.4 Example of Dynamic Chain Linking: US Oil & Gas   The published index could be based on initial PD value, final PD value, or somewhere in between. The Credit Benchmark approach currently uses the final PD value as the base. The choice is not critical if the focus is on index changes; if the focus is the index level then the final PD value assumes that the current obligor set is the most representative of current credit risk.    The initial basket series and the final rebased and chain-linked indices form a “sleeve’ representing the boundaries of the index value. It shows the scale of the selection effect; this can vary across different constituent universes (it is worth noting that the Oil & Gas sleeve is wider than most other industries). A set of midpoints can be plotted for each sleeve.    Exhibit 3.4.1: Time Series values for US Oil & Gas Baskets   Exhibit 3.4.1 shows four baskets over a 12 month period with an inverted PD scale. The first basket shows a slight deterioration to 117 Bps, before steadily improving beyond 110 Bps and then stabilizing in Q3 2017. The other baskets reflect these moves but each is based at an increasingly lower level of credit quality. The final basket has a value of about 132 Bps and stays relatively stable. In effect, the contributing banks have been steadily extending credit to a more risky set of obligors as credit conditions have improved overall.    Exhibit 3.4.2: US Oil & Gas Index “Sleeve” / Bands and Midpoints (Medians)   Exhibit 3.4.2 shows the corresponding sleeve (or bands) and midpoints. The midpoints are the best representation of the level of credit quality net of selection effects; the published index shows the current level of credit quality including selection effects. The original basket shows a fixed constituent index (with some survivor bias), with the constituents fixed at the beginning of the display period but dropping out if they do not meet the eligibility criteria.   4. Standard Indices   Exhibit 4.1 shows some of the key standard indices currently produced each month by Credit Benchmark. These represent a mixture of fixed constituent and dynamic, chain-linked indices. These are described as “Credit Quality” metrics (i.e. the inverse of the PD itself). This means that a positive value represents an increase in credit quality or, equivalently, a decline in credit risk / PD.   Exhibit 4.1 Key Standard Indices     As discussed previously, the basket constituents will fluctuate quarterly; but in general these indices are highly representative of the underlying universe. (Short names in square brackets are used in tables and charts throughout the remained of this paper.)   The main displayed metric is the negative of the change in the median PD of the constituents, where necessary using the chain-linking approach discussed in the previous section. The number in brackets after the index name shows whether the index has fixed constituents (e.g. “(30)”) or dynamic baskets (e.g. (“c.60”)). Some of the additional metrics discussed in the next section are also displayed.    The third column shows the typical distribution of the constituents across the CBC-7 †††  categories. The aaa categories are on the left and the c categories are on the right. For example, EMIR Central Counterparties are typically high quality with the majority in the aa category, and the Top 30 US companies are of higher quality than the Top 40 French companies.   This table shows that, over the past 12 months, median credit risk has improved (the PD has dropped) for most of these obligor groups. This is especially marked for investment grade sovereigns and the top German companies. There has been a slight deterioration in credit quality for the top UK companies but this has reversed in recent months. The top 30 US companies have also declined, especially in the past 6 months and Downgrades have significantly outnumbered Upgrades over the past 12 months, with a similar pattern over more recent periods.   5. Supporting and Derived Metrics   5.1 Supporting Metrics   The current methodology reports on median and average changes. The median effectively shows the behaviour of the 50th percentile, (the middle rank of the distribution of obligor credit risks, representing the “typical” obligor). The average measures the “centre of gravity” of the distribution, which can be dominated by a few large observations. These basic measures of group credit risk can be augmented by metrics that provide information about the behaviour of the individual constituents.   5.1.1 Upgrades and Downgrades   For each basket, Upgrades and Downgrades are given by the number of obligors where the PD has changed up or down by more than 0.1 of a CBC notch (See Appendix 1). This shows the balance of the index changes. For example, if there are more upgrades than downgrades while, at the same time, the average index value has decreased, then the index move is dominated by a few obligors. The balance is given by the net figure. There may be months when there are equivalent and large numbers of upgrades and downgrades. For an index to be valuable, it needs to satisfy certain criteria. In particular, credit portfolio managers need to understand the extent to which a given index can be used as a proxy or benchmark for their portfolio. The conventional approach adopted by investment managers uses tracking errors‡‡‡  and this is discussed in detail in Appendix 3.   5.1.2 Number of Constituents   These show the depth of each basket. If there are large changes in the number of constituents over time then the reported index value needs to be interpreted as having a margin for error. This will be a combination of Credit Distribution differences and Obligor Specific differences. The latter can be measured by the cross sectional volatility of a given basket, discussed in section 5.1.4.   5.1.3 Credit Distribution   This is the number and proportion of obligors in each broad (CBC-7) credit category across the index constituents. Changes in the index value will primarily be driven by changes in specific credit categories. Credit portfolio managers can compare the credit distribution of their portfolio against that of the benchmark index.   5.1.4 Obligor Specific Differences: Cross Sectional Volatility   The cross-sectional volatility of a basket is given by the standard deviation of the PD measures for each date. In contrast to equity indices, the cross-sectional volatility of credit estimates can be very high as a proportion of the underlying index. This suggests that the number of obligors in each basket needs to be large if that basket is to be broadly representative of the relevant index.   5.2 Derived Metrics   5.2.1 Index Volatility and Separation   Effective credit benchmarks should provide a clear indication of changes in trend. The following exhibits show time series of the median PD for the main Corporate and Financial indices discussed in the previous section, and also shows the historic volatility of these time series.   Exhibit 5.2.1.1 Major Corporate and Financial Indices (Medians)   Exhibit 5.2.1.2 Index Relative Volatility, PD Level and Volatility   Exhibit 5.2.1.1 shows that the index levels are stable and generally distinct. For example, the typical level of the US 500 index is around 20 Bps whereas the US 30 is around 5Bps. On the other hand, the US 500 also shows evidence of a consistent imrpovement, while the UK 100 deteriorated until Q1 2017 and has started to improve after that point. The other indices have remained within ranges – some wider than others.    Exhibit 5.2.1.2 shows the time series volatility for each of these indices expressed as an average of the index level, and annualised§§§ . The labels show the index level (expressed as a 1Y PD) and the volatility of the index in basis points.   This shows some intuitive as well as some surprising results. For the indices with a limited number of constituents (such as the German 30, the French 40 and the US 30) the proportional volatility is high at around 20%. For the Globally Systemically Important Banks, it is very low – around 4%. The US 500 index shows the highest PD level of 48 Bps, but the standard deviation over the sample period has been moderate at 7 Bps, or about 14%.    This chart is reassuring on the separation issue. The proportionate volatilities are sufficiently low that most indices on this chart will show limited numbers of crossovers unless one or more of them enters a sustained uptrend or downtrend. A high number of crossovers, where two indices repeatedly swap their rankings, is likely to mean that the chosen index basket is too noisy.    Overall, this chart suggests that the historic (time series) volatility of credit risk is not strongly related to the typical level of credit risk. By contrast, the (cross sectional) spread of bank-contributed risk estimates for a given obligor generally shows a strongly positive relationship between level and spread.   For time series volatility measures it is observed that while good credit risks have low PDs, the implication is that any given absolute change in credit risk is proportionately higher. This is similar to some apparently counter-intuitive results observed in the relationship between equity volatility and credit spreads.****    5.2.2 Local and Global Credit Effects   An effective index also needs to distinguish between local and global changes in credit risk. Exhibits 5.2.2.1 to 5.2.2.4 show the relationship between the median index levels of single Country corporates and Global corporates.   Exhibit 5.2.2.1 US vs. Global   Exhibit 5.2.2.2 France vs. Global   Exhibit 5.2.2.3 UK vs. Global   Exhibit 5.2.2.4 Germany vs. Global   This shows that the strength of the relationship is highly variable. Over the past 18 months, based on median levels, the index of the top 500 US companies shows a moderately positive correlation with the Global 500. This is to be expected given that there will be a large number of companies that are common to both indices.    A smaller sample of German companies is also positively correlated, but the fit is only 36%. French companies show a negative correlation with a fit of 29%; the UK shows no correlation. Running these regressions for changes shows similar results US, UK and France; but the German correlation drops to insignificance. The relationships for averages are weaker, mainly because averages assign more weight to outliers.   This shows that over this period individual indices show considerable divergence. This in turn indicates that the local effect dominated for this set of indices over this period, so the global effect was not strong. This weak common trend component suggests that for this period it is useful to look at correlations between levels as well as the more conventional change-based approach.   5.2.3 Correlations and Volatilities (“Covariance”), Levels and Changes   The adjusted underlying index levels can be used to estimate correlations and credit index volatilities. Exhibit 5.2.3.1 shows, for the same time period, the correlations and volatilities for levels of the median based indices.   Exhibit 5.2.3.1 Monthly Correlations and Volatilities based on Median Index Levels   Exhibit 5.2.3.1 shows that, for median levels (correlations are positive unless stated otherwise):   The Sovereign categories are very strongly correlated   The UK is correlated with France but mainly negatively correlated with the other indices  CCPs and GSIBs are strongly correlated   Germany is strongly correlated with Sovereigns and negatively with the UK   The large S&P sample is strongly correlated with GSIBs and the combined Sovereign group   France and Germany are the most volatile   GSIBs, the large S&P sample and the Global 500 are the least volatile   Most indices show strongly positive autocorrelation; the composite Sovereign category shows the lowest, but still positive, autocorrelation   Exhibit 5.2.3.2 shows, for the same time period, correlations and volatilities for changes in the median based indices.   Exhibit 5.2.3.2 Monthly Correlations and Volatilities based on Median Index Changes   Exhibit 5.2.3.2 shows that, for median changes (correlations are positive unless stated otherwise):   As with median levels, the Sovereign categories are again very strongly correlated   The UK is again correlated with France but weakly correlated with the other indices   Germany is correlated with CCPs and the US30  As with median levels, the Large S&P sample is correlated with GSIBs and the combined Sovereign group   France and the US30 are the most volatile   As with median levels, the GSIBs, the large S&P sample and the Global 500 are the least volatile   Most indices show weak or negative autocorrelation   5.2.4 Observations from Covariance data   This analysis is based on a limited number of monthly observations so at this stage any conclusions are tentative, but this data suggests:   Exhibits 5.2.2.1 to 5.2.2.4 show that different geographies and obligor samples may be at different stages of their respective credit cycles. The pattern of negative autocorrelation in changes and positive autocorrelation in levels suggests that the individual series may be mean reverting. Correlated series pairs that show these autocorrelation patterns may also show co-integration; this can be investigated with longer time series.This would imply that some index groups maintain a stable long run relationship, but can diverge over short periods.   Correlation and volatility analysis can be extended to adjacent datasets; for example, it is possible to compare credit data with equity indices, bond indices, market volatility measures and macro-economic data. In particular, the Merton model††††  is specified according to equity volatilities; the availability of real world PD estimates provides scope for an alternative set of inputs to that model. This will be explored in future papers.   5.2.5 Comparison of VIX and Credit Volatility   The Merton model uses equity volatility as an input to estimate the prevailing distance to default. Credit spread volatility is another possible measure‡‡‡‡  . The standard measure of equity volatility is the VIX index§§§§  which is derived from index option prices.    The volatility measures discussed in this paper are based on the entire time series. For comparison with the VIX, rolling PD index volatility has been used as a proxy. This paper uses a 6-month rolling volatility measure to avoid excessive noise.    Exhibit 5.2.5.1 shows the rolling 6 month volatility for the Corporate, Financial and main Sovereign indices.   Exhibit 5.2.5.1 Rolling 6-month volatility, main indices   This shows that, over this 13-month period, most of these indices showed a drop in volatility with the low point around the end of 2016. Most of them have shown an increase since then, with France and the UK showing the most dramatic drops and increases. This is a small sample and the 6-month trailing window is short, but it shows that there are clear patterns and trends in credit volatility data based on bank-sourced estimates.   For comparison with the VIX, a Credit Volatility Index is constructed as a simple average of the French, German, US and UK volatility indices. Since the VIX is constructed from options on the S&P500 index, it might be expected that the Credit Volatility Index of US obligors would show the strongest relationship; in practice a multi-country Credit Volatility Index shows the best fit for this short time period.    Exhibit 5.2.5.2 plots the VIX and the Credit Volatility Index as a scatterplot   Exhibit 5.2.5.2 VIX and Credit Volatility Index This shows that there is a weak but positive relationship between the Credit Volatility Index and the VIX. The R-squared of 25% implies a correlation of 0.5; statistically significant, but not particularly strong. The points are connected in date order and show a pattern of common movement in time as well as a number of periods when neither metric shows any significant movement. The fitted line shows that the VIX has a positive intercept of 9.8% but the sensitivity to the Credit Volatility Index is only 0.21.   Equity and credit spread volatility effectively measure the volatility of credit risk and the market risk premium; the Credit Volatility Index is a pure measure of the volatility of the real world PD. This may explain why the VIX has a higher baseline volatility (to reflect the volatility of the risk premium itself). Once this effect is removed, the relative insensitivity of the VIX compared with the Credit Volatility Index suggests that the VIX is not fully reflecting changes in the real world PD.   6. Conclusion   This paper has discussed the advantages and disadvantages of various approaches to the construction of indices for tracking credit risk at the obligor / issuer level.    It has described further details of one of these approaches as the proposed Credit Benchmark methodology and has presented an initial set of standardized indices intended for regular publication. It has also presented various supporting metrics (such as upgrades and downgrades and cross sectional volatility) which provide a detailed understanding of the behaviour of individual index constituents.   Finally, it has shown how indices of this type can be used to analyse correlations between credit indices and track the volatility of those indices.   Future research will focus on:   Applications of this methodology to create specialized and bespoke indices for use by credit portfolio managers Estimation of index-based credit cycle adjustments and liquidity risk premiums. Interaction between pure credit metrics and broader market or macro-economic variables.   Appendix 1: The CBC Scale     Appendix 2: Calculation and Methodology Formalizations   A.2.1 Method 1: Arithmetic Mean or Simple Median of entity PD Averages   Let ????????,1, ????????,2, … , ????????,???? be the PDs (averaged across bank contributions) of n entities (obligors), which are the constituents of the current basket at time t.   A.2.1.1 Arithmetic mean:     A.2.1.2 Median:   Order the PD averages at time t such that     If n is odd, the median will be the PD average:   If n is even, the median will be the average of the middle two ordered values:     Note that the number of entities, n, can differ from basket to basket. However, while a basket is “On the Run” the value of n is constant. Calculating x̅t and m???? monthly, form the PD Average and PD Median indices, respectively, over time.   Method 1 Example     A.2.2 Method 2 – Calculating the Arithmetic Mean of the PD Averages Converted into Notches   This method is not currently used but is often suggested as an alternative to the simple median or average, so the formalized version is shown here for reference. Using the same notation as defined for Method 1, let x????,???? be the PD average of the ith entity, in the most current basket at time t. Using the breakpoints of the CBC-21 Scale (see Appendix 1), this PD can be converted into a “continuous” notch, y????,???? , using linear interpolation. That is,     The arithmetic average of y????,1, y????,2, … , y????,????, is calculated, denoted ????̅???? , on a monthly basis. Rearranging Equation [1] to solve for x????,???? , and substituting ????̅???? for ????????,???? the average in notch form reverts back to a PD that is used to form the index.   A.2.3 Chain Linking Methodology   The chain linking methodology can be formalized as follows:   At time ???? ∈ 3ℕ, where ???? is the time in months from the start of the index, a new basket is to be formed. Define the function ⌊????⌋ as the floor function, which outputs the greatest integer, less than or equal to ????. This basket will be the start of series, which will be “On the Run” during the time periods, t, t + 1, and t + 2. The value of the adjusted indices (AI), calculated between time t and t + 2, at the uth point in time, ???? ∈ [1, t + 2], is calculated by     Appendix 3: Tracking Error Calculations   This can be approximated by the formula:   ????2???????????????????????????????? ???????????????????? = ????2???????????????????????? + ????2???????????????????????????? + Σ???????????????????? ????????????????????????????s   where:    σCredit = Standard Deviation of Portfolio vs Benchmark attributed to Credit Category mismatchesσObligor = Standard Deviation of Portfolio vs Benchmark attributed to Obligor mismatchesΣCross Products = sum of interaction terms; if Credit and Obligor risks are independent, then this term is zero   These components are defined as:   σCredit =   where: M is a vector of credit category mismatches between portfolio and benchmark  V is the covariance (product of correlation and volatilities) between the average credit category PDs. These need to be calculated from individual credit category indices, where quorate rules permit.     where:   W is a vector of credit category portfolio weights  is the obligor-specific tracking error in each credit category. This can be estimated from cross sectional volatility, with this element of tracking error approximately inversely proportional to the square root of the number of obligors in the portfolio.   Example of obligor-specific tracking error calculation:    If the annual cross sectional volatility for credit category aa is 100%, and the portfolio has 100 independent obligor exposures, then the Obligor level monthly tracking error for credit category aa is approximately 100% / √100 ≈ 10%. So if the benchmark credit category index PD is 20 Bps, then the portfolio PD will typically lie in the range of 20 +/- 10% ≈ 18-22 Bps. (Although the range is unlikely to be as symmetric in practice due to the typically skewed distribution of PDs.) This is repeated for each credit category and the tracking variances are summed under the assumption of independence.      The total obligor-level tracking variance is then summed with Credit Category tracking variance. The overall portfolio tracking error is given by the square root of this sum. A number of the components in these calculations can be made available as supporting metrics, as described in Section 5.   Download the article "Bank-Sourced Credit Indices" on PDF.   More from Credit Benchmark We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn more.   Reporting was contributed by   Sheliza SiddiquiVangelis KoustasBarbora MakovaJacob HibbertDavid Carruthers   Footnotes   * This data is “Through-the-Cycle / Hybrid” (TTCH). The other main measure is “Point-in-Time” (PIT) which is more correlated with market prices. TTCH is intended to filter out short term noise but is still sensitive to structural changes in credit risk at the sector or obligor level. It is intended to be a Real World probability measure, whereas Point in Time is closer to a market-implied Risk Neutral probability measure.† These cannot be published on a single name basis, but they can be grouped into a large and diverse set of index baskets.‡ As the bank-sourced dataset grows, there will be scope to provide a cluster analysis of the contributed PDs; this will show the full scope for creating credit-tracking indices.§Including but not restricted to Unweighted or Weighted Mean, Median, Mode, Geometric Mean, and Harmonic Mean.** See Appendix 1.††The observed distribution of credit risk data can often be approximated by a lognormal probability density. For this reason, it may be more effective to use a log-normal mean in some applications.‡‡There is no current minimum % contribution but where necessary this is likely to be set at 10%.§§For “mirror” indices, the basket will be revised if the constituents of the underlying index are revised by the publishing exchange.***Note that a more flexible framework applies the basket approach to variable time periods, effectively triggering a new basket whenever new data is available which meets the minimum history criteria.†††See Appendix 1.‡‡‡Defined as the standard deviation of the differences in levels (or in some cases the changes) in the PDs of the comparable indices.§§§The monthly volatilities are annualized using the square root of time adjustment i.e. Annual volatility = Square Root(12) * Monthly volatility.****“Higher Volatility with Lower Credit Spreads: the Puzzle and Its Solution” A. Semenov, Columbia Business School, August 2016.††††“On the Pricing of Corporate Debt: The Risk Structure of Interest Rates”. Robert C. Merton, The Journal of Finance, Vol. 29, No. 2 May 1974.‡‡‡‡ “CDS Spreads Explained with Credit Spread Volatility and Jump Risk of Individual Firms”, A. Kita, January 2012 (10.2139/ssrn.2136458)§§§§ This is based on prices for current and next month call and put options traded on the S&P 500 index, and is published by the Chicago Board Options Exchange. See http://www.cboe.com/products/vix-indexvolatility   Restricted Distribution   Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### July Credit Update: High Number of Upgrades and Downgrades, Upgrades Significantly Outnumber Downgrades Credit Benchmark has published the latest monthly credit consensus data (from June 2017), with 15 contributor banks now providing bank-sourced credit views (CBCs*) on more than 10,700 separate legal entities over the past 12 months. Government coverage now includes Colorado, Michigan, Indiana, South Carolina and Oklahoma. Additions to the data include Hochtief AG, Barnes & Noble Inc, Dollar General Corp, JCdecaux SA, UCB SA, Tegna Inc, McAfee LLC, Football Association Ltd, Merlin Entertainments PLC, Wellington Management Co LLP, Arab Bank Plc and Arab Monetary Fund. Monthly consensus upgrades and downgrades: 896 obligors saw improved consensus in their credit standing by at least one notch, 453 obligors deteriorated, 158 moved more than one notch, compared with the previous month, upgrades significantly outweigh downgrades and CBC changes are more frequent. This compares with the previous month which showed improved consensus across 200 obligors and decreased consensus across 309. Amongst those obligors that saw movement, 61 moved by more than one notch. Industries: • Upgrades dominate downgrades in 6 out of 9 reported industries. • The most significant improvement of credit quality occurred in Health Care with 28 upgrades and 7 downgrades, • Oil and Gas with 58 upgrades and 19 downgrades, • and Utilities with 32 upgrades and 11 downgrades. • Industries with deteriorating credit ratings include Telecommunications with six downgrades and three upgrades, Industrials with 107 downgrades and 75 upgrades, and Consumer Services with 77 downgrades and 62 upgrades. • The prevalence of upgrades is most significant in Financials with 331 upgrades and only 78 downgrades. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Oil And Gas Pumping Up, With Upgrades Outweighing Downgrades For The First Time In 2017  Earlier this year, we unveiled the findings of our research into credit risk trends in the Oil & Gas sector. The report covered credit risk estimates for more than 384 entities in the sector, including many companies which are unrated by the “Big Three” credit ratings agencies. At the time the report was published, every sector of the oil and gas industry showed a credit quality decline over 2016, with some continuing to decline into the first of 2017.It would seem that view has changed.The latest Credit Benchmark Consensus (CBC) data across the Oil and Gas sector (pictured below), indicates that the percentage of entities with decreasing Probability of Default (PD) now outweighs those with increasing PD – a significant shift from previous quarters this year. Feb-MarMar-AprApr-MayPD increases8.4%6.3%4.1%PD decreases6.6%5.1%7.4%CreditBenchmark.comThe Credit Benchmark Consensus indicates the credit risk assessments of the world’s leading banks. Perhaps this sentiment shift in Oil and Gas is a sign of new-found optimism for the sector. Our analysts will continue to observe for trends in the coming months.Credit Benchmark brings together the credit risk assessments of the world’s leading banks to deliver greater visibility into the credit quality of individual entities. Using an innovative approach, Credit Benchmark aggregates, anonymizes and publishes monthly consensus credit indicators on sovereigns, financial institutions, corporates and small and medium enterprises (SMEs).Call-to-Action - Contact us to learn more: wwwdev.creditbenchmark.com/contact ### Consensus Credit Risk Across Global Banks: Europe, Japan And U.S. Credit Benchmark brings together the credit risk assessments of the world’s leading banks to deliver greater visibility into the credit quality of individual entities. Today’s blog post looks at the banking sector, specifically Scandinavia, the Visegrad group (Central Europe), Western Europe, the UK and Ireland, the U.S., Japan and Asia ex. Japan. Exhibit 1 compares the credit risk trends in the five European regions, US, Japan and rest of Asia based on the percentages of quorate and semi-quorate banks* that have been upgraded and downgraded over the last 12 months. Exhibit 1 Percentage of Upgraded/Downgraded Entities in the Last 12 Months The Credit Benchmark data shows that Scandinavian banks are the best performers, followed by the Visegrad region, Western Europe and the UK and Ireland. Across these regions, upgrades have outnumbered downgrades over the last 12 months. Southern Europe is an exception, being dominated by downgrades; although recent moves to recapitalize some of the Italian banks and an improving banking position in Spain may be bringing this phase to an end. Scandinavian banks are typically viewed as having very strong credit quality, reflecting their particularly cautious approach to maintaining capital adequacy. The improving credit position of the Visegrad region banks probably reflects recent strong economic growth and a low unemployment rate. Downgrades and upgrades in the US are in balance. The ratio of upgrades to downgrades for Japanese banks is lower than in the rest of Asia, possibly due to a squeeze on bank net interest margins due to quantitative easing. *Quorate entities have observations from 3 and more banks, semi-quorate entities are entities with observations from 2 banks. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Consensus Credit Risk Across Global Banks: Europe, Japan And U.S. Credit Benchmark brings together the credit risk assessments of the world’s leading banks to deliver greater visibility into the credit quality of individual entities. Today’s blog post looks at the banking sector, specifically Scandinavia, the Visegrad group (Central Europe), Western Europe, the UK and Ireland, the U.S., Japan and Asia ex. Japan.Exhibit 1 compares the credit risk trends in the five European regions, US, Japan and rest of Asia based on the percentages of quorate and semi-quorate banks* that have been upgraded and downgraded over the last 12 months.Exhibit 1 Percentage of Upgraded/Downgraded Entities in the Last 12 MonthsThe Credit Benchmark data shows that Scandinavian banks are the best performers, followed by the Visegrad region, Western Europe and the UK and Ireland. Across these regions, upgrades have outnumbered downgrades over the last 12 months. Southern Europe is an exception, being dominated by downgrades; although recent moves to recapitalize some of the Italian banks and an improving banking position in Spain may be bringing this phase to an end. Scandinavian banks are typically viewed as having very strong credit quality, reflecting their particularly cautious approach to maintaining capital adequacy. The improving credit position of the Visegrad region banks probably reflects recent strong economic growth and a low unemployment rate. Downgrades and upgrades in the US are in balance.The ratio of upgrades to downgrades for Japanese banks is lower than in the rest of Asia, possibly due to a squeeze on bank net interest margins due to quantitative easing.*Quorate entities have observations from 3 and more banks, semi-quorate entities are entities with observations from 2 banks.Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### June Credit Update: More Downgrades Than Upgrades, Coverage Includes Snap Inc Credit Benchmark has published the latest monthly credit consensus data (from May 2017), with 14 contributor banks now providing bank-sourced credit views (CBCs*) on more than 10,300 separate legal entities over the past 12 months. Sovereign coverage now includes Government of Saint Kitts and Nevis . Additions to the data include Snap Inc, Fossil Group Inc, United Natural Foods Inc, Coca Cola Enterprises Inc, Syngenta AG, Sunwing Airlines Inc, Paddy Power Betfair Plc, NASDAQ Clearing AB, Interactive Brokers LLC, and Deutsche Asset Management Investment. Monthly consensus upgrades and downgrades: 200 obligors saw improved consensus in their credit standing by at least one notch, 309 obligors deteriorated, 61 moved more than one notch, compared with the previous month, downgrades again significantly outweigh upgrades. This compares with the previous month which showed improved consensus across 209 obligors and decreased consensus across 282. Amongst those obligors that saw movement, 56 moved by more than one notch. Industries: Downgrades dominate upgrades in 7 out of 9 reported industries. The most significant deterioration of credit quality occurred in Health Care with 11 downgrades and four upgrades, Industrials with 37 downgrades and 16 upgrades, and Consumer Services with 23 downgrades and 15 upgrades. Industries with improving credit ratings include Oil and Gas with 19 upgrades and 10 downgrades, and Technology with seven upgrades and six downgrades.     *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. **Quorate = Quorate PDs are those derived from three or more Probability of Default estimates for the same legal entity. This “rule of three” is similar to that used for bond prices by Bloomberg, and CDS prices by IHS-Markit. It is intended to preserve contributor anonymity by preventing scope for reverse engineering. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Credit Benchmark Named In FinTech50 For Third Year Running Credit Benchmark has been recognized in the FinTech50 list for the third year running. The annual list published by FinTechCity showcases the 50 European FinTech firms doing the most to transform the financial services industry. The 50 companies on the list were chosen from a longlist of more than 1,500 and were announced at a ceremony in the City of London on June 6. FinTech City launched the FinTech 50 back in 2012 as "a guide to a then emerging landscape," and has evolved to become "a guide to quality in a very crowded one." Founded in 2012, Credit Benchmark delivers greater visibility into credit risk via an entirely new source of wholesale credit risk data. Using an innovative crowd-sourced approach, the company publishes monthly consensus credit indicators on Sovereigns, Financial Institutions, Corporates and SMEs by aggregating and anonymizing the internal credit risk assessments of the world’s leading banks. Practitioners in the capital markets benefit from greater transparency with unique credit indicators generated from actual risk takers in the marketplace, as well as access to otherwise unrated entities, including a large number of operating subsidiary companies. Credit Benchmark currently publishes data on more than 8,400 separate legal entities using credit views sourced from 13 contributor banks. For more information about FinTech City and their "50" list, please visit https://thefintech50.com/the-fintech-50-2017/ ### April Credit Update: More Downgrades Than Upgrades Credit Benchmark has published the latest monthly credit consensus data (from April 2017), with 13 contributor banks now providing bank-sourced credit views (CBCs*) on more than 8,400 separate legal entities. Additions to the data include Nvidia Corp, Insight Enterprises, Korean Airlines, Hormel Foods Corp, Tupperware Brands, National Basketball Association, England & Wales Cricket Board, SL Green Realty Corp, and Fidelity National Financial. Across the Month of April – out of approximately 8200 obligors: 209 obligors saw improved consensus in their credit standing by at least one notch 282 deteriorated 56 moved more than one notch Compared with the previous month, downgrades now outweigh upgrades, with a small decrease in notch changes of more than one The March data showed improved consensus across 251 obligors and decreased consensus across 276. Amongst those obligors that saw movement, 80 moved by more than one notch. Industries: Downgrades dominate upgrades in 7 out of 9 reported industries The most significant deterioration of credit quality occurred in Telecommunications with five downgrades and one upgrade Utilities with 29 downgrades and six upgrades Health Care with 12 downgrades and five upgrades Industries with improving credit ratings include Basic Materials with 13 upgrades and eight downgrades, and Technology with 11 upgrades and eight downgrades Sovereigns : A number of African countries have been affected by the recent oil price drop. Overall, African Sovereigns have had a consensus downgrade of 0.6 notches over the past year. More details of the credit background to the oil industry are available in the recently published White Paper on Oil & Gas industry. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. SaveSave ### Spain: Improving Sovereign Credit Risk Owes More To Economics Than Politics The Spanish economy grew by 0.8% in Q1 2017, an annual rate of more than 3%, higher than recent data for Germany, France and the Netherlands. Unemployment has been trending down and currently stands at a post-crisis low of 18%. Spain suffered more than most during the Eurozone downturn but is now in the economic vanguard. But political uncertainty is rising: Rajoy’s minority PP Government faces a vote of no confidence on 13th June and the Catalan government is taking active steps towards greater independence. Unstable politics is less of an issue in Spain than in some other countries. The Credit Benchmark Consensus (CBC*) has been trending steadily better with a consensus upgrade looking likely. S&P rate Spain as BBB+ and moved to a positive outlook in March. Beyond developed economies, Credit Benchmark research shows that Unemployment, GDP per capita, improving external balances and Ease of Doing Business metrics provide a credible proxy for Sovereign Credit Risk for a broad range of otherwise unrated countries. More details in Measurement of Sovereign Credit Quality White Paper. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Oil and Gas Industry Trends Global Oil Sector: Credit Trends May 2017Oil and Gas Industry Trends Executive Summary Every sector of the oil and gas industry showed a credit quality decline over the past year and some have continued to decline in 2017. Major global oil companies have deteriorated by one full notch over the past year, from a- to bbb+ while, at their peak, equity prices had on average risen 20%.  Short-term credit risk measured by CDS spreads has been dropping relative to long term, through-the-cycle credit risk.  Credit risk is positively correlated with the Net Debt to Total Assets ratio. For higher quality obligors, credit risk changes show a slightly negative correlation overall with changes in capital expenditure. Issuers with low credit quality have been strong equity performers in the past year, especially non-investment grade companies with stable credit risk. Download the PDF "Oil and Gas Industry Trends" This paper uses bank-sourced data to track recent credit risk trends in the Oil and Gas industry. The data covers 384 legal entities of which 185 do not have a Long Term rating from any of the “Big Three” credit rating agencies as of February 2017. This dataset provides transparency for global, regional, corporate hierarchy and individual legal entity factors. It can also be used to estimate a range of metrics which track monthly changes in the position and shape of the distribution of bank credit risk estimates. The dataset provides an independent dimension for sector credit analysis as well as for detailed comparisons with macro- and micro- factors, including oil prices, debt levels, capital expenditure, rig counts, CDS prices and equity price performance. “…the faster decline in long-term oil prices than we expected this year is a clear downside risk to our spot price level forecast, even if it helps slow US production growth…” Goldman Sachs // May 2017 “A surge in production in the US, driven by drillers flocking to American shale basins, at a time of subdued global demand has sent the oil price tumbling in recent weeks. Investors are particularly worried about slowing Chinese demand as shale output in the US soars…The US Energy Department expects production to hit 9.7m barrels a day in 2018 – breaking the record set in 1970. Figures from industry experts Baker Hughes show the number of oil rigs operating in the US has more than doubled in the last year, rising by 450 to 870.” Hugo Duncan // ThisIsMoney // May 2017 Credit Benchmark: Collective Intelligence for Global Finance Working with key global banks, Credit Benchmark (CB) have developed an anonymous and secure pool of internal bank credit risk estimates, to create consensus Probabilities of Default (“PD”) and senior unsecured Loss Given Default (“LGD”) metrics.  The Credit Benchmark service offers monthly updated consensus PDs and LGDs on thousands of obligors at the individual legal entity level, extending from Sovereigns and banks to public and private corporates and funds. Credit Benchmark also offers data on tens of thousands of obligors for use at portfolio level.  Quorate consensus PDs are simple, unweighted averages of at least three independent PD or LGD contributions for an identical legal entity over an equivalent estimation period.  Participation in the service is open to any banks that use the IRB method for calculating regulatory capital. Credit Benchmark warmly invites interested institutions to become contributors. Table of Contents 1. Introduction The Oil and Gas industry has recovered some ground after the sustained weakness of the oil price over the past few years, but industry dynamics are changing. This is partly due to geopolitics and climate change, but it is also being driven by technological developments: hydraulic fracturing (“fracking”), electric vehicles, drones and exploratory data analysis all have the potential to transform the economics of the energy business. The possibility of a sustained supply glut has returned, leading to renewed oil price weakness. The broader energy industry is also currently the subject of strong debate. Concerns about pollution and the possibility that human activity is partly responsible for climate change has brought increased focus on renewable and clean sources of energy. Investment has been significant in wind, tidal, solar and biofuel technologies; but air, water and land travel continue to be dominated by fossil fuel energy sources. The current enthusiasm for electric vehicles is also misleading – electricity still has to be generated somewhere, albeit in rural locations. Although there is scope for distributed generation, the amount of electricity generation required to replace all oil-driven cars is likely to require major investment in new power stations. With no immediate, significant technological replacement for fossil fuels, the focus is on the discovery of new reserves and the technology to access otherwise inaccessible deposits. Hydraulic fracturing has been the main technique to derive new supply out of existing basins. It is controversial, but attracts senior political support in a number of countries. Due to its geology (as one of the world’s largest river basins), the US is and is likely to remain the world’s main supplier of shale oil. This has made the US one of the global swing producers, upsetting the existing balance of pricing power in the oil industry. In particular, production cuts by the OPEC nations now have a limited impact on the oil price. Drone technology is being used to monitor existing, remote production sites as well as in the search for new deposits. Ironically, climate change is opening up the Arctic, which is expected to yield significant reserves. Data mining techniques are making more efficient use of geological data, which is reducing the cost of reserve acquisition. Tanker design continues to deliver additional economies of scale and a growing global pipeline network is reducing supply volatility and vulnerability to political shocks. This paper presents bank-sourced credit data on 3841  Oil & Gas industry players, including those without stock market listings or without ratings from major agencies. It reviews recent industry trends and compares banksourced credit data to a number of other industry metrics. Executive Summary: Every sector of the oil and gas industry showed a decline in credit quality over the past year and some have continued to decline in 2017. Major global oil companies have deteriorated by one full notch over the past year, from a- to bbb+ while, at their peak, oil stock prices had on average risen 20%.  Short-term credit risk measured by CDS spreads is still above long term, throughthe-cycle credit risk but the gap between the two is narrowing. Credit risk shows a weakly positive correlation with the Net Debt to Total Assets ratio. For higher quality obligors, credit risk changes show a slightly negative correlation overall with changes in capital expenditure. Issuers with low credit quality have been the strongest equity performers in the past year, especially non-investment grade companies with stable credit risk. 2. Bank-sourced Data Credit Benchmark aggregates and anonymises one-year forward-looking through-the-cycle Probabilities of Default (“PD”) at the individual obligor level from internal ratings based global banks. The dataset is updated and published monthly. Exhibit 2.1 shows the current coverage. Exhibit 2.1 Credit Benchmark Coverage Exhibit 2.1.1 Global Coverage Exhibit 2.1.2 Dataset Growth As of May 2017, consensus quorate2  estimates are available on more than 8,200 obligors including Sovereigns, corporates, banks, funds and non-bank financial entities, spanning multiple geographies and entity sizes. The dataset also includes close to 300,000 additional mapped entities that can be leveraged to produce top-down portfolio views, indices and transition matrices. The single name estimates represent the consensus of the collective views of credit risk from experts in global banks. This approach leverages the Diversity Prediction Theorem3  , with single PD estimates aggregated and mapped to the Credit Benchmark Consensus (“CBC”) category scale.4    Oil company coverage now includes Saudi Aramco. Its planned IPO could make it the largest company in the world. In the view of IRB banks, Saudi Aramco currently has a CBC of a-. 3. Sector Summary Exhibit 3.1 shows the time series of the two main oil price benchmarks5  , Brent (the European benchmark) and West Texas Intermediate (the US benchmark), from January 2000. This chart covers part of the period of intense debate about “Peak Oil’, representing a serious concern that the global economy was in danger of running out of oil due to the declining trend in discoveries of new reserves. This concern prompted sustained investment in new technology; fracking, in particular, has had a major impact on price and volume dynamics. Exhibit 3.1 Crude Oil Spot Prices The series track very closely except for the period 2011-15, when WTI was systematically lower than Brent. This shows the major spike and subsequent collapse in oil prices in 2008. The 2009-11 uptrend is followed by the plateau of 2012-2014. After the most recent sharp drop in 2014-2015, prices have shown a modest recovery. › Source: Energy Information Administration Exhibit 3.2 shows the relationship between Brent prices and volumes between Jan 2014 and March 2017. Exhibit 3.2 Brent Spot Prices vs. Futures Volume Exhibit 3.2.1 Price & Volume: Time Series › Source: Energy Information Administration, ICE Exhibit 3.2.2 Price & Volume: Phase Plot › Source: Energy Information Administration, ICE Exhibit 3.2.1 shows a strongly negative trend in the spot price and a moderately positive trend in traded futures volume. Both have been trending higher since the beginning of 2016.  Exhibit 3.2.2 shows the trend as a phase plot (a “snail trail”). This shows two distinct sets of price and volume data points, separated by the large and independent shift in oil prices from mid-2014 until end-2015. Exhibit 3.3 shows the breakeven production costs per barrel in major oil-producing countries, with capital expenditure (‘capex’) and taxes shown as separate elements. Exhibit 3.3 Production Costs ($/barrel) by Producer Countries › Source: WSJ, Energy Information Administration This shows that there are major country differences in the breakeven price. In the UK, current prices are close to production costs. In a number of other countries, profit taxes increase the breakeven price significantly. Some countries responded to this margin compression by making major cuts in investment.  Exhibit 3.4 plots the Credit Benchmark Consensus (“CBC”) and the oil production breakeven price. Exhibit 3.4 Credit Benchmark Consensus-Breakeven Price Plot Exhibit 3.4.1 Sovereigns CBCs and Breakeven Price Exhibit 3.4.2 Average O&G Companies CBCs and Breakeven Price This chart plots the breakeven price against sovereign PD, and against the average PD of the Oil & Gas companies in the corresponding countries. While a number of countries with higher breakeven costs also have lower credit risk (i.e. a higher numerical CBC), these charts do not suggest a strong bivariate relationship. Exhibit 3.5.1 shows trends in rig counts in North America compared to other regions and Exhibit 3.5.2 shows the connection between North American rig counts and WTI Spot. The majority (>80%) of North American rigs produce so-called ‘tight’ oil (mainly shale deposits). Tight oil production costs are high, so rig counts would be expected to be very sensitive to price changes. Exhibit 3.5 Regional Rig Count Trends Exhibit 3.5.1 Rig Counts by Region › Source: Baker Hughes Exhibit 3.5.2 North American Rig Count and WTI Price › Source: Baker Hughes, Energy Information Administration Exhibit 3.5.2 shows that the number of rigs decreases almost immediately when prices drop, but an expansion in rig counts responds to price increases with a lag of several months.  Oil price drops have a redistributive effect on oil-importing and oil-exporting countries. Exhibit 3.6 shows the impact of recent price changes on Sovereign credit risk.  Exhibit 3.6 Sovereign Risk Changes and Oil Revenue Change › Source: BP statistical review of world energy, EIA, McKinsey Global Institute  This shows that, over the period March 2016 – March 2017, Middle Eastern and African sovereigns were on average downgraded by 1.1 and 0.6 notches respectively. European, North American and Asia Pacific sovereigns were on average upgraded by 0.2-0.3 notches. Middle East and Africa experienced the largest drops in revenue over this period, while Asia Pacific and Europe were the main beneficiaries. 4. Coverage and Trends Exhibit 4.1 shows the credit distribution of the Oil & Gas sector for the 384 companies covered by Credit Benchmark. Exhibit 4.1 Oil and Gas Industry Credit Distribution Exhibit 4.1.1 Rated vs Unrated Obligors › Source: Credit Benchmark Exhibit 4.1.2 Oil and Gas vs All Corporates › Source: Credit Benchmark Exhibit 4.1.1 shows that 185 of the 384 Oil & Gas companies are not rated by the “Big Three” credit rating agencies and the majority of these entities are in the high yield category. Exhibit 4.1.2 shows that compared to all corporates distribution there are more Oil and Gas companies in high yield categories b and ccc. The Dow Jones Oil & Gas Titans Index represents the largest companies in the industry; Credit Benchmark data covers 29 of the 30 constituents6  . Exhibit 4.2 shows the time series of the Titans index compared with the average CBC of these constituents. Exhibit 4.2 Dow Jones Oil & Gas Titans 30 Index and Equivalent Average CBC This shows that the Dow Jones Oil & Gas Titans 30 Index has risen more than 20% since January 2016. Over the same period there has been deterioration in the typical credit standing of 29 of these companies. The average rating has fallen one notch from a- to bbb+ over the last year, with 17 out of the 29 entities in the CB dataset showing downgrades7  . › Source: Bloomberg Finance L.P., Credit Benchmark. Exhibit 4.3 shows credit risk trends in different sectors of the Oil & Gas industry. Exhibit 4.3 Credit Risk Trends for Oil & Gas Sectors Exhibit 4.3.1 CBC by Sector Exhibit 4.3.2 Upgrades and Downgrades July 2016 – March 2017 Exhibit 4.3.1 shows deterioration in credit risk in all Oil & Gas sectors except Integrated Oil & Gas. The average CBC for Exploration & Production and Oil Equipment & Services increased by 0.3-0.5 of a notch. The largest deterioration can be observed in the Pipelines sector, where the average CBC notch increased by 1.5 over the last 9 months.  Exhibit 4.3.2 shows that downgrades outnumber upgrades in all sectors. 12 out of 35 companies in Pipelines sector were downgraded while only 4 were upgraded. For Oil Equipment & Services, there are 17 downgrades compared with 3 upgrades.  Exhibit 4.4 shows the relationship between actual and synthetic8  CDS spreads for the 26 quorate Dow Jones Oil & Gas Titans constituents. Exhibit 4.4 Actual and Synthetic CDS in March 2017 This chart shows the current risk premium (i.e. the difference between risk neutral (i.e. market implied) and real world PDs). If the risk premium is zero, then all of the plotted points will lie on the red line.  Exhibit 4.5 shows the risk premiums by CBC category for the Dow Jones Oil & Gas Titans quorate entities for the period April 2016 to March 2017, as implied by the O&G CDS market. The risk premium is calculated here as the difference between actual and synthetic CDS. It can be viewed as the ‘Market Price of Risk’, a combination primarily of short-term credit adjustments (Point in Time vs. Through the Cycle) and liquidity premiums, as well as a residual term which contains a range of additional second order effects. Exhibit 4.5 Risk Premiums Time Series by Credit Category › Source: Bloomberg Finance L.P., Credit Benchmark This shows that the risk premium is a positive function of credit risk. The risk premium across all credit categories has been decreasing over the past year, but remains positive, suggesting that the industry credit cycle is moving closer to a recovery. A change to a negative risk premium will represent a key turning point.  With suitable transition matrices, it is possible to estimate PD term structures for different credit classes over time, with applications for the implementation of IFRS9 and CECL accounting requirements. In particular, the transition matrix approach can be combined with the risk premium analysis shown here to derive Point in Time and Through the Cycle term structures. 5. Comparison with Risk Factors One of the key advantages of the bank-sourced dataset is that it provides a very large set of Ex Ante PDs. Traditionally, researchers who wanted to understand the relationship between financial fundamentals and default risk have had to rely on sparse Ex Post default history or market data.  With very granular, monthly, PD estimates across a large range of obligors, the Credit Benchmark dataset can be used to test correlations between PDs and a range of macro- (systematic) and micro- (company specific) factors.  Exhibit 5.1 shows the credit risk trends for North American companies in the Exploration and Production (“E&P”) and Integrated sectors. Exhibit 5.1 Oil Price and Credit Risk Metrics Exhibit 5.1.1 Average Credit Risk and Oil Price › Source: Bloomberg Finance L.P., Credit Benchmark Exhibit 5.1.2 Up/Downgrades and Oil Price Changes › Source: Bloomberg Finance L.P., Credit Benchmark This shows that the credit quality of E&P and Integrated O&G companies in North America has continued to deteriorate, despite rising oil prices. The number of downgrades exceeds the number of upgrades in 10 out of the 12 months plotted here. The oil price drop had a significant impact on industry capital expenditure (“capex”). Exhibit 5.2 shows the change in capital expenditures of 144 oil and gas public companies. Exhibit 5.2 CAPEX and Brent Spot Price › Source: FactSet This appears to suggest a one year lag in the reaction of capital expenditures to oil price changes. The Evercore and Cowen and Co. Capex budget survey for 2017 reports that more than 70% of interviewee companies expect to increase their capital expenditure this year, in line with the recent recovery in oil prices.  Exhibit 5.3 shows the relationship between capex and credit risk.  Exhibit 5.3 Average CAPEX and Credit Benchmark Consensus › Source: FactSet, Credit Benchmark This suggests that investment grade companies show a clear negative relationship between capital expenditure and credit quality. For high yield companies, the relationship is more mixed and one of the highest levels (and ranges) is in the bb- category.  Exhibit 5.4 shows relationship between change in CAPEX between years 2015 and 2016 and change in probability of default between years 2016 and 2017 on company level. Exhibit 5.4 Change in CAPEX and Change in Credit Risk › Source: FactSet This appears to show a mildly negative relationship between annual change in credit quality and the preceding change in capital expenditures, but in practice there are probably two opposing forces involved. Companies that can cut capex quickly are typically viewed as better credit risks, but companies that can afford to maintain capex in downturns are typically better positioned for the early stages of any upswing. These opposing effects may be the reason for the lack of overall strong relationship. 9   Exhibit 5.5 shows the relationship between Net Debt to Total Assets ratio and individual CBCs. Exhibit 5.5 Net Debt to Net Assets Ratio vs. CBC › Source: FactSet, Credit Benchmark This shows a mildly positive correlation between Net Debt to Total Assets ratio and CBCs. 6. Corporate Structures The Credit Benchmark dataset includes Parent as well as Operating Subsidiary legal entities for a large number of corporate families. This provides detailed credit views across corporate structures. Exhibit 6.1 shows the corporate structure of Shell entities in Credit Benchmark quorate dataset, their CBCs, PDs and countries of risk. Exhibit 6.1 Shell Corporate Structure Exhibit 6.2 shows credit trends for chosen entities from the Shell family. Exhibit 6.2 Shell Family Credit Trends The credit risk profile of Royal Dutch Shell plc deteriorated over the last year as the company was downgraded from aa- to a+. The subsidiary with most significant deterioration in credit risk over the last year has been Shell Oil Co that has been downgraded from aa to bbb. The risk profiles of other subsidiaries were relatively stable over the last year. 7. Single Name Analysis For each quorate obligor, the CBC indicates the credit category corresponding to the consensus PD estimate, which is an average across a number of contributions.  Exhibit 7.1 shows the Credit Benchmark Consensus and company information for California Resources Corporation.10   Exhibit 7.1 California Resources Corporation Analysis 8. Equity Market Comparision Within the Credit Benchmark Oil & Gas universe, 144 out of the 384 entities in the dataset have publicly traded equities in issue. 11   Exhibit 8.1 shows the relationship between equity price changes and CBC. Exhibit 8.1.1 compares the CBC level with the one-year share price change. Exhibit 8.1.2 compares the CBC change with the one-year share price change, over the same period. Exhibit 8.1 Equity Market Comparison Exhibit 8.1.1 Stock Price Changes vs. CBC Level  › N.B. Stock price changes are averaged across CBC 21 categories Exhibit 8.1.2 Equity Price Changes vs. CBC Change › N.B. Stock price changes are averaged across CBC 21 categories In general, the relationship between credit risk and equity price will depend on the prevailing risk appetite regime. During ‘Risk On’ phases, high-risk assets will show the best performance; during ‘Risk Off’ phases, they will underperform. CBCs reflect a longer-term view of credit risk over an entire credit cycle, so they can provide a clear distinction between high- and low- beta stocks, provided that an investor has a clear view about the prevailing risk regime.  Since CBCs are also available for private companies, they provide some indication of the credit risk of companies that may be planning an IPO, either directly or by comparison with their peer group.  9. Industry Transition Matrices Exhibit 9.1 shows the (January 2016-January 2017) transition matrices for the global oil and gas industry and global corporates.  Exhibit 9.1 Annual Transition Matrices Exhibit 9.1.1 Global Oil and Gas Exhibit 9.1.2 Global Corporates These show that over this period, the oil and gas industry shows a higher frequency of downgrades and a lower frequency of upgrades compared with global corporates.  The proportion of companies emerging from the ‘c’ category is about the same for the oil industry and the global corporate sample. For IFRS9 and CECL purposes, this type of industry-specific matrix can be used in two ways: › To determine that the credit environment in a sector has experienced the ‘significant’ deterioration, one of the key IFRS9 conditions for assessing the need for lifetime impairment estimation  › To derive cumulative, real-world PD term structures as base-level benchmarks for IFRS9 and CECL impairment estimates These transition matrices are based on Through-the-Cycle / Hybrid (“TTCH”) estimates. These are responsive to structural changes in industry credit cycles, but are not as sensitive and volatile as Point-in-Time (“PIT”) and marketimplied estimates.  It should be noted that there is scope to derive consistent PIT matrices by ‘perturbing’ TTCH matrices using market risk metrics such as equity and bond market volatility, liquidity and credit spreads. Ideally, such an approach should make use of industry-specific data where it is available. 10. Sample Tear Sheet using Credit Benchmark Excel API Exhibit 10.1 shows a typical sector tear sheet, constructed using the Credit Benchmark Excel API. This and other templates are available to download; they can be used directly or can be modified to allow combinations of their own data with the bank-sourced data set.  Credit Benchmark Product Specialists can also construct bespoke spreadsheets to suit individual client workflow requirements. Exhibit 10.1 Oil and Gas Sector Sample Tear Sheet using Credit Benchmark Excel API 11. Conclusions This report has looked at credit trends across the global oil and gas industry using bank-sourced data for the past year. It covers 384 quorate obligors, and includes additional contributed data in aggregate form. It shows that: The sharp drop in the oil price in 2014 - 2015 led to a deterioration in through-the-cycle industry credit quality, and that deterioration has continued into 2017. Breakeven production costs vary considerably by country, but have limited value in explaining Sovereign or company credit risk. Oil prices and futures volumes show weak linkages, and some large recent price movements appear to have been independent of production trends. As might be expected, rig counts in North America show the greatest volatility, with the number of rigs dropping immediately when prices drop, but increasing with a lag of several months when oil prices rise. The distribution of credit quality for the oil and gas industry is more concentrated in high risk categories compared to the global corporate distribution. The transition matrix for the oil industry over the past year also shows a higher frequency of downgrades and a lower frequency of upgrades compared with global corporates. The oil industry has shown declines in credit quality in the past year, measured both by average credit quality as well as by downgrades, which outnumber upgrades in every sector of the industry. These trends have continued in 2017, especially in the oil equipment sector. Credit risk of major global oil companies has deteriorated by one full notch over the past year, from a- to bbb+. During the same period, the equity prices of those same companies had risen by, on average, 20%. However, the ‘flash crash’ in oil prices at the beginning of May 2017 has triggered a renewed bout of volatility and underperformance in oil stocks. Short-term credit risk measured by CDS spreads has been dropping relative to long term, through-the-cycle credit risk. It is possible that the difference – the short term credit risk premium - will turn negative in coming months, which may indicate that the oil industry credit cycle is moving closer to a trough. Credit risk shows a moderately positive correlation with the Net Debt to Total Assets ratio. The weak relationship may in part reflect the value of capital expenditure in maintaining the credit standing of oil companies. Credit quality and capital expenditure (“capex”) are linked, but there is only a mildly negative relationship between changes in credit risk and changes in capex. Companies that can cut capex quickly are typically viewed as good credit risks, but companies which can afford to maintain capex during downturns will tend to have good credit standing and will be early beneficiaries of any upturn. Over the past year, equity price performance has been strongest for issuers with the lowest credit quality. Within each credit category, companies with the largest increase in credit risk have tended to underperform those with the smallest increase in credit risk. This tendency is only noticeable in the extremes of the sample; in general, the relationship between credit quality and share price performance will depend on the overall market risk appetite, summarized as ‘risk on’ or ‘risk off’. It does suggest that during the ‘risk on’ phase, the market will favour non-investment grade companies with stable credit risk, compared with those where credit risk has deteriorated. Appendix 1  Credit Benchmark Consensus (“CBC”) Breakpoints Appendix 2 Quorate Oil & Gas Companies (April 2017)ACTEON GROUP LTD ADVANCED INSULATION LTD AECO GAS STORAGE PARTNERSHIP ALTAGAS LTD ALTAGAS SERVICES US INC AMEC FOSTER WHEELER PLC AMERIGAS PROPANE LP ANADARKO PETROLEUM CORP ANTERO RESOURCES CORP APACHE CORP APACHE NORTH SEA LTD APT PIPELINES LTD ARC RESOURCES LTD ARCHROCK SERVICES LP ASCO ACQUISITIONS LTD ATCO ENERGY SOLUTIONS LTD AUTOBAHN TANK & RAST HOLDING GMBH BAKER HUGHES INC BAYTEX ENERGY CORP BAYTEX ENERGY USA INC BG ENERGY HOLDINGS LTD BHARAT PETROLEUM CORP LTD BLACK STONE MINERALS CO LP BOARDWALK PIPELINE PARTNERS LP BOARDWALK PIPELINES LP BONAVISTA ENERGY CORP BP CAPITAL MARKETS PLC BP CORPORATION NORTH AMERICA INC BP ENERGY CO BP GAS MARKETING LTD BP INTERNATIONAL LTD BP OIL INTERNATIONAL LTD BP PLC BP PRODUCTS NORTH AMERICA INC BP SINGAPORE PTE LTD CABOT OIL & GAS CORP CALIFORNIA RESOURCES CORP CALLON PETROLEUM CO CAMERON INTERNATIONAL CORP CANADIAN ENERGY SERVICES LP CANADIAN NATURAL RESOURCES LTD CARGILL POWER MARKETS LLC CARRIZO OIL & GAS INC CASTLETON COMMODITIES MERCHANT TRADING LP CENOVUS ENERGY INC CHALMETTE REFINING LLC CHENIERE CORPUS CHRISTI HOLDINGS LLC CHEVRON CORP CHEVRON USA INC CHINA NATIONAL CHEMICAL CORP CHINA NATIONAL PETROLEUM CORP CHINA PETROCHEMICAL CORP CHINAOIL HONG KONG CORP LTD CIVEO CANADA INC CIVEO PTY LTD CNOOC LTD CNPC FINANCE HK LTD CNR INTERNATIONAL UK LTD CNX GAS CO LLC COASTAL CHEMICAL CO LLC COLUMBIA PIPELINE GROUP INC CONE MIDSTREAM PARTNERS LP CONOCOPHILLIPS CONOCOPHILLIPS CO CONOCOPHILLIPS TREASURY LTD CONSOL ENERGY INC COSAN LUBRIFICANTES E ESPECIALIDADES SA COSAN SA INDUSTRIA E COMERCIO CRESCENT POINT ENERGY CORP CRESCENT POINT RESOURCES PARTNERSHIP CRESTWOOD MIDSTREAM PARTNERS LP CROSSAMERICA PARTNERS LP CSI COMPRESSCO LP CST BRANDS INC DANA PETROLEUM LTD DCC TREASURY IRELAND 2013 LTD DCP MIDSTREAM LLC DCP MIDSTREAM OPERATING LP DELAWARE CITY REFINING CO LLC DELEK LOGISTICS PARTNERS LP DELEK REFINING LTD DENBURY RESOURCES INC DEUTSCHE RASTSTAETTEN HOLDING GMBH DEVON CANADA CORP DEVON ENERGY CORP DEVON ENERGY PRODUCTION CO LP DEVON NEC CORP DIAMOND OFFSHORE DRILLING INC DOMINION MIDSTREAM PARTNERS LP ECOPETROL SA EDISON TRADING SPA EMPRESA NACIONAL DEL PETROLEO SA ENBRIDGE ENERGY PARTNERS LP ENBRIDGE GAS DISTRIBUTION INC ENBRIDGE INC ENBRIDGE INCOME FUND ENBRIDGE PIPELINES INC Quorate Oil & Gas Companies (April 2017)ENBRIDGE RISK MANAGEMENT INC ENBRIDGE US INC ENCANA CORP ENERFLEX LTD ENERGEN CORP ENERGY TRANSFER EQUITY LP ENERGY TRANSFER PARTNERS LP ENERPLUS CORP ENI SPA ENI TRADING & SHIPPING SPA ENLINK MIDSTREAM LLC ENLINK MIDSTREAM PARTNERS LP ENQUEST PLC ENSCO PLC ENTERPRISE PRODUCTS OPERATING LLC EOG RESOURCES INC EP ENERGY LLC EPCO HOLDINGS INC EQT CORP EQT ENERGY LLC EQT PRODUCTION CO ERA GROUP INC ESSAR OIL UK LTD ESSO THAILAND PUBLIC CO LTD EV PROPERTIES LP EXPRESS ENGINEERING OIL & GAS LTD EXXON MOBIL CORP EXXONMOBIL CAPITAL NETHERLANDS BV EXXONMOBIL SALES & SUPPLY LLC FMC TECHNOLOGIES INC FORMOSA PETROCHEMICAL CORP FORUM ENERGY TECHNOLOGIES INC FUGRO NV GAIL INDIA LTD GAS NETWORKS IRELAND GASLOG LTD GAZPROM MARKETING & TRADING LTD GAZPROM PJSC GEG MARINE & LOGISTICS LTD GENESIS ENERGY LP GIBSON ENERGY INC GIBSON ENERGY ULC GLENCORE SINGAPORE PTE LTD GRAN TIERRA ENERGY INTERNATIONAL HOLDINGS LTD GREATSHIP INDIA LTD GREENERGY FUELS LTD GRUPA LOTOS SA GS CALTEX CORP GS CALTEX SINGAPORE PTE LTD GULFPORT ENERGY CORP HALLIBURTON CO HALLIBURTON ENERGY SERVICES INC HANWHA TOTAL PETROCHEMICAL CO LTD HARVEST OPERATIONS CORP HELMERICH & PAYNE INC HESS CORP HESS INFRASTRUCTURE PARTNERS LP HGIM CORP HINDUSTAN PETROLEUM CORP LTD HOLLY ENERGY PARTNERS OPERATING LP HOLLYFRONTIER CORP HUNTING KNIGHTSBRIDGE HOLDINGS LTD HUNTING PLC HUSKY ENERGY INC HUSKY OIL OPERATIONS LTD HYDRASUN GROUP ACQUISITIONS LTD HYUNDAI OILBANK CORP ICHTHYS LNG PTY LTD INDIAN OIL CORP LTD JONAH ENERGY LLC KEYERA PARTNERSHIP KEYSPAN GAS EAST CORP KINDER MORGAN ENERGY PARTNERS LP KINDER MORGAN INC KOCH GLOBAL PARTNERS LLC KOCH RESOURCES LLC KOCH SUPPLY & TRADING LP KUWAIT FOREIGN PETROLEUM EXPLORATION CO KSC LEGACY RESERVES LP LSF9 ROBIN INVESTMENTS LTD LUNDIN PETROLEUM AB MARATHON OIL CORP MARATHON PETROLEUM CORP MERCURIA ENERGY TRADING SA MIDSTATES PETROLEUM CO LLC MIECO INC MITSUI & CO LTD MOTIVA ENTERPRISES LLC MPLX LP MRC ENERGY CO MURPHY CANADA LTD MURPHY OIL CORP NABORS INDUSTRIES INC NATIONAL FUEL GAS CO NATIONAL OILWELL VARCO INC NAUTICAL SOLUTIONS LLC Quorate Oil & Gas Companies (April 2017)NESTE CORP NEW YORK STATE ELECTRIC & GAS CORP NEWFIELD EXPLORATION CO NEXEN ENERGY ULC NICOR GAS CO NOBLE AMERICAS CORP NOBLE AMERICAS GAS & POWER CORP NOBLE ENERGY INC NOBLE GROUP LTD NOBLE RESOURCES UK LTD NORSEA PIPELINE LTD NORTH WEST REDWATER PARTNERSHIP INC NORTHERN BLIZZARD RESOURCES INC NORTHERN GAS NETWORKS LTD NSMP TGPP LTD NUSTAR LOGISTICS LP OCCIDENTAL PETROLEUM CORP OCEANEERING INTERNATIONAL INC OIL STATES INTERNATIONAL INC OMAN OIL CO SAOC OMV AG OMV SUPPLY & TRADING LTD ONEOK PARTNERS LP PAN AMERICAN ENERGY LLC, AR PARKER DRILLING CO PATTERSON UTI ENERGY INC PAULSBORO REFINING CO LLC PBF HOLDING CO LLC PBF LOGISTICS LP PDC ENERGY INC PEMBINA PIPELINE CORP PENGROWTH ENERGY CORP PENN VIRGINIA HOLDING CORP PENN WEST PETROLEUM LTD PERENCO PETROLEUM LTD PERENCO PLC PERENCO SA PETROBRAS GLOBAL TRADING BV PETROBRAS INTERNATIONAL BRASPETRO BV PETROBRAS NETHERLANDS BV PETROCHINA INTERNATIONAL LONDON CO LTD PETROFAC INTERNATIONAL LTD PETROFAC INTERNATIONAL UAE LLC PETROFAC LTD PETROINEOS TRADING LTD PETROLEO BRASILEIRO SA PETROLEOS MEXICANOS SA PETROLIAM NASIONAL BHD PETRON CORP PEYTO EXPLORATION & DEVELOPMENT CORP PHIBRO COMMODITIES LTD PHILLIPS 66 PHILLIPS 66 CO PHILLIPS 66 LTD PHILLIPS 66 PARTNERS LP PIONEER NATURAL RESOURCES CO PIONEER NATURAL RESOURCES USA INC PLAINS ALL AMERICAN PIPELINE LP PLAINS MARKETING LP PLAINS MIDSTREAM CANADA ULC PMI TRADING LTD POLSKI KONCERN NAFTOWY ORLEN SA PRAX PETROLEUM LTD PRECISION DRILLING CORP PTT EXPLORATION & PRODUCTION PLC PTT PUBLIC CO LTD PTTEP OFFSHORE INVESTMENT CO LTD RAIZEN COMBUSTIVEIS SA RAIZEN ENERGIA SA RANGE RESOURCES CORP REGIE AUTONOME DES TRANSPORTS PARISIENS, FR RELIANCE INDUSTRIES LTD REPSOL EXPLORACION SA REPSOL INTERNATIONAL FINANCE BV REPSOL OIL & GAS CANADA INC REPSOL SA REPSOL SINOPEC BRASIL SA REPSOL TESORERIA & GESTION FINANCIERA SA RICE ENERGY OPERATING LLC ROS VIT LTD ROSNEFT OIL CO ROWAN COS INC ROYAL DUTCH SHELL PLC RUBY PIPELINE LLC SAIPEM SPA SANTOS FINANCE LTD SANTOS LTD SASOL FINANCING INTERNATIONAL PLC SASOL LTD SAUDI ARABIAN OIL CO SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL CO SCHLUMBERGER FINANCE BV SCHLUMBERGER HOLDINGS CORP SCHLUMBERGER INVESTMENT SA SCHLUMBERGER NORGE AS SCHLUMBERGER NV Quorate Oil & Gas Companies (April 2017)SCHLUMBERGER PLC SCHLUMBERGER SA SCHLUMBERGER TECHNOLOGY CORP SCORE GROUP PLC SECURE ENERGY SERVICES INC SEMGROUP CORP SESI LLC SHELL ENERGY NORTH AMERICA US LP SHELL INTERNATIONAL EASTERN TRADING CO SHELL INTERNATIONAL FINANCE BV SHELL OIL CO SHELL PETROLEUM CO LTD SHELL TRADING INTERNATIONAL LTD SHELL TREASURY CENTRE EAST PTE LTD SHELL TREASURY CENTRE LTD SHELL UK LTD SHOWA SHELL SEKIYU KK SINOCHEM INTERNATIONAL OIL LONDON CO LTD SINOPEC CENTURY BRIGHT CAPITAL INVESTMENT LTD SK INNOVATION CO LTD SK LUBRICANTS CO LTD SM ENERGY CO SOUTHWESTERN ENERGY CO SPECTRA ENERGY CAPITAL LLC SPECTRA ENERGY CORP SPECTRA ENERGY PARTNERS LP STATE OIL LTD STATOIL ASA SUNCOR ENERGY INC SUNCOR ENERGY INTERNATIONAL TRADING LTD SUNCOR ENERGY MARKETING INC SUNCOR ENERGY UK LTD SUNOCO LOGISTICS PARTNERS LP SUNOCO LOGISTICS PARTNERS OPERATIONS LP SUNOCO LP TALISMAN SINOPEC ENERGY UK LTD TALLGRASS ENERGY PARTNERS LP TARGA RESOURCES CORP TARGA RESOURCES PARTNERS LP TECHNIP EUROCASH SNC TECHNIP FRANCE SA TECPETROL SA TESORO CORP THAI OIL PUBLIC CO LTD TOLEDO REFINING CO LLC TOTAL CAPITAL SA TOTAL E&P NORGE AS TOTAL GAS & POWER NORTH AMERICA INC TOTAL SA TOTAL TREASURY TOTSA TOTAL OIL TRADING SA TRAFIGURA BEHEER BV TRAFIGURA CANADA GENERAL PARTNERSHIP TRAFIGURA DERIVATIVES LTD TRAFIGURA GROUP PTE LTD TRAFIGURA PTE LTD TRANSCANADA AMERICAN INVESTMENTS LTD TRANSCANADA PIPELINE USA LTD TRANSCANADA PIPELINES LTD TRANSOCEAN INC TRILOGY ENERGY CORP TRINIDAD DRILLING LTD TULLOW OIL NORGE AS TULLOW OIL PLC TULLOW OIL SPE LTD TURKIYE PETROL RAFINERILERI AS UNIPEC ASIA CO LTD UNIPER GLOBAL COMMODITIES SE USAC LEASING LLC VALERO ENERGY CORP VALERO ENERGY PARTNERS LP VALERO MARKETING & SUPPLY CO VALLOUREC INC VALVOLINE INC VELOSI EUROPE LTD VERESEN INC VERMILION ENERGY INC VETCO GRAY CONTROLS LTD VITOL INC VITOL SA VIVA ENERGY HOLDING PTY LTD WEATHERFORD INTERNATIONAL PLC WESSEX PETROLEUM LTD WESTERN GAS PARTNERS LP WHITECAP RESOURCES INC WHITING OIL & GAS CORP WILLIAMS COS INC WILLIAMS PARTNERS LP WOLF MIDSTREAM INC WOOD JOHN GROUP PLC WORLEYPARSONS CANADIAN FINANCE SUB LTD WORLEYPARSONS FINANCIAL SERVICES PTY LTD WORLEYPARSONS LTD WPX ENERGY INC XTO ENERGY INC Collective Intelligence for Global Finance Credit Benchmark is an entirely new source of data in credit risk. We pool PD and LGD estimates from IRB banks, allowing them to unlock the value of internal ratings efforts and view their own estimates in the context of a robust and incentive-aligned industry consensus. The resultant data supports banks’ credit risk management activities at portfolio and individual entity level, as well as informing model validation and calibration. The Credit Benchmark model offers full coverage of the entities that matter to banks, extending beyond Sovereigns, banks and corporates into funds, Emerging markets and SMEs. We have prepared this document solely for informational purposes. You should not definitely rely upon it or use it to form the basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise. 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We undertake no obligation to update any of the information contained in this document.  Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Notes: Download the article "Oil and Gas Industry Trends" on PDF. More from Credit Benchmark We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn more. Reporting was contributed by Barbora MakovaJacob HibbertAleem IlyasDavid Carruthers Footnotes 1 See Appendix 22 Based on Probability of Default estimates from 3 or more contributing banks.3 The ‘Wisdom of Crowds’ was initially observed by Francis Galton and is the basis for the value in crowdsourced datasets. It is the popular version of the Diversity Prediction Theorem which can be stated as: “The squared error of the collective prediction equals the average squared error minus the predictive diversity” - implying that if the diversity in a group is large, the error of the crowd is small.4 The Credit Benchmark Consensus (“CBC”) is a 21-category scale explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s.5 Along with Dubai/Oman, these provide the reference prices for the main traded futures contracts.6 26 are fully quorate (3 or more banks contribute risk estimates) and 3 are semi-quorate (2 banks contribute risk estimates).7 Divergent views between equity markets and bank credit views have recently appeared in several markets. See “Stockmarkets are confident, banks not so much”, The Economist, 10th February 2017 for an example using Credit Benchmark data.8 Calculated from the Ex-Ante Probability of Default and Loss Given Default estimates published by Credit Benchmark.9 Several outliers with % PD change larger than 500% are excluded.10 S&P data for August is shown as a blank due to Selective Default status in that month.11 The 144 entities included in this sample reflect a mixture of those that have been present for the full period and those that were added over the course of the year. Restricted Distribution Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### March Credit Update: Downgrades And Upgrades Balanced; Coverage Includes Saudi Aramco We have published credit data for March, with 12 contributor banks now providing crowd-sourced credit views (CBCs*) on more than 8,200 separate legal entities. Sovereign coverage now includes Government of Brunei Darussalam. Other additions include Saudi Arabian Oil Company, Banca Popolare di Bari, China ZheShang Bank, Cheniere Energy, Mueller Industries, Canada Goose, Parques Reunidos Servicios Centrales, Baker & McKenzie LLP, and The Bankers Investment Trust PLC. Over the month, 251 obligors improved their credit standing by at least one notch, and 276 deteriorated. 80 moved more than 1 notch. Compared with the previous month, downgrades and upgrades are now more in balance, with a small decrease on notch changes of more than 1: the February data showed that 156 improved, 282 deteriorated, and 96 moved by more than 1 notch, out of approximately 8,100 obligors. Upgrades dominate downgrades in 6 out of 9 reported industries. The most significant improvement of credit quality occurred in Utilities with 13 upgrades and 7 downgrades, Health Care with 7 upgrades and 2 downgrades and Basic Materials with 19 upgrades and 11 downgrades. Industries with deteriorating credit ratings include Telecommunications with 5 downgrades and 1 upgrades and in Industrials with 44 downgrades and 28 upgrades. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Understanding The Credit Benchmark Consensus (CBC) Indicator Introducing the CB Specialist series, a monthly chat with various thought leaders across the Credit Benchmark community. In today's post, David Carruthers, Head of Research at Credit Benchmark breaks down the basics of the Credit Benchmark Consensus indicator (CBC). The CBC is a 21-category scale explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody's. Q1: How is the CBC derived? DC: The CBC is similar to the scales used by the large rating agencies, but it is explicitly linked to Probability of Default (PD). Quorate PDs are mapped to their appropriate CBC category. The PD breakpoints and midpoints for the CBC scale are based on the PD-rating scales used by IRB banks; summaries of these are available in published Pillar 3 reports. The CBC breakpoints are designed to maximize the fit between the single CBC scale and the various published bank scales. These breakpoints are regularly reviewed with the CB methodology committee. Q2: What do you mean by Quorate?  DC: Quorate PDs are those derived from three or more PD estimates for the same legal entity. This ‘rule of three’ is similar to that used for bond prices by Bloomberg, and CDS prices by IHS-Markit. It is intended to preserve contributor anonymity by preventing scope for reverse engineering. Q3: How is a CBC indicator different from a credit rating from one of the "Big Three" credit rating agencies (CRAs) DC: The CBC uses an explicit quantitative mapping from PD to credit category. CRAs are required by regulators to publish a qualitative description of their ratings, although they also publish ex-post default frequencies for each category. Q4: With these differences in mind, what is the unique value of the CBC vs. the CRAs - whether on its own merit or alongside the CRA ratings?  DC: The CBC is closely correlated with CRA ratings which gives users a high degree of confidence in the measure, although the CBCs tend to be slightly more conservative. The main value is in the extension of the CBC to unrated obligors, where there would otherwise be no credible standard for measuring credit risk. Q5: What might practitioners be missing if they are not currently factoring CBC indicators in their analyses?  DC: The value of CBCs is derived from the high frequency of updates, clear trends and early warning of changes in credit status. Contributing banks have a strong financial interest in the accuracy of each PD. This helps the CBC to establish a true market view of credit risk which can be credibly extended to unrated entities. Q6: Finally, what are the use cases for the CBC and related Credit Benchmark data within the industry?  DC: There are various use cases, including: • Counterparty selection: determine accuracy of credit risk across a large set of unrated counterparties• Benchmarking loan books: evaluate whether credit risk is being priced correctly• Capital management: See where capital allocation is sufficient/insufficient across various parts of the business; and assess the influence of PD estimates on expected losses• Pricing: Extend pricing to illiquid instruments with comparisons of the CBCs (based on real world probabilities of default) to market implied probabilities• Credit Trend Monitoring: monitor and track consensus view on a counterpart’s credit health• Macro Analysis: Macro analysis by industry and geography• Portfolio Monitoring: Monitor risk estimate differences between own portfolio and bank consensus view, by geography or industry• Supply Chain Risk Analysis: Track credit health across a company’s supply chain• Business Planning: Portfolio analytics to support business planning decisions• Obligor Screening: Screen and filter for obligors based on credit quality and other metrics• Model Validation and Calibration: Fine-tune credit risk model assumptions• Regulatory Interaction: Pinpoint and identify where bank PD estimates deviate substantially vs peers, ahead of regulatory reporting• Trading: Compare Market Implied PD vs Credit Benchmark Real World PD• Credit Pricing Validation: Credit pricing validation for trading Would you like to see what the banks think about a particular name or sector? Send an email with your specific request to info@creditbenchmark.com. See Credit Benchmark Blogs for the latest CBC observations and individual indicators across various market sectors.. ### Risk.net: Monthly Credit Data Review "Credit risk data is widely available for sovereigns and large corporates, but updates are infrequent and smaller companies are often ignored." In this series of monthly articles from Risk.net, David Carruthers, head of research at Credit Benchmark, discusses monthly credit risk trends in rated and unrated obligors based on bank-sourced data. Read the full article here or in the May edition of Risk Magazine.   ### Crowd-Sourced Credit Transitions Transition matrices can provide considerable insight into the likely pattern of losses over various time horizons (see summary below) - providing support for compliance with the CECL and IFRS9 accounting rules that require banks and corporates to estimate potential downgrades over the entire life of a loan. A recent whitepaper published by Credit Benchmark, compares bank-sourced transition matrices with the traditional estimates published by the main credit rating agencies. The research, Crowd-Sourced Credit Transition Matrices, is available for instant download here. ### Bank Credit Analysts Turning Positive On Italy Despite Rising Yields And “Italexit” Risks The European Central Bank intends to cut the pace of quantitative easing from €80bn to €60bn from this month. This has hit some of Europe’s peripheral bond markets: the spread of benchmark Italian government bonds yields versus Bunds rose above 2% this week, the highest in more than three years. The ECB now owns more than 10% of the €210bn outstanding Italian government debt. However, the CBC* has improved over the past month. The Italian political environment remains challenging and concerns about “Italexit” have been increasing, with the populist anti-EU Five Star Movement leading the opinion polls. However, elections are not due until 2018 and are more likely to result in a hung Parliament; for the moment a fragile coalition is in place after the failed “Reform” referendum in November led to Renzi’s resignation in December. Negative views on Italian debt are understandable. Real GDP growth over the past 15 years is close to zero, and 2017 interest payments will consume 5.5% of GDP, the second highest in the Eurozone after Greece. However, the largest buyers of Italian government debt (other than the ECB) are domestic banks. UniCredit’s successful €13 billion rights issue in February has helped rebuild confidence in the financial sector with hope that the intractable problem of non-performing loans will be addressed. Stronger growth indicators across Eurozone are also having a positive impact in Italy: the March IHSMarkit Purchasing Managers’ Index was a healthy 56.2, up from 55.4. Since November 2016, bank-sourced views of Italian Sovereign credit risk have been increasingly positive. The CBC for Italy improved by a full notch last month. With the prospect of continued coalition governments as a hedge against “Italexit”, a stronger financial sector and an improving Eurozone growth outlook, Italy’s direct lenders seem to be taking an increasingly optimistic view. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Image Source: ECB Website CreditBenchmark.com ### Turkish Vote Potential Lose-Lose For Credit It has been hard not to make money in emerging markets during the first quarter of 2017. The JP Morgan Emerging Market Currency Index enjoyed its best return in five years (+4.2%). Emerging markets equities outperformed their developed market peers handily, with the MSCI EM index up 12.5% in dollar terms. Local currency bonds rose 6.5%. Turkey missed out on the party. The Turkish lira (TRL) was the worst performing significant EM currency (-3.3%) and it has fallen by more 25% in dollar terms since an attempted coup last July. The stock market has edged up, recovering most of the losses of 2016, but it is still a laggard among EM peers. The macro picture is poor. Inflation surged to 11% in March, the worst reading since 2008. Growth in 2016 was 2.9% year-on-year, compared to 6.1% in 2015. The tourism sector has been hit hard by the coup and its aftermath, as well as sporadic acts of terrorism. Turkey runs persistent current account and budget deficits and its banks have external liabilities of $180 billion (up from $60 billion in 2008). CBC* data shows that the overall probability of default has been relentlessly grinding higher since coverage began in 2015. By contrast, both Moody’s and S&P only downgraded Turkey following the aborted coup. Fitch waited to late January this year. The downgrading from investment grade to junk is a significant credit event as the main index tracked by bond investors, JP Morgan EMBI Diversified, is separated into investment grade and high yield sub-indices. Turkey carried a 7.2% weighting in the investment grade index. On Easter Sunday (16 April) Turks vote in a constitutional referendum called by the governing AK party, which has maintained its grip on power since 2002. The polling is close, but the outcome will do little to alter Turkey’s credit fundamentals. If the “yes” camp win, foreign investors may be put off by what looks like a power grab by an increasingly autocratic and unpredictable president, Recep Tayyip Erdogan. If there is a “no” vote it could sow the seeds of further political instability. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report.   ### Banks Sanguine Over “Frexit” Risk With the election looming, French bonds have been under increasing scrutiny. The spread of French 10-year government bonds over the equivalent German bund reached a four-year high of 90 basis points at the beginning of February, though it has been falling more recently. The volatility of French government bonds only finds a faint echo in their CBCs*. At the beginning of 2016 the Sovereign CBC for France dropped one notch. It has since remained stable and the aggregate probability of default has been edging down after peaking last September. This broad pattern is repeated for significant public sector entities, issuers backed by the French state, such as Caisse d’Amortissement de la Dette Sociale (CADES) and Caisse des Dépôts (CDC), and is in line with the broader trend in modest improvements in sovereign credit risk across most of the EU. This improving trend is particularly noticeable in Greece. The Brexit vote in the UK and the election of Donald Trump in the US surprised markets and since those upsets, markets have been wary of further signs of populist revolt against the political status quo. Bank sourced data can provide a clearer signal: in the run up to Brexit, the CBC was indicating a clear possibility of a "Leave" vote. The strong showing of National Front candidate, Marine Le Pen, in opinion polls ahead of the first rouhttps://www.creditbenchmark.com/credit-benchmark…-brexit-concerns/nd of the French presidential elections on 23 April has had a direct impact on bond markets because of her anti-European Union stance and call for a return to the franc. Redenomination risk has been clearly signaled by the outperformance of [French] Model CAC bonds. These are bonds issued after 1 January, 2013, subject to collective action clauses which demand a super majority (75%) of investors to vote in favour of a change in currency denomination. The gradual normalisation of French/ German sovereign bond spreads suggests markets are growing less concerned about Le Pen after the second round of the presidential election in May, and latest polls slightly favour Macron even in the first round. Bank-sourced data can provide early warning of changing trends but equally, as appears to be the case in France, it may provide a stable signal and a more balanced view beyond the short term volatility of market reactions. Image Source: FrontNational.com *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Credit Benchmark Data On France Cited In City AM Article Independent French candidate Emmanuel Macron has topped another Presidential election poll with his far-right rival Marine Le Pen set to visit Moscow on Friday. Macron will win 26 per cent of the vote in the first round, beating Le Pen by one percentage point, according to the poll for France Televisions carried out by Harris Interactive. Meanwhile another poll run daily by Opinionway shows Macron and Le Pen neck and neck in the first round. Both polls then show Macron, representing the En Marche party he founded, easily triumphing in the second round. Le Pen will visit to Russia at the personal invitation of the chair of the Russian parliament’s international relations committee, according to Tass, the Russian news agency. The visit underlines the right-wing candidate's alignment with Russia. Le Pen has repeatedly praised its leader Vladimir Putin, in contrast to the stridently pro-EU message espoused by the centrist Macron. The rise of Macron since the start of the year has reassured markets. The euro fell below $1.04 against the US dollar at the end of 2017, but has since risen to break through the $1.08 mark. The spread between German and French 10-year bond yields has narrowed to 62 basis points in the last week after Macron gave a steady performance during the first televised debate between the candidates. The yield (which moves inversely to price) on debt from the two countries has widened in recent months as investors have identified diverging political fortunes. However, banks have been upbeat about the prospects for the election. According to a measure of credit risk ratings by major banks compiled by Credit Benchmark there has been little chance of a Le Pen victory. The consensus rating given to French sovereign debt dropped one notch from AA to AA- at the start of 2016, but has seen no movement since then, implying there has been no increase in the risk of France defaulting. Le Pen is seen as a major risk to financial stability because of her anti-euro, protectionist platform. The National Front candidate had threatened to top the election’s first round, and is still widely expected to make the final two. However, Le Pen would face a big obstacle in winning the final run-off round in May. To read the original article, please click the link below View original article (external link) ### No Light Touch Regulation For Insurers Post-Brexit, But Flexible Approach To Illiquid Credit UK insurers hoping Brexit might signal a bonfire of regulations, particularly the onerous and complex requirements of the Solvency II directive, got a glimpse of what the future might hold at a seminar hosted by the London Business School this week. Sam Woods, deputy governor of the Bank of England and chief executive of the Prudential Regulation Authority (PRA), said that though, “some aspects of the [Solvency II] regime had been found wanting”, it was in “nobody’s best interests…to make wholesale changes.” Woods stressed that the data reporting requirements of Solvency II could not be fudged. Both the frequency and volume of data were crucial to the PRA delivering its twin objectives of protecting policyholders and the soundness of the insurance industry. He mooted that the Bank of England may also seek to produce an insurance equivalent of the new quarterly Statistical Release for the banking sector, based on data it received from firms . The first release has been pencilled in for this autumn. While emphasising the importance of frequent, high quality data, Woods also held out the possibility of a “series of tweaks and improvements” to regulation. One concern of UK life insurers has been the interpretation of the Matching Adjustment (MA), which gives a capital benefit if asset cashflows can be matched with liability cashflows. This is relatively straightforward to demonstrate for sovereign bonds and liquid credit, but less so for illiquid assets such as infrastructure debt and loans. Woods said given a “completely free hand” he would alter the MA to allow a wider definition of fixed and predictable. He estimated that by interpreting the regime “intelligently” the PRA had already delivered a £59 billion reduction in capital requirements to the industry. However, he also noted that illiquid securities and loans required specific skills in structuring, valuation and risk management, which have not been traditional areas of expertise for insurers. Woods was also keen to point out that the PRA had not gold plated Solvency II in relation to internal model approvals. He added that the quantitative indicators used by the PRA did not represent pass/ fail standards. He said: “Modelling credit risk is a complex business, subject to nuance and considerable expert judgement. Indeed, reasonable, knowledgeable experts might perfectly well disagree on some of the key assumptions.” Credit Benchmark publish consensus credit views (CBCs*) for a growing number of obligors, and the majority of these are unrated. The dataset also supports a diverse set of credit transition matrices which can be used to isolate liquidity risk premiums.  Contact us for more information. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. Image Source: Bank of England Website ### UK Sovereign Risk Rising Despite Strong Gilt Performance In 2009 the UK’s Debt Management Office (DMO) oversaw record gilt issuance of £227 billion ($275 billion). At the time, Pimco’s Bill Gross described UK government debt as resting on a “bed of nitroglycerin”. Since then, however, the total return for investors in gilts has been 60%. Gilts have benefitted from several tailwinds: the Bank of England’s quantitative easing programme; strong demand from pension funds aiming to “derisk” by hedging interest rate and inflation liabilities; and a generally improving economic and fiscal picture. Gilt issuance in 2016/2017 set to fall to £115 billion, the lowest in a decade. The FT recently reported that foreigners were heavy sellers of gilts in January, but they represent less than a quarter of all investors and the UK has not been their primary target: earlier this week, the yield on the 10-year gilt was 136 basis points lower than the equivalent US Treasury, the biggest spread since 1992. However, there are reasons for all investors to be cautious. In the run-up to the Brexit referendum the CBC* for the UK Government dropped one notch. The underlying probability of default estimated by banks recovered after the vote, but it is now reaching new highs. By contrast, overall sovereign credit quality in Europe is improving. This is reflected in credit default swaps, where the five-year cost of insuring against UK Sovereign default jumped from 33 basis points to 50 basis points in the immediate aftermath of the Brexit vote. It has since edged lower, though it is still higher than it was in 2015. Since the Brexit vote, Sterling has dropped 18% against the US dollar. Although this weakness is primarily due to uncertainty about the outcome of the negotiations with the EU, it is also being driven by the divergence of monetary policy compared with the US. While the Federal Reserve has paused quantitative easing and is now in the process of normalizing interest rates, the Bank of England has voted today to delay any rate rise despite record employment levels and rising inflation. Gilt issuance may be low, but bank-sourced data shows growing uncertainty over the credit impact of a hard Brexit and possible monetary tightening.   *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Credit Benchmark At RiskMinds Insurance In Amsterdam This Week Credit Benchmark are at the RiskMinds Insurance conference at the Hotel Okura in Amsterdam this week. Mahim Mehra and team are around all day today and tomorrow, and David Carruthers  the latest bank-sourced data and research on Wednesday. David’s presentation will show the current data coverage and discuss some of the current use cases for the data. These include applications for Transition Matrices in IFRS9, CECL and CCAR analysis; links between credit data and financial markets, use of credit data as an early warning signal, and the development of credit indices. ### Credit Benchmark To Discuss The Role Of Crowdsourced Credit Data In Insurance At RiskMinds Insurance London, 8th March 2017 - David Carruthers, Head of Research at Credit Benchmark, will be speaking about ‘Recent Developments in Crowd-Sourced Credit Risk Benchmarking’ at RiskMinds Insurance at Hotel Okura, Amsterdam at 2.35pm on Wednesday March 15th. With insurance companies around the world facing major challenges, from record low interest rates and low annuity rates, to a climate of rising political instability, to regulatory pressure especially under Solvency II, there is a growing need for reliable data around all asset classes to reduce risk. One of the key challenges for insurance companies is that this data is very sparse and difficult to estimate for new asset classes and illiquid assets, raising issues for both regulators as well as insurance companies. “Access to reliable and robust data for all asset classes is creating challenges for insurance companies around the world as they face greater regulatory scrutiny and testing market conditions,” said Carruthers. “With a growing trend towards more esoteric and illiquid assets, and a lack of available credit data, insurance firms are looking for new ways to assess the credit risk of their investments. Credit estimates are required for a growing number of assets.” Credit Benchmark uses the aggregated wisdom of bank credit analysts to provide credit estimates for a growing number of obligors, many of which are unrated by the major agencies. Since this data is provided by IRB banks, it is subject to exacting levels of scrutiny and regulation. Insurance companies can use this data to assess their own credit risk, that of their counterparts and investments, as well as providing a benchmark for their own internal models. ### Central Counterparty Credit Risks Show Significant Variation Outstanding derivative contracts are being progressively transferred to Central Counterparties (“CCPs”). The CCP framework is intended to minimize global (i.e. systemic) risk as well as local credit risk. This note uses Credit Benchmark data provided by global IRB banks to estimate the relative credit risk of 26 CCPs in Europe and North America, based on the credit quality of the clearing members of each CCP. For North American CCPs, credit risk estimates are available for more than 50% of the clearing members for 9 out of the 10 CCPs, and for more than 90% for 3 of the CCPs. In Europe, the coverage of clearing members for the two largest CCPs is 70% and 79%. Drawing on this partial coverage, it is possible to make some provisional estimates of CCP credit risk based on the credit risk of the clearing members. The chart below shows the ranges in each region, plotted on the Credit Benchmark Consensus (“CBC*”) scale. This shows that the medians (plotted as red diamonds) for each region are almost identical, and both are located at the boundary of a-and bbb+. In North America, the lower quartile represents a very narrow range; the CCP with the highest credit quality is in category a. In Europe, the CCP with the highest credit category is in the a+ range. The overall range for North American CCPs is also much narrower; the lowest quality CCP is in credit category bbb+. In Europe, the lowest quality CCP is in category bbb-. CCPs are increasingly important to the global functioning of the wholesale financial system, but bank-sourced data shows that the choice of CCP choice can be important. IRB bank estimates can provide regulators, counterparties and CCPs themselves with detailed and robust views of CCP credit risks. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Global Airlines Sector: Credit Trends Whitepaper // No.8February 2017Airline Industry Trends Executive Summary ›Crowd-sourced credit estimates from IRB banks cover 54 airline companies and subsidiaries globally.›These companies have an average credit category of b+.›Of these, 34 do not have a Long Term S&P rating.›Credit risk is positively correlated with Net Debt, and slightly negatively correlated with Product and Safety Ratings.›European Low Cost carriers are viewed as lower credit risk than Full Service carriers.›Sovereign backing directly affects the credit risk of individual carriers.›Risk profiles for individual obligors migrate over time and may be independent of the corporate parent.›Extreme credit views are correlated with extreme equity price changes, but the sign depends on the risk regime. Download the PDF "Global Airlines Sector: Credit Trends" The global airlines sector made record profits last year. Long term global population growth and short to medium term oil trends continue to be favourable. Monthly data shows that credit views of individual airlines have changed rapidly over the past year, and overall credit risk is improving. Credit data shows some correlation with factors such as product and safety record, equity price changes, and balance sheet strength but it also cuts across all of these dimensions to provide an independent factor for sector analysts. Using the global airlines sector as an example, this paper shows that monthly crowd-sourced credit data is now available for 54 legal entities across the sector. Of these, 34 do not have a Long Term rating from S&P. This dataset provides transparency for global, regional, corporate hierarchy and individual legal entity factors. It can also be used to estimate a range of metrics which track monthly changes in the position and shape of the distribution of bank credit risk estimates. The dataset provides an independent dimension for sector credit analysis as well as for detailed comparisons with macro- and micro- factors, including debt levels, product and safety ratings and equity price performance. Credit Benchmark: Collective Intelligence for Global FinanceWorking with key global banks, Credit Benchmark (CB) have developed an anonymous and secure pool of internal bank credit risk estimates, to create consensus Probabilities of Default (“PD”) and senior unsecured Loss Given Default (“LGD”) metrics.The Credit Benchmark service offers monthly updated consensus PDs and LGDs on thousands of obligors at the individual legal entity level, extending from Sovereigns and banks to public and private corporates and funds. Credit Benchmark also offers data on tens of thousands of obligors for use at portfolio level.Quorate consensus PDs are simple, unweighted averages of at least three independent PD or LGD contributions for an identical legal entity over an equivalent estimation period.Participation in the service is open to any banks that use the IRB method for calculating regulatory capital. Credit Benchmark warmly invites interested institutions to become contributors. Table of Contents 1. Introduction Airlines have just had the most lucrative year in their history. 1  According to the IATA 2  , demand for air travel is increasing at the apparently modest rate of 3.5% pa, but this implies a near doubling in passenger numbers over the next 20 years from 3.8bn to more than 7bn pa. This compound growth is due mainly to a steadily growing global middle class. Airlines have traditionally been high-risk investments, due to high operational leverage, subsidized national flag carriers, oil price volatility and environmental constraints on growth. But Low Cost carriers have changed the dynamics of the airlines sector – some of the newer entrants have the strongest balance sheets and the best credit ratings in the sector. This paper uses crowd-sourced credit data to show how these and other dynamics are affecting the sector players, including those that are not quoted on stock markets or rated by traditional agencies. It reviews recent sector trends and compares crowd-sourced credit data to a number of other sector metrics, to give a better understanding of the underlying credit risk for each entity. 2. Crowd-sourced Data Credit Benchmark aggregates and anonymizes 1-year forward looking through-the-cycle probabilities of default at the individual obligor level from global internal ratings based banks. Exhibit 2.1 shows the current coverage. Exhibit 2.1 Credit Benchmark Coverage Exhibit 2.1.1 Global Coverage Exhibit 2.1.2 Dataset Growth As of December 2016, the dataset provides consensus quorate 3  estimates on more than 7,000 obligors including Sovereigns, corporates, banks and non-bank financial entities. The coverage spans multiple geographies and entity sizes, from large multinational companies to small to medium sized enterprises (“SMEs”). The dataset also includes close to 300,000 additional mapped entities that can be leveraged to produce top-down portfolio views, indices and transition matrices. The risk estimates for the quorate single names represent the collective, consensus views of expert credit risk departments in global banks expressed as Probabilities of Default (“PD”). This approach leverages the so-called “Wisdom of Crowds”, 4  where single PD estimates are aggregated and mapped to a credit category scale called the Credit Benchmark Consensus (“CBC”). 5  The dataset is updated and published monthly, providing a new and unprecedented level of granularity for risk managers and analysts. 3. Sector Summary Globally, the airlines sector recorded profits of nearly $40bn in 2016, driven by a combination of cheaper oil and greater capacity utilisation. 6  With global GDP growth projected to reach 3.4% in 2017, 7  the eight year uptrend in aggregate sector profits 8  is expected to continue. If airlines can maintain their recent strong control over costs and operating metrics then margins should be maintained alongside healthy volume growth. The main threats to sector profitability are volatile oil prices and increasing operational risk, partly due to global political uncertainty. Exhibit 3.1 shows that jet fuel prices are above their recent lows. If this uptrend continues, it would be negative for profit margins in 2017. Political risks include potential government intervention; specifically in Europe, where the European Union could intervene to protect EU Full Service carriers. 9  Exhibit 3.1 Jet Fuel and Crude Oil Spot Prices › Sources: Airlines for America, Energy Information Administration The generally positive outlook for the sector depends on the strength of the global economy, and the continued financial discipline of the global carriers, who have been reinvesting in newer planes and other efficiency improvements to reduce overall breakeven load factors. 10  4. Credit Benchmark Airlines Coverage and Equity Index Trends The Credit Benchmark dataset includes coverage for 54 individual legal entities in the airlines sector. Exhibit 4.1 shows the credit distribution of the airlines sector for the 54 companies covered by Credit Benchmark. Exhibit 4.1 Airlines Sector Credit Distribution This shows that 34 of the 54 airline companies do not have ratings from S&P, although they may have ratings from other agencies. The coverage also includes 20 of the 26 constituents of the Bloomberg World Airlines Index (BWAI) 11  and represents around 90% of the total market capitalisation of the index. The 34 remaining entities outside of the BWAI represent entities that are a mixture of parents and operating subsidiaries. Exhibit 4.2 compares the BWAI equity index with the average CBCs for the constituents (where available) since April 2016. Exhibit 4.2 Airlines Average CBC vs. Bloomberg World Airlines Index This chart shows that the BWAI equity index has risen more than 15% since its low in June; over the same period there has been a trend improvement in the credit standing of the 20 BWAI constituents that are included in the Credit Benchmark dataset. The average CBC moved from bb to bb+ in July and has been stable in the latter half of the year.› Source: BWAI Source: Bloomberg Finance L.P. 5. Comparison with Systematic Risk Factors One of the key advantages of the crowd-sourced dataset is that it provides a very large set of Ex Ante PDs. Traditionally, researchers who wanted to understand the relationship between financial fundamentals and default risk have had to rely on Ex Post default history or market data. With very granular, monthly PD estimates across a large range of obligors, the Credit Benchmark dataset can be used to test correlations between PDs and a range of macro- (systematic) and micro- (company specific) factors. Exhibit 5.1 shows two examples. Exhibit 5.1.1 shows the recent relationship between GDP growth (as a proxy for air travel demand) 12  and the average CBCs (for the BWAI constituents). Over the past 9 months, the improving average CBC for the BWAI-quorate entities has coincided with a period of improving real GDP. 13  Exhibit 5.1.2 shows the relationship between Net Debt levels and individual CBCs for the BWAI-quorate entities.Net Debt has been a focus for both European and North American carriers who have reduced the average ratio of Adjusted Net Debt to EBITDA to below 4.5x. By comparison, Asia-Pacific and Latin American carriers had an average ratio of more than 5.5x .14  Net Debt is generally a good proxy for the overall operating and fiscal discipline of each carrier, and this chart shows a strong correlation between Net Debt levels and CBCs. Exhibit 5.1 Global Correlations Exhibit 5.1.1 Real GDP Growth* vs. CBC *Weighted Average. Source = IMF World Economic Outlook (Q4 est.) Exhibit 5.1.2 Net Debt** vs. CBC **As of Dec 2016 With single name data and a monthly publish frequency, the crowd-sourced dataset is ideally suited to this type of macro- and micro- factor analysis and can be used to highlight various sector dynamics. The next section extends this approach to regional differences. 6. Regional Case Studies This section discusses two regional case studies, with different risk drivers: Developed Economies, where the issue is the overall competitiveness15  of the region, North America vs. Europe. Emerging/Frontier Economies, where the credit risk of the Sovereign may be critical. Developed Economies: Competitiveness ›North America and Europe are two of the largest airline markets in the world, and this is reflected in the crowdsourced dataset coverage, with 57.4% of the total coverage of 54 entities. Although Europe and America are both Developed Economies, their airline sectors are subject to very different dynamics. European carriers face an uncertain regulatory environment, labour disputes, and intense competition in a fragmented market. The top three Full Service carriers in the European Union control just 29% of the market, compared to 52% for the US equivalents. 16  This fragmented European market has allowed Low Cost carriers to steadily build market share. Exhibit 6.1 uses the crowd-sourced data to highlight the clear distinction in risk profiles between Low Cost and Full Service carriers in Europe. Exhibit 6.1 European Low Cost vs. Full Service Carriers*  This chart shows that the Low Cost Carriers all show similar levels of uncertainty about the correct PD estimate – the blue bubbles represent the dispersion in estimates and they are all similar in size. The Full Service Carriers show a larger range of dispersion estimates. Unusually, the consensus for each of the highest risk airlines is similar to, or smaller than, that of the lower risk airlines. This may indicate uncertainty about the direction of the future trend of credit risk estimates for some of the lower risk airlines. The average CBC for European Low Cost carriers is bbb-; but as the chart shows, there are two distinct clusters of Investment Grade and Non-Investment Grade obligors. The European Full Service carriers show an average CBC of bb-, with a bias towards lower quality. The range within each group is similar: 6 notches for the Low Cost group; 8 notches for the Full Service group. Exhibit 6.2 shows the risk profile for the US primary Full Service carriers (Delta, American and United) and their subsidiaries. This has been improving since mid-2016. The detailed PD estimates placed the US Full Service carriers midway between a CBC of bb- and bb in April 2016. In recent months these risk estimates have been declining, and further improvements would take the sector average into the bb+ category. These trends coincide with ongoing sector consolidation and cost-cutting programmes. Exhibit 6.2 CBC for Largest US Carriers & Subsidiaries The blue bars plot the actual Probability of Default and the horizontal lines show the breakpoints for each credit category. Emerging/Frontier Economies ›The average CBC for Developed Economy carriers is bb- (December 2016) compared to b for Emerging/Frontier Economy carriers. Exhibit 6.3 shows the Emerging/Frontier Economy carriers in detail and compares them with the Sovereign credit risk for their country of domicile. Exhibit 6.3 Emerging/Frontier Economy Carriers vs. Sovereign Ratings This chart shows a clear distinction between carriers in the Middle East and the rest of the group. These companies are classed as investment grade (bbb and bbb+) and the average gap between them and the equivalent Sovereign risk is 5.5 notches. The rest of this group is Non-Investment Grade with an average CBC of b. The average gap with the equivalent Sovereign risk is 6 notches. *Greece: The Sovereign and Average Airlines Rating for Greece is equal. This also shows that there is a positive correlation between the credit risk for these carriers and the credit risk of the corresponding Sovereign. 7. Corporate Structures The Credit Benchmark dataset covers Parent and Operating Subsidiary legal entities for a large number of corporate families. This provides detailed credit views across corporate structures. Exhibit 7.1 plots the credit trends for the International Consolidated Airlines Group SA (IAG) and a number of its subsidiaries. These include Aer Lingus Ltd., British Airways PLC, Iberia Linesa Aereas de Espana SA and Vueling Airlines SA. Exhibit 7.1 shows the PD trends for the IAG parent and each subsidiary against a CBC scale. This shows that the parent risk profile for IAG has been stable throughout 2016. The various operating subsidiaries have shown considerable fluctuations, indicating potential divergence in risk views within the family. Exhibit 7.1 IAG Entity Profile The crowd-sourced dataset also includes metrics on the position and shape of the distribution of contributed risk estimates. The dispersion and skew profile for the estimates that feed into each credit risk view can also provide insight into future trends. The next section examines this in more detail for one of the IAG operating subsidiaries. 8. Single Name Analysis For each quorate obligor, the CBC indicates the credit category corresponding to the consensus PD estimate, which is an average across a number of contributions. The position and shape of the distribution of the individual bank contributions is summarised in additional metrics covering the range or dispersion (standard deviation) and bias (skew). Exhibit 8.1 shows these metrics as icons, using British Airways PLC (part of the IAG group) as an example. Exhibit 8.1 British Airways PLC Dispersion Analysis The quorate risk view for individual obligors is based on 3 or more PD estimates from IRB banks. Exhibit 8.1 shows how constituent estimates can change over time. Points are plotted as arrows and diamonds. The arrow width is proportional to the dispersion and the direction indicates the position of the outlier. An upward-pointing scale arrow (positive skew) means that one PD estimate is significantly higher than the rest. A downward arrow means the opposite. A diamond indicates that there are no significant outliers. This shows that the consensus bank view of the credit risk of British Airways PLC has migrated over time. In June 2016, there was a wide dispersion in risk views and this was also positively skewed. This means that one PD estimate was significantly higher than the majority. The CBC dispersion decreased until September, at which point the bank views showed no significant bias, with no skew in either direction. In October, the CBC dispersion tightened further, and now shows a negative skew. At the same time, there was a slight deterioration in the underlying PD. This indicates that at least one, and probably two or more banks have slightly increased their PD estimates by a similar magnitude, leaving those with a more positive view as outliers. This example shows how these simple metrics can provide highly nuanced insights into the changing assessments made by the contributing banks. 9. Equity Market Comparison Within the Credit Benchmark airlines universe, 33 out of the 54 entities in the dataset have publicly traded equities in issue. 17  Exhibit 9.1 shows the relationship between equity price changes and CBC. Exhibit 9.1.1 compares the CBC level with the 1-year share price change. Exhibit 9.1.2 shows the relationship between the 1-year share price change and the change in the CBC over the same period. Exhibit 9.1.1 shows that there is no obvious relationship between CBC level and price change over this period. Exhibit 9.1.2 also shows a very weak overall relationship between CBC change and price change. However, there are some significant outliers in the tails of both ends of the distribution. Companies with the largest increase in CBC (credit deterioration) also had the largest negative share price performance. Some of the companies with the largest decrease in CBC (credit improvement) had the largest positive share price performance. Detailed time series data for AirAsia BHD and Air Canada in particular show that CBC changes are accompanied by a convergence in risk views (a drop in the dispersion of the PD estimates). As the British Airways example shows, the drop in standard deviation over time reflects the contributor banking community converging on a similar view of the entity risk profile of the entity. Exhibit 9.1 Equity Market Comparison Exhibit 9.1.1 Share Price Changes vs. CBC Level › N.B. Share price changes are averaged across CBC 21 categories Exhibit 9.1.2 Share Price Changes vs. CBC Change › N.B. Share price changes are averaged across CBC 21 categories It is worth noting that the relationship between credit risk and equity price will depend on the prevailing risk appetite regime. During ‘Risk On’ phases, high risk assets will show the best performance; during ‘Risk Off’ phases, they will underperform. CBCs reflect a longer term view of credit risk over an entire credit cycle. They can provide a clear distinction between high- and low- beta stocks, provided that an investor has a clear view about the prevailing risk regime. Since CBCs are also available for private companies, they provide some indication of the credit risk of companies which may be planning an IPO, either directly or by comparison with their peer group. 10. Airline Product and Safety Rating Comparison Exhibit 10.1 shows the CBC for the 36 quorate entities in the Credit Benchmark airlines universe for which product and safety data is available. Exhibit 10.1.1 shows that a higher product and safety rating is associated with a lower CBC (i.e. higher credit quality). Exhibit 10.1.2 shows the CBC plotted against a weighted combination of Product and Safety Ratings 18  . Traditional Full Service carriers, who compete on amenities, show a positive relationship between the Product/Safety Ratings and credit quality (lower CBC implies higher Product and Safety Rating). However, Low Cost carriers, who compete on price, show no strong relationship. Exhibit 10.1.2 uses the crowd- sourced credit data to highlight an apparent distinction between these two business models. Exhibit 10.1 Product and Safety Record vs. CBC Exhibit 10.1.1 Avg. Safety vs. CBC (Ex-Low Cost Carriers) Exhibit 10.1.2 Product & Safety Rating vs. CBC This suggests that the credit review process in banks is linked, directly or indirectly, to product and safety records in the Airlines sector. 11. Sample Tear Sheet using Credit Benchmark Excel API Exhibit 11.1 shows a typical sector tear sheet, constructed using the Credit Benchmark Excel API. This and other templates are available to download by clients; they can be used directly or can be modified by clients to allow combinations of their own data with the crowd-sourced data set. Credit Benchmark Product Specialists can also construct bespoke spreadsheets to suit individual client workflow requirements. Exhibit 11.1 Airlines Sector Sample Tear Sheet using Credit Benchmark Excel API 12. Conclusions Taking the airlines sector as an example, this paper has shown that monthly crowd-sourced credit data is now available for 54 legal entities across the sector. Of these, 34 do not have a Long Term S&P rating. The key points are: The global airlines sector has an average credit category of b+. Low Cost carriers are viewed as lower credit risk than Full Service carriers. Credit risk is moderately positively correlated with Net Debt. Credit risk is slightly negatively correlated with Product and Safety Ratings. Extreme credit views are correlated with extreme equity price changes; sign depends on the risk regime. Crowd-sourced data provides an additional independent dataset for sector analysts. The Credit Benchmark dataset provides transparency into global, regional, corporate hierarchy and individual legal entity factors. It can also be used to drive a range of metrics that track monthly changes in the position and shape of the distribution of bank credit risk estimates. The dataset provides an independent dimension for sector credit analysis as well as for detailed comparisons with macro- and micro- factors, including debt levels, product and safety ratings and equity price performance. Appendix Credit Benchmark Consensus (“CBC”) Breakpoints Download the article "Global Airlines Sector: Credit Trends" on PDF. More from Credit Benchmark We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn more. Reporting was contributed by Barbora MakovaJohn Michael FrybackDavid Carruthers Footnotes *Bubble size represents dispersion (relative standard deviation) of the PD estimates for each carrier.1 https://www.theguardian.com/business/2016/jun/02/airline-industry-profits-expected-to-increase-2016-iata2 International Air Transport Association3 Based on Probability of Default estimates from 3 or more contributing banks.4 The ‘Wisdom of Crowds’ was initially observed by Francis Galton and is the basis for the value in crowd-sourced datasets. It is the popular version of the Diversity Prediction Theorem which can be stated as: “The squared error of the collective prediction equals the average squared error minus the predictive diversity” - implying that if the diversity in a group is large, the error of the crowd is small.5 The Credit Benchmark Consensus (“CBC”) is a 21-category scale explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s.6 https://www.theguardian.com/business/2016/jun/02/airline-industry-profits-expected-to-increase-2016-iata7 http://www.imf.org/external/pubs/ft/weo/2016/02/8 http://www.iata.org/pressroom/pr/Pages/2016-12-08-01.aspx9 Bank of America European Airlines Overview 2017.10 http://www.iata.org/whatwedo/Documents/economics/Economic-Performance-of-the-Airline-Industry-end-year-2016-forecast-slides.pdf11 The Index includes 30 constituents of which 4 Asian Airlines are included twice due to listings on both the Shanghai and Hong Kong stock exchanges.12 Air travel demand has shown a history of being closely tied to GDP growth. According to the Bank of America European Airline s Overview 2017, air travel demand has historically expanded at a rate of 1.2x-1.6x global GDP growth.13 Real GDP growth is calculated using a weighted average of the 20 entities included in the Bloomberg World Airline Index and covered by Credit Benchmark. The sample is skewed towards the US.14 As of financial YE 2015. http://www.iata.org/whatwedo/Documents/economics/Economic-Performance-of-the-Airline-Industry-end-year-2016-forecast-slides.pdf15 Competitiveness means the level of concentration vs. fragmentation. The Herfindahl Index is the most commonly used measure.16 Competitiveness means the level of concentration vs. fragmentation. The Herfindahl Index is the most commonly used measure. Bloomberg Businessweek 12 December, 2016.17 The 33 entities included in this sample reflect a mixture of those that have been present for the full period and those that were added over the course of the year18 http://www.airlineratings.com/ Collective Intelligence for Global Finance Credit Benchmark is an entirely new source of data in credit risk. We pool PD and LGD estimates from IRB banks, allowing them to unlock the value of internal ratings efforts and view their own estimates in the context of a robust and incentive-aligned industry consensus. The resultant data supports banks’ credit risk management activities at portfolio and individual entity level, as well as informing model validation and calibration. The Credit Benchmark model offers full coverage of the entities that matter to banks, extending beyond Sovereigns, banks and corporates into funds, Emerging markets and SMEs. We have prepared this document solely for informational purposes. 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This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Credit Benchmark Named In Financial News' List Of 10 Fintech Firms To Watch They may not have the brand recognition of fintech up-and-comers in the consumer finance space, but there are many capital markets-focused fintech start-ups that are well placed to disrupt or transform business in the wholesale markets. Finding the best of these prospects is no easy task. Ask around Europe’s innovation hubs and there is little agreement as to which firms are set to succeed in the coming years. FN spoke to dozens of venture capitalists, fintech leaders, bankers, lawyers and other advisers. We asked them which firms had caught their attention, which entrepreneurs had earned their respect and which business models stood the best chance of performing well as the financial markets continue to be reshaped by regulation. With 65 suggestions, we then narrowed the list down to 10. We have taken into account the growth of the companies and the strength of their revenue generation, the reputation and track-record of the founders, many of whom spent years honing their craft in some of the world’s biggest financial groups, and whether the start-up has received influential backing. The final list includes a selection of firms that reflects the shifting regulatory landscape, with around half focused on areas where new rules are offering opportunities for new entrants. They tend to have received a seal of approval from some of the best investors, with founders that have experience of the wider financial market and an understanding of the complex nature of banks. To read the full article, please click the link below View original article (external link) ### Stockmarkets Are Confident, Banks Not So Much The headline-grabbing market event of 2017 so far has been the move of the Dow Jones Industrial Average through 20,000 (although the average is a flawed measure). But while investors have been pushing the value of shares up, the credit rating of its constituents has been deteriorating. That is the conclusion of a new service called Credit Benchmark, which has the ingenious idea of aggregating the private credit ratings used by banks (in other words, the ratings generated by the bank's internal risk models). At the moment, the service is getting data from 13 banks although another 12 have signed up; it has ratings for 10,000 companies. Donal Smith, one of the firm's founders says that banks tend to be more conservative in their approach than the ratings agencies and move their ratings more quickly. The chart (see attached original article) shows a credit risk index (the likelihood of default) for the Dow components. Over the last year, the average rating has fallen one notch, from A+ to A; 23 of the 30 Dow components have been downgraded. This may be down to fears of higher interest rates, and the effect this will have on company finances; it may be down to worries about the prospects of trade disputes between the US and its neighbours. But these divergences don't tend to last for long. The equity market is counting on Donald Trump to boost the US economy; if investors are right, credit ratings will improve. But if economic conditions don't improve, the US equity market looks overextended. The original online article is available at: http://www.economist.com/blogs/buttonwood/2017/02/mixed-signals Download Attachment ### Dow Above 20,000 But Banks Increasingly Cautious On Credit Risk On January 25th, the Dow Jones Industrial Average (the “Dow”) closed above 20,000 for the first time in its history. This milestone has made headlines around the world, and is seen as a vote of confidence in the economic agenda of the new administration. However, bank data shows that the credit risk of the Dow constituents has been trending steadily higher. The Dow has been continuously calculated since 1896, and its constituents represent some of the largest listed corporations in the US. Although it has some idiosyncrasies (it is a price weighted average of just 30 stocks), it remains one of the most globally recognised indices. Since the US Presidential Election in November, the Dow has risen by 10% in line with the broader US stock market rally. Investor mood has been buoyed by expectations that Trump’s pro-business and anti-regulation policies will boost the economy, as well as a specific campaign promise of $1 trillion in infrastructure investment. The Credit Benchmark dataset provides a CBC* for each of the 30 Dow constituents. Seven of these showed an improvement in credit risk over the past year; the remaining 23 have deteriorated. And as the chart below shows, the average CBC for the 30 constituents has declined one full notch from a+ to a over 2016, with the largest move occurring in May 2016. US Government policy may be pro-business, but banks appear to be increasingly cautious about the wider economic environment. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### EU Sovereign Credit Risk Index: Some Divergences, But Improving Trend The EU Sovereign Credit Risk Index covers all 28 EU member states, including the UK. Greece has made major steps towards reform (see Greece news article) but remains the highest risk EU Sovereign, by a considerable margin. Compared with mid-2016, the latest data shows modest improvements in 11 countries – Ireland, Spain, Portugal , Lithuania, Austria, Slovakia, Slovenia, Hungary, Romania, Bulgaria and Greece. There has been deterioration in Italy, Croatia and Latvia. The Brexit vote has fuelled concerns about the political and economic outlook for the other EU economies. The EU nations clearly have a number of pressing issues, but so far these are being tackled or managed: Italy appears to have stabilised its most vulnerable banks and the Cyprus peace negotiations (see Cyrpus news article) still look promising. The Brexit vote seems to have galvanised the other EU nations into closer co-operation – some of the traditionally more difficult countries are becoming less obstructive. Challenges remain: the ongoing refugee crisis, unrest in Romania, and the prospect of renewed funding problems for Greece. Europe also has restless neighbours, with renewed fighting in Ukraine, and post-coup aftershocks in Turkey. Following the Brexit and Trump surprise wins in 2016, growing populism and anti-EU sentiment in continental Europe have focused media attention on the prospect of a Le Pen victory in the September election in France. But Le Pen faces significant logistical obstacles due to the structure of the French electoral system; and pro-EU groups in France see Brexit as an opportunity to strengthen the position of France within the EU. Despite Europe’s challenges, banks are taking a cautiously optimistic view of Sovereign credit risk in the EU.   Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Argentina Attracting Foreign Investment And Credit Showing Steady Improvement Argentina emerged from default last year and its economic indicators are beginning to improve. The economy is still in recession but appears to be finding a base, and inflation, while high (estimated at 17%) is falling. The agriculture sector is now only 10% of GDP, but is growing; and Construction and Real Estate are booming in Buenos Aires with growing Chinese investment. In addition to attracting overseas investment, there has also been a wave of cash repatriation. It is estimated that Argentinians hold about $400bn in offshore accounts, and the Government is taking steps, including a tax amnesty, to encourage that to return. Since emerging from default, the country has seen $50bn of capital inflow (mainly new investment) and has a modest immediate funding requirement of $30bn this year. The Treasury recently issued $7bn in US Dollar bonds and are issuing $0.7bn in inflation-linked Peso bonds this week. Argentina is likely to re-enter the JP Morgan Chase Emerging Market Bond index next month, and could also return to the MSCI Emerging-Market Equity Index later this year. President Macri is benefiting from the divisions within the opposition PJ party. He is promising “reform without austerity” while grappling with the huge state sector (one-third of the workforce are Government employees). But aside from the rhetoric, deficit reduction will involve job losses and pension cuts; many Argentinians who lived through the 1990s will have a sense of déjà vu. But for now, the voters seem to be giving Macri the benefit of the doubt. As the chart below shows, banks are optimistic. Since coming out of default, the CBC* for Argentina has been steady, but credit risk has been steadily dropping within that category. It is now very close to a full notch improvement. Two of the main rating agencies have assigned it the equivalent of B- with a stable outlook and the other is already at B, with a stable outlook. If Macri can continue to convince foreign investors that the reform programme is serious and that he can bring the electorate with him, then further credit improvements are possible this year. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Trump Stance On IMF And EU May Undermine Positive Credit Outlook For Greece In 2016, the Greek debt crisis was largely overshadowed in the media by other international dramas, including the U.K. Brexit vote and the U.S. election. Nevertheless, during this period banks were increasingly optimistic regarding the country’s credit progress – following the release of EU funds in December 2015, the banks upgraded their views of Greek’s credit riskiness and the CBC* for Greece improved by a notch in March 2016. The announcement of potential IMF assistance led to a further sharp improvement and in July they moved up an additional notch. Further improvements followed in October, with good progress on the 15 structural milestones set by the EU. The rating agencies have generally maintained stable but divergent views on Greece: Moody’s has a pessimistic Caa3 rating, Fitch is at CCC and S&P moved from CCC+ to B- in January 2016. However, at the end of 2016, the agreement for further financial assistance stalled. While the EU has plans to unlock short-term debt relief measures this month, and is still in talks with a wavering IMF over its participation, Donald Trump has brought fresh uncertainty. He is expected to push for limitations on IMF lending practices in Europe and Greece could be the first casualty. Some commentators may argue that Greece was admitted to the EU under false pretences; but a setback at this stage comes at a politically difficult moment for the EU. The monthly Credit Benchmark data will pick up any reversal in the recent positive trend for Greece; and we will shortly be reporting on Sovereign trends across the EU in the post-Brexit and post-Trump environment. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Cyprus Peace Talks Face Growing Obstacles But Success Would Improve Credit Standing Cyprus is steadily recovering from its recent financial difficulties. Despite being downgraded to junk during the 2012/13 financial crisis, it has managed to exit the EU-led rescue package, and re-started bond issuance in 2014. Earlier this month, the Bank of Cyprus (the largest commercial bank) announced that it had fully repaid its EUR 11.4bn emergency loan. The Cyprus peace talks currently underway in Geneva face a number of hurdles, including debates about borders, land swaps and restitution, the future of Turkish forces, and the detail of a proposed new Federal structure. Russia has considerable interests in the island but was not invited to the talks, a decision which may jeopardise the outcome. But there are considerable rewards in unification which could transform the economy of the entire island. If, as expected, Turkey agrees to write-off most of the North Cyprus debt burden, then Sapienta Economics estimate that a united Cyprus would have a combined debt of €20.42bn, almost identical to the estimated combined GDP, giving a debt/GDP ratio of 100%. This would immediately put the unified state on a stronger financial footing and would probably lead to further rating agency upgrades, lower funding costs, and the possible return of flight capital. In addition, recent gas discoveries in Cyprus waters to the south of the island offer scope for joint exploitation and economic diversification. Like the rating agencies, banks are increasingly optimistic on the Cyprus government; and their assessment of credit risk was improving throughout most of 2015, and continued into 2016. The CBC* for Cyprus improved by a notch in October 2016. Failure in the struggling peace talks would probably be slightly negative for credit; but success would put Cyprus on course for a brighter economic future and further improvements in credit standing. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### US Corporate Credit Deteriorated Last Year The U.S. Federal Reserve started the long process of normalizing interest rates in late 2015. But with the US economy growing by a lacklustre 1.6% in 2016, and inflation at a benign 1.3%, Yellen chose to wait a full year before the recent hike in December 2016. With President-elect Trump keen to change the composition of the Fed board, interest rate expectations for 2017 are for at least two, and possibly three hikes. Bank views of U.S. corporate credit trends in 2016 echoed the cautious Fed stance, with all major industries showing an increase in average credit risk across a fixed sample of 300 Investment Grade obligors. This caution was probably driven by the growth outlook rather than specific concerns about interest rates; and further rate rises will probably have a limited direct impact on investment grade balance sheets, because many corporates have taken advantage of low rates to lock in long-term funding and build cash piles. The largest proportionate increase was in Technology (+30%), closely followed by Healthcare (+26%), Consumer Services (+26%), and Oil & Gas (+25%). The smallest increases were in Telecommunications (+3%) and Utilities (+3%). There were modest increases in Basic Materials (+10%), Industrials (+11%) and Consumer Goods (+15%). The sector outlook for 2017 will depend on the new, All-Republican Government. Protectionist measures may invite international retaliation but typically provide at least a short term economic gain. The steep rise in Healthcare credit risk in 2016 may be an early reflection of Republican aversion to ‘Obamacare’, but the proposed scrapping is already being watered down. The Oil & Gas industry has seen the West Texas oil price spike to finish up 45% over the past year, and OPEC are keen to maintain the current level. Trump’s Government is expected to encourage domestic and investment spending, and is already having some success with persuading US Corporates to rethink their factory location decisions. With the new President taking office this month, the 2017 trends may soon look very different. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Image Source: Twitter.com ### Despite A Year Of Negative Headlines, Banks Are Measured On Russia Over the course of 2016, Vladimir Putin’s Russia has rarely been out of the headlines, and it's seldom been positive. In late December, the Russian ambassador to Turkey was killed in an attack allegedly related to Russian involvement in Syria; and this is not the first time that Putin’s continued backing of Bashar al-Assad has caused controversy. Throughout the US Election campaign and its aftermath, Russia’s actions have regularly made headlines. Suspicions of interference in the election through hacking both parties' systems, and selective releases to Wikileaks have recently been alleged by the CIA. President-elect Donald Trump, who has been criticised for his campaign team’s links to Russia, has refuted this; but the Obama administration has gone ahead with the expulsion of 35 Russian diplomats in retaliation last week. Putin has also tried to flex Russia’s military might in 2016. He recently sailed an aircraft carrier group down the North Sea, has moved nuclear capable missiles close to Lithuania and Poland, and regularly flies military planes very close to NATO air space. Analysts and economists, however, speculate that all this is to draw attention away from Russia’s weakening position at home. As a country rich in natural resources, it rode the commodity boom of the 2000’s. However the fall in commodities in recent years has highlighted Russia’s lack of other exports. The Russian economy grew at 7% a year at the start of Putin’s reign, but it has shrunk for the past two years. And although Russia still has a low Debt to GDP ratio of 18%, this ratio has trebled since 2008 and the Ruble has slumped by over 60% against the dollar in the last three years. Yet despite the headlines and the potential consequences for Russia, banks’ view of Russian creditworthiness has been very measured. Putin’s apparent lack of respect for the Western order does not seem to extend to his economic policies. Indeed, he supports Elvira Nabiullina, an old ally, as Head of the Central Bank of Russia . Nabiullina has received Western acclaim for her work, including stabilising the economy and cleaning up the banking system. Contributor banks have taken a very measured approach to the year's events. Russia continues to maintain its CBC* of from late 2015. This has been stable throughout 2016 with a slightly improving trend. This suggests that banks are taking a longer-term, more measured view. If Trump is able to improve US-Russian relations in 2017, there is scope for a positive impact on Russia's CBC. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Image Source: Visit Russia ### Sovereigns Show Higher Risk Premiums Than Corporates, But The Gap Is Closing 2017 is likely to be a year of fiscal expansion across a number of developed economies. Low interest rates are losing effectiveness in a growing number of economies and the Fed may resume its rate rises this week. But the ECB package announced last week shows that some Central Banks still see a role for monetary stimulus. And with the Italian Treasury prepared to recapitalize Banca Monte dei Paschi if their proposed capital raising falls through, it is clear that some European Sovereign governments are still prepared to act as lenders of last resort. Whether it is tax cuts, spending, higher rates or direct intervention, it appears that Governments will continue to carry a major and often growing debt burden. By contrast, the corporate sector is flush with cash having taken advantage of prolonged low interest rates to lock in long dated funding. While some companies are making large corporate acquisitions, most of the proceeds are held as cash. Corporates in Europe, US and Japan collectively hold at least $6trn in short term instruments. As a result of these trends, the credit position of these two classes of obligors – Governments and Sovereigns – is somewhat different. The charts below show monthly risk premiums for the year to September 2016 for the investment grade obligors in each of these two groups, divided by CBC*. The risk premium is estimated by comparing the current market CDS price with the synthetic equivalent calculated from real world PDs and LGDs. The difference consists of short term credit risk and liquidity risk premiums. These charts show that credit and liquidity risk are systematically higher in lower credit categories, and also show that risk premiums have been following smooth cyclical trends. These charts also show that Sovereign risk premiums are significantly higher than Corporate risk premiums in equivalent credit categories. This confirms that Sovereigns are currently viewed as higher risk, but the gap is closing. The charts also show that the current trend for both groups is down. If this continues, it implies that the outlook for credit risk in investment grade obligors – Government and Corporate – is improving. These risk premium charts can also be used to track the credit cycle in different geographies and industries – we will provide further updates in 2017. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Banks Take Italian Referendum Risk In Their Stride Italian Sovereign bond yields have been trending higher ahead of the referendum on Sunday which may decide the fate of Renzi, the reforming Prime Minister. They are currently showing that 'No' is ahead by 5-7 points, but this is a year when political polls have been proven wrong more than once. Although Renzi's reforms are aimed at breaking political deadlocks, they are viewed by many as a centralisation of power which actually favours the status quo. This is one reason why the populist 5 Star party has been able to raise its profile and gather support for a manifesto which includes an EU membership referendum. Bond and CDS markets are currently focused on that possibility; but even if Renzi loses, Italy's political future has a number of possible paths and most of those involve a some form of coalition. There is some way to go before 5 Star are in a position to force an EU vote Crowd-sourced credit data suggests that the banks are taking a relaxed view. It indicates that the risk of Sovereign default trended higher in late 2015 and early 2016, but it peaked in summer and has been in gentle decline ever since. Italian politics has a habit of confounding forecasters. Banks appear to be taking the view that even if Sunday's vote is the expected 'No', the EU is likely to include Italy for some time yet. ### Liquidity Risk: Who, What, When, Where? The liquidity risk premium continues to pose challenges to financial modellers and practitioners, and liquidity risk is one of the more difficult financial metrics to model and manage. The liquidity risk premium is the compensation required by providers of liquidity, and is likely to vary across markets and over time. It also plays a role in collateralized borrowing terms – lenders may need to liquidate collateral, and they are likely to demand larger collateral buffers or higher borrowing rates if they accept illiquid assets as security. After the LTCM collapse in 1998, Myron Scholes identified an industry need for ‘liquidity options’ – effectively an insured credit line, where the option price includes a liquidity premium for a set of trading positions and collateral. During the 2008 financial crisis, it was often said that the issue for the banks was one of liquidity, not solvency; and Central Banks now provide a form of Scholes’ ‘liquidity option’, but only to systemically important banks and financials. Anyone else who needs to raise cash quickly by selling assets is likely to face a substantial discount. To estimate this, traders sometimes use the approximation: “adjust the price by one days’ volatility in order to trade one days’ volume”. This is very useful for traded assets like equities and frequently traded bonds, where volume data is available; but many bonds, CDS and secondary loans are notoriously illiquid. As a result, an entire industry has developed to provide evaluated and model prices for bonds and other instruments that do not trade regularly. To estimate the realistic price at which a bond or CDS would trade, it is necessary to know the appropriate liquidity risk premium for that asset. This requires an understanding of the proportion of an observed credit-risky yield that is liquidity-driven, by decomposing the credit spread into credit and liquidity components. There is a large academic literature on this issue, which generally suggests that the liquidity risk premium is partly a function of instrument maturity (where there is some compensation for potential, future illiquidity) as well as credit category. This academic literature has been somewhat constrained by a lack of data. But crowd-sourced data from global IRB banks is now available to provide estimated real world probabilities of default. This data can be used to estimate the various liquidity risk premiums that permeate markets, with practical applications that include benchmarks for Valuations and CVA, Collateral Management and CECL/IFRS9 impairment estimates. To read the original article, please click the below link View original article (external link) ### FTSE100 Credit Risk Steadily Increased In Q2 And Q3 The FTSE100 has gained around 10% since the Brexit vote. This is driven in part by Sterling weakness, which has brought an immediate currency translation benefit to the numerous overseas earners in the index. Recent company results have highlighted volume winners such as Burberry, who have seen overseas buyers taking advantage of the weaker pound; and cost casualties such as easyJet, whose fuel bill has spiked. The broader economic outlook for major UK companies is still unclear. Since the vote, UK economic data appears to be benign, with robust retail sales while inflation and unemployment remain subdued. But with the actual UK departure date at least two years away, the full economic impact of Brexit will take much more time to unfold. In the meantime, currency effects - positive and negative - will continue to work their way through the supply chain, while the UK corporate sector will have to live with an extended period of uncertainty. Credit Benchmark data shows that the average credit risk of 72 of the FTSE100 constituents has increased in the 6 months from April to September. The average CBC* for these companies was on the threshold of bbb/bbb-; it is now close to the middle of the bbb-range. This increase is significantly higher than the general trend in global corporate credit risk. Measured by the consensus Probability of Default, the largest deterioration in credit risk has been in Basic Materials (+40%), Health Care (+39%), Industrials (+19%) and Consumer Goods (+19%). This change is broad-based - seven of the ten industry groups show an increase in credit risk. Technology and Utilities are unchanged, with only Telecommunications showing a drop (-6%). This suggests that the consensus view across major banks is that the default risk of the largest listed UK companies has increased since April. These same banks turned cautious on the UK Government in March, so it is likely that these moves mainly reflect Brexit-driven uncertainties. As negotiations proceed, this metric will provide regular updates on the likely winners and losers in the post-Brexit world. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Global Banks Have Revised The Credit Standing Of The US Government Down By One Full Credit Notch Although the U.S. Election is too close to call, financial markets have made their opinions clear, becoming increasingly nervous whenever Trump erodes Clinton’s lead. Global banks turned cautious in June, and have stayed that way. The consensus crowd-sourced view moved the US Government down by one full credit notch. And unlike financial markets, that single, dramatic change in credit view has not been influenced by the vagaries of the polls. Some Trump policies – if actually implemented – could strike at the heart of the global financial system. If Fed independence is compromised, a more hawkish stance on interest rates is likely. The slightest hint that the US Government is not willing to honour its debts would create widespread instability. But markets do not seem to be taking those possibilities too seriously; they do, however, see Trump as a source of genuine uncertainty. Clinton is more of a known quantity: taxes for those who can, spending for those who can’t; good for growth, bad for Treasuries. The campaign has exposed very deep divisions within the two main parties, and resolving these will take considerable time. And with the prospect of legal challenges to the result, or of Upper and Lower chambers in deadlock, the current uncertainty seems unlikely to disappear on November 9th. Global banks seem to have taken the view that, whoever wins, and whatever the makeup of Congress, the credit standing of the US Government has already been diminished. ### Latest White Paper On Credit Transition Matrices Now Available To Download For CECL and IFRS9 accounting, the choice of credit transition matrix and default probabilities is crucial and may have a significant impact on the final reserving required. The latest Credit Benchmark white paper demonstrates some of the key issues in choosing credit transition matrices: Market-implied PDs contain significant risk premiums, depending on credit category: these will tend to overstate impairments. Simple PD extrapolation may overstate or understate impairment, depending on credit category and the structure of the comparison matrix. Transition matrices derived from Rating Agency long run averages may understate impairment if the current PD volatility level is above the long run average; they will overstate impairment if the current PD volatility level is below the long run average. Crowd-sourced credit transition matrices based on broad, deep and frequently updated credit views address some of these shortcomings, providing: Real World PDs (undistorted by risk premium) Cumulative PDs which reflect the upgrades and downgrades embedded in the matrix (ignored by the so-called ‘survival’ approach) Frequently updated PD volatility and transition estimates from a very large underlying pool of 250,000 obligors Region and Sector specific PD volatilities and transition matrices The paper is available to download here ### Crowd-Sourced Credit Transition Matrices Whitepaper // No.7November 2016Transition Matrices Executive Summary › Credit Benchmark crowd-sourced credit data is updated monthly and based on more than 250,000 obligors.› Expert bank credit analyst views support a rich, diverse set of Ex Ante and Ex Post credit transition matrices.› Through-the-Cycle data provides a valid base for transition matrix calibration and identifies path dependency.› Real-world PD term structures provide risk premium adjustments for market implied Point-in-Time estimates.› Term structure benchmarks optimize loan impairment calculations for IFRS9 and CECL accounting standards. Download the PDF "Crowd-Sourced Credit Transition Matrices" The latest CECL and IFRS9 accounting rules require banks and corporates to estimate potential losses over the entire life of a loan. Transition matrices can provide considerable insight into the likely pattern of losses over various time horizons. Credit transition matrices (“CTMs”) are a key element in credit portfolio risk. Different sequences of upgrades, downgrades and defaults can lead to very different portfolio outcomes. Credit rating agencies are the main current source of transition matrix data, typically publishing separate high-level matrices for corporates and financials in the main geographies. These matrices provide a summary of the rating activity of each agency. This paper compares bank-sourced transition matrices with the traditional estimates published by the main credit rating agencies (“CRAs”). It shows that the crowd-sourced data is comparable with agency data, but it is also published more frequently, and provides some insight into the key question of path dependency in rating migrations. It also uses the crowd-sourced transition matrices to estimate ‘Real World’ Probability of Default (“PD”) term structures, and shows how these compare with ‘Risk Neutral’ or Market-Implied term structure estimates. This has implications for Point-in-Time (”PIT”) and Through-the-Cycle (“TTC”) estimates. Credit Benchmark: Collective Intelligence for Global Finance Credit Benchmark (CB) has brought together a group of key global banks who anonymously and securely pool their internal credit risk estimates, to create consensus Probabilities of Default (“PD”) and senior unsecured Loss Given Default (“LGD”) metrics.The Credit Benchmark service offers monthly updated consensus PDs and LGDs on thousands of obligors at the individual legal entity level, extending from Sovereigns and banks to public and private corporates and funds. Credit Benchmark also offers data on tens of thousands of obligors for use at portfolio level.Quorate consensus PDs are simple, unweighted averages of at least three independent PD or LGD contributions for an identical legal entity over an equivalent estimation period.Participation in the service is open to any banks, which use the IRB method for calculating regulatory capital. Credit Benchmark warmly invites interested institutions to become contributors. Table of Contents 1. Introduction A credit transition matrix (“CTM”) is a key element in credit portfolio risk 1  . Different sequences of upgrades, downgrades and defaults can lead to very different portfolio outcomes. Credit rating agencies are the main current source of CTM data, typically publishing high-level CTMs as a summary of their annual rating activity, separately for corporates and financials, in the main geographies. Rating changes tend to be clustered in time 2  so in some years the reported CTMs may be based on sparse underlying data. Crowd-sourced credit estimates 3  provide a robust complementary source of data. The underlying data consists of tens of thousands of forward looking credit risk estimates provided by large numbers of expert credit analysts in global IRB banks. These estimates benefit from the so-called “Wisdom of Crowds” 4  and are updated frequently. The very large underlying dataset also offers a new and unprecedented level of granularity. Users of CRA or crowd-sourced data need to be aware of the distortions arising from smoothing and sampling variation. The observed transition matrices can be viewed as a record of ‘Ex Post’ transitions in a fixed set of obligors over a specific time period. There is an ‘Ex Ante’ equivalent, which is the theoretical pattern of transitions that would be expected for obligors of the same type. This can be calibrated to the behavior of Probabilities of Default (“PDs”). These matrices can then be used to estimate Cumulative Probability of Default (“CPD”) term structures, providing a benchmark for comparison with market implied term structure measures of default risk. In this report, we use crowd-sourced data to estimate the broad dimensions of a number of CTMs. We also show PD volatility data at detailed levels of credit quality granularity; PD volatility can be used to simulate Ex Ante CTMs. We compare key statistics for crowd-sourced CTMs and rating agency CTMs. The crowd-sourced CTMs are then used to derive cumulative PD term structures, which can be compared with market-implied measures. We also discuss the issue of path dependency and show how high frequency time series credit data can be used to assess serial correlation in PDs. This gives an indication of the impact of serial correlation on the structure of the CTM and the implications for term structure estimation. 2. Credit Transition Matrices (“CTMs”) Overview A Credit Transition Matrix (“CTM”) published by rating agencies shows the frequency (in %) of upgrades and downgrades from one credit category to another over a specified period (typically updated annually, with the cumulative changes also calculated for longer periods). Exhibit 2.1 illustrates the process and shows the key components of a CTM. The histogram on the left shows a typical distribution of obligor credit quality. If these obligors are subject to a series of credit quality transitions over time, then the distribution will change – for example to the histogram shown on the right. In the center of the diagram are the key components of the credit transition matrix itself. The upper right triangle of the CTM (‘Down’) is the frequency of downgrades for each row, and the lower left triangle (‘Up’) is the frequency of upgrades for each row. The largest value in any row is nearly always the diagonal element (‘Stable’), which shows the percentage of obligors in each rating band whose credit rating does not change in the chosen period. The actual default frequency appears in the final column (D). The bottom row (‘Emerge’) shows the frequency with which obligors emerge from default. Exhibit 2.1: Typical CTM and Credit Quality Distributions For example, the number of AAA companies in the world has fallen dramatically in the past 20 years, and most of these have moved to AA+, then to AA, and so on. Multiple notch moves are possible following the Brexit vote, S&P downgraded the UK Government by two notches from AAA to AA. Exhibit 2.2 shows the S&P 30 year experience for Global Corporates, averaged to give the ‘typical’ single year experience. Exhibit 2.2 S&P Long Run CTM Exhibit 2.2 shows that the number of companies that started and ended each year rated as AAA by S&P is 87.19%. 5  In a typical year, 8.3% of the obligors rated as AA at time T (left hand) are downgraded to A at time T+1 (top row). This value is shown in row ‘AA’ and column ‘A’. CTMs often include a Default category (column ‘D’ at the far right), so the rows add up to 100%. The table also shows that in a typical year over this 30-year period, 4.48% of the obligors rated as B had defaulted by the end of the year. (Row ‘B’, Column ‘D’). This matrix includes a ‘Not Rated’ column, showing how often companies of different credit classes drop out of the rating process. Row ‘D’ is constructed to have zeros on all off-diagonal elements; so in this matrix ‘Default’ is an absorbing state. In practice, companies sometimes emerge from default (especially those with Chapter 11 status in the USA). Throughout this paper, the individual entries in the CTM are referred to as cells and they are identified by the row, and the column, respectively. In the CTM above, cell (AAA,AA) = 8.69%. Cells which are not on the leading diagonal are on the 1st, 2nd, 3rd etc. diagonal. 3. CTM Calibration 3.1 Comparison of CRA and Crowd-sourced CTMs Exhibit 3.1 provides a detailed comparison of the diagonal element values of the S&P data shown previously along with the crowd-sourced data for the 12 months to July. These elements show the proportion of obligors in a given credit category which remain in that category after one year. Although these percentages represent observed frequency, they are usually interpreted as probabilities. Exhibit 3.1 Actual 1-year Probability of No Transition: Global Corporates, 12m to July 2016 › Sources: S&P, Credit Benchmark This shows that both datasets demonstrate an increased likelihood of transition for lower quality credit categories. It also shows that, with the exception of the AAA category, the Credit Benchmark crowd-sourced CTMs show higher transition likelihoods across the credit spectrum. Although the crowd-sourced and CRA data show differences, the crowd-sourced estimates are based on a very large, robust cross-sectional sample which should minimize noise. The CRA data is based on a robust combination of time series and cross sectional data, so it should also contain limited noise. However, the history potentially straddles very different credit regimes, and the CRA data will reflect the desire by CRAs and their clients to avoid volatility in credit ratings. Exhibit 3.2 shows a comparison of the key elements of the S&P CTM from Exhibit 2.2, and the crowd-sourced equivalent, 1-year transition frequency, averaged across credit categories, for the 12 months to July 2016 6 . Exhibit 3.2 Comparison of S&P and Crowd-sourced CTMs, 12 months to July 2016 This shows that crowd-sourced data shows a tendency to more activity (up or down) and in particular a bias towards upward revisions over this period. It also shows that crowdsourced 2nd diagonal elements (two notch transitions) are higher than the S&P equivalent. Exhibit 3.3 shows a comparison of the crowd-sourced CTMs for different geographies and different types of obligor, 1-year transition frequency, averaged across credit categories. Exhibit 3.3 Comparisons of crowd-sourced CTMs by geography and type, 12 months to July 2016 This shows that US Corporate obligors show transitions more often in all categories. It also shows that the frequency of upgrades is slightly higher than the frequency of downgrades for both Europe and US. It shows that Corporates and Financials have very similar transition propensities, except for the one notch upgrade diagonal. Exhibit 3.4 shows the Ex Post 21 x 21 CTM for US Corporates. Exhibit 3.4 Ex Post 21 x 21 CTM, US Corporates, 12 months to July 2016 This shows that the crowd-sourced dataset now contains sufficient data to begin to populate a 21 x 21 Ex Post CTM. This CTM is still subject to significant noise, especially in the highest and lowest credit categories, where there are fewer obligors. However, this noise level is steadily dropping; and the PD volatility approach described in the next section offers additional scope to simulate and calibrate an Ex Ante CTM for benchmarking purposes. As the database continues to expand in terms of breadth, depth and history, it is expected that the number of credit categories can be expanded further. 3.2 PD Volatility Developers and users of transition matrices often smooth the data to ensure ‘monotonicity’. There are various approaches, but all produce the result that cells on a given row that are further from the leading diagonal show progressively lower values. Monotonicity is not guaranteed in raw data and deviations from monotonicity are regularly observed in crowdsourced data. This is mainly because of sampling variation, especially when the sample period is short. However, monotonicity can also be violated by major credit events, such as large jumps from investment grade into high yield, or even into default. Users of CRA or crowd-sourced data need to be aware of the distortions arising from smoothing and sampling variation. The observed transition matrices can be viewed as a record of Ex Post transitions in a fixed set of obligors over a specific time period. There is an Ex Ante equivalent, which is the theoretical pattern of transitions that would be expected for obligors of the same type. The key driver of any transition matrix is the volatility of the credit views. In CRA data this is determined by the changes in the opinions of the agencies. In crowd-sourced data, the proportionate volatility of the PDs 7  will determine the scale and frequency of transitions. The other driver is the frequency with which that volatility is relevant – i.e. the frequency with which PDs change or not. This has a significant impact on the leading, ‘Stable’ diagonal. In addition, the ‘jump to default’ process can arguably be viewed as an extreme form of PD volatility; but could also be viewed as a separate discrete event process. Exhibit 3.5 shows the results of a simple CTM simulation model based on proportionate PD volatility. Exhibit 3.5 CTM simulation results for different proportionate Monthly PD volatility levels This shows that higher PD volatility results in more frequent and larger notch transitions.  Proportionate PD volatility can be tracked every month across a range of obligor types, regions and sectors. This can be used for systematic monitoring of forthcoming changes in CTM behavior. This table can be used in reverse to infer the PD volatility level that prevailed over the estimation period for a CTM. This involves a comparison of the key diagonals of the CTM with the rows in the above table, interpolating where necessary. In particular, it is possible to use different PD volatility assumptions for different credit categories; this allows close replication of the higher transition frequencies observed in the lower credit quality obligors. This simulation approach can be used to construct an Ex Ante CTM, which exhibits limited noise. This in turn provides a set of benchmarks for observed Ex Post CTMs, and gives risk practitioners a clearer view of the amount of smoothing required. Exhibit 3.6 shows some estimated Proportionate PD volatilities for various obligor subsets. Exhibit 3.6 Proportionate PD Volatility estimates, 6 month time series window This suggests that the average PD Volatility is similar across the obligor subsets, but – for example – Global Corporates are closer to the first row of Exhibit 3.5 and European Corporates are closer to the second row. Note that these estimates are based on a 6-month volatility window, whereas the estimates in Exhibit 3.3 are based on 12-month transitions. This is the reason for European Corporates appearing at the top of this table, while European Corporates show fewer transitions in Exhibit 3.3. Individual obligors show much greater variation in PD Volatility. As Exhibit 3.7 shows, this is mainly a function of credit category. Exhibit 3.7 Proportionate PD Volatility (Monthly) estimates by Credit Category This shows that, as an approximation, each credit notch adds about 1 percentage point to the monthly PD Volatility. PD volatility is generally higher but also much more unstable in the non-investment grade categories. This partly reflects the smaller sample of obligors, but also reflects genuine uncertainty about the credit outlook for low quality obligors, leading to larger and more frequent revisions in PD estimates. This helps to explain the higher propensity to transition observed in lower quality obligors. 4. Path dependency within CTMs Path dependency is a major issue in applying CTMs. Path dependency implies that the relevant CTM for each obligor is conditional on the previous credit behavior of that obligor. If an obligor has been downgraded in one period, then that obligor becomes more likely to downgrade in the next period. If credit behavior is path dependent, then two portfolios with the same initial distribution of obligors across credit categories may evolve in very different ways, depending on the previous upgrade/downgrade behavior of the individual obligors in each portfolio. Exhibit 4.1 shows the CBC-7 8  distribution of obligors by credit category after (rather unrealistically) 20 years of upgrades, downgrades and defaults 9 . (This is derived by multiplying the transition matrix by itself, and then multiplying the result by the original transition matrix a further 19 times). Exhibit 4.1 20-year Derived Distribution (Global Corporates i.e. CTM used in Exhibit 3.2) The initial distribution is based on the current obligor set in the Credit Benchmark dataset; this is consistent with the generally bell-shaped curve that is observed in credit rating distributions (a Normal distribution is usually a good approximation). The final distribution (after 20 years) is significantly different, with fewer obligors in a and bbb categories, and more in aa and b categories. The bb and c categories show an initial increase, but then show a slight decline. This type of chart is useful for summarizing the behavior of an individual transition matrix. In the example in Exhibit 4.1, the current matrix does not preserve the current obligor distribution. This may be because the current distribution is unusual, or (more likely) because the current distribution is typical but is generally preserved by a combination of: Company births. Path dependency at the individual obligor level. Regime switching (i.e. multiple transition matrices, conditional on the type of credit cycle). Sampling variation in the single transition matrix. Exhibit 4.2 shows the incidence of path dependency in the monthly CB dataset. Exhibit 4.2 Runs in PD Changes, Credit Benchmark and Simulated Data This shows that, for a subset of the quorate corporate data, the proportion of non-zero PD changes where the sign is the same in two subsequent months is 10.6%. In 100 simulations of a similar, sparse dataset where each PD change is independent by construction, the proportion is in the range 7.4% 8.7%. This suggests that the actual PDs show ‘Runs’, which is a weak form of path dependency. Subset of Obligors where n>=7 The impact of path dependency on obligor distributions will depend on the nature of the additional transition matrices that come into force as a result of an upgrade or downgrade. Typically we would expect the number of obligors accumulating in the higher or lower quality or default categories will be higher than would be achieved by simply powering up the observed, unconditional CTM. This is because for every unconditional CTM, there is a family of nested, conditional CTMs that apply to obligors that have just experienced an upgrade or downgrade. A more general approach to this is described in Bluhm and Overbeck (see Appendix 1). They relax the assumption of time homogeneity but retain the Markov assumption. In effect, the transition probabilities change over time. 10  5. Implications of CTM calibrations for Point in Time vs. Through the Cycle The Credit Benchmark dataset is based on ‘Through-the-Cycle / Hybrid’ estimates; so the PD for each obligor reflects the average risk throughout a full credit cycle, with adjustments for changes in circumstances which affect the outlook for specific sectors or individual obligors. The Through-the-Cycle (‘TTC’) estimate is the 1-year equivalent of the full cycle, cumulative PD estimate 11  . This means that CTMs based on the one-year estimates are generally (surprisingly) suitable for providing multi-year cumulative PD estimates and term structures. Point-in-Time (‘PIT’) estimates are conditional on the current state of the credit cycle. Since they are typically calibrated with direct reference to market prices (CDS and bond yields), they will contain a market risk premium, of which liquidity is usually the dominant element. The risk premium provides a bridge between TTC and PIT. There is evidence from Sovereign CDS markets 12  that this risk premium varies over time and is a function of credit quality, so it can be tracked and systematically used to convert between these two measures. It also has a term dimension, which in the case of PIT can be observed in market prices and yield curves, and in the case of TTC it can be derived from the CTM. The next section discusses this in more detail. 6. Cumulative Probability of Default Term Structures This section assumes that the crowd-sourced CTMs are unconditional (i.e. universally applicable, since they are based on TTC data). It should be noted that conditional CTMs might provide more accurate term structures that take the changing credit regime into account. Exhibit 6.1 shows the 5-year cumulative PD term structure derived from the unconditional CTM using the Global Corporate CTM for S&P and crowdsourced data. Due to the scale mismatch, only the investment grade PDs are plotted. Exhibit 6.1 5-year cumulative PD term structure: comparison of S&P and Crowd-sourced Exhibit 6.1.1 S&P Exhibit 6.1.2 Crowd-sourced This shows that, using the crowd-sourced data, an obligor who is classed as bbb at the beginning of the period has a probability of more than 2.5% of defaulting after 5 years. The S&P data shows a value of just over 2.1%. S&P also publish multiple year CTMs and these may give different results, but this specific result shows that the S&P data reflects a range of credit regimes over the past 30 years, whereas the crowd-sourced data reflects the changes in TTC views over the past 12 months. N.B. Obligors who default after 5 years may have remained in the bbb category throughout the period up to the default, or they may have upgraded and downgraded in the process of reaching a default state. These probabilities are calculated using a full transition matrix. An alternative is the survival approach, which ignores the process of upgrades and downgrades – in effect, a diagonal CTM. Exhibit 6.2 compares these two approaches for aaa, bb, and c credit categories. Exhibit 6.2 Cumulative Probability of Default: Comparison of transition and survival rate This shows that the two approaches give very different estimates of default probabilities at different time horizons. It also shows that there is a crossover point somewhere between bbb and bb. For credits of bbb and better, the survival approach understates the cumulative probability of default; for credits of bb or worse, the survival approach overstates the cumulative probability of default. This is because the cumulative PD for the aaa credit class curves up; the c class curves down. 7. Comparison of Real World and Risk Neutral Estimates, and Liquidity Risk Premium The difference between ‘Real World’ and ‘Risk Neutral’ probabilities can be significant, with implications for the different Probability of Default use cases. For example, for the purposes of accounting standards covering loan impairment (see section 8, below) it is important to use real world PDs. Risk neutral PDs consist of real world PDs plus an allowance for risk premiums, especially liquidity risk premium. This reflects the market maker’s need to be compensated for providing liquidity, and the need for the investor to be compensated for holding an illiquid asset. The other main source of risk premiums is counterparty risk – this is especially prevalent in CDS prices. Risk neutral PDs are primarily a pricing concept, and are subject to a broader range of influences than those of a real world PD. Baxter & Rennie give a good example of this in their ‘Parable of the Bookmaker’: The liquidity premium is increasingly important for insurance companies. Solvency II rules require explicit recognition of asset liquidity, so any source of robust estimates of the liquidity risk premium will allow insurance companies to more accurately reserve capital. Real World PDs are key to estimating the proportion of an observed credit spread that can be attributed to liquidity, and the extent of reserving required. Exhibit 7.1 Comparison of Real World and Risk Neutral (Market Implied) PDs. Exhibit 7.1 shows Real World and Market Implied PDs for four credit classes, based on a sample of US Corporate Bonds. The difference can be substantial, depending on the prevailing risk premium. When market implied default probabilities are used, it is important to take the current risk premium into account to avoid overstating potential losses. (Where losses are being hedged using traded instruments, (e.g. CDS) then the risk premium will be part of the cost of the position and will be included in the net profit or loss.) 8. Implications for CECL and IFRS9 Accounting Standards These standards require recognition of loan impairment over multiple time periods. The CECL 13  rules (applicable to US entities) require a full assessment of the likely impairment of a loan over its lifetime, whereas the IFRS9 14  rules (applicable to non-US entities) only require multiple time horizon estimates when the credit standing of a loan has deteriorated significantly. Global banks will generally have to report under both standards depending on the domicile of the lending subsidiary. According to FASB 15 , a lending entity should: ›apply the CECL model for financial assets measured at amortized cost, such as loans, debt securities, and any receivables that represent the contractual right to receive cash;›assess the collectability of contractual cash flows, using information about past events, current conditions and reasonable and supportable forecasts;   ›consider all contractual cash flows over the life of the related financial assets (i.e. the loan)›estimate expected credit losses reflecting the risk of loss, even when that risk is remote›use methods to estimate expected credit losses which may include: discounted cash flow loss-rates probability-of-default (PD) a provision matrix using loss factors Exhibits 6.2.1. – 6.2.3 and Exhibit 7.1 show that the assumptions made about transition matrices and the choice of PD are critical to loan impairment estimates. For the aaa category, the transition matrix approach gives a 5-year loss estimate which is 3 times higher than the survival rate approach. For the c category, the transition matrix approach results in a 5-year loss estimate that is 30% lower than the survival rate approach. (Other CTMs will have less dramatic but nevertheless significant impacts on impairment estimates.) The market implied PDs in Exhibit 7.1 are 1.5 - 6 times the magnitude of the Real World probabilities. For CECL and IFRS9 accounting, the choice of CTM and default probabilities is crucial and may have a significant impact on the final reserving required. This paper has demonstrated some of the key issues in choosing credit transition matrices: Market implied PDs contain significant risk premiums, depending on credit category: will tend to overstate impairments Simple PD extrapolation may overstate or understate impairment, depending on credit category and comparison CTM structure CTMs derived from CRA long run averages may understate impairment if the current PD volatility level is above the long run average; they will overstate impairment if the current PD volatility level is below the long run average Crowd-sourced CTMs based on broad, deep and frequently updated credit views address some of these shortcomings, providing: Real World PDs (undistorted by risk premium) Cumulative PDs which reflect the CTM (ignored by the survival approach) Frequently updated PD volatility and transition estimates (to assess Ex Ante, theoretical CTMs as well as observed, Ex Post CTMs). Region and Sector specific PD volatilities and CTMs 9. Conclusions The Credit Benchmark dataset is a large and frequent source of credit risk updates. The dataset tracks all such changes across the mapped universe (which exceeds 250,000 names) for a variety of time periods (one month to one year). Through-the-Cycle data is well suited to the calibration of transition matrices with multiple time horizons and provides fresh insights into the path dependency issue. The resulting transition matrices can be used to estimate cumulative PD curves and provide benchmarks for Point-in-Time risk estimates derived from market prices. These can then be used to estimate monthly risk premiums for different obligor types, credit classes and time periods. These benchmarks have applications for compliance with IFRS9 and CECL accounting standards, and the choice of CTM and PDs may have significant financial implications. In particular, crowd-sourced CTMs provide: Real World PDs (undistorted by risk premium) Cumulative PDs which reflect the CTM (ignored by the survival approach) Frequently updated PD volatility and transition estimates (Ex Ante and Ex Post) Region and Sector specific PD volatilities and CTMs Crowd-sourced CTMs provide a flexible and frequently updated set of building blocks for a variety of regulatory and accounting use cases across the banking and insurance industries. Appendix 1 Selected Bibliography (by Date) Financial Calculus: An Introduction to Derivative Pricing: Baxter M & Rennie A (1996) Markov Model for the Term Structure of Credit Risk Spreads: Jarrow, RA, Lando, A and Turnbull SM (1997)  From Default Probabilities to Credit Spreads: Denzler S Dacorogna M Muller U, McNeil A (2005) Calibration of PD Term Structures To Be Markov or Not to Be: Bluhm C Overbeck L (2006) Credit Rating Dynamics and Markov Mixture Models: Frydman H Schuermann T (2007) Credit Migration Risk Modeling: Andersson, A. Vanini P (2010) On the Risk Neutralization of Transition Matrix: Zhou, R (2013) Current Expected Credit Loss: A New Impairment Model Is Born: C. Henkel (Moody’s Analytics / GARP) (2016) Appendix 2 Variation in CRA opinions over time: ratio of downgrades to upgrades Appendix 3 Credit Benchmark Consensus (“CBC”) Breakpoints Download the article "Crowd-Sourced Credit Transition Matrices" on PDF. More from Credit Benchmark We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn more. Reporting was contributed by Barbora MakovaJacob HibbertAleem IlyasDavid Carruthers Footnotes 1 See Appendix 1 for a brief selection of the large literature on this topic.2 See Appendix 2.3 The Credit Benchmark (“CB”) dataset covers thousands of obligors at the individual legal entity and portfolio levels. Data is collected monthly from key global banks who anonymously and securely pool their internal credit risk estimates. From these, CB create consensus Probabilities of Default (“PD”) and senior unsecured Loss Given Default (“LGD”) metrics.4 The ‘Wisdom of Crowds’ was initially observed by Francis Galton and is the basis for the value in crowdsourced datasets. It is the popular version of the Diversity Prediction Theorem which can be stated as: “The squared error of the collective prediction equals the average squared error minus the predictive diversity” - implying that if the diversity in a group is large, the error of the crowd is small.5 In practice, some companies may go through multiple downgrades (or upgrades) in the course of a year. The CTM in Exhibit 2.2 represents a specific time horizon (one year, in this case). More generally, the transition process can represented by a continuous time-homogenous generator matrix which generates the discrete time CTM(t) = exp(Gt) where CTM(t) is the credit transition matrix at time t and G is the associated generator matrix. Generator matrices are useful but computation may be complex – see, for example, Moler, C. and van Loan, C. “Nineteen Dubious Ways to Compute the Exponential of a Matrix, Twenty-Five Years Later.” SIAM Rev. 45, 3-49, 20036 These rows do not sum to 100%, due to defaults; these matrices have also been rebased to conform to one set of default rates for each credit category.7 Proportionate PD volatility is defined as the rolling standard deviation of the obligor PD estimates over a set time window, divided by the average PD for that obligor over the same period. The choice of rolling window will have some bearing on the estimate.8 CBC-7 refers to the aaa, aa, a,bbb,bb,b,c categorization. See Appendix 3 for the full table.9 This distribution ignores company births. In practice, large numbers of companies are incorporated each year (the ONS in the UK report typical annual birth rates in the range 13 - 14%, and typical overall death rates (across all credit categories) of 3.5% - 6%).10 For the purposes of this paper, we note that path dependency is likely to be an issue, but it is not incorporated into the derived metrics in sections 6 and 7 below. Current Credit Benchmark and Technical Advisory Group research is focused on the implications of path dependency for CTMs and Cumulative PD terms structures, with results forthcoming. This is aimed at formulating and calibrating CTMs which are consistent with (1) observed default frequencies (2) observed credit category distribution of obligors through time.11 Typically this means that if the credit cycle length is assumed to be 5 years, and the 5-year PD is given by PD(5), then the one-year PD or PD(1) = (1-(1-PD(5))^(1/5)). In other words, the PD(1) is derived from the 5th root of the 5-year survival probability.12 See Credit Benchmark White Paper No.4, available to download from www.creditbenchmark.com13 CECL = Current Expected Credit Loss.14 IFRS = International Financial Reporting Standards.| Crowd-sourced Credit Transition Matrices15 FASB = Financial Accounting Standards Board.  Collective Intelligence for Global Finance Credit Benchmark is an entirely new source of data in credit risk. We pool PD and LGD estimates from IRB banks, allowing them to unlock the value of internal ratings efforts and view their own estimates in the context of a robust and incentive-aligned industry consensus. The resultant data supports banks’ credit risk management activities at portfolio and individual entity level, as well as informing model validation and calibration. 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This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Banks Cautious On Credit Risk – Downward Revisions Outnumber Improvements. We have just published credit data for September, with 11 contributor banks now providing crowd-sourced credit views CBCs* on more than 6,000 separate legal entities. Sovereign coverage now includes Barbados, Jamaica, Panama and Albania. Other additions include the New York Metropolitan Museum of Art, Ralph Lauren, Kraft Heinz, and Netflix. Over the month, 173 obligors improved their credit standing by at least one notch, but 285 deteriorated. 73 moved more than 1 notch. Compared with the previous month, the balance of transitions has shifted modestly from upgrades to downgrades: the August data showed that 215 improved, and 188 deteriorated, out of about 5,400 obligors. Over the past two months, the combined totals show reduced credit risk for 318 obligors and increased credit risk for 378. The totals are close, but the overall bias is towards caution. This is in line with a more bearish stance on debt across the financial industry; for example, this week the Wall Street journal reported on large withdrawals from High Yield ETFs. Probabilities of Default (PDs) increased in Technology, Utilities and Pharmaceuticals. They decreased in Consumer Services, Consumer Goods, Industrials and Funds. A key metric that we are beginning to monitor is the rolling volatility of PD estimates over time, for each obligor. This gives early warning of changes in credit transition behaviour. If this metric is dropping, or below average, then PDs are less likely to change and transitions occur less frequently, with moves of more than one notch becoming less common. Currently, the rolling volatility measures have been dropping across the majority of obligors. This suggests that transitions between credit categories are becoming less likely, which is consistent with the notch changes observed over the past month. As this crowd-sourced time series grows, it is becoming possible to monitor this metric for different credit categories, countries and industries. We will be presenting more detail on this topic and its value for CECL and IFRS9 impairment calculations at the IACPM conference in Washington, D.C. this Friday, 4th November. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. Image Source: IACPM Website. ### CECL And IFRS9 Fuel Demand For Credit Data Banks are gearing up for major accounting changes over the next few years. Credit risk and modelling teams are now working with accounting policy divisions to draw up implementation plans for Current Expected Credit Loss (CECL: US) and International Financial Reporting Standard 9 (IFRS9: ex-US). Details can be found here on the ABA website and here on the FASB website From a credit point of view, the main change is the requirement to assess credit risk for loans over multiple time horizons. This is especially acute in the US, where banks governed by CECL need to assess the likely extent of impairment over the entire life of a loan. IFRS9 only requires this when the credit outlook has deteriorated significantly. Credit Benchmark crowdsource the Probability of Default estimates from a growing number of global IRB banks. This provides a robust, detailed and frequently updated source of credit data which can be used to construct transition matrices and cumulative PD term structures. It also provides early warning of deterioration in the credit environment. This probability data is 'Real World' rather than market-implied, so it does not contain any liquidity risk premium. As a result, it gives a more accurate assessment of the likely impairment to a loan over its lifetime, and that number will typically be noticeably lower than a market implied estimate. Because this data is 'Through-the-Cycle', it also lends itself to the longer time horizons required by CECL and IFRS9. We will be presenting detailed analysis on this topic at the IACPM conference in Washington DC on the 4th November. ### Credit Risk Improving In High Quality Asian Banks At the recent RiskMinds Americas conference in Chicago, a number of presentations suggested that the banking industry is in better shape, overall, than it was in 2006-08. Withdrawal from non-core markets, a strong focus on cost control, and a rebuilding of capital reserves have eased concerns about the systemic impact of a future crisis. Asian banks sustained less damage that their European and American counterparts in 2008. But while they avoided the worst of the securitization crises, they are not immune to credit cycles. Bad loans - in real estate, energy and shipping – are a growing problem across the region. And there are other issues, which are more specific to each country. The Credit Benchmark dataset is quorate on nearly 200 banks across the region and portfolio data extends to thousands of obligors. Some of the recent trends for the majors: • Japanese banks are facing two main issues: negative interest rate margins and patches of deteriorating loan quality, especially in the energy sector. Moody’s recently assigned a ‘stable’ outlook but highlighted concerns over the impact of negative interest rates, especially on JGB holdings. Those holdings are one reason for the current negative view from Fitch, mainly because they downgraded the Japanese government earlier this year. The negative interest margin has led to losses in net interest income; European banks have a similar negative rate problem but the impact on their net interest income is smaller. Against this backdrop, a stable outlook is a significant achievement. • Chinese banks were hit by commodity price volatility and an economic slowdown in late 2015, prompting the Chinese government to increase its stakes in a number of banks and force through some rule changes which require lenders to make provisions for bad debt transfers. Moodys’ have highlighted systemic risk due to overdependence on wholesale funding in the Chinese banking system, but the Government are clearly willing to stand behind the sector. Bloomberg report that, despite bad debts at an 11-year high, Chinese banks have continued to lend at record levels. • Indian banks have issues which mirror those of Japan and China. The IMF and the main rating agencies have highlighted lack of provisioning for bad debts and falling net interest margins. Increased competition – ironically as part of the growth of the debt market overall – is causing further problems, particularly for incumbent, Government-controlled Indian banks. India is, however, seen as the key to the development of the entire Indian Ocean sphere of influence. If the largest banks can make the transition from a local to a regional role, then these issues may come to be seen as growing pains. The chart shows the main changes in banking sector credit risk since the beginning of this year. This shows that, in general, countries with lower quality banking sectors have had the largest proportionate increase in credit risk; and countries with higher quality banking sectors have shown a proportionate decrease. The main exception is Australia. This may seem surprising since Australian banks typically report healthy returns, mainly due to higher leverage in capital efficient residential mortgages. But this same exposure may now be driving a reassessment of risk as the outlook for global interest rates becomes more uncertain. UBS recently rated Sydney as one of the four cities in the world with a serious property bubble (along with Vancouver, Stockholm and London). Moodys’ have also voiced concerns about commercial property loans in Australia. These trends suggest that Asian banking is entering a volatile phase, but the outlook for some of the majors may now be improving. Whether it is country-specific issues (like Duterte’s anti-US policies in the Philippines) or the general impact of a slowdown in global trade and a possible rise in the cost of borrowing, these changes in credit risk signal where further challenges may appear. ### Measurement Of Sovereign Credit Quality Executive Summary   Sovereign credit crises tend to occur in waves and Sovereign credit quality measurement aims to identify the most vulnerable countries. Agency ratings do not cover every country, but consensus views crowd-sourced from global IRB banks cover many of the same Sovereigns and extend to a number of unrated Sovereigns. Crowd-sourced bank views have a 96% fit with agency ratings, but are more conservative. Bank views provide benchmarks for agency ratings, CDS spreads and real bond yields. Bank views also support unbiased, monthly evaluated credit benchmarks for unrated Sovereigns. Crowd-sourced consensus estimates show lower variance than standard model estimates.   Download the PDF "Measurement Of Sovereign Credit Quality"   So far this year, the main credit rating agencies have been downgrading Sovereigns at the highest rate since 2009.   Credit losses arising from Sovereign debt crises are rare, but when they do occur they may have major consequences, and the amounts involved are usually significant. Such crises may occur in clusters and may spread indirectly to the corporate sector in the affected countries.   Specifically, this paper briefly reviews the history of Sovereign debt crises and introduces crowd-sourced credit estimates as a new metric in the assessment of Sovereign risk. These estimates are compared with opinion-based ratings and are then used to calibrate a framework that extends credit risk estimates to currently unrated Sovereigns.   This paper compares bank-sourced views of Sovereign risk in the form of the Credit Benchmark Consensus (“CBC”) with the opinions of the main credit rating agencies (“CRAs”). It then shows the scope for using economic data to extend credit risk assessments beyond either of those universes.   This report is the first in a series. Subsequent reports will tackle questions about predictive leads and lags between changes in bank views, rating opinions, and economic data.   Credit Benchmark: Collective Intelligence for Global Finance   Credit Benchmark (CB) has brought together a group of key global banks who anonymously and securely pool their internal credit risk estimates, to create consensus Probabilities of Default (“PD”) and senior unsecured Loss Given Default (“LGD”) metrics.The Credit Benchmark service offers monthly updated consensus PDs and LGDs on thousands of obligors at the individual legal entity level, extending from Sovereigns and banks to public and private corporates and funds. Credit Benchmark also offers data on tens of thousands of obligors for use at portfolio level.Quorate consensus PDs are simple, unweighted averages of at least three independent PD or LGD contributions for an identical legal entity over an equivalent estimation period.Participation in the service is open to any banks that use the IRB method for calculating regulatory capital. Credit Benchmark warmly invites interested institutions to become contributors.     Table of Contents     1. Sovereign Credit Crises – a Brief History   There are many books and papers on this topic 1  , covering theory and practice, and ranging from econometric models to policy prescriptions. Kindelberger 2  provides a comprehensive and recently updated overview of actual historical credit crises.   Sovereign credit crises are often linked to systemic issues or commodity shocks; but the way in which these play out in individual economies can be very different. Historical crises are often linked to territorial ambitions, especially if they result in outright war. Like ‘cheap’ foreign currency debt, printing money to finance the invasion of a neighbor may seem like an easy way to expand an economy but they usually bring disproportionate costs. Modern Sovereign crises are more likely to be driven by purely economic factors, although the recent deterioration in the credit standing of Russia and Ukraine can be partly linked to their territorial dispute.   Historic examples of malleable default definitions and compromises:   Brady Bonds (1980s): refinancing bonds issued by Latin American countries and guaranteed by the US to avoid outright defaults, but owners had to accept writedowns of about 40% on original loans. Russia (1998): chose to suspend payments on Rouble debts. This was unusual because most defaults are on foreign currency liabilities. Greece (2012): Credit Default Swaps were settled at 78% while the reference bonds traded at 22% of Par value. For the purposes of the CDS holders, ISDA ruled that a ‘credit event’ (i.e. a default) had occurred; for unprotected bond holders, it was just another restructuring. Argentina (2016): emerged from effective default after reaching agreement with creditors.   Exhibit 1.1 Time Series of Sovereign Debt Crises     Exhibit 1.1 shows the historical frequency 3  of the main Sovereign debt crises going back more than 200 years, showing clear clusters in time.   The clustering suggests that a regime switching approach is a potential topic for further research 4  .   Sovereign risk differs from pure corporate risk, since a Sovereign rarely defaults in the corporate sense, or the definition of default is unclear. It is much more likely that Sovereign credit crises are resolved through compromises, asset transfers, currency devaluations or write-offs. The willingness as well as the ability to pay becomes critical. Rating agencies reflect this in the category ‘Selective Default’ which they sometimes apply to instruments issued by this obligor group.   The main types of Sovereign crises are discussed in Frenkel, Karmann and Scholtens (2004). A key type of crisis is cause by is flawed macroeconomic policy, (which may exacerbate structural issues specific to each economy). They also highlight moral hazard, where a ‘Government Put’ encourages excessive risk taking. Asset price drops may follow or they may be the cause. Their analysis also identifies financial panics and disorderly workouts, where collective creditor action precipitates a crisis (as each attempts to salvage their investment, even if it results in collapse). Related to these are bubble collapses (where financial assets are mispriced, and some catalyst causes this to correct).   Sovereign credit crises often follow periods of excessive borrowing, especially by ‘soft’ currency countries in ‘hard’ foreign currencies that offer the apparent benefit of low interest rates. Such booms typically end because of an external shock or a drop in lender confidence, leading to currency devaluation and a liquidity crisis; it becomes difficult to meet interest payments or to repay or rollover the principal. The stricken Government may choose to avoid making external payments in order to preserve cash; or they may make selective payments. Some recent examples of selective payments are:   Puerto Rico, where bond issues backed by reliable income streams (e.g. rum taxation) trade as investment grade, while others have no security and are effectively ignored by the Government. Greece, which in 2015 became the first developed country to miss an IMF payment; viewed by some commentators as an attempt to divide the Troika members. Mozambique, where the IMF have withdrawn support pending a formal audit, claiming that most of the recently issues “Tuna Bond” proceeds had been used to purchase military vessels. As a result, some Mozambique Government-issued bonds are now classed as being in Selective Default.   2. Measuring Sovereign Credit Risk   Credit risk measurement differs from credit risk prediction. There is an analogy with the analysis of earthquakes or avalanches – it is possible to identify that there is a heightened risk, but the timing and scale of the actual events are much less certain. And a ‘crisis’ can last for years, with protracted negotiations, swings in economic fortunes, or the discovery of previously hidden liabilities.   This paper will treat the Sovereign 1-year PD as an estimate of the risk of a significant Sovereign debt crisis, rather than an outright default. It will focus on bank views, credit ratings, and economic statistics in the measurement of credit risk. It will ignore the short term asset valuation position, but in practice investors often use technical and liquidity measures – capital stocks, flows and market prices – to anticipate potential crises.   Sovereign credit risk estimation begins with debt. A country may have too much debt, it may have problems servicing the debt, or it may have a fragile economy so that any external or internal shock may force it to attempt to resort to debt. So risk assessments will typically use measures of outstanding debt and/or debt growth, the scope to grow the economy and service the debt, and the expected productivity benefits of any debt-fueled spending.   3. Credit Benchmark Sovereign Coverage   The UN currently recognizes 193 Sovereigns 5  . The exact number covered by rating agencies fluctuates, especially due to initiation or withdrawal of unsolicited ratings, but for the purposes of this paper we have used 112 comparable ratings from one or more of the major agencies. In a typical month, Credit Benchmark publish quorate 6  Probability of Default (“PD”) estimates for 88 of these, and are semi-quorate on 31 more for a total of 119. Contributed bank and rating agency coverage includes 85 Sovereigns in common. Some of these are not rated by any of the major agencies. Throughout this paper, PDs will be converted to CBCs 7  ; these and agency ratings will be expressed as numeric categories, with AAA / aaa = 1 and C/c = 21.   4. Comparison of CBC with Rating Agencies   Exhibit 4.1 compares the CBC and S&P Long Term Sovereign ratings, converted into numeric ranks.   Exhibit 4.1 Comparison of CBC and S&P ratings     Exhibit 4.1 shows that most of the differences are +/- 1 notch. The 2- notch differences are skewed to the left.   This shows that banks tend to be more slightly more cautious than S&P, with a slightly higher proportion of Sovereigns to the left of the center of the histogram (i.e. there are a higher proportion of Sovereigns where CBCs are lower than the agency rating.)   N.B. This chart is based on CBC categories and CRA ratings from H1 2016.   Exhibit 4.2 shows the relationship between the Sovereign CBC and the long term, foreign currency agency rating categories averaged across the three main agencies.   Exhibit 4.2 Comparison of CBC and CRA credit categories     Exhibit 4.2 shows that a comparison with all 3 rating agencies leads to a larger number of differences of more than +/- 1 notch.   However, the fitted line shows that the CBC explains 96% of the variation in the average agency credit rating, across 85 Sovereigns.   The slope of the line suggests that the CBCs are an unbiased estimate of the CRA rating, after adjusting for the constant level of increased caution.   The negative value for the intercept confirms that banks tend to be slightly more cautious than an average of all three the rating agencies for this group of Sovereigns.   5. CBC Benchmarking Applications for Sovereigns   The examples in this section demonstrate the value of Sovereign risk measures. In addition to the obvious use cases of protecting loan books, export revenues or direct investments, these risk measures also provide a benchmark for calculating market risk premiums and detecting anomalies in other financial metrics.   Exhibit 5.1 Consensus Risk Estimates vs Crisis History     Exhibit 5.1 plots the relationship between the current bank estimate of credit risk measured by the CBC, and the number of times that an individual country has been involved in a debt crisis in the past 200 years. The red oval shows countries where the current risk assessment is proportional to the previous crisis history. There are relatively few names in this area, although Argentina and Venezuela currently stand out as respectively emerging from, and potentially entering, a crisis.   This chart shows that the current assessment of credit risk large ignores previous history of serial defaulting. This may be because the countries with the highest default frequency – many of them in South and Central America – have typically implemented such wide-ranging reforms that the previous history is now irrelevant.   Countries that are currently viewed as high risk which are less prone to crises – mainly in Africa and the Middle East are typically a source of current political concern.   Exhibit 5.2 Real Bond Yields and Credit Risk     Exhibit 5.2 shows the relationship between real bond yields (i.e. inflation and nominal bond yields adjusted for inflation) and credit risk, measured by the PD. The chart uses July 2016 data, and updates a previous white paper 8  , which showed evidence of mean reversion in this relationship; suggesting a long run correlation between real bond yields and credit quality.   The chart shows that the moderately stable relationship between real yield and PD has persisted. The three elements of this relationship – credit risk, nominal yields, and inflation – are interconnected 9  .   Exhibit 5.3 Actual and Synthetic CDS     Exhibit 5.3 shows the relationship between actual Sovereign CDS spreads and synthetic CDS spreads, estimated from PD and LGD data. This chart uses July 2016 data and is an updated extract from a previous Credit Benchmark White Paper 10  , which used late-2015 CDS prices.   This chart shows that, with suitable assumptions, it is possible to identify the risk premium, which drives the difference between risk neutral (i.e. market implied) and real world PDs 11  . If the risk premium is zero, then all of the plotted points would lie on the red line.   The CDS approach shown here can also be applied to Government bond yields, which would extend the risk premium analysis to a larger group of Sovereigns.   The risk premium varies over time and is often viewed as equivalent to the ‘Market Price of Risk’. In practice, there is likely to be more than one risk premium which corresponds to different credit quality categories, and it may vary by other dimensions – such as industry or region.   Exhibit 5.4 shows the risk premiums by CBC category for the period July-2015 to April-2015, as implied by the Sovereign CDS market.   Exhibit 5.4 Sovereign Risk Premiums Time Series by Credit Category     Exhibit 5.4 shows that the risk premium varies over time but it also varies by credit quality, so extending the Sovereign universe to include all Government bond issuers would provide a more granular and robust set of risk premium time series.   The risk premiums shown in Exhibit 5.5 are specific to Sovereigns but the approach can be extended to corporate obligors, where the risk premium and credit transition matrix may vary by sector or region.   If the risk premium analysis shown here is combined with the relevant transition matrix, then it becomes possible to estimate PD term structures for different credit classes over time. This has applications for IFRS9 and CECL accounting requirements.   6. Evaluated Sovereign CBCs: Calibration to Crowdsourced data   This report uses a simple set of explanatory variables 12  to classify the Sovereigns in the bank universe, with the aim of providing ‘Evaluated’ credit risk estimates and categories for the unrated Sovereigns.   These are listed in Exhibit 6.1.   Exhibit 6.1 List of Potential Explanatory Variables   *but could also be a proxy for spare capacity. This depends on the drivers of unemployment in each country – structural (e.g. skill mismatch) or cyclical (e.g. weak domestic demand or currency overvaluation) **various sources including Eurostat, World Bank, Ministries of Finance, Central Banks Exhibit 6.2 shows the correlations between these.   Exhibit 6.2 Cross-Sectional Correlations between Explanatory Variables     This shows some strong positive cross-sectional correlations between, for example, Government Effectiveness or Current Account surplus and GDP per capita. There are negative correlations between GDP per capita or Ease of Doing Business and Loss Given Default. Exhibit 6.3 shows the z-scores 13  for each explanatory variable across each of the Sovereigns in the bank universe, sorted by default probability.   Exhibit 6.3 Explanatory Variable Z-scores     This shows that both high- and low- PD Sovereigns have similar z-scores for the same explanatory variables, but the two groups tend to have opposite signs on the z-scores. There are some obvious exceptions to this, such as LGD in Cyprus or Debt in Japan.   Exhibit 6.4 shows regression results 14  for the universe of Sovereigns covered by the banks. All explanatory variables are initially included, but the correlations in Exhibit 6.2 suggest that some of these are interchangeable, and the t-stats indicate that some of them are of secondary importance. The dependent variable is the logarithm of the PD, which correlates very highly with the CBC but allows for more granularity in the regression.   Exhibit 6.4 Regression Results (Explanatory Variables as Z-scores)     This shows that GDP pp, Investment and Ease of Doing Business are the most significant variables, with Loss Given Default, Debt, Unemployment and Current Account close to significance at the 5% level. As Exhibit 6.2 showed, Government Effectiveness and Ease of Doing Business are highly correlated so in practice either can be used. The coefficient signs are consistent with a priori expectations.   Exhibit 6.5 shows macroeconomic profiles for Costa Rica, Azerbaijan and Paraguay. The z-scores for the explanatory variables for each country are plotted in the various dimensions of the radar charts; the signs are modified to reflect the regression coefficients so that a country with zero credit risk would appear as a single point in the center. And in general, the larger the plotted profile, the higher the credit risk – although as Exhibit 6.4 shows, some variables have considerably more significance than others.   Exhibit 6.5 Z-scores for Macroeconomic Variables: Costa Rica, Azerbaijan, Paraguay     These three countries have similar CRA ratings, but all show very different macroeconomic profiles. For Azerbaijan, the CRA ratings are aligned with the CBC and the evaluated CBC. For Costa Rica, two of the three agencies are aligned with the CBC, but the evaluated category is about half a notch higher. Paraguay is not quorate, but the evaluated category is the same as S&P and Fitch. Paraguay scores badly (high positive values increase credit risk) on Investment GDP per person; but Debt and Unemployment are not major issues. Azerbaijan suffers from poor Government Effectiveness and a Current Account problem; Costa Rica also scores badly on its Current Account as well as Investment.   This demonstrates how different macroeconomic drivers can balance one another in driving credit risk; but also highlights how a change in any one of those drivers may result in a credit upgrade or downgrade.   Exhibit 6.6 shows the evaluated (i.e. Estimated) and actual CBCs for the Sovereigns in the bank universe.   Exhibit 6.6 Comparison of Evaluated and Actual CBC     The slope of the line is insignificantly different from a value of 1, suggesting that the evaluated CBC is an unbiased estimate of the Actual CBC. In other words, the outliers are evenly distributed on either side of the fitted line.   The Evaluated CBC explains 80% of the variation in the Actual CBC.   The standard error of the regression gives an indication of the ‘noise’ in evaluated credit categories. The equivalent for the quorate estimates is given by the standard deviation (“SD”) of the individual bank estimates. Exhibit 6.7 shows the relationship, in logs, between the quorate Sovereign PDs and SDs.   Exhibit 6.7 Log-log plot of Sovereign PDs and Standard Deviations     This shows a stable positive relationship between this standard deviation and the PD average 15 . This implies that obligors with high PDs show more uncertainty between banks. That uncertainty is broadly proportional to the PD, although that proportion is slightly higher for high risk obligors.   However, another interpretation is that the causality runs the other way – that high uncertainty implies higher PDs, due to the lower bound on PDs. Even if most banks agree about the risk for an obligor, it only needs one bank to take a different (higher) view to push up the average and the standard deviation.   Exhibit 6.8 shows two sets of credit risk estimates, for the Quorate and Non-quorate universes respectively. The set on the left are the actual, bank-sourced CBCs for the quorate Sovereigns sorted by CBC value. The set on the right are evaluated CBCs, again sorted by value. The vertical blue bars are the actual or evaluated CBC categories. The black bars represent estimate errors (i.e. confidence intervals). The horizontal red line shows the Investment Grade threshold.   Quorate Sovereign error bars use the SD of the relevant PD, converted into CBC scale units. For non-quorate Sovereigns, the relationship plotted in Exhibit 6.7 has been extrapolated to give SD estimates for each Sovereign in that group. The actual plotted error bars for the evaluated CBCs are based on a combination of the estimated standard deviations and the standard error of the regression reported in Exhibit 6.4. 16    Exhibit 6.8 Actual or Estimated CBCs for Quorate and Non-Quorate Sovereigns     This shows that most of the evaluated CBCs are non-Investment Grade; few of them have agency ratings.   It also shows that the error bars for the evaluated CBCs are, by construction, wider than the quorate CBCs, reflecting the additional source of uncertainty arising from the regression framework.   The evaluated CBC rank values have been truncated: they are capped at a value of 21, which corresponds to one notch above default, and are floored at a value of 6, which corresponds to a CBC of [a]. In practice the regression framework can return estimated CBC values which are higher than 21 or lower than 6 (or even lower than zero), depending on the macroeconomic data for each Sovereign.   These cut-offs are somewhat arbitrary, but the values in the tails of the evaluated CBC distribution tend to be driven by outlier values of the explanatory variables and this truncation only affects a small number of evaluated Sovereign CBCs. It is uncontroversial for the capped values which are close to default, but could be seen as excessively cautious for the floored values.   7. Evaluated CBC performance   Exhibit 7.1 Comparison of Evaluated CBC and CRA categories     Exhibit 7.1 shows the relationship between the evaluated CBCs and the equivalent CRA category, for the quorate Sovereign subset.   The R-squared of 81% can be compared with the 96% fit between quorate CBCs and CRA categories in Exhibit 4.2.   The fitted line shows that the lower risk Evaluated CBC categories are generally more conservative than the equivalent CRA category, but the CRA view becomes more conservative for the higher risk countries.   Current Credit Benchmark research is focused on the out-of-sample performance of the evaluated CBCs. The overlap with rating agencies is small, so to draw firm conclusions it will be necessary to carry out historical back testing and assess a variety of evaluation frameworks and explanatory variable sets.   8. Conclusions   Banks cover at least as many Sovereigns as the main rating agencies: 88 Sovereigns are Quorate (more than 3 contributors) 31 Sovereigns are Semi-Quorate (2 contributors) 20 Sovereigns are covered by one contributor. Rating agencies cover about 110 – 120 Sovereigns, but this varies depending on the number of live unsolicited ratings. Banks views explain 96% of the variation in Big 3 views but are systematically slightly more conservative than rating agencies. Bank-sourced views provide a benchmark for the analysis of a broad range of anomalies – such as the relationship with historic debt crises, CDS spreads and real bond yields. Bank sourced views also provide a regular and robust source of real world default probability estimates Combining these with market data (CDS spreads and / or bond yields) and credit transition matrices makes it possible to estimate liquidity risk premium term structures which vary over time and by credit category. For Sovereigns that are not adequately covered by banks, it is possible to construct unbiased evaluated ratings based on weighted linear combinations of fundamental data. This gives provisional, but higher variance, evaluated credit views on 94 additional Sovereigns. These evaluated views are not intended to be a substitute for bank views, but they do provide an expected range for the likely credit standing. The evaluated rating framework used here is only one of a large number of Sovereign risk models which could be calibrated using bank views - there are a large number of specialised Sovereign risk models currently in use, which could use the bank sourced views as an additional low variance model input or model validation benchmark.   Appendix 1   Selected Bibliography (by Date)   Manias, Panics, and Crashes: A History of Financial Crises, Charles P. Kindelberger (1978)Devil Take the Hindmost: A History of Financial Speculation, Edward Chancellor (1998)Sovereign Risk and Financial Crises, Michael Frenkel, Alexander Karmann & Bert Scholtens (Eds.) (2004)The Forgotten History of Domestic Debt, Reinhart & Rogoff, NBER WP 13946 (2008)This Time is Different: Eight Centuries of Financial Folly, Carmen M. Reinhart & Kenneth S. Rogoff (2009). Sovereign Credit Risk in a Hidden Markov Regime-Switching Framework, Louise Potgieter & Gianluca Fusai (2013)   Appendix 2   Credit Benchmark Consensus (“CBC”) Breakpoints     Download the article "Measurement Of Sovereign Credit Quality" on PDF.   More from Credit Benchmark   We aggregate the views of thousands of institutional credit analysts to create new, unique consensus data and analytics. Our clients use the unique entity- and aggregate-level data and analytics to understand and manage their risks effectively. The data helps clients focus their attention on where and when it matters most, whether in their risk management, investment process, or regulatory compliance. Learn more.   Reporting was contributed by   Barbora MakovaDavid Carruthers   Footnotes   1 See Appendix 1 for a brief selection.2 Manias, Panics, and Crashes: A History of Financial Crises, Charles P. Kindelberger (1978)3 This time is different: Eight Centuries of Financial Folly. Reinhart & Rogoff (2009). A ‘crisis’ is defined as a default or restructuring. Some crises take years to resolve, so the start date is used in the chart.4 Sovereign Credit Risk in a Hidden Markov Regime-Switching Framework, Louise Potgieter & Gianluca Fusai (2013)5 This excludes Sovereign-like entities such as Puerto Rico, or the Channel Islands.6 PD and LGD estimates are ‘quorate’ when 3 or more banks contribute estimates for the same legal entity in the same month. Semi-quorate entities are those where only 2 banks currently contribute PD estimates. Credit Benchmark can only publish PD estimates or CBC categories for quorate entities.7 The Credit Benchmark Consensus (“CBC”) is a convenient summary credit risk scale based on 21 PD breakpoints, similar to the scales used by rating agencies. It is explicitly based on PD breakpoints (agreed with contributor banks) and provides a benchmark for agency ratings. See Appendix 2 for the CBC to PD mapping.8 See https://www.creditbenchmark.com/research/sovereign-bond-risk-management9 For example, following the Brexit vote, banks and rating agencies have increased their risk estimates for the U.K. Government while the currency has weakened. The weaker currency may have some inflationary impact, and the lower credit rating may feed into borrowing costs. All three components of this relationship may adjust to bring the relationship back to its long-run position.10 See https://www.creditbenchmark.com/research/sovereign-default-risk-developing-economies11 The original paper used a simple survival function approach to extrapolate from 1-year PDs to 5-year PDs. Current Credit Benchmark research is leveraging the very large and frequently updated Credit Benchmark dataset to develop credit transition matrices (“CTMs”), which may vary by obligor type or sector. Part of this research is aimed at estimating Sovereign-specific CTMs, which will support more refined estimates of the Sovereign risk premium.12 There are a large number of Sovereign risk models, some of which use highly proprietary data. For example: IHS-Markit Sovereign Risk Service, Economist Intelligence Unit Sovereign Risk.13 Definition: Z-score(i) = [X(i) – µ(X)]/ Ω(X) where X(i) is the value of explanatory variable X for country i and µ(X) and Ω(X) are the mean and standard deviation of X.14 If CBCs are used as the (limited) dependent variable, ordered probit might be more appropriate. In practice, for this dataset, the two methods give very similar results, although ordered probit provides probabilities of membership of each dependent variable category. With y=log PD, the estimated CBC values can lie between the integer notch thresholds (e.g. the estimated CBC value could be 9.6, rather than 9 or 10).15 A very similar relationship is observed for all quorate obligors (including financials, corporates and funds).16 Combination assumes independence i.e. Error Bar (i) = √ ([Est. Standard Deviation (i)] 2 + [Standard Error of Regression] 2 ) Collective Intelligence for Global Finance Credit Benchmark is an entirely new source of data in credit risk. We pool PD and LGD estimates from IRB banks, allowing them to unlock the value of internal ratings efforts and view their own estimates in the context of a robust and incentive-aligned industry consensus. The resultant data supports banks’ credit risk management activities at portfolio and individual entity level, as well as informing model validation and calibration. The Credit Benchmark model offers full coverage of the entities that matter to banks, extending beyond Sovereigns, banks and corporates into funds, Emerging markets and SMEs. We have prepared this document solely for informational purposes. You should not definitely rely upon it or use it to form the basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise. You and your directors, officers, employees, agents and affiliates must hold this document and any oral information provided in connection with this document in strict confidence and may not communicate, reproduce, distribute or disclose it to any other person, or refer to it publicly, in whole or in part at any time except with our prior consent. If you are not the recipient of this document, please delete and destroy all copies immediately. Neither we nor our affiliates, or our or their respective officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this document or any oral information provided in connection herewith, or any data it generates and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. We and our affiliates and our and their respective officers, employees and agents expressly disclaim any and all liability which may be based on this document and any errors therein or omissions therefrom. Neither we nor any of our affiliates, or our or their respective officers, employees or agents, make any representation or warranty, express or implied, that any transaction has been or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject to change. We undertake no obligation to update any of the information contained in this document. Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report. ### Colombia - Peace Deal Could Enhance Credit Position Colombia's many economic and political advantages have been overshadowed for decades by the long running war with various rebel groups. The recently agreed peace deal could be the beginning of a new era. Colombia’s recent peace deal with the FARC rebels should bring an end to decades of political violence in the country, and the FARC is expected to formally disband next week. This is good news for a country that has sometimes been described as ‘Latin America’s best kept secret’. Involvement of the FARC and related groups in the global narcotics trade has overshadowed the reality: Colombia has a generally healthy economy and – by the standards of the region – a mature and progressive political system. It is also geographically diverse and resource rich, with Atlantic and Pacific coastlines, some major rain-soaked mountain ranges, and an interior where the acreage of fertile, rolling farmland outnumbers that of the southern jungle. From a firm foundation in agriculture and mining, Colombia has built a surprisingly strong industrial economy and a robust financial system. Its track record on debt and growth is enviable and unusual in comparison to many of the other countries in Latin America. Colombia has economic challenges – inflation is high by modern standards (but still less than 10%) and interest rates are also high to compensate, while its trade deficit has suffered from weaker global growth. But its debt as a proportion of GDP is less than 40%; a level to make many more developed economies jealous. ### Poland, Belgium Credit Split Shows Power Of Politics Poland’s credit standing is going down while Belgium’s rises. The divergence is mostly political. Poland’s economy is healthy and debts are low but the ruling populist party makes analysts nervous. Belgium’s many divisions mask a uniform commitment to fiscal restraint.  In the world of sovereign credit risk, politics can matter more than anything else. The diverging directions of Poland and Belgium are a good demonstration of this principle. In the latest CBC* data, Poland’s sovereign debt went down a notch. Belgium’s CBC rose by one notch two months ago. In many ways, Poland remains a model of post-Communist economic development. In 1995, the International Monetary Fund calculates that Polish GDP per person was 23% of Spain’s, one of the poorer Western European countries. By 2015, the ratio was 43%, with 3.6% GDP growth expected this year in Poland. The growth has not been supported by excessive government borrowing. On the contrary, the fiscal deficit has been steadily below 3% of GDP, and the ratio of government debt to GDP is a comfortingly low 52%. The ratings revision reflects a new attitude from the Law and Justice Party, which has been in power since late 2015. It has taken a strong populist line. The EU warned in June that a promised large increase of child benefits is likely to bring the deficit over the 3% line. Less tangibly, analysts are nervous about the government’s nationalism and its apparent distaste for a politically neutral bureaucracy. Jarosław Kaczyński, the Polish party’s leader is not likely to find a sympathetic audience in Brussels if help is ever needed. This looks like a government whose response to bad economic news or political challenges could be increased deficit spending. Across the continent, the Belgian economy basically rises and falls with the euro zone, and right now the European economy is doing a bit better. In the distant past, Belgian governments tried to paper over regional problems with big deficits, but those days are long over. The ratio of sovereign debt to GDP, fell from 136% in 1994 to 87% in 2007. It rose after the financial crisis, but has stabilised at 106%. The current government continues the national commitment to low deficits. And after two years in power, even the country’s troubled politics look a bit more stable. For the foreseeable future, no Belgian government is likely to squander any unexpected growth dividend. Still, if Belgium were less developed, its fractious politics and Flemish-French linguistic split would be concerning. But the civil service is competent, the political tensions are manageable, and no one wants to threaten the country’s close integration with the rest of Europe. Brussels, Belgium gains from its warm relationship with Brussels, Europe. Politics are particularly important for credit when times are perceived as tough. That’s the case now in the divided and economically stalled European Union, where governments will be tempted to reach for the chequebook. Poland, from the populist right, and Belgium, from the threatened centre, are good tests of the will to resist. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of [bbb+] is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Fiscal Aggression Could Threaten Sovereign Ratings Sovereign credit ratings have been buoyed up for years by the belief that no matter how much governments actually borrowed, they were committed to coming close to balanced budgets as soon as was prudently possible. That commitment may now be wavering. The anti-deficit rhetoric never meant that governments abandoned their responsibility for cooling and warming the economy. Rather, politicians decided to let supposedly apolitical central banks do that work. This reliance on official interest rates was good for sovereign ratings. With the monetary authorities in control, governments were expected to borrow less. Of course, reality did not always live up to the rhetoric, even in good times. Between 2000 and 2007 the average ratio of gross government debt to GDP for the G7 countries increased in five of the seven largest economies, according to International Monetary Fund calculations. The commitment to balancing budgets was completely suspended in response to the 2008 financial crisis. Tax revenues fell but spending cuts were at most moderate. Deficits exploded for two or three years. The goal was to keep up demand, so normal growth could resume and deficits could fade away. It hasn’t worked as planned. Growth in most developed economies has been too anaemic to keep government debt from expanding faster than GDP. The IMF expects the average ratio of gross government debt to GDP in the G7 countries to have increased by nine percentage points between 2011 and 2016. Some politicians now seem to be changing their instinctively negative view of persistent large fiscal deficits. Waverers include both U.S. presidential candidates, the new government in the UK, the established government in Japan and some of the weaker members of the euro zone. There are several reasons to be tempted, starting with the hope that more government spending will reverse the recent pattern of disappointing GDP growth and job creation. There is also the possibility to improve dilapidated infrastructure at extraordinarily low borrowing costs. In addition, the risk looks low. With commodity prices down and wages under apparently permanent downward pressure, the supposed great danger of deficit spending – dangerously high inflation – hardly seems like a serious threat. If aggressive deficit spending does come back into fashion, the credit community will have a problem. The CBC* for the G7 countries range from aaa to bbb. Those ratings look too high for entities which are determined to spend their way out of trouble. Ratings professionals will not be immune to politicians’ sober arguments for cheaply financed higher deficits, especially as there are many distinguished pro-deficit economists to provide intellectual support. And if it all works out, fine. But there is a real risk that the extra spending will not end today’s near stagnation. No amount of stimulative spending may be able to overcome the continuing drags on developed economies – financial system weakness, slowing population growth and disinflationary pressures from poorer countries with cheap labour. Besides, no one can repeal a basic rule of credit: increasing debt goes with falling ratings. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of [bbb+] is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Referendum Harms UK More Than The Pound The UK’s currency remains very volatile post-Brexit, but may be recovering. The country’s credit rating may suffer more permanent damage. As yet, the credit world has been cautiously negative about the June 23 referendum on quitting the European Union. Both S&P and Fitch downgraded the UK’s sovereign rating to AA (a notch below Moody’s) just after the Leave camp’s unexpected win. The CBC* had already slipped down in March. The full impact is yet to be reflected in economic data, but the next Credit Benchmark data will be published before the end of this month and that should provide some interesting pointers. Currency traders did not take long to make up their minds. At $1.30, the pound has fallen 13 percent against the dollar since just before the referendum. Sterling is also down 12 percent versus the euro. Most of the drop came right after the vote, but there has been another smaller drop in August before the bounce this week. FX traders can make a good case for pound pessimism. To start, the Bank of England’s aggressive monetary policy is clearly unfriendly to Sterling. With both more monetary stimulus and a higher inflation rate on the way, UK probably offers the worst potential real return on short term government debt of any major economy. Then there is the probability that the country’s growth prospects have deteriorated - generally bad for a currency. Finally, the UK’s large current account deficit – about 5 percent of GDP for each of the last three years – has become riskier. Foreigners may hesitate to invest or buy property, and there is the outside chance that a poor settlement for London’s financial trade might create an outward migration of capital – disastrous for the pound. Still, the FX markets, which have a strong tendency to overshoot and reverse, may have already adjusted fully to the referendum vote. It may even have gone too far. Expectations for the UK economic are now low, so even modestly good news would support sterling. If Brexit turns out to be a very slow and very partial decoupling, the pound could rise substantially. The damage to the sovereign risk will not be so easily repaired. The decision to call the referendum, the government’s inability to prevail in the vote and the feeble and incoherent response to the ‘leave’ victory have durably damaged the reputation of Britain’s political institutions. Also, Brexit uncertainty is likely to lead to at least a few years of slower GDP growth than previously expected. That will add to the burden on the state pension system and to the risk of populist measures which reduce fiscal strength. The risk of a British sovereign default will remain minimal, even if the rating slips down a few more notches. Unlike companies, governments can usually use higher than expected inflation to increase revenues and keep up interest payments, and the authorities can usually cajole banks to roll over debts. Still, the decline in ratings reflects something real and economically damaging. The British government has become less reliable. That won’t change soon, whatever happens to the pound. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of [bbb+] is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Oil And Gas Credit Consensus Oil and Gas credit consensus isn’t following the price up The oil price has been trending sharply upwards for most of 2016. Even with a 10 percent dip since the June high, Brent crude is up about 50 percent since the beginning of the year. U.S natural gas prices have also recovered, although somewhat more tentatively. These rises should be welcome news for lenders. But the Credit Benchmark consensus suggests that banks are still very cautious. The average CBC* rating for investment grade credits in the sector actually fell a notch between January and June, from bbb+ to bbb. In high yield, the average rating also dropped a notch, from bb- to b+. Each company has its own story, of course, but there are several industry-wide trends which help explain why ratings have been moving in the opposite direction from prices. For one thing, even after the rebound oil is less than half the price of the long stable period from early 2011 to mid-2014. The fall has been almost a sharp for natural gas, although prices for that commodity vary around the world. For high cost or highly leveraged oil and gas producers, the recent price increases only slow the pace of almost inevitable deterioration. No wonder that law firm Haynes and Boone counts $49 billion of debt in U.S. and Canadian oil and gas bankruptcies so far in 2016, and sees more coming. Also, as lenders update their models, they are mostly factoring in a less prosperous future for this industry. The Saudi Arabian hegemony over the oil price looks increasing unlikely to return. Even if the kingdom once again becomes more willing to cut its own production, Iran and Iraq are both clamouring to increase their output and U.S. shale producers have shown a surprising ability to cut costs. It looks increasingly like oil will remain lower for longer. The gas oversupply might be even more durable, especially as alternative energy suppliers continue to eat away at demand from utilities. The overall economy is not helping. Without increasing GDP, oil and gas consumption will be stagnant at best. But for most developed and developing countries, GDP growth estimates for this year ranges from disappointing to modest. The next few years also look duller than seemed likely even a year ago, even if politically induced economic disasters are avoided (for example a violent British exit from the EU or an erratic U.S. President Trump). For credit analysts, that points to more caution. Still, the credit picture in this sector is much better than might have been expected from a quick look at the commodity price charts. Relatively few high cost producers have actually collapsed. In large part, the resilience reflects corporate caution during the good years. Investors and lenders did not back many projects which needed consistent triple-digit oil prices to survive. And when prices started to drop, the industry cut costs quickly and strongly. The bankruptcies may keep coming for a while, but if the recent price rises are not a fluke, the oil and gas industry’s financial health could be close to a turn. The cbc, compiled monthly, offers a good way to keep up with current trends. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of [bbb+] is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Pension Deficits Are A Growing Source Of Credit Risk This blog discusses the scale of the global pension funding crisis and highlights the risk to Sovereign credit ratings. This week the main holders of Gilts refused to co-operate with the Bank of England. The post-Brexit QE stimulus relies on pension funds and insurance companies selling Gilts at attractively high prices and low yields; but this apparent benefit leaves them with surplus cash, and low interest rates which drive up the value of their liabilities. Gilt owners who are trying to hedge their liabilities have good reason to be awkward; Hymans Robertson recently estimated that the overall UK pension deficit is more than £900bn, and about two-thirds of this is in the public sector. And the problem is not specific to the UK, as the Citigroup graphic at the end of this piece shows: underfunded Government liabilities are globally worth $78trn. Rising pension deficits are not a new issue, but the speed and scale of the recent deterioration has pushed them onto the front pages of the financial press. The core issue is low annuity rates, driven by low interest rates and demographics. People are living longer, and the birth rate is not high enough to prevent the population from aging; so the demand for pension payouts is much stronger than the supply of fresh contributions. Corporations have made substantial contributions (close to $100bn in recent years) in an attempt to plug the gaps. But since many corporations have also been taking advantage of low rates to issue large volumes of debt, the process is becoming circular. The numbers appear to be terrifying, and have prompted some extreme responses: some companies are offering amazingly generous transfer values to persuade DB scheme members to cash out. But the reality is more mixed. Rising deficits are the result of marking-to-market in a world of low rates, and yield curves may change significantly in the intervening decades before most of the payouts become a reality. Commercial solutions – such as annuity bulk purchase – are potentially available to corporates. Banks have taken a relaxed view: the typical CBC* of private sector pension funds and companies with large pension deficits has been stable this year. But for the public sector, the outlook is more difficult. While it is true that normalised interest rates would make a substantial dent in most of these deficits, pension promises are a growing burden for Governments and taxpayers. In many countries they are the largest and most intractable element of the public budget deficit. If current trends continue, pension deficits will become an increasingly important factor in Sovereign credit risk. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of [bbb+] is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Credit Volatility And The VIX This blog reports on the volatility of credit estimates measured by Credit Benchmark, compared with equity market volatility measured by the CBOE Volatility Index (the ‘VIX’). The two measures have recently shown a sharp divergence. This week, S&P Global Ratings reported that U.S. companies are as vulnerable to defaults and downgrades as they were leading up to the 2008 financial crisis. But this week the S&P equity index also made a fresh high, supported by a strong jobs report, a recovering oil price, further Quantitative Easing from the U.K. and the VIX index at a one-year low. The VIX is derived from the implied volatility of options on the S&P500 index, so it is a market-implied view of the 30-day future range of equity index values. In the past 12 months, it has fallen from 22% to 15%, although this partly reflects the drop in the VIX after the extreme bout of volatility in August 2015, when it peaked at 41%. The equivalent for short interest rates – the SRVIX – is also very close to a one year low. There is no direct equivalent for credit, but Credit Benchmark calculate the range of bank credit risk estimates for their universe of individual borrowers. The graph below plots the median quarterly range for the US Corporate Investment Grade universe, plotted as a proportion of the median credit risk level. This shows that the range of credit risk estimates (“credit volatility”) has been increasing every quarter, and this range has crept up from 36% to 41%. These measures are not strictly comparable – the equity VIX and interest rate SRVIX measure systematic market risk, whereas the credit volatility measures borrower-specific risk. But the chart suggests that while equity and short rate volatility are both very low, the current credit environment is a source of considerable uncertainty. A major driver here is ongoing global QE, which has pushed equity values up and short rates down, but has simultaneously encouraged corporations to issue large volumes of debt, especially in the form of long term bonds. Equity and credit markets are notorious for being out of step, but this chart shows that the current divergence in views is particularly large. ### EU Stress Tests And Spanish Banks The 2016 EU-wide stress test results covering 51 banks were published last week. Credit Benchmark data shows a clear relationship between risk and CET 1 ratios, especially under the Adverse scenario. The stress test results can be interpreted in a number of ways, but the key messages are clear. The actual capital position of these banks has improved by E180bn (2.1%) since 2013. Under the Adverse scenario knocking 7.3% from GDP growth over 3 years, a few banks would have their capital completely wiped out. Average Common Equity Tier 1 (CET 1) ratio would decrease from 13.2% to 9.4% with most of the individual ratios dropping into the range of 6% - 16%. The main capital hits would be credit risk (E349bn or 3.7%), market risk (E98bn or 1%) and operational risk (E105bn or 1.1%). The majority of the projected losses are in the Corporate portfolio; Commercial Real Estate losses are significantly lower. The chart below shows the average CET 1 ratios for banks in different CBC categories*, both for the 2015 baseline and for the 2018 Adverse scenario. The figure covers most of the banks in the study excluding [aa-] and [b] categories, which contain only one entity. This shows a clear relationship between risk and CET 1 ratios, and in addition shows that current credit risk is a particularly good predictor of the 2018 Adverse CET 1 ratio. This suggests that banks already take economic risks into account when forming their views of their own industry. It also suggests that the stress test outputs will not have come as much of a surprise to banks and credit analysts; unlike their counterparts in the equity market who seem to have had an adverse reaction to these results. Of the 51 banks in the study, it is worth highlighting the Spanish banks in the Credit Benchmark database. The CBC* for most Spanish banks has been improving since March, suggesting further improvements in rebuilding capital since the stress test results were calculated. The CBC is now close to entering the [bb+] category, one notch below Investment Grade. The chart below suggests that these CBC improvements may be anticipating stronger Tier 1 ratios. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of [bbb+] is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Hurricanes And Credit Risk The Southeast U.S.A. is in the middle of its annual hurricane season. In this blog, we look at the impact that a severe hurricane could have on a range of companies, depending on their credit risk and their geographic location. For the past few years, hurricanes in this area have been mild and infrequent; and so far this season is following the same pattern. But such periods of calm bring new risks. Memories can be short: a house devastated by Hurricane Sandy in 2012 may now be the site of a new dream vacation home. Normally the insurance industry will take a longer-term and balanced view of risk and return, but in today's ultra-low interest rate environment, the search for yield is driving increased risk-taking. For reinsurers, these trends are even more pronounced, with recently benign hurricane seasons resulting in abundant capital. According to Moody's, reinsurers have increased their exposure to catastrophe insurance, especially in U.S. coastal zones. In addition to the more remote 1-in-250 categories they are also increasing their peak zone catastrophe risk in the 1-in-100 year categories. With these trends in mind, all the main ratings agencies remain cautious in their outlook with Moody’s and A.M. Best placing the reinsurance industry on negative outlook. In addition to reinsurers and direct insurers, hurricanes create obvious problems for oil companies, cruise operators, hotels, transport firms and even municipal authorities who may see significant shrinkage in their tax base following a storm. A severe hurricane may be the single, rare event which pushes highly leveraged firms into bankruptcy. To assess this risk, the following map of the Southeast USA is divided into three color-coded regions - West (Red), Central (Orange) and East (Green) - corresponding to the main paths that hurricanes are likely to follow as they move North. The plotted squares show the distribution of various obligors in high risk industries taken from the Credit Benchmark database (which now includes detailed geographic location data.). The next chart shows the average Probabilities of Default ("PD") for a sample of companies in the exposed sectors in each of these possible paths. The bars also show the proportion of oil companies in each sample. The Western path is dominated by oil companies, and in credit terms some of these are very high risk. The Central path is dominated by corporate and financial companies with significant exposure to hurricane risk. The Eastern path is also skewed towards the corporate and financial firms. This data suggests that the Western route appears to have the potential to cause the greatest financial damage. If hurricane activity picks up (in a year which has already set new global temperature records), then it is possible that there will be a spike in credit risks amongst companies in the most geographically vulnerable zones. ### Ireland: Rapid Credit Upgrades And The Impact Of Brexit Global IRB banks have been steadily upgrading the Irish Government over the past year ; and the country’s long term rating was recently upgraded by Fitch and Moody’s. This was mirrored in the upgrade of the CBC* by one notch. This improving bank view of Ireland reflects a robust trade surplus and a manageable budget position. But for many commentators, Ireland’s short term economic future depends heavily on the outcome of the impending Brexit negotiations. Since joining the Euro, the country has successfully diversified its trade towards the EU (Its largest export market is the USA, with Belgium in second place) but trade with the UK remains significant. Two recent reports from the Irish Agriculture & Food Development authority, and from the IBEC business lobby group, have both raised concerns about a potentially negative Brexit effect on the Irish trade balance, especially in agriculture. The IBEC report also points to the potentially positive impact of changing domiciles and increased Foreign Direct Investment (FDI) displaced from the UK. The financial services sector is the obvious potential beneficiary, but as the largest remaining English-speaking EU country Ireland also offers a benign and low-tax environment for FDI. There have been some high-profile declarations of loyalty to the UK (e.g. Siemens) but Ireland already seems to feature in a number of corporate contingency plans. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Australia's Sovereign Risk: Banks Have Been Consistently Cautious The main rating agencies have so far been unanimous in their credit opinion of the Australia Government; they have all assigned the equivalent of a AAA risk rating. However, due to the political deadlock following last weekend’s election, S&P have put Australia on Negative Outlook, while Moody’s and Fitch have warned that they are also becoming increasingly cautious. The electoral issue is a catalyst but the underlying problem is the Australian budget position. In 2009 the Government predicted a budget surplus by 2013; that date has now been pushed out to 2021 as a result of commodity price weakness. Against this economic backdrop, global banks have been cautious on Australia since late last year, with the CBC* remaining steady. Banks were similarly cautious on the UK Government and downgraded it two months before the EU referendum. Credit Benchmark data is increasingly suggesting that, in the eyes of the banks, not all AAA-equivalent ratings are equally stable or reliable. *CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s. ### Impact Of BCBS Proposals On IRB Banks The Basel Committee on Banking Supervision recently published wide-reaching proposals for reducing variation in Credit Risk Weighted Assets, with a call for responses by the end of June. The Credit Benchmark submission aims to quantify some of the possible positive and negative impacts of the BCBS proposals. This report is based on the monthly Ex Ante Probability of Default and Senior Unsecured Loss Given Default data contributed to Credit Benchmark by IRB banks. In particular, the report identifies: Areas where the application of internal models has led banks to adopt a conservative stance but where they may become less so as result of the proposals. Asset types where banks may be able to reduce their capital requirements as well as those where capital requirements may increase. Possible distortions which may arise from the use of market-implied measures. The value to banks and regulators of pooled credit risk datasets. Download a copy of the report here ### Risk.net Cites Credit Benchmark Analysis On BCBS Credit Risk Capital Modelling Consultation An analysis by Credit Benchmark on the Basel Committee’s proposed limits on credit risk capital modelling supports the banking industry’s view that internal models remain more accurate than standardised approaches. Risk.net interviewed David Carruthers, Head of Research at Credit Benchmark and quoted data from Credit Benchmark’s response submission to the BCBS request on “Reducing variation in credit risk-weighted assets – constraints on the use of internal model approaches“. Credit Benchmark’s analysis supports the internal models approach. The original article, published on Risk.net is available at: http://www.risk.net/risk-magazine/news/2462349/banks-reject-basel-s-irb-data-shortage-claim Download Attachment ### Brexit Risk And The Wisdom Of Crowds The UK referendum decision to leave the EU may have taken markets and betting exchanges by surprise, but Credit Benchmark data shows that IRB banks have been increasingly cautious on the UK for some months. Contributing banks re-assessed the UK Sovereign Probability of Default (‘PD’) in March, effectively downgrading the UK Government from. Today, S&P warned that “We think that a AAA-rating is untenable under the circumstances.” Credit analysts at IRB banks became more cautious a few months ago.  Although this cannot be definitively linked to the EU referendum, it followed shortly after Boris Johnson had declared his support for Brexit.  This does highlight one of the many advantages of crowdsourced ‘real world’ PDs, which capture trends early and reflect the regularly updated views of a range of experts. As many investors and gamblers discovered on the night of the 23rd June, market implied views based on foreign exchange markets and online betting exchanges can be fickle and expensive. ### Risk Premiums Can Improve Capital Efficiency The Basel Committee on Banking Supervision is proposing significant changes to the use of internal risk models by IRB banks, and the final date for industry responses is the end of this week.  A copy of the press release and paper can be found here One proposal which could have a significant impact beyond the global banking industry is the increased use of market-implied credit risk measures for RWA calculations. The following chart shows those risk premiums for investment grade CBC-7* categories, derived from Sovereign CDS markets and Credit Benchmark data. This shows that the risk premium varies significantly over time and by credit quality. These risk premiums can be used by a financial institution in two possible ways: Modify RWA to be consistent with real world PDs, which will usually lead to more efficient use of capital. Provide market-consistent prices for a large range of bonds and CDS which have been issued, but are not currently trading. Further research is underway to test whether Corporate and Financial risk premiums follow similar patterns. *CBC-7 = Credit Benchmark Consensus using a 7-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC-7 of aa is broadly comparable with AA in the 7-category scales from S&P, Moody’s and Fitch. ### Corporate Defaults - Is The Very Long Run Trend Changing? If the Basel Committee on Banking Supervision implements its March 2016 proposals this year, banks will need to expand their historical default datasets in order to justify their Probability of Default ("PD") estimates. One of the key challenges is the lack of relevant default data, and this is one of the reasons that the BCBS is keen to standardize the risk weights for large corporates -  defaults do not happen often enough in those types of obligors to provide a history. In March 2010, a team of researchers at the NBER published  "Corporate Bond Default Risk: A 150-Year Perspective".  The paper covers US Corporate bonds (excluding financials) and provides some very useful context for the current debate about default histories.  The paper shows that the long-run trend in corporate bond defaults has been down, but that defaults come in waves; six or seven of them, depending on how they are defined.  In the 1860s and 1870s, the default rate reached a peak of more than 16% pa with an average annual default rate of 6%.  The next wave in the late 1880s peaked at 9%pa, and at the height of the Great Depression it was 7%.  The spike after the TMT bubble was about 3%. The paper also shows that, in more than 80 of those 150 years, the default rate was less than 2% pa.  During the 1950’s and 1960’s, it was almost invisible. The chart shows this NBER time series, updated with additional averaged data from Moody’s, S&P, Bank of America, Fitch and J.P. Morgan. Research by these firms shows that the corporate default rate spiked after 2008 - some of them estimate that it peaked at 12%, (the average on the chart is significantly lower) before falling back to the 1% - 2% level for a few years.  It has started to tick up again, with some firms estimating it as being as high as 3%, and some commentators have a very pessimistic view of the near future: Albert Edwards at Societe Generale has warned of a potential "tidal wave of corporate default" in the US. Credit Benchmark data shows that banks have slowly but steadily increased their credit risk estimates for investment grade Corporate entities. So while corporate defaults may have been in trend decline for the past 150 years, the question facing banks and policymakers is whether this recent trend is just a short term blip, a 'tidal wave', or a more fundamental change? ### Credit Benchmark Named In Business Insider's List Of 16 Hot UK Fintech Startups Financial technology — also known as fintech — is one of the hottest areas of investment at the moment and one of the scariest developments for banks. Many lenders are losing business to more innovative and customer-focused startups offering cheaper, quicker, online services. London is leading the way in Europe, with two fintech startups there already reaching "unicorn" status — the coveted $1 billion (£650 million) valuation. Credit Benchmark was listed among 16 UK fintech startups that Business Insider believed were most likely to join the unicorn status. To see the full article, please click the link below View original article (external link) ### Credit Benchmark Shows Global Banks Wary On UK Over Brexit Concerns Global banks turn more wary on UK over Brexit economic fallout: Global banks have turned more cautious towards the UK as a potentially economically disruptive vote on EU membership looms in June, according to a rating agency. Credit Benchmark, an agency that aggregates the internal lending risk assessments of big international banks and uses them to devise ratings, said that lenders had turned slightly more cautious towards the UK earlier this year. Although it cannot determine whether the more circumspect assessment of the UK’s creditworthiness was directly triggered by mounting concerns over the UK’s future in the EU, the cut came after Boris Johnson, until last week mayor of London, came out in favour of “Brexit” in February. “We’ve also seen the risks trend higher for UK companies, so it seems reasonable to conclude that it’s being driven by concerns over Brexit,” said David Carruthers, head of research at Credit Benchmark. Nine banks, primarily US and European lenders, report to the agency on their assessment of the UK’s creditworthiness. The UK rating implied by Credit Benchmark’s data fell one notch to “Aa” in March. That is two notches below the rating assigned by Standard & Poor’s, and one below those of Moody’s and Fitch, but the three major credit rating agencies have all warned of the potential economic fallout from a vote to exit the EU. S&P, which kept its negative outlook on the UK’s top rating, said in its latest update that the UK leaving the EU “represents a significant risk” to the economy, London’s finance industry, and the country’s exports. “A vote to leave is likely to hurt confidence, investment, and GDP growth, and is likely to have a negative effect on public finances. As a consequence, a UK departure from the EU would likely lead us to lower the long-term sovereign credit rating,” S&P warned in a report last week. Sterling has recovered some of its Brexit-induced losses recently, as the intervention of US President Barack Obama has appeared to shift the political momentum towards the Remain camp. But analysts and fund managers remain wary over the impact a vote to leave the EU would have on the UK, and Europe in general. “It’s a non-trivial risk,” said Thomas Clarke, a fund manager at William Blair, a US asset manager that has pared back its UK equity position and ramped up its bets against sterling in response to the dangers. “There are still six to seven weeks to go, both sides have an incentive to raise the stakes to swing the outcome, and markets don’t like uncertainty.” Tina Fordham, Citi’s chief political analyst, puts the odds on Brexit at 30-40 per cent as a result of the shift in polls, but stressed in a recent note that the outcome remained ambiguous, and predicted that this uncertainty would continue to cast a pall over markets in the run-up to the referendum on June 23. She pointed out that the polls did not capture the “certainty to vote” factor, with passionate Brexit supporters more likely to vote in the referendum. This has led to “excessive complacency” over the outcome, she argued. By Robin Wigglesworth, 09 May 2016, Financial Times   To view the original article please click the below link. View original article (external link) ### Credit Benchmark Cited In FT Article On UK Loan Market Developments Banks load UK loan deals with ‘flexit’ rate clause:    Banks are pushing some companies seeking to borrow money in the UK to agree that the cost of their debt can rise if the country votes to leave the EU next month. The introduction of “flexit” clauses into loan documents, allowing banks to increase the interest rate they charge in the event of Brexit, underlines fears that borrowing costs will jump if Britain votes to leave the EU. The move could deter some companies and private equity groups from investing until after the June 23 referendum on EU membership. The Bank of England has already expressed concern that companies are reacting to the uncertainty by putting decisions on hold. Several big investment banks in the City of London, including Goldman Sachs and Deutsche Bank, have discussed a “flexit” clause with potential clients looking to borrow money before the referendum, according to people familiar with the matter. One banker said they knew of a sterling-denominated debt financing deal drawn up by a “magic circle” leading London law firm and a UK lender that allows the interest rate to be increased by 0.5 percentage points in the event of Brexit. Most syndicated loans include a clause allowing banks to flex the rate up if investor demand is weaker than expected, but the “flexit” is on top of this usual buffer. Most discussions around using such clauses are with non-investment grade companies that are exposed to a potential drop in UK consumer spending and with private equity companies seeking funding for a leveraged buyout of such a company. “It is possible that, where a business will be directly affected by Brexit due to the peculiar nature of that business (eg a car manufacturer reliant on EU exports without tariffs), the banks might consider something of this nature,” said Jennifer Marshall, partner at law firm Allen & Overy. News of Brexit-related loan clauses comes as global banks have been turning more cautious towards the UK ahead of the June referendum on EU membership, according to a rating agency. Credit Benchmark, which aggregates the internal lending risk assessments of big international banks and uses them to devise ratings, said lenders became slightly more cautious towards the UK earlier this year — after Boris Johnson, until last week mayor of London, came out in favour of “Brexit” in February. Brexit risk was one factor behind the collapse last week of the auction of buy-to-let lender Charter Court Financial Services. The sale process was abandoned after bidders sought a Brexit clause to lower the price if the UK left the EU and the company’s private equity owners refused. Chancellor George Osborne has suggested interest rates will rise if the pound slumps, bringing a bout of inflation and making households worse off. The chancellor said in April that the financial instability would imply “mortgage rates are likely to go up”. While official interest rates are likely stay the same or fall in a Brexit scenario, banks may still be forced to raise the cost of loans just as they did in 2007-2008 if the UK is seen as a worse bet for lending. Most bankers contacted by the Financial Times said they had not seen a “flexit” clause in a loan document and expected they would be used sparingly, particularly as borrowers would resist them forcefully. One private equity executive said there was “no way” he would ever accept such terms. “We haven’t seen any Brexit flex clauses introduced into loans yet but banks are looking at it closely,” said one financier, adding the clause was most likely to be used for underwriting a loan before syndicating it to investors. By Martin Arnold, 09 May 2016, Financial Times   To view the original article please click the following link below. View original article (external link) ### Credit Benchmark Publishes White Paper On Sovereign CDS Pricing Credit Benchmark today announced the publication of their latest White Paper “Sovereign Credit Default Swaps and Consensus Credit Estimates”. The paper shows that consensus credit risk data sourced from IRB banks can be combined with market data to give realistic, indicative valuations for a broad range of traded and untraded assets. This framework has many applications, not just for Sovereign CDS but also for Corporate CDS and bonds, as well as bilateral loan insurance pricing and CVA calibrations. The paper also highlights the risks of relying too heavily on market implied measures – this is especially timely given the recent Basel Committee on Banking Supervision consultation exercise on IRB models. Credit Benchmark Head of Research David Carruthers said: “This research makes a strong case for the value of Consensus Credit Estimates.  It shows that data derived from the combined intelligence of the bank credit analyst community can bring a new level of transparency to asset valuations.” To read the whitepaper, please click here ### Sovereign Credit Default Swaps And Consensus Credit Estimates This White Paper shows that consensus credit risk data sourced from IRB banks can be combined with market data to give realistic, indicative valuations for a broad range of traded and untraded assets. This framework has many applications, not just for Sovereign CDS but also for Corporate CDS and bonds, as well as bilateral loan insurance pricing and CVA calibrations.   Download Whitepaper Now   ### Impact Of BCBS Proposals On IRB Banks The Basel Committee on Banking Supervision recently published wide-reaching proposals for reducing variation in Credit Risk Weighted Assets, with a call for responses by the end of June. The Credit Benchmark submission aims to quantify some of the possible positive and negative impacts of the BCBS proposals. This report is based on the monthly Ex Ante Probability of Default and Senior Unsecured Loss Given Default data contributed to Credit Benchmark by IRB banks. In particular, the report identifies: Areas where the application of internal models has led banks to adopt a conservative stance but where they may become less so as result of the proposals. Asset types where banks may be able to reduce their capital requirements as well as those where capital requirements may increase. Possible distortions which may arise from the use of market-implied measures. The value to banks and regulators of pooled credit risk datasets. Download Whitepaper Now ### Credit Benchmark Named Again In The FinTech50 List Credit Benchmark was once again recognised in the FinTech50 list, an annual list published by FinTechCity recognising the leading 50 European FinTechs who are transforming financial services. For the complete list, please refer to the link below. View original article (external link) ### Credit Benchmark Establishes Advisory Group To Advise On Data Development Credit Benchmark today announced the establishment of an Advisory Group to provide guidance on the development of the company’s data and services. The Advisory Group’s members are senior credit risk professionals and academics from Europe and North America. Current members include: Thomas Aubrey, Consultant to Credit Benchmark (Chair) Damiano Brigo – Independent Consultant and Professor of Quantitative Finance and Stochastic Analysis, Imperial College London David Carruthers – Head of Research, Credit Benchmark Tamar Joulia – Independent Consultant, Former Head of Credit Portfolio Group, ING Randy Miller – Independent Consultant, Former Head of Credit Portfolio Analytics, Bank of America The Advisory Group will offer input into how data can be optimized for banks in day-to-day credit risk management processes. It will further offer insight into how the data would be useful for academic research on credit markets. Credit Benchmark CEO Donal Smith commented: “We are pleased that our data development and analytical services will benefit from guidance from a distinguished group of credit risk experts. This will significantly enhance the value of our outputs from a client perspective.” Advisory Group members will only have access to published data. Contributor data is delivered by secure channels and is fully anonymized. Data on individual obligors or summary portfolios can only be published if it satisfies a comprehensive set of quorate rules agreed with all contributing banks. The Advisory Group group held its inaugural meeting in London earlier this month.   Credit Benchmark Credit Benchmark is a financial data analytics company. It gathers credit estimates from market participants in order to create a new source of credit risk data: banks’ consensus credit views. The company supplies credit data on sovereign, corporate, bank, and non-bank financial entities to global financial institutions.  Credit Benchmark is based in London with an office in New York. ### Credit Benchmark Co-Founder And Executive Chairman Donal Smith Takes Over As CEO Credit Benchmark today announced that Donal Smith, co-founder and executive chairman, is to become CEO. Smith started Credit Benchmark in 2012 with fellow entrepreneur Mark Faulkner, who remains actively involved as a Director with responsibility for data acquisition and innovation; Elly Hardwick, who led the company as CEO since its inception, will step down at the end of this month. Credit Benchmark, based in London with an office in New York, is a financial data analytics company. It is trusted by the world’s largest banks to aggregate in-house credit risk estimates in order to build a robust consensus data platform. Smith said: “Elly and I have worked together multiple times, in multiple contexts, and may even do so again in the future. We wish her all the best.” Prior to founding Credit Benchmark, Smith was CEO of financial data company Data Explorers. That company, founded by Faulkner, was acquired by Markit in 2012. Smith previously worked at Thomson Reuters as CEO of Thomson Financial's businesses in Europe and Asia, CEO of FT.com and Director of Electronic Publishing for the Financial Times Group. He is non-executive chairman of BISAM S.A. Credit Benchmark Credit Benchmark is a financial data analytics company. It gathers credit estimates from market participants in order to create a new source of credit risk data: banks’ consensus credit views. The company supplies credit data on sovereign, corporate, bank, and non-bank financial entities to a growing number of contributing banks. The company has raised $30 million since 2013. The Series A was led by Index Ventures and the Series B by Balderton Capital. ### Sovereign Default Risk In Developing Economies This paper examines the use cases for Credit Benchmark’s Consensus Probabilities of Default (Consensus PDs), in the context of more established indicators of Sovereign Default Risk. We suggest that Consensus PDs, as an additional dataset that is both robust and broad, can play a valuable role in compensating for low signal-to-noise in other metrics. It can also provide a basis on which to fill coverage gaps in indicators such as CDS and bond yields, and offer an alternative form of beta metric at the portfolio level. Download Whitepaper Now ### Credit Benchmark Revolutionizes Internal Models The internal-ratings based approach for banks to quantify capital for credit risk – a framework deployed by over 100 banks, from Europe to China and Australia – is in crisis. While the Fed has been consistently sceptical of it, European regulators at the Basel level have adopted an ambivalent posture by first encouraging lenders to adopt it, only to then sound the alarm over inconsistences in risk weights. In 2013, the European Union adopted the Capital Requirements Directive, which sought to reduce systemic reliance on credit ratings by encouraging banks to calculate their own ratings; and to make bank-capital more risk-sensitive, letting lenders use these calculations in their own risk-management or economic capital models. So while the IRB approach was developed for large, internationally active banks by Basel in the early 2000s, the CRD opened it up for use by all banks in Europe. View original article (external link) ### Introduction For Credit Portfolio Managers Credit Benchmark is a market-led response to three of the most critical issues facing credit risk professionals: 1) The need to improve credit risk management through internal benchmarking, 2) The requirement to justify internal model outputs to supervisors, 3) The insufficiency of robust external data. This note examines the applications for Credit Benchmark Consensus Risk Estimates within the Credit Portfolio Management workflow. Download Whitepaper Now ### Credit Benchmark Gets Further $20M For Its Consensus Credit Risk Platform A year on from an Index Ventures-led $7 million Series A, London-based fintech startup Credit Benchmark has extended its runway with a $20 million Series B. The startup is building a platform aimed at improving financial market benchmarks and risk assessment analysis by aggregating anonymized credit risk data from multiple banks to build up consensus data. View original article (external link) ### Credit-Rating Start-Up Receives VC Boost Credit Benchmark, a London-based start-up that pools credit ratings from global banks, has secured a new round of funding and strengthened its presence in the US as part of expansion plans. The fintech company, which creates anonymous consensus ratings on credit risk, has raised $20 million in funding in an investment round led by London venture capital firm Balderton Capital. Index Ventures, which invested $7 million in the company a year ago, also participated. View original article (external link) ### Credit Benchmark Raises $20M To Strengthen Platform, Grow Headcount - IMD Startup consensus credit ratings provider Credit Bench- mark has raised $20 million in series B financing to help the vendor scale its platform and beef up its data management function with new hires in data science and data quality roles, as well as to fund a geographical expansion, starting with a new office in New York. The funding was led by new investor Balderton Capital, and also involved existing investor Index Ventures, which invested $7 million in a funding round one year ago (IMD, July 9, 2014). Chief executive Elly Hardwick says the vendor initiated a formal funding round after receiving an unexpected amount of unsolicited interest in investing in the company, adding that it chose Balderton based on the firm’s experience and understanding of the capital markets. Download attachment ### Credit Benchmark Raises $20m In Series B Financing Led By Balderton Capital New investment underlines support for credible and robust collaborative model in credit risk ratings globally Comprehensive data platform aggregates banks’ own estimates to provide independent, valuable consensus on financial risk for a universe, 90% of which is not rated by traditional agencies US expansion to be accelerated by new Chief Commercial Officer Harry Chopra, a former head of Global Sales and Client Services at S&P Capital IQ This week, Credit Benchmark publishes its inaugural consensus data outputs to contributing banks Credit Benchmark, the independent source of consensus credit risk information, today announces substantial new Series B funding and its expansion into the US. It also launches its service to contributing banks, with the first release of its consensus data. The $20 million round was led by new investor Balderton Capital with participation from existing partner Index Ventures. Balderton’s investment follows a previous round of $7 million in July 2014, which Index led. It will be used to expand Credit Benchmark’s data gathering efforts with global IRB banks, extend its intelligence platform and grow its international team and presence. Re-inventing credit risk information Credit Benchmark brings sought-after credibility to a credit risk market renowned for opacity. By aggregating and anonymizing credit risk estimates of the world’s largest banks, the company creates consensus credit data and analysis that directly reflect the views of banks’ own risk teams. This unlocks the insight of organizations with assets in the trillions and with tens of thousands of credit analysts. The coverage includes globally systemic entities as well as deep country-specific databases. In a recently published whitepaper on sovereign risk, Credit Benchmark demonstrated the advantages of using consensus data in credit risk management. The research highlights the differences between industry- sourced estimates and other sources of credit assessment and the predictive power of banks’ analysis. Credit Benchmark’s contributed-data platform is tried and tested. The founders, Mark Faulkner and Donal Smith, successfully applied the model in their previous company Data Explorers, acquired by Markit in 2012. Reaching into new areas The model allows Credit Benchmark to offer insight on a whole range of entities left uncovered by sources such as agency ratings and credit default swap prices. These include unrated sovereigns, hedge funds and unrated public and private companies. Consensus data also offers new and differentiated insight on entities that have existing public ratings, bringing in the Street’s own perspective of credit risk. It is a valuable resource to financial institutions managing risk and capital, conducting trading and research and investing, among others. In the past year, Credit Benchmark has invested heavily to ensure the security and scalability of a platform tasked with handling the large datasets provided by contributing banks. It has also made significant progress in bringing on board new contributors from among the world’s largest banks. The backing of Balderton Capital and Index Ventures, VC funds with strong capital markets focus, underscores the transformational nature of Credit Benchmark’s data offering. Tim Bunting, General Partner at Balderton Capital, will join the board of directors. Expanding platform and team internationally Credit Benchmark also announces today the formal launch of its US presence and the appointment of Harry Chopra, formerly head of Global Sales and Client Services at S&P Capital IQ. Chopra joins Credit Benchmark as chief commercial officer, based in New York. The company will continue to build its teams in London and and New York, particularly in customer-facing and data science roles. Elly Hardwick, Credit Benchmark CEO, said: “This substantial new investment from Balderton and continued support from our partners at Index is powerful validation of our mission – and our ability – to shake up the credit ratings market. Every day we see new examples of the value Credit Benchmark consensus data offers. Our team of experts are poised to bring change to a sector ripe for disruption.” Tim Bunting noted: “Credit Benchmark’s plan to provide transparent credit information on more than 200k companies will provide huge value to all market participants. The need for better data has never been higher. The depth and transparency of the Credit Benchmark platform is a great leap forward in the biggest financial market of all. Balderton is very pleased to be joining the Credit Benchmark team.” "The Credit Benchmark team has pulled off something quite extraordinary. By convincing the world's largest banks to contribute their closely-held credit risk estimates to Credit Benchmark's platform, they've created an entirely new model in credit risk ratings,” said Jan Hammer, partner at Index Ventures. "They are disrupting decades old ways of risk assessment, and the potential impact on the financial services sector is huge." Download attachment ### Sovereign Bond Risk Management In the current low yield environment, many Sovereign bonds issued by different countries are priced at similar levels. However, this report demonstrates that default probability estimates made by IRB banks for the same sovereigns show major differences. Using data from 2011 and 2012, this report provides a framework for pricing default risk with important implications for efficient bank and CCP risk management. The Sovereign Bond market is the benchmark for global interest rates, and is also the most trusted and liquid form of collateral for a growing number of financing and margining transactions. Developed market Government bonds are now so highly valued that in some cases – such as Germany - investors have at times been close to having to pay to hold them.   Download Whitepaper Now   ### London Is Home To Europe's Hottest FinTech Startups As 24 Of The FinTech50 Come From The Capital London once again dominates in a new list of the hottest European FinTech startups as the capital continues to put its backing behind the sector's growth. Businesses from the capital represent almost half of those chosen as the FinTech companies to watch in 2015 by a panel of senior executives from across the world of finance, investment and technology. Some 24 London-based companies have made FinTechCity's Fintech50, a list of 50 startups considered game-changers, or have the potential to become major players in the FinTech sector, due to their growth, disruption and market impact. The firms were decided by a panel which included judges from Google, Microsoft, American Express, Santander, Silicon Valley Bank and a selection of venture capital firms working in the city. London's well-known FinTech firms such as TransferWise, Funding Circle and Nutmeg, are joined on the list by smaller startups from the capital such as Commuter Club, Osper, and Algomi. Mariano Belinky, managing director of the Santander Innoventures Fund and a member of the panel, credits London’s vibrant FinTech community with the city’s success and giving it the ability to rival other FinTech hotspots around the world “There is a great network of both public and private organisations working together in London to create a vibrant ecosystem and community to support FinTech companies,” Belinky told City A.M. “This network gives London a great advantage over other FinTech centres around the world, and I expect to see London maintain the momentum it has created.” Belinky cites organisations such as FinTechCity, the group behind the FinTech50, the London Mayor and Level 39 as well as funds like Santander’s Innoventures and other major international banks for creating a culture for London to lead in the FinTech space. Boris Johnson is due to lead a delegation of London’s fintech firms to New York next week, following shortly after a similar mission to Singapore and Malaysia, while Canary Wharf’s Level 39 has opened new space in its startup incubator to house the expanding firms and entrepreneurs working in the sector. More than half of all European venture capital investments in FinTech made last year went to London firms, amounting to a record $539m (£342.6m) of funding and the sector employs more people - 44,000 - than New York or Silicon Valley. Across Europe, Microsoft’s bank industry lead Richard Peers credits a combination of factors for making the FinTech sector “a perfect spring day”. “The confluence of conditions after the harsh realities of the economic storm are bringing forth some incredibly fresh new startups. Entrepreneurs are leaving financial institutions brimming with insight and ideas to make things better. Combine this wisdom with the stimulus of investment capital, the affordability of cloud and mobile platforms, the pent-up desire for change from digital natives and you have the potential for something very good to happen,” said Peers, “And it is.” Santiago Tenorio, global innovations and partnerships director for American Express, said: “The growing rate of VC activity and recent bets by top-tier Silicon Valley investors is an indication that the scene is hot. It’s also encouraging to see a growing spirit of collaboration between the FinTech startup community and established financial services firms.” TransferWise is just the most recent London FinTech firm to attract significant funding, closing a round that values it at the almost mythical $1bn (£663m) mark. Data analytics, payment models, mobile payments and alternative funding mechanisms are just some of the areas of growth, said Chris Hill of law firm Kemp Little, a supporter of the event, "all of them innovatively harnessing the power of technology to make real-world improvements in the way the financial sector operates," he said. "Whilst it’s currently far from clear which of the new products out there will ultimately gain traction in the market, there are certainly plenty of great ideas to choose from,” Silicon Valley Bank, the US-based firm which funds startups and VCs, believes any one of these London firms could become hugely valuable down the line. “London already has some $1bn valuation startups, namely Monitise, Powa and Transferwise,” said Alex McCracken, managing director of venture services at the bank and a member of the 20-strong panel of judges. “From my perspective, some of the peer-to-peer lending platforms are also close to the $1bn ‘unicorn’ valuation and will likely reach this milestone in their next funding rounds or at exit,” he told City A.M. McCracken says London has already grown from having just one or two outstanding FinTech companies in each category such as payments, asset management, lending, big data, foreign exchange, or software, to the panel now seeing a host of strong candidates for the annual list, now in its third year. "[What stood out is] the high quality and growth of companies that were just formed a few years ago, and yet now have significant transaction volumes, revenues and users. These businesses are disrupting incumbent financial services institutions," said McCracken. And why is it that London at the forefront of this? “London has key advantages through its geographic and time zone location, which has meant that many of the worlds’ banks have their headquarters in London," McCracken explains. "This enables them to trade with Asia in the morning and the United States in the afternoon. "For this reason, FinTech companies in London have many of their key customers, staff and technology partners in a few concentrated miles of London, as well as some very active venture capital funds. These venture capital firms are then able to see the potential in these disruptive companies and provide early stage risk capital to help them set up and grow,” he added. London's FinTech50 ones to watch Algomi Blockchain Byhiras Calastone Commuter Club Credit Benchmark Currency Cloud Darwinex Duedil Earthport Ebury Fund Apps Funding Circle GoCardless Insly Ixaris LendInvest Merit Software Nutmeg OpenGamma Osper Squirrel Sybenetix TransferWise View original article (external link) ### Share Data To Thwart Hackers And Address Other Big Challenges In his recent book "The Social Life of Money," Nigel Dodd, a professor at the London School of Economics, describes the work of Georg Simmel, the 19th-century German philosopher who sought to explain what makes money possible. Simmel observed that value results from a synthesis that takes place through exchange. "We enter into exchanges because we want things," Dodd explains. "This desire is demand." In Simmelian terms, banks in 2015 will swap information and develop processes with one another on a scale that may be without precedent. They'll remain fierce competitors, but by better sharing data with one another they also hope to fine-tune their analysis of credit risk, track and thwart money laundering threats and strengthen defenses against cyberattacks. Call it the year of co-opetition. This trend toward better information sharing is being facilitated by third parties like Credit Benchmark, a U.K. startup that pools banks' assessments of the creditworthiness of institutional borrowers. Lenders hand over to Credit Benchmark their internal estimates of probabilities of default and potential losses. Credit Benchmark averages the opinions to calculate a consensus view that the company sends back to lenders. Credit Benchmark aims to complement, if not disrupt, the cartel in credit ratings presided over by Moody's, Standard & Poor's and Fitch. "The fundamental difference is that when you're taking in a Credit Benchmark consensus you're taking in data from other players with skin in the game," says Elly Hardwick, its CEO. With banks throughout North America, Europe and Asia all supplying information — at least a dozen have signed up so far — Credit Benchmark calculates the riskiness of debt issued by governments, hedge funds, businesses and other borrowers, including those that lack a credit rating from one of the big agencies. "There are huge areas of the market that banks care very deeply about where they have nothing to compare their rating to," adds Hardwick. "That's frightening for banks." The inclination to share also is accelerating in compliance. In November, Markit and Genpact Limited announced that more than 600 hedge funds, pension firms and other institutions have registered for the companies' know-your-customer service, which assembles information about the identities of customers that banks must verify before opening accounts. KYC Services, as the venture is known, relies on a standard developed in tandem with Citigroup, Morgan Stanley, HSBC and Deutsche Bank that defines what goes into a customer profile for public companies, hedge funds and other entities. The process promises to speed the opening of accounts and save banks money, while easing burdens on counterparties by homogenizing demands for information they must provide. "We build a profile once and reuse it again across banks, says Rampi Kandadai, who manages the service for Genpact." Though compliance officers have shared information about trends since anti-money laundering laws emerged 30 years ago, the ability to sift through and share the avalanche of data now available has become increasingly important, says John Byrne, executive vice president of the Association of Certified Anti-Money Laundering Specialists. "The data is an important component of making account opening decisions, but [it] also becomes important on an ongoing basis for monitoring transactions," Byrne says. "Some of it is slicing and dicing at the institution, but it's that plus outside data that gives banks a more holistic view of who you are." KYC Services mirrors efforts across the industry, where firms such as Thomson Reuters, KYC Exchange and others are racing to sign up banks for compliance-related registries. In September, Swift, which offers a KYC registry backed by JPMorgan Chase, Citigroup and others, said it would provide access to the service without charge in 2015 to banks that contribute data. Nowhere is the need for sharing greater than in the area of cybersecurity. JPMorgan CEO Jamie Dimon, whose bank in August disclosed that hackers had accessed data on 83 million customers, wrote last spring to shareholders of "intelligence fusion" that the bank uses to share information about threats. In the year ahead such synthesis promises to occur across the industry as banks become better at tapping data at their collective disposal to harden defenses against digital intrusions. Part of the push includes the development of Soltra Edge, a program created by the Financial Services Information Sharing and Analysis Center and the Depository Trust & Clearing Corp., that converts information about suspect websites, email addresses and malware into a format that allows threats to be routed automatically to banks' security systems. Soltra Edge, which launched in December, is being tested by about 45 financial institutions and promises to make it easier for banks to sift through all the information about digital threats that floods their firewalls. "The standardization is the most powerful benefit," says Al Pascual, a security analyst with Javelin. "It's almost a way to speed intelligence sharing and improve security postures." Soltra Edge also has the potential to become a standard for retailers and other businesses outside banking that scan for cyber threats yet lack banks' prowess in cybersecurity. That matters because sharing of threats within the financial industry may not suffice, notes Steven Chabinsky, the chief risk officer at CrowdStrike, a digital security firm. "The main point is that information exists across all industries," says Chabinsky, a former deputy assistant director at the FBI's cyber division. As Chabinsky sees it, banks and others benefit when they collect information from as large a network as possible. "The power of the crowd are the computers that have all the information and that are really good at processing and sharing it quickly," he adds. View original article (external link) ### London’s Tech Firms Raise Record $1bn Of Venture Capital Investment London tech firms attracted a record $1bn (£626m) of venture capital investment in just the first nine months of 2014. The mammoth figure is more than 10 times what tech groups raised from venture capital firms (VCs) in the whole of 2010. Fundraising in London’s tech sector is currently up over 30 per cent on last year’s $719.3m total, with three months still left in 2014, according to figures released by the Mayor’s promotions agency, London & Partners today. “These figures show, without any question, that this is an incredible period for technology firms in our city,” said Mayor Boris Johnson. “Tech is blossoming and our reputation for innovation and discovery, allied with outstanding talent, is attracting record breaking levels of investment from around the globe.” So far two London-based tech startups, takeaway.com and farfetch.com, have completed funding rounds in excess of $50m this year. And Funding Circle closed a $65m round in July from backers led by Index Ventures and including Accel Partners, Union Square Ventures and Ribbit Capital. “For Index, London is one of the key technology hubs with more than a quarter of our investments going to companies based here,” Index Ventures partner Saul Klein told City A.M. “This year was especially significant for London with three big exits – Just Eat, King and Zoopla – showing that London can produce billion dollar companies competitive on the world stage.” In 2014 alone new VC funds worth more than $1.5bn set up shop in the capital: Google Ventures, Santander, and Balderton Capital created new investment vehicles in the City. “London has a few things going for it. It is a magnet of talent from around the world, the internet economy in the UK is the highest of G20 countries, it’s a centre of numerous industries including finance, fashion, media, design and entertainment, and it’s the biggest English speaking city on the internet,” added Klein. Elly Hardwick, the chief executive of Credit Benchmark, a financial technology startup in London that pools credit risk data from banks and raised $7m earlier this year, believes London’s VCs are increasingly willing to back startups because of their proven success. “There’s real critical mass of both skills and experience in London – people who’ve done it before and are now eminently more back-able by VCs,” she told City A.M. While London’s VC scene is booming and the capital continues to increase its share of European startup investments – stealing share from the likes of Berlin and Paris – it still has a way to go before it rivals the likes of Silicon Valley in California. Policy group Coalition for a Digital Economy (Coadec) and the UK’s largest technology trade association, TechUK, both launched manifestos last month calling on the government to better support the digital economy. “This growth in VC funding is brilliant news for the UK’s digital startups and a clear sign of confidence in the sector from investors,” Coadec’s executive director Guy Levin told City A.M. “But many startups still struggle to access the finance they need to grow and there is more that government can do to help. In our Startup Manifesto, Coadec calls for tax reliefs that encourage investment in startups by corporates to be reinstated, and for existing tax incentives for angel investors to be kept for the next five years.” View original article (external link) ### Press Coverage Of $7MM Series A Financing Credit Benchmark received wide-ranging press coverage on its $7MM Series A financing. All Media Ny http://www.allmediany.com/news/27081-index-leads-7m-round-in-banking-ben... Financial News http://www.efinancialnews.com/story/2014-07-09/credit-risk-data-startup-... Finextra http://www.finextra.com/news/announcement.aspx?pressreleaseid=55916&topi... Dow Jones http://pevc.dowjones.com/article?an=DJFVW00020140709ea79na0uu&from=alert... Fortune http://fortune.com/2014/07/09/deals-of-the-day-newvoicemedia/ Financial Times http://ftalphaville.ft.com/2014/07/09/1896102/disrupting-the-rating-agen... Who Got Funded http://www.whogotfunded.com/deals/266429-credit-benchmark Index Ventures http://indexventures.com/companies/credit-benchmark PE News http://www.penews.com/today/index/content/4073666064/restricted Pro Market News http://promarketnews.com/news/index-ventures-leads-series-a-round-for-cr... Quartz http://qz.com/231780/how-to-build-a-banking-benchmark-thats-not-rigged/ Pehub http://www.pehub.com/2014/07/index-ventures-leads-series-a-round-for-cre... TechCrunch http://techcrunch.com/2014/07/09/credit-benchmark-series-a/ Waters Technology http://www.waterstechnology.com/inside-market-data/news/2354294/credit-b... ### $7m Series A Financing Completed Credit Benchmark, an innovative financial technology company founded by serial entrepreneurs Mark Faulkner and Donal Smith, announces today that it has raised $7m in a Series A financing round led by Index Ventures to accelerate its development of a new data source in the $6bn credit risk information market. Today also marks the launch of Credit Benchmark’s commercial service for banks. Following completion of a proof of concept, a dozen global banks in the US, UK and Continental Europe have already committed to contribute their data, with more set to follow. Credit Benchmark unlocks an immense untapped resource in institutional credit risk: internal estimates from the world’s largest banks. Produced by highly skilled analysts using models validated by regulators, these estimates represent the views of qualified market participants with “real skin in the game.” Credit Benchmark, for the first time, transforms the value of these estimates by anonymizing and aggregating them to create precise and dynamic consensus views. Download attachment ### Credit Benchmark At RiskMinds 2013 Credit Benchmark CEO Elly Hardwick, together with Head of Business Development Mahim Mehra and Credit Risk Advisory Thomas Aubrey presented a progress update on the Proof of Concept at the RiskMinds Conference in Amsterdam. The interest generated at the event as well as the rest of the conference clearly indicated the importance of our benchmarking initiative and its relevance to today's risk management efforts. ### Credit Benchmark Readies Launch For 2014 London-based startup consensus credit ratings provider Credit Benchmark has begun its proof-of-concept phase with an undisclosed number of contributing banks, ahead of a full production launch scheduled for early next year. During the proof-of-concept phase, banks that produce proprietary internal ratings can test how the service will work without going through a lengthy sign-up process, and can be involved in designing how the service will ultimately look. “We now have data on our servers, and have a large group of banks at various stages of getting involved and setting up the technical connections to contribute data,” says Credit Benchmark chief executive Elly Hardwick. “The proof-of-concept ultimately becomes a demo for the product, what the data will be and how it will look. Our aim is to productise that early in the New Year.” Download attachment ### Credit Benchmark Insights July 2013 The long-waited report The long-awaited report from the Bank for International Settlements (BIS) on the banking book risk weighted asset (RWA) comparison1 was published earlier this month. The report includes the results of the bank’s Autumn 2012 bottom-up portfolio benchmarking exercise, an effort that compiled risk estimates on over 1,000 entities from 32 international IRB banks. This exercise is a key part of the global standard setter’s broader efforts to quantify the impact of Basel II and examine differences in its application across geographies. Moving Beyond We think the BIS should be applauded for moving beyond top-down portfolio analysis, and seeking to control for some (but not all) of the muddying factors. However we highlight certain implied conclusions that merit further discussion. Two top-level findings The BIS report contrasts two top-level findings: considerable agreement across banks as to the relative default risk of obligors in the hypothetical portfolio, but variation in the estimation of absolute risk. This implies that relative conservatism or aggressiveness in risk estimation is a function of bank-level biases as to overall risk levels, rather than differing views about individual obligors. The BIS conclude that this variation could result in banks’ capital ratios varying by as much as 1.5% to 2% around a 10% benchmark ratio. It is worth pointing out that the composition of the hypothetical portfolio makes this first conclusion almost inevitable. The BIS selected a list of large obligors, about which there is a substantial amount of publicly- available information, as a practical consideration to ensure enough overlap between contributors.2 However it is in portfolios for which there is less available information that one would expect more variation between banks with regards to relative default risk. It is self evident It is self-evident that in a framework such as Basel, the very goal of which is to reduce systemic risk by encouraging diversity of credit risk views, there will at any time be an even split between banks whose estimates appear more aggressive and those whose estimates appear more cautious than the average. We feel the report reflects a growing belief that diversity has somehow gone too far. If this is the BIS’s conclusion, a discussion is needed as to where the tipping point lies. Indeed, the BIS specifically comment, “The study did not attempt to identify an appropriate or acceptable level of variation of RWA in the banking book”3. Without such a discussion we forsee a race to zero on the diversity front, and our concerns are reinforced by the references in the report to supervisor-imposed risk benchmarks, floors and caps, and even fixed values. This risks negating the intent of Basel. Comparing average risk The report devotes a fair amount of space to comparing average risk weights under IRB to those that would be obtained using the standardized approach4. The data suggests a nuanced picture, with the sovereign portfolio revealing higher risk weights under IRB than under standardized. Conversely, corporate and bank portfolios have lower risk weights than the standardized approach. These results are intuitive given the migration of credit risk towards sovereigns through the financial crisis and illustrate a key strength of the IRB approach: its capacity to reflect cyclical developments in risk Short-term recomendations The BIS’s conclusions are relatively muted. The main short-term recommendations are “enhanced disclosure and additional guidance”. We believe this reflects appropriate concern about the limitations of the data gathered. As with any snapshot, the distribution of individual datapoints may or may not reflect an ongoing trend: we just don’t know, and so the BIS are right to be cautious. What is rather predictable is that there will be more of these benchmarking exercises, which are highly resource-intensive for participants, often involve the submission of theoretical outputs, and where banks themselves have precious little access to outputs. In our view In our view, all of this strongly reinforces the case for banks and regulators to have access to robust ongoing benchmarking, where methodologies and data practices can be openly discussed and challenged using an extensive and representative dataset. If the BIS can leverage credit risk data accumulated by almost 8,000 risk analysts at the 32 participating banks, banks should be able to do so too. Credit Benchmark was founded to fill this information gap, and will provide an independent source of credit risk benchmarking data that reflects the views of those at the coal-face of risk management. ‘Regulatory Consistency Assessment Program (RCAP), Analysis of risk-weighted assets for credit risk in the banking book’, BIS, July 2013. Although the obligor list is not revealed, the report notes that more than half of the corporate obligors had an external agency rating, and two thirds were investment grade. We can assume that a further proportion are either unrated public companies or have some kind of traded debt. http://www.bis.org/publ/bcbs256.pdf, p4 Ibid., pp39, 40 ### Thomson Reuters, Data Explorers Vets Found Ratings Analysis Firm Credit Benchmark, a new startup that will provide aggregated analysis of trading firms’ proprietary credit ratings and risk assessments, has begun enlisting 10 early-stage contributors for a proof-of-concept phase, ahead of a production launch slated for the first quarter of next year. The vendor will collect proprietary credit rating data produced in-house by financial firms, such as probability of default, aggregate it, and provide participating contributors with a spread that shows their position against an anonymous cross-section of their peers, to give fixed income traders a more comprehensive view of the marketplace and provide greater transparency. Download attachment ### Sales Director – US Join our team of technology, financial services and data experts. View All Job Openings Who we are Credit Benchmark is a financial data analytics company that has partnered with the world’s leading financial institutions to create the largest and most sophisticated contributed credit risk data platform in the market. We help clients identify, quantify, and monitor credit risk across a wide array of exposures by leveraging CB’s unique and sophisticated data and analytics. The comprehensive nature of CB’s consensus ratings coverage on over 115,000 sovereigns, FIs, NBFIs, corporates and funds uniquely place CB as the leading provider of credit risk intelligence. We have experienced significant growth over the last 12 months across our different client segments and are looking to scale up the commercial team for the next phase of growth. The role We are looking for a Sales Director to join our New York office to help drive our expansion efforts across the Americas with a strong focus on structured credit, insurance and asset managers. You will be responsible for quantifying and growing your territory by identifying, qualifying, developing, and closing sales opportunities. You will have access to a proven and effective playbook, and extensive evidence of success across our existing portfolio of clients. In addition, you will have a strong support team comprised of highly experienced credit risk experts, quants, product specialists and technical sales engineers, to aid the sales process. In addition to the focus on established segments, you will be able to help build other emerging segments including CLOs, direct lending, etc. You will also be required to provide specialist subject matter input into defining and expanding our network of partnerships. Crucial to this role is the ability to leverage existing long-standing relationships as entry points into viable prospective clients. Having worked in an entrepreneurial environment and / or a proven track record in selling a completely new product/data set would be highly advantageous. We are looking for someone who will help us build a business that we believe will be the cornerstone of our commercial success, not just a salesperson looking to bring in individual deals. The role will be based in New York with a hybrid working pattern involving a minimum of three days in the office and moderate travel. Your responsibilities will include Sales Execution: Lead sales cycles from initial outreach through to contract, targeting senior stakeholders across multiple regions and verticals across your segmentTarget Development: With a strong entrepreneurial mindset, build and manage a focused list of high-value accounts aligned to our ICPs across the buy-sideCross-Regional Coordination: Work closely with UK/EU Sales Directors to align go-to-market efforts and ensure consistency and close collaborationSegment Expertise: Develop deep insight into your vertical(s) and become a market-visible advocate within your client segmentsCross Functional Collaboration: Collaborate with Product, Legal, Marketing, and Customer Success to deliver tailored, high-impact value propositionsPipeline Management: Own a well-qualified, data-driven pipeline with disciplined CRM use, clear forecasting, and strong CRM hygiene What we are looking for 5 to 7 years’ experience selling SaaS solution(s) into financial markets; buy-side (e.g. Insurance, Pension Funds, Asset Managers, specialist investors, CLO, SRT, Structured Credit, Private Debt, Secondaries, etc.) related to credit risk solutionsSolid understanding of financial markets; knowledge of credit risk analytics, fixed income solutions or capital market servicesLeverage existing relationships to gain entry to prospective clientsExperience working in an entrepreneurial environment and / or a proven track record in selling a completely new product/data set would be highly advantageous.Ability to generate leads and develop relationships, where none exist and follow-up effectivelyAbility to drive product development that allows effective integration into client workflowExperience in leveraging tools for prospecting, CRM (e.g. Salesforce) and ability to help drive best practicesExcellent networking and presentations skills (both written and spoken)Proactive, with an ability to work under pressure and deliver to deadlinesStrong team playerFluency in other foreign languages a bonusEligible to work in the U.S. Salary Competitive base salary based on skills and experience  Benefits  Generous commission schemeFlexible working hours: Healthy work/life balanceVacation: Competitive holiday packageHealth and Wellbeing: Private medical, dental and vision cover, paid sick and bereavement leave401(K): Opportunity to join company 401(K) schemeTravel: Commuter BenefitsFamily Friendly: Supportive environment and paid leave for new parentsLearning and Development: Professional development opportunities through seminars, conferences, training and courses and internal mentorshipCommunity: Supportive, collaborative and social team environment Our commitment to diversity, equality, and inclusion  At Credit Benchmark, we are deeply committed to diversity, equality and inclusion. This means celebrating who we are as individuals and as a team because our company and culture reflect the sum of our employees.   We strive to create a mindful and respectful environment that includes fairness, kindness, and understanding. We empower each other to bring our authentic selves to work and champion our colleagues’ development and achievements. Our diversity brings a multitude of perspectives and ideas and is imperative to the success of our business.   We are dedicated to ensuring that principles of diversity, equality and inclusion are rooted in Credit Benchmark’s DNA. We continue to build on these principles as our company grows while retaining the progress we have made as a team.  Credit Benchmark is proud to be an Equal Employment Opportunity employer. We believe no one should be at a professional disadvantage because of their background. We do not discriminate based upon any legally protected characteristics and are committed to fostering a working culture that is free of discrimination and harassment.   Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures and employment.   If you require reasonable accommodation in completing this application, interviewing, completing any pre-employment testing, or otherwise participating in the employee selection process, please let us know by contacting our HR team at careers@creditbenchmark.com   First Name (required) Last Name (required) Email (required) Telephone (required) Resume/CV (required) Cover Letter Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Sales Director – UK Join our team of technology, financial services and data experts. View All Job Openings Who we are Credit Benchmark is a financial data analytics company that has partnered with the world’s leading financial institutions to create the largest and most sophisticated contributed credit risk data platform in the market.    We help clients identify, quantify, and monitor credit risk across a wide array of exposures by leveraging CB’s unique and sophisticated data and analytics. The comprehensive nature of CB’s consensus ratings coverage on over 115,000 sovereigns, FIs, NBFIs, corporates and funds uniquely place CB as the leading provider of credit risk intelligence.   We have experienced significant growth over the last 12 months across our different client segments and are looking to scale up the commercial team for the next phase of growth.   The role We are looking for a Sales Director to join our London office to help drive our expansion efforts across EMEA with a strong focus on structured credit, insurance and asset managers. You will be responsible for quantifying and growing your territory by identifying, qualifying, developing, and closing sales opportunities.   You will have access to a proven and effective playbook, and extensive evidence of success across our existing portfolio of clients. In addition, you will have a strong support team comprised of highly experienced credit risk experts, quants, product specialists and technical sales engineers, to aid the sales process.   In addition to the focus on established segments, you will be able to help build other emerging segments including CLOs, direct lending, etc. You will also be required to provide specialist subject matter input into defining and expanding our network of partnerships. Crucial to this role is the ability to leverage existing long-standing relationships as entry points into viable prospective clients. Having worked in an entrepreneurial environment and / or a proven track record in selling a completely new product/data set would be highly advantageous.  We are looking for someone who will help us build a business that we believe will be the cornerstone of our commercial success, not just a salesperson looking to bring in individual deals.   The role will be based in London with a hybrid working pattern involving a minimum of three days in the office and moderate travel.  Your responsibilities will include Sales Execution: Lead sales cycles from initial outreach through to contract, targeting senior stakeholders across multiple regions and verticals across your segment Target Development: With a strong entrepreneurial mindset, build and manage a focused list of high-value accounts aligned to our ICPs across the buy-side  Cross-Regional Coordination: Work closely with US Sales Directors to align go-to-market efforts and ensure consistency and close collaboration  Segment Expertise: Develop deep insight into your vertical(s) and become a market-visible advocate within your client segments  Cross Functional Collaboration: Collaborate with Product, Legal, Marketing, and Customer Success to deliver tailored, high-impact value propositions Pipeline Management: Own a well-qualified, data-driven pipeline with disciplined CRM use, clear forecasting, and strong CRM hygiene  What we are looking for 5 to 7 years’ experience selling SaaS solution(s) into financial markets; buy-side (e.g. Insurance, Pension Funds, Asset Managers, specialist investors, CLO, SRT, Structured Credit, Private Debt, Secondaries, etc.) related to credit risk solutions Solid understanding of financial markets; knowledge of credit risk analytics, fixed income solutions or capital market services Leverage existing relationships to gain entry to prospective clients Experience working in an entrepreneurial environment and / or a proven track record in selling a completely new product/data set would be highly advantageous. Ability to generate leads and develop relationships, where none exist and follow-up effectively  Ability to drive product development that allows effective integration into client workflow Experience in leveraging tools for prospecting, CRM (e.g. Salesforce) and ability to help drive best practices  Excellent networking and presentations skills (both written and spoken) Proactive, with an ability to work under pressure and deliver to deadlines Strong team player Fluency in other foreign languages a bonus Eligible to work in the UK  Salary Competitive base salary based on skills and experience  Benefits  Generous commission scheme  Holidays: Competitive holiday package  Health and Wellbeing: Private health Insurance cover including mental health cover Pension: Opportunity to join company pension plan  Travel: Cycle to work scheme Healthy work/life balance  Family Friendly: Supportive environment and generous paid leave for new parents  Learning and Development: Professional development opportunities through seminars, conferences, training and courses and internal mentorship  Community: Supportive, collaborative and social team environment  Our commitment to diversity, equality, and inclusion  At Credit Benchmark, we are deeply committed to diversity, equality and inclusion. This means celebrating who we are as individuals and as a team because our company and culture reflect the sum of our employees.   We strive to create a mindful and respectful environment that includes fairness, kindness, and understanding. We empower each other to bring our authentic selves to work and champion our colleagues’ development and achievements. Our diversity brings a multitude of perspectives and ideas and is imperative to the success of our business.   We are dedicated to ensuring that principles of diversity, equality and inclusion are rooted in Credit Benchmark’s DNA. We continue to build on these principles as our company grows while retaining the progress we have made as a team.  Credit Benchmark is proud to be an Equal Employment Opportunity employer. We believe no one should be at a professional disadvantage because of their background. We do not discriminate based upon any legally protected characteristics and are committed to fostering a working culture that is free of discrimination and harassment.   Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures and employment.   If you require reasonable accommodation in completing this application, interviewing, completing any pre-employment testing, or otherwise participating in the employee selection process, please let us know by contacting our HR team at careers@creditbenchmark.com   First Name (required) Last Name (required) Email (required) Telephone (required) Resume/CV (required) Cover Letter Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Knowledge Base ### Testing form Error: Contact form not found.Error: Contact form not found. ### demo page Your name Your email Subject Your message (optional) Δ ### About us You don’t really know, until you know the Benchmark.Gain the full-picture advantage with Credit Consensus intelligence. WHO WE SERVE BankingBuy-sideInsuranceCorporatesFinancial IntermediariesWHY WE EXIST SEE WHAT OTHERS CAN’T SEEThe financial world demands countless credit-risk decisions every day. Those decisions are often based on partial, out-of-date information when total visibility is needed.We provide that visibility.90%+ of the entities with our Credit Consensus Ratings are unrated by the large credit rating agencies. Founded in 2013 by Mark Faulkner and Donal Smith, Credit Benchmark set out to transform “black box” assessments and fragmented data into transparent, validated intelligence. Our unique Credit Consensus model was the result. By offering a full-picture, timely alternative to traditional ratings models, Credit Consensus is changing what’s possible in risk management. Together we’re de-risking the decisions on which the financial world depends.HOW CREDIT CONSENSUS WORKS Derived from those with “skin in the game” Banks have in-house credit rating capabilities to assess tens of thousands of obligors. By partnering with 40 of the largest of these banks, we collect, anonymise and aggregate their views, transforming fragmented data into decisive intelligence, derived from those with “skin in the game”. This consolidated intelligence establishes a powerful Consensus on over 110,000 obligor ratings across 160 countries, spanning corporates, financials, funds and sovereigns. 5x the coverage of traditional credit rating agencies Credit Consensus intelligence provides independent, quantative visibility of current market sentiment on rated and unrated entities globally, delivered weekly to subscribers. Being in The Know enables risk professionals to act with greater confidence and more rapidly in mitigating credit risk, underwriting business, optimizing portfolio decisions, and meeting regulatory obligations.By gathering one million rating observations a month… Obligor 1 YR PDestimates:Dynamic,independent& regulatedWarningsvisible fromthe 'crowd' ConsensusRatings:  PeerBenchmarkingConfidentriskmanagement…we create value from the aggregation of disparate and siloed information.WHAT OTHERS ARE SAYINGTestimonials Improved decision-making confidence "Credit Benchmark enables us to say yes faster and potentially get bigger deals approved. With an independent benchmark validating our internal ratings, we make quicker, more confident decisions at all levels." — Senior Credit Risk Manager, Large Global Bank Broader risk insight "We gain the perspective of multiple analysts in one consensus rating. Credit Benchmark expands our visibility into private and unrated names, improving our models and risk insight." — Head of Portfolio Risk, Major Investment Firm Growing the Business “Credit Benchmark gives us the confidence to expand our risk appetite, approve larger underwriting deals, and raise ratings where justified — helping us win more business and grow faster, without compromising risk standards.” – Head of Credit Strategy, Global Commercial Bank Regulatory & stakeholder alignment "Credit Benchmark strengthens our counterparty risk management and internal reporting. External validation increases regulatory confidence and trust in our credit models." — Senior Risk Manager, Clearing House Risk Function Proactive risk monitoring “Credit Benchmark provides the early warning signals we need to stay ahead of emerging risks. It sharpens our focus, highlights exposures that need action, and enables more proactive portfolio management — strengthening our overall risk oversight.” – VP Front Office Risk, Global Bank Greater efficiency & scalability "Credit Benchmark lets us monitor more counterparties with greater confidence and no extra headcount – allowing us to streamline credit assessments and focus our resources." —Director, Credit Risk Analytics, Global Commercial Bank Industry Awards & Recognition ### Customer Solution WHATEVER THE NEEDComprensive solutions built by and for those working at the sharp end of risk. OUR SOLUTIONS Built by and for risk professionals across banking and financeglobally, our data-driven solutions put you in The Know and ready to respond.We support a variety of risk management and capital allocation use cases. Customer Onboarding& Credit Decisioning Learn More Portfolio Insights & Monitoring Learn More Model Development & Calibration Learn More Market Valuation & Pricing Insights Learn More Regulatory & Third-Party Risk Validation Learn More Counterparty &Entity Reference Mapping Learn More THE BENEFITS OF CREDIT CONSENSUS Unparalleled coverage 90%+ of the entities with Credit Consensus Ratings are unrated by the large credit rating agencies. Independent perspectives The aggregated data forming our ratings and analytics is independent of the “issuer pays” conflicts of interest or any specific bank bias. Real-world perspectives 40+ regulated banks contributining internal assessments on their own exposures. Alerting and monitoring Weekly updates provide dynamic indicators of significant changes and allow you to stay on top of risk over the lifetime of a transaction. Ease of integration Easy to integrate and monitor reporting within internal systems and dashboards. Learn more HOW TO ACCESS OUR SOLUTIONS Portfolio monitoringand alerting.—Analyse and monitorindustry or geographicaltrends.—Entity-leveldrill-down, descriptiveanalytics, and peercomparison. Incorporate consensusdata into existingspreadsheets andmodels.—Pre-built templatelibrary.—Convenient and fluentgraphical interface tocreate and edit filters toquery the database. Comprehensive flat file.—Incorporates yourinternal identifiers andreference data forefficient data mapping.—Structured file formatfor quick transfer intousers’ own system. Web servicesEnterprise API.—Structured data model.—High-performance,flexible deliverymechanism to supportin-house built solutions. Third-party channelsincluding BloombergTerminal and EnterpriseData License.—Data marketplacesincluding AWSMarketplace.—Credit BenchmarkReports. ### Homepage The financial world relies on countless risk decisions.Make them faster and more confidently with Credit Benchmark.KNOW RISK.KNOW CREDITBENCHMARK.https://youtu.be/9DJwOP6fDwMWHY CREDIT BENCHMARK?Built by and for risk professionals, we offer a robust, independent alternative to traditional ratings models. See what others can’t see Access the world’s largest and most timely consensus risk dataset—covering 115,000 public and private entities, most of them unrated—to gain visibility others can’t. Uncover hidden risks and opportunities with a uniquely comprehensive view across markets, sectors, and geographies. Access the wisdom of the crowd By leveraging the views of risk professionals from over 40 of the world’s largest financial institutions on their own exposures, you gauge real-world market sentiment as independently validated intelligence. Uniquely derived from those with ‘skin inthe game’, you gain the consolidated perspective from those who need to know. Track an ever-evolving picture Multiple contributions per entity provide dynamic insights into how risk is shifting over time. From “the street” to your inbox, our timely intelligence empowers real-time responsive risk management. Early warning signals let you act before others and make decisions with confidence. Stay in The Know With oversight from financial regulators, you can ensure the contributions from financial institutions are validated and updated on a regular basis, and a contributor’s risk processes remain resilient in the face of a volatile economic landscape. WHAT WE OFFER Built by and for risk professionals across banking and financeglobally, our data-driven solutions put you in The Know and ready to respond.We support a variety of risk management and capital allocation use cases.Our Solutions Customer Onboarding& Credit Decisioning Learn More Portfolio Insights& Monitoring Learn More Model Development& Calibration Learn More Market Valuation& Pricing Insights Learn More Regulatory & Third-PartyRisk Validation Learn More Counterparty & EntityReference Mapping Learn More Learn More CREDIT CONSENSUS AT A GLANCE Unparalled Coverage 90%+ of the entities with Credit Consensus Ratings are unrated by the large credit rating agencies. Up-to-Date, in The Know Multiple updates every month provide timely insights into potential credit risk changes, enabling you to stay ahead with dynamic indicators of the changing landscape. Real-World Perspectives Access proprietary modeled outputs based on the views of risk takers for risk takers, ensuring a complete picture of risk, differentiated from traditional ratings. Robust Methodology Our Consensus requires multiple observations per entity before publishing to ensure the quality of the information presented. Range of analytics Leverage over 100 data items at the entity and industry-level to understand how risk is shifting at a micro and macro level. Safety in numbers Millions of data points collected across 160 countries and all major sectors. Learn more Click here to book a full service demo and learn howCredit Benchmark helps risk professionals manage theircapital and risk more effectively and efficiently.STAY IN THE KNOWResearch & InsightsTestimonialsWhat our customers and partners say Improved decision-making confidence "Credit Benchmark enables us to say yes faster and potentially get bigger deals approved. With an independent benchmark validating our internal ratings, we make quicker, more confident decisions at all levels." — Senior Credit Risk Manager, Large Global Bank Broader risk insight "We gain the perspective of multiple analysts in one consensus rating. Credit Benchmark expands our visibility into private and unrated names, improving our models and risk insight." — Head of Portfolio Risk, Major Investment Firm Growing the Business “Credit Benchmark gives us the confidence to expand our risk appetite, approve larger underwriting deals, and raise ratings where justified — helping us win more business and grow faster, without compromising risk standards.” – Head of Credit Strategy, Global Commercial Bank Regulatory & stakeholder alignment "Credit Benchmark strengthens our counterparty risk management and internal reporting. External validation increases regulatory confidence and trust in our credit models." — Senior Risk Manager, Clearing House Risk Function Proactive risk monitoring “Credit Benchmark provides the early warning signals we need to stay ahead of emerging risks. It sharpens our focus, highlights exposures that need action, and enables more proactive portfolio management — strengthening our overall risk oversight.” – VP Front Office Risk, Global Bank Greater efficiency & scalability "Credit Benchmark lets us monitor more counterparties with greater confidence and no extra headcount – allowing us to streamline credit assessments and focus our resources." —Director, Credit Risk Analytics, Global Commercial Bank ### Advisory Board Members Advisory Board Members Credit Benchmark's Advisory Board, chaired by Craig Broderick (former Chief Risk Officer of Goldman Sachs) provides guidance on Credit Benchmark's strategy and market positioning. John WillianAdvisory Board Member➜Richard BernerAdvisory Board Member➜Bruce RichardsAdvisory Board Member➜Craig BroderickHead of Advisory Board➜ ### Board Members Board Members Credit Benchmark’s Board, chaired by Co-Founder Donal Smith, comprises a group of prominent investors and advisors with significant industry experience and strategic insights. The Board is supported by an experienced senior management team with a strong background in credit risk and a proven track record of success execution and growth. Michael CrumplerChief Executive Officer➜Joshua JianChief Operations Officer➜Mark FaulknerCo-Founder➜Donal SmithCo-Founder and Executive Chairman➜Christa AncriGlobal Head of Marketing➜Mats EllefsenGlobal Head of Sales➜Richard SharpHead of Analytics➜Jason RoseHead of Application Development and Infrastructure➜John Michael-FrybackHead of Product & Content Strategy➜ ### Content Operations Analyst Join our team of technology, financial services and data experts. View All Job Openings Who we are Credit Benchmark is a financial data analytics company bringing together the credit risk assessments of the world’s leading financial institutions to deliver greater visibility into the credit quality of individual entities. We are growing rapidly and are looking for a permanent, full time Content Operations Analyst to join our London Team. This role is based in our London office with hybrid working.The role Reporting to the Head of Client Operations, the ideal candidate will be ready to start a career in the financial industry with an interest in credit risk and the broader financial markets. We would also consider someone with some existing experience (1- 3 years) within the industry. This is a great opportunity to join a growing organisation that builds a unique financial data service harnessing intelligence from some of the most prominent financial institutions around the world. The candidate will also be collaborating with different teams across the company, including Product, Analytics, Sales and Account Management. This gives the candidate unique exposure and insight into numerous departments. As a Content Operations Analyst, the candidate will be part of a busy and diverse team and will play a key part in maintaining and helping develop our growing credit risk data service. They will help to implement, and optimize data-driven solutions that empower our business and stakeholders and use technical expertise and analytical skills to solve complex data challenges and enable data-focused decision making within the team. They will be responsible for overseeing our core data operations: from working with data contributors to ensuring quality and accuracy of data input & output, to managing the processing of complex datasets, and diving into such datasets to resolve problems and provide value-added analysis and customer support. On the job and role-related training will be provided and they will gain a varied and valuable skillset.Your responsibilities will include Ownership and development of our data processing operations and data solutions: Identify, prioritise and resolve data quality issues and exceptionsQuality and execution of service: Ensuring the timely delivery of Credit Benchmark services, meeting service level targetsPartnership with our data contributors: build and manage professional client relationships, to ensure smooth running of the data aggregation process and effective handling, escalation and response to queries/issuesWorking with other internal teams such as Sales, Analytics or Product to jointly respond to client queries, ad-hoc projects, or handle other internal projects, queries or developments.Develop and implement continuous improvements and solutions to operational processes, increasing accuracy and efficiency of data processingGenerate value add innovations to improve and provide additional insight into our product offering and data solutionsWhat we are looking forIdeally the candidate will:Demonstrate interest and knowledge in financial markets, the economy especially around credit riskHave a University or College degree in Computer Science, Finance, Economics or similar degree in a field with a substantial numerical/quantitative componentHave strong analytical, numerical and problem-solving skills, with good attention to detailPossess the ability to understand technical complexityExcellent administrative and project management skillsBe able to manage workload priorities and effectively deliver to deadlinesHave the ability to work under pressure in a professional mannerBe a self-starter with the ability to work independently as well as collaborate with team membersBe diligent, proactive, driven and have the ability to demonstrate initiative to improve existing processesHave excellent communication skills, both oral and writtenExperience working with market data products in data management or data processing rolesIt would be required for the candidate to also have:1-3 years of experience, preferably in financial servicesExperience using any of the following:Excel (including VBA)SQLRPythonBenefitsHybrid working and flexibility: Healthy work/life balanceHolidays: Competitive holiday packageHealth and Wellbeing: Private health Insurance cover + companywide wellbeing daysPension: Opportunity to join company pension plan with financial education and supportTravel: Cycle to work schemeFamily Friendly: Supportive environment and generous paid leave for new parentsLearning and Development: Professional development opportunities through seminars, conferences, training and courses and internal mentorshipCommunity: Supportive, collaborative and social team environmentOur commitment to diversity, equity, and inclusion At Credit Benchmark, we are deeply committed to diversity, equity and inclusion. This means celebrating who we are as individuals and as a team because our company and culture reflect the sum of our employees. We strive to create a mindful and respectful environment that includes fairness, kindness, and understanding. We empower each other to bring our authentic selves to work and champion our colleagues’ development and achievements. Our diversity brings a multitude of perspectives and ideas and is imperative to the success of our business. We are dedicated to ensuring that principles of diversity, equity and inclusion are rooted in Credit Benchmark’s DNA. We continue to build on these principles as our company grows while retaining the progress we have made as team. Credit Benchmark is proud to be an Equal Employment Opportunity employer. We believe no one should be at a professional disadvantage because of their background. We do not discriminate based upon any legally protected characteristic and are committed to fostering a working culture that is free of discrimination and harassment. Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures and employment. If you require reasonable accommodation in completing this application, interviewing, completing any pre-employment testing, or otherwise participating in the employee selection process, please let us know by contacting our HR team at careers@creditbenchmark.com First Name (required) Last Name (required) Email (required) Telephone (required) Resume/CV (required) Cover Letter Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### IRB Nexus Delivers Advanced Credit Analytics For Banks IRB Nexus Delivers Advanced Credit Analytics For Banks Elevate bank performance and transform credit analytics BOOK DEMO Introducing IRB Nexus IRB Nexus is an innovative credit analytics solution designed in collaboration with Oliver Wyman. The solution helps banks to enhance their internal ratings-based (IRB) models. It addresses the challenges posed by evolving regulatory requirements, particularly for low-default and no-default portfolios, where traditional data sources such as historical default observations often fall short.By aggregating credit evaluations, including ratings and historical defaults, from over 40 banks, IRB Nexus provides access to more than 10 million risk estimates annually. This extensive dataset enables banks to build and validate their risk models and improve their compliance with regulatory standards. Enhancing Compliance and Risk Management By utilizing IRB Nexus, banks can build better IRB models, maintain a competitive edge in lending to low-risk segments, and more effectively manage the risk through the rich analytics provided by the solution. Additionally, IRB Nexus supports the expansion of modelling capabilities across different geographies and sectors where internal historical analytics is limited, broadening lending opportunities for banks to serve their customers better. Tailored Risk Management and Transparency With IRB Nexus IRB Nexus provides tailored results through a four-step process, delivering documentation to justify the approach and a dataset for audit trails, supporting transparency, reproducibility, and clarity for stakeholders reviewing the work. The process from baselining to final product: 1. Baselining Calibrate the definition of default (DoD) in Credit Benchmark's portfolio against the bank's internal data to obtain a margin of conservatism due to the potential differences in DoD. 2. Data preparation Derive key segmentation information to reach a representative sampling of the client portfolio. 3. Creation of portfolio extension/stratified sample creation Build a universe of clients from CB's database as an extension to client bank's internal portfolio. 4. Documentation Bespoke documentation and write-up of approach, including a document justifying the approach and a dataset for audit trail with an ongoing testing sample. Benefits and Advantages of IRB Nexus IRB Nexus offers a suite of innovative features designed to enhance banks' credit risk modeling capabilities. Increased Dataset Availability 5-10x increase in historical dataset availability for low-default modelling using pooled data. Regulatory Data Documentation Purpose-built data documentation referencing relevant regulatory requirements (e.g., EGIM). Expert Engagements for Compliance Engagements led by experts experienced with regulatory IRB modelling. Customized Analytics Customization ensuring representativeness of the analytics for each bank and portfolio. Ongoing Model Monitoring Service Continuous service to enable ongoing monitoring of model. Interview with Oliver Wyman Partner, Cem Dedeaga, and Credit Benchmark CEO, Michael Crumpler READ MORE ### Credit Risk IQ – Types of Credit Risk Analysis ACCESS REPORTS What Types of Analysis are Available? With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights, which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark's Credit Risk IQ analytics spotlight a variety of different metrics to analyse trends and patterns. Credit Indices: Trends This type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors. This example plots the change in credit risk as a percentage (starting from a base level in October 2022) for European Corporates, comparing rated and unrated European Corporates.You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in March 2023. Rated entities overall decreased in credit risk (-2.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1% PD change over the last 12 months). This example shows an alternative visualization of the same type of analysis, only adapting the plot to account for a greater number of segments. You can see that there is a sharp increase in credit risk in Africa over the last year with Botswana, Nigeria, and Kenya leading the way with a respective +6%, +24%, and +27% PD increase over the last 12 months. Credit Distribution This plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time. The example shows that a majority of ratings within our rated US Oil & Gas Producers segment lies in the bb category, but this proportion has been decreasing over the last 12 months. Looking specifically at private entities within that segment, you can see that there is a higher percentage of HY (from bb to c) entities compared to the credit distribution of public entities. This might be worth monitoring as financial information on private entities is often harder to get. Notch Movements The notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgrades. In the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch. Transition Matrix The credit rating transition matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating at the start of the period and the columns the rating at the end of the period. The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as: 4-Category Rating 21-Category Ratings IGa aaa, aa+, aa, aa-, a+, a, a- IGb bbb+, bbb, bbb- HYb bb+, bb, bb-, b+, b, b- HYc ccc+, ccc, ccc-, cc, c For instance, looking at the first row and second column of this example credit rating transition matrix, it reveals that, out of a total of 5,642 entities, 6.6% transitioned from IGa to IGb over the specified time period. The value in the HYc row and HYb column shows that 26.1% of the 161 HYc entities improved from HYc to HYb. Correlation Matrix The correlation matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations: A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa.A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa.A value approaching 0 signifies minimal to no relationship between the segments.This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments. In this instance, Mexico and Argentina demonstrate the lowest correlation, with a value of -0.5. Conversely, the highest degree of correlation is observed between Mexico and the broader Latin American segment, with a value of 0.73. Credit Indices: Upgrades vs. Downgrades The dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded. For each sector, the number of upgrades and the number of downgrades is calculated.The net position expressed as the percentage of upgrades minus downgrades is plotted.If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar. This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change. In this example, the Media and Retail industries have experienced runs of more downgrades over the 12 months shown. In contrast, companies in the Travel & Leisure sector have continued to show more upgrades. Breakdown The Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary. This helps better understand the type of entities in the industry and in turn, better interpret the different analyses. The graphs show an example breakdown of the entities included in the Industry Reports. The majority of entities are in Europe (~40%), North America (~36%), and Asia (~12%). About 70% are Corporates and 30% are Financials. 15% are rated by either S&P or Fitch and 85% are unrated. 13% are publicly owned and 87% are private entities.Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS ### Announcing our ISO 27001 certification Announcing Our ISO 27001 Certification We are pleased to announce that Credit Benchmark has achieved ISO 27001 certification, reflecting our long-standing commitment to information security. As a provider of critical data solutions, we have always prioritized rigorous security standards to safeguard client information. Now, with this certification, we have independent validation of our robust approach to data protection. What is ISO 27001? ISO 27001 is an internationally recognized standard for information security management systems (ISMS). It provides a comprehensive framework for organizations to manage and protect sensitive data through risk management processes, security controls, and continuous improvement. By obtaining ISO 27001 certification, Credit Benchmark has demonstrated our commitment to securing data, complying with regulations, and mitigating security risks. This is especially valuable in industries like financial services, where safeguarding confidential information is critical. What does ISO 27001 mean for Credit Benchmark and our customers? Achieving ISO 27001 certification reflects our strong commitment to protecting sensitive information and maintaining the highest standards of security. It verifies Credit Benchmark has implemented a comprehensive and systematic approach to managing data risks, ensuring regulatory compliance, and our commitment to continually improving our security practices. For our clients, this certification provides assurance that their data is safeguarded through rigorous controls, reducing the risk of breaches and reinforcing trust in our services. Ultimately, ISO 27001 helps us deliver secure, reliable solutions in an increasingly complex digital landscape. “Achieving this certification is a significant milestone, made possible by the dedication of our team and our relentless focus on security. It demonstrates our proactive approach to managing risks and represents an unwavering commitment to providing a professional, secure, and trusted service to all clients,” said Jason Rose, CISO, Credit Benchmark Ltd. You can also view a copy of our ISO 27001 certificate here. Book Demo Credit Benchmark offers entity-level Credit Consensus Ratings on over 110,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products. Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. By submitting this form, you agree to Credit Benchmark Terms of Use and Privacy Policy. ### DGF: Carousel Demo ‹› ### Credit Risk IQ - Overview Credit Risk IQ Industry Reports show how credit risk is evolving through time. 10,000+ free monthly Industry Reports deliver forward-looking analyses of default risk across various geographies and industries, covering both public and private legal entities, to help you identify key trends and signals at a macro-level. Access free reports Where does the data come from? Credit Benchmark collects entity-level risk views every month from over 40 major banks globally. The risk views are anonymized and aggregated to produce 110,000+ dynamic consensus credit ratings, which offer a real-world measure of risk on mostly unrated corporate, financial, fund and government obligors.These consensus credit ratings feed into a suite of detailed analytics available exclusively to our subscribers, as well as into 10,000+ entirely free Credit Risk IQ Industry Reports.  Demo the full service What do you get? ✓ Geography comparison: region and country✓ Industry comparison: sector and sub-sectors✓ Ownership comparison: public and private✓ Rated/unrated comparison: rated by credit rating agencies and unrated✓ Credit quality comparison: Investment Grade and High Yield✓ Granular credit rating transition matrices on an annual and multi-period time scale Credit Indices: TrendsTrack real world credit risk across hundreds of industries and geographies Notch MovementsIdentify sectors showing large rating movements Credit DistributionMonitor credit quality differences for concentration risk and limit management Transition MatricesUse rating transition matrices for projecting future trends in credit risk Correlation MatricesCorrelation matrices highlight concentration risk Upgrades vs DowngradesNet upgrades vs downgrades can identify turning points in risk What can you do with the reports? The Credit Risk IQ reports provide unique insights into how credit risk is changing across a wide range of different sectors of the economy. Many industries do not behave uniformly and can diverge in unexpected ways. The forward-looking nature of consensus credit ratings means that our analytics provide a differentiated view into the migration of credit risk.   As an example, the reports could be used in the following ways:   Assess overall macro-level credit trends to inform portfolio allocation decisions Benchmark credit risk in your portfolio against Credit Benchmark’s representative credit indices. Report to stakeholders on credit risk trends in relevant sectors. https://www.youtube.com/watch?v=z6i1O4rdWFk access free reports ### Managing Credit Portfolio Default Risk With Credit Rating Transition Matrices ### All Reports, News & Insights Archives FILTER: Newest to Oldest Oldest to Newest ARCHIVES: Select Month July 2025 June 2025 May 2025 April 2025 March 2025 February 2025 January 2025 December 2024 November 2024 October 2024 September 2024 August 2024 July 2024 June 2024 May 2024 April 2024 March 2024 February 2024 January 2024 December 2023 November 2023 October 2023 September 2023 August 2023 July 2023 June 2023 May 2023 April 2023 March 2023 February 2023 January 2023 December 2022 November 2022 October 2022 September 2022 August 2022 July 2022 June 2022 May 2022 April 2022 March 2022 February 2022 January 2022 December 2021 November 2021 October 2021 September 2021 August 2021 July 2021 June 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 September 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 August 2019 July 2019 June 2019 May 2019 April 2019 March 2019 February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 October 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 September 2016 August 2016 July 2016 June 2016 May 2016 April 2016 January 2016 October 2015 September 2015 July 2015 February 2015 January 2015 October 2014 July 2014 December 2013 September 2013 February 2013 SEARCH: SEARCH Want more exclusive credit risk insights? 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Unless otherwise permitted by Credit Benchmark in writing, you are not permitted to (or to permit any third party to): Use the data obtained pursuant to the Trial in live trading of any securities; Externally disseminate any of the data, or any derived data thereof; or Commercialize any of the data or any derived data. At the end of the Trial, you must delete any data obtained from the Trial, and, upon request, confirm to Credit Benchmark that you have done so in writing. Contacting us Please submit any questions you have about these terms and conditions or any problems concerning the Site by email to info@creditbenchmark.com. ### Our Team Team Our team is the heart of our business. We are committed to building an innovative and expert team with a collaborative approach whilst also supporting and investing in our people to help them thrive. Meet the team: Leadership Commercial Client Operations Operations Analytics Research & Marketing Product & Client Success Development All Leadership Commercial Client Operations Operations Analytics Research & Marketing Product & Client Success Development Christa AncriGlobal Head of Marketing➜David CarruthersAdviser➜Donal SmithCo-Founder and Executive Chairman➜Jason RoseHead of Application Development and Infrastructure➜Joe ProctorHead of Banking, EMEA & APAC➜John Michael-FrybackHead of Product & Content Strategy➜Joshua JianChief Operations Officer➜Laura SavilleHead of Marketing➜Mark FaulknerCo-Founder➜Matthew NollHead of Business Development, Americas➜Michael CrumplerChief Executive Officer➜Nikki BisenieksHR Director➜Richard SharpHead of Analytics➜ ### Member No members found. ### Private vs. Public Credit Risk The credit risk of a publicly owned company (one whose shares are traded on a public stock exchange) can differ from that of a privately owned company (one whose shares are not publicly traded) due to several factors associated with their ownership structures and regulatory environments. ACCESS REPORTS Introduction The majority of Credit Benchmark's consensus credit ratings are for non-public entities. There is generally less readily available information on private companies. It can then be harder to form an opinion on their creditworthiness. Credit risk teams will consider several factors related to a company's ownership when determining the bank's internal ratings. How Do Banks Take Ownership into Account as Part of their Internal Credit Ratings? There are important differences between the way private and public companies are managed and funded. Qualitative and quantitative factors used in banks' internal rating systems can include components related to a company's ownership. Some of these differences are discussed below. Access to Capital Publicly owned companies generally have greater access to capital markets through the issuance of publicly traded debt and equity. Broader access can provide them with more diverse funding sources and greater financial flexibility. This can reduce credit risk compared to privately owned companies relying on private financing. Banks' credit risk officers will assess the funding strategy and debt structure when assigning internal credit ratings. This then feeds into consensus credit ratings. Across Credit Benchmark's Corporates and Financials, approximately 87% of the consensus credit ratings are for non-public companies. Disclosure Publicly owned companies are subject to more stringent disclosure and reporting requirements imposed by regulatory bodies such as the Securities and Exchange Commission in the United States. This higher level of transparency provides investors and creditors with more comprehensive and timely information about the company's financial health, operations, and risk factors, facilitating a more accurate assessment of credit risk. Private companies, in contrast, may disclose less information, making it challenging for external stakeholders to assess their credit risk. However, banks, through their lending processes, have access to companies' non-public financial and lending circumstances. This unique information contributes to the robustness of the consensus credit ratings. Market Confidence The market value of a publicly owned company's equity can serve as a real-time indicator of market sentiment and confidence in the company's credit risk. Private companies may face challenges in demonstrating market confidence. As banks lend across the spectrum, to both private and public companies, Credit Benchmark's consensus credit ratings can help to fill that gap. Ownership Structure Ownership structure is a very important qualitative factor used in banks' internal credit ratings. Publicly owned companies often have a diverse ownership structure with a wide shareholder base. This structure contributes to greater stability and continuity, as opinions and changes are typically less concentrated. Privately owned companies, on the other hand, may face credit risk associated with less diversity, changes in ownership, and the potential for conflicts among a smaller group of owners. Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS Managing Credit Risk Differences Between Publicly and Privately Owned Companies Because different market conditions can impact public and private companies differently, it can be useful to segment your portfolio accordingly for better credit risk monitoring.The below graphs show how credit risk has diverged between public and private companies within the Computer Hardware and Software sectors.Across entities in the Computer Hardware sector, the credit risk of public companies remained relatively stable. However, the average credit risk of private companies increased by 10%. The difference in creditworthiness between private and public companies is highlighted in the credit distribution chart of UK Software & Computer Services companies. ### Contact Find us in New York, London, or Bangalore. New YorkTelephone: +1 646 661 3383575 5th Avenue New York, NY10017 LondonTelephone: +44 (0)207 099 4322131 Finsbury Pavement, 5th FloorLondonEC2A 1NT IndiaNo. 78, WeWork Salarpuria Magnificia, Old Madras Road, Next to KR Puram Metro, DooravaninagarBengaluru560016Get in touch First Name* Last Name* Email* Message* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ PRODUCT SUPPORTFor Product Support,please contact us on:UK Telephone: +44 (0)333 200 5853US Telephone: +1 866 635 4189Email: support@creditbenchmark.com ### Students and graduates Join our team of technology, financial services and data experts.We are always looking for smart and talented people to join our growing team, so even if you don’t see an appropriate role below, please email us at careers@creditbenchmark.com.Credit Benchmark is proud to be an Equal Employment Opportunity employer. We believe no one should be at a professional disadvantage because of their background. We do not discriminate based upon any legally protected characteristic and are committed to fostering a working culture that is free of discrimination and harassment.We ensure our recruitment processes and practices follow the principles of our Diversity, Equality and Inclusion policy and all staff involved in our recruitment processes are thoroughly trained in this area.Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures.In submitting your application to us, you acknowledge and consent to our processing of your personal data. For further details of how we process personal data and comply with data protection laws, please refer to Credit Benchmark’s privacy policy. There are currently no vacancies available. However, we are always keen to meet innovative and talented professionals who are interested in joining our team.If you wish to be considered for any future positions, please send your CV and covering letter to careers@creditbenchmark.com. ### Current Vacancies Join our team of technology, financial services and data experts.Credit Benchmark is a technology-enabled financial data analytics company founded by serial entrepreneurs and backed by Balderton Capital and Index Ventures. We are a fast-growing team of technology, financial services and data experts who are committed to enhancing the transparency and stability of the global marketplace by offering an entirely new dataset on credit risk. We are always looking for smart and talented people to join our growing team, so even if you don’t see an appropriate role below, please email us at careers@creditbenchmark.com.Credit Benchmark is proud to be an Equal Employment Opportunity employer. We believe no one should be at a professional disadvantage because of their background. We do not discriminate based upon any legally protected characteristic and are committed to fostering a working culture that is free of discrimination and harassment.We ensure our recruitment processes and practices follow the principles of our Diversity, Equality and Inclusion policy and all staff involved in our recruitment processes are thoroughly trained in this area.Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures.In submitting your application to us, you acknowledge and consent to our processing of your personal data. For further details of how we process personal data and comply with data protection laws, please refer to Credit Benchmark’s privacy policy. Current Job Openings at Credit Benchmark Content Operations AnalystLondon, United KingdomSales Director - USNew York, United StatesSales Director - UKLondon, United Kingdom ### Careers Our company Credit Benchmark is a financial data and analytics company transforming how global credit risk is understood and managed. Founded by serial entrepreneurs and backed by leading investors including Balderton Capital and Index Ventures, we’re a fast-growing team of technology, finance, and data experts committed to making financial markets safer and more transparent. With headquarters in London and offices in New York and Bangalore, we bring a global perspective to the challenge of credit risk and capital management. Current vacancies Our team Our team is the heart of our business. We are committed to building a team of experts and then investing in our people to help them thrive. We are rapidly growing and strive to attract talented individuals who have a love of data and an innovative, collaborative approach. meet the team Our values Shared purpose Passion and enthusiasm Integrity in our work Working together New ideas and people who challenge the mould Friendly, inclusive and collaborative working environment for all Supportive environment for you to explore your potential Our commitment to diversity, equity, and inclusion At Credit Benchmark, we are deeply committed to diversity, equity and inclusion. This means celebrating who we are as individuals and as a team because our company and culture reflect the sum of our employees. We strive to create a mindful and respectful environment that includes fairness, kindness, and understanding. We empower each other to bring our authentic selves to work and champion our colleagues’ development and achievements. Our diversity brings a multitude of perspectives and ideas and is imperative to the success of our business. We are dedicated to ensuring that principles of diversity, equity and inclusion are rooted in Credit Benchmark’s DNA. We continue to build on these principles as our company grows while retaining the progress we have made as team.Credit Benchmark is a proud supporter of the following initiatives Our benefits Flexible working hoursHealthy work/life balance Working from homeOpportunities to work from home and support to make your home working environment comfortable HolidaysWe offer a competitive holiday package Health and WellbeingPaid sick leave for physical and mental health, bereavement leave, private health insurance PensionAutomatic enrolment into pension plans and financial education TravelCycle to work scheme in London and commuter benefits for our NY team FamilyPaid maternity, paternity, adoption or shared parental leave Learning and DevelopmentProfessional development opportunities through seminars, conferences, training and courses CommunityRegular company-wide socials, holiday parties, team meals and get-togethers Working from anywhereOpportunities to work remotely for up to two weeks every year Careers To find out about the opportunities available or to submit your application to join the team, see our current vacancies. SEE CURRENT VACANCIES Students and graduates Are you a student or recent graduate?To find out about work experience, placements and internship opportunities, see our current vacancies. SEE CURRENT VACANCIES ### Company Announcements ### News and Press The Desk: Rules and Ratings: Understanding gaps between credit risk data and credit ratings November 13, 2024 Bloomberg’s Zane Van Dusen speaks to The Desk on the value of alternative sources of credit risk data beyond traditional credit ratings. In the interview, Zane highlights the powerful utility of Credit Benchmark’s Credit Consensus Ratings and descriptive analytics for assessing private credit risk. Click here Want more exclusive credit risk insights? Subscribe to our monthly newsletter for email updates First Name (required) Last Name (required) Company (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### What We Do Credit Benchmark is a financial data and analytics company that brings together internal credit risk views from 40+ of the world’s leading financial institutions. What we doCredit Benchmark provides Credit Consensus Ratings and Analytics calculated based on contributed risk views from 40+ leading global financial institutions, almost half of which are GSIBs. These institutions are domiciled in the US, Continental Europe, Switzerland, the UK, Japan, Canada, Australia, and South Africa. The contributions are anonymized, aggregated, and published weekly in the form of Credit Consensus Ratings and Credit Indices. Why consensus credit risk dataCredit Benchmark meets a long-standing need for an alternative or complement to the two traditional credit risk content providers: issuer-paid rating agencies and third-party model vendors. For regulatory and business reasons, banks have each created their own regulated internal credit rating agency to assess the creditworthiness of tens of thousands of obligors. By collecting, aggregating, and anonymizing this information, Credit Benchmark provides an independent, real-world measure of risk on rated and unrated entities globally, delivered fortnightly to our partners. The first of its kind, “credit consensus” provides a new, different view of credit risk that is neither an agency rating nor a model output, offering coverage, depth, and collective insight available nowhere else. The credit consensus outputs reflect the expertise of more than 20,000 credit analysts across our contributing partners – a powerful example of the wisdom of crowds. Better AlignedUnique insight into how financial institutions are assessing the credit risk they are exposed to, in contrast to legacy issuer-paid model The Power of ConsensusMultiple contributions to the consensus minimize chances of missing credit risk changes More FrequentWeekly updates provide dynamic indicators into underlying deterioration or improvement in credit quality More CoverageCoverage of 110,000 public and private entities, the vast majority publicly unrated Credit Risk Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Industry Awards & Recognition Experienced LeadershipCredit Benchmark was founded in 2013 by two experienced entrepreneurs, Mark Faulkner and Donal Smith, who had previously worked together on Data Explorers, founded by Mark in 2002 and now part of IHS Markit. Expert InvestmentThe company is backed by leading venture capital firms Index Ventures and Balderton Capital. Strong GovernanceCredit Benchmark’s Advisory Board, chaired by Craig Broderick (former Chief Risk Officer of Goldman Sachs) provides guidance on Credit Benchmark’s strategy and market positioning. Robust internal compliance and policy standards are adhered to to ensure the quality and relevance of the data output. join the network WHAT OTHERS ARE SAYINGTestimonials Improved decision-making confidence "Credit Benchmark enables us to say yes faster and potentially get bigger deals approved. With an independent benchmark validating our internal ratings, we make quicker, more confident decisions at all levels." — Senior Credit Risk Manager, Large Global Bank Broader risk insight "We gain the perspective of multiple analysts in one consensus rating. Credit Benchmark expands our visibility into private and unrated names, improving our models and risk insight." — Head of Portfolio Risk, Major Investment Firm Growing the Business “Credit Benchmark gives us the confidence to expand our risk appetite, approve larger underwriting deals, and raise ratings where justified — helping us win more business and grow faster, without compromising risk standards.” – Head of Credit Strategy, Global Commercial Bank Proactive risk monitoring “Credit Benchmark provides the early warning signals we need to stay ahead of emerging risks. It sharpens our focus, highlights exposures that need action, and enables more proactive portfolio management — strengthening our overall risk oversight.” – VP Front Office Risk, Global Bank Regulatory & stakeholder alignment "Credit Benchmark strengthens our counterparty risk management and internal reporting. External validation increases regulatory confidence and trust in our credit models." — Senior Risk Manager, Clearing House Risk Function Greater efficiency & scalability "Credit Benchmark lets us monitor more counterparties with greater confidence and no extra headcount – allowing us to streamline credit assessments and focus our resources." — Director, Credit Risk Analytics, Global Commercial Bank Data that works for you Credit Benchmark data is available via our Web App, Excel add-in, API, flat-file download, and third-party channels including Bloomberg, Snowflake, and AWS.Contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. BOOK A DEMO ### Podcasts & Webinars FILTER: Newest to Oldest Oldest to Newest ARCHIVES: Select Month July 2025 June 2025 May 2025 April 2025 March 2025 February 2025 January 2025 December 2024 November 2024 October 2024 September 2024 August 2024 July 2024 June 2024 May 2024 April 2024 March 2024 February 2024 January 2024 December 2023 November 2023 October 2023 September 2023 August 2023 July 2023 June 2023 May 2023 April 2023 March 2023 February 2023 January 2023 December 2022 November 2022 October 2022 September 2022 August 2022 July 2022 June 2022 May 2022 April 2022 March 2022 February 2022 January 2022 December 2021 November 2021 October 2021 September 2021 August 2021 July 2021 June 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 September 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 August 2019 July 2019 June 2019 May 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October 2015 September 2015 July 2015 February 2015 January 2015 October 2014 July 2014 December 2013 September 2013 February 2013 SEARCH: SEARCH ### Whitepapers FILTER: Newest to Oldest Oldest to Newest ARCHIVES: Select Month July 2025 June 2025 May 2025 April 2025 March 2025 February 2025 January 2025 December 2024 November 2024 October 2024 September 2024 August 2024 July 2024 June 2024 May 2024 April 2024 March 2024 February 2024 January 2024 December 2023 November 2023 October 2023 September 2023 August 2023 July 2023 June 2023 May 2023 April 2023 March 2023 February 2023 January 2023 December 2022 November 2022 October 2022 September 2022 August 2022 July 2022 June 2022 May 2022 April 2022 March 2022 February 2022 January 2022 December 2021 November 2021 October 2021 September 2021 August 2021 July 2021 June 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 September 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 August 2019 July 2019 June 2019 May 2019 April 2019 March 2019 February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 October 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 September 2016 August 2016 July 2016 June 2016 May 2016 April 2016 January 2016 October 2015 September 2015 July 2015 February 2015 January 2015 October 2014 July 2014 December 2013 September 2013 February 2013 SEARCH: SEARCH ### Insights FILTER: Newest to Oldest Oldest to Newest ARCHIVES: Select Month July 2025 June 2025 May 2025 April 2025 March 2025 February 2025 January 2025 December 2024 November 2024 October 2024 September 2024 August 2024 July 2024 June 2024 May 2024 April 2024 March 2024 February 2024 January 2024 December 2023 November 2023 October 2023 September 2023 August 2023 July 2023 June 2023 May 2023 April 2023 March 2023 February 2023 January 2023 December 2022 November 2022 October 2022 September 2022 August 2022 July 2022 June 2022 May 2022 April 2022 March 2022 February 2022 January 2022 December 2021 November 2021 October 2021 September 2021 August 2021 July 2021 June 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 September 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 August 2019 July 2019 June 2019 May 2019 April 2019 March 2019 February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 October 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 September 2016 August 2016 July 2016 June 2016 May 2016 April 2016 January 2016 October 2015 September 2015 July 2015 February 2015 January 2015 October 2014 July 2014 December 2013 September 2013 February 2013 SEARCH: SEARCH ### Credit Risk IQ – In Depth ACCESS REPORTS What Do the Industry Reports Analyse? Credit Benchmark generates forward-looking analyses of default risk across 10,000+ industry reports. These reports span various geographies, industries*, with rated and unrated**, privately and publicly owned entities.Credit Benchmark dives into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. Each credit index is made up of the ratings of individual entities within it. Each entity within the index has a rating or Probability of Default (“PD”).The credit index forms the aggregated view of the credit risk of those entities as a whole.* Corporates & Financials are currently available. Please get in touch for information on other types of entities.** Rated by S&P or Fitch. How is a Credit Consensus Rating (CCR) Derived? Large sophisticated banks set their own internal credit risk ratings in order to manage the credit risk of the counterparties they lend to. For example: whether to lend in the first place, how much to lend and how much to charge the counterparty.Their credit ratings for counterparties are derived by credit risk analysts & statistical modellers taking into account a range of quantitative variables (as an example, for a Corporate this might include leverage and debt ratios from the company’s management and public financial statements) and qualitative factors (which could include for example brand value and stability of management). The ratings are regularly updated to reflect changes in each counterparty’s economic situation.The ratings help banks manage their risk of non-payment (default or bankruptcy) from a counterparty they have lent to (default risk). These loans typically span many years, so the banks assessments look forward over the next year and evaluate the risk that the counterparty will default1 over the next 12 months.Each bank has developed & refined its own credit risk assessment & modelling process. Banks each have their own independent validation and review teams, who challenge the processes and review decisions. Banks’ models and rating processes are also subject to review by financial regulators (such as the Fed, EBA, Bank of England) and/or the banks’ own auditors. Credit Benchmark receives from banks a 1-year forward-looking Probability of Default (PD) linked to the banks’ internal rating. Credit Benchmark derives a Credit Consensus Rating (CCR) using the following steps: These PDs are averaged, to get the average view of the risk of the counterparty defaulting over the next year. This average view is called the consensus because it is a consensus opinion of the default risk of the counterparty. The consensus PD is mapped to a letter rating using a custom Credit Benchmark rating scale that has been calibrated using banks’ internal rating scales. The diagram outlines the process for an example entity.In this example, five banks have sent a PD for the same counterparty, the average of which is 40 basis points (bps).Using the custom Credit Benchmark rating scale, this maps to a bbb- Credit Consensus Rating.By aggregating the view of five banks, the Credit Consensus Rating reflects a more diversified opinion of the credit risk for this entity.1 Banks contributing to Credit Benchmark follow the Basel definition of Default. What Do We Mean by Forward-Looking Analyses? The banks are providing and updating on a regular basis a 1-year forward-looking Probability of Default (PD) which feeds into all our analyses. Looking at the below graph as an example entity, you can see that the PD published for January 2023 of 2 bps is the probability of the entity defaulting between the end of January 2023 and the end of December 2024. Equally, the PD published for December 2023 of 7 bps is the probability of the entity defaulting between the end of December 2023 and the end of November 2024.Therefore, our Credit Consensus Ratings represent the forward-looking credit view of banks over the next year. Creating a Unique Legal Entity Identifier One of the main challenges of creating Credit Consensus Ratings for unique legal entities is ensuring that when bank data is aggregated together, the averaged data pertains to the same legal entity.Credit Benchmark has invested heavily in the entity mapping and concordance process, using data from FactSet, Thomson Reuters, country specific entity identifier databases and several public sources including the Securities Exchange Commission (SEC) and Global Legal Entity Identifiers (LEI); and the data mapping process is supported by a dedicated team of 25+ members of staff. Data Validation As part of the onboarding process for contributing banks, legal, compliance and information security requirements must be met, and a detailed methodology review must be completed to ensure that their planned data contributions are comparable with those from other contributing banks. The methodology review identifies issues with items such as guarantees and currency mismatches and assesses the comparability of the actual internal credit rating process. The aim of the methodology review is to ensure that any data differences between contributing banks arise from different views of credit risk, rather than from any other reason. Credit Benchmark does not express any view on individual models, nor does it modify the contributed data in any way. On an on-going basis quantitative rules are used to identify data inconsistencies or outliers where the Probability of Default value is materially different from other contributions or a previous contribution from the same bank. Credit Benchmark Rating Scale Notch Consensus 21-Rating Consensus 7-Rating Consensus 4-Rating Consensus 2-Rating PD Lower Bound bps PD Mid Point bps PD Upper Bound bps 1 aaa aaa IGa IG 0 0.79 1.25 2 aa+ aa IGa IG 1.25 1.68 2.25 3 aa aa IGa IG 2.25 2.7 3.25 4 aa- aa IGa IG 3.25 3.93 4.75 5 a+ a IGa IG 4.75 5.45 6.25 6 a a IGa IG 6.25 7.29 8.5 7 a- a IGa IG 8.5 10.9 14 8 bbb+ bbb IGb IG 14 17 20 9 bbb bbb IGb IG 20 24 30 10 bbb- bbb IGb IG 30 38 48 11 bb+ bb HYb HY 48 60 76 12 bb bb HYb HY 76 92 112 13 bb- bb HYb HY 112 148 195 14 b+ b HYb HY 195 267 365 15 b b HYb HY 365 487 650 16 b- b HYb HY 650 806 1,000 17 ccc+ c HYc HY 1,000 1,304 1,700 18 ccc c HYc HY 1,700 2,062 2,500 19 ccc- c HYc HY 2,500 3,041 3,700 20 cc c HYc HY 3,700 5,016 6,800 21 c c HYc HY 6800 8,246 10,000 22 d d d d 10,000 10,000 10,000 Industry Classification In addition to Probability of Default, banks also include other metadata associated with each entity, this includes the banks internal industry classification. Credit Benchmark has developed an industry schema into which the banks' own industry categories are mapped. As part of Credit Benchmark’s process for mapping entity level data, Credit Benchmark calculates a consensus industry classification for each entity using the entity-level industry data included in the banks' data files. The industry schema provides a hierarchical taxonomy going from broad categorisations (such as the Industry or Super Sector) down to a more granular one (such as Sub Sector). The Credit Benchmark’s industry schema for Corporates & Financial Institutions is shown below. Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Super Sector Sector Sub Sector Banks Banks Banks Financial Services Financial Services Asset Managers Financial Services Financial Services Consumer Finance Financial Services Financial Services Investment Services Financial Services Financial Services Mortgage Finance Financial Services Financial Services Specialty Finance Insurance Life Insurance Life Insurance Insurance Nonlife Insurance Full Line Insurance Insurance Nonlife Insurance Insurance Brokers Insurance Nonlife Insurance Monoline Insurance Insurance Nonlife Insurance Property & Casualty Insurance Insurance Nonlife Insurance Reinsurance Real Estate Real Estate Investment & Services Real Estate Holding & Development Real Estate Real Estate Investment & Services Real Estate Services Real Estate Real Estate Investment Trusts Diversified REITs Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Real Estate Real Estate Investment Trusts Industrial & Office REITs Real Estate Real Estate Investment Trusts Mortgage REITs Real Estate Real Estate Investment Trusts Residential REITs Real Estate Real Estate Investment Trusts Retail REITs Real Estate Real Estate Investment Trusts Specialty REITs Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Super Sector Sector Sub Sector Banks Banks Banks Financial Services Financial Services Asset Managers Financial Services Financial Services Consumer Finance Financial Services Financial Services Investment Services Financial Services Financial Services Mortgage Finance Financial Services Financial Services Specialty Finance Insurance Life Insurance Life Insurance Insurance Nonlife Insurance Full Line Insurance Insurance Nonlife Insurance Insurance Brokers Insurance Nonlife Insurance Monoline Insurance Insurance Nonlife Insurance Property & Casualty Insurance Insurance Nonlife Insurance Reinsurance Real Estate Real Estate Investment & Services Real Estate Holding & Development Real Estate Real Estate Investment & Services Real Estate Services Real Estate Real Estate Investment Trusts Diversified REITs Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Real Estate Real Estate Investment Trusts Industrial & Office REITs Real Estate Real Estate Investment Trusts Mortgage REITs Real Estate Real Estate Investment Trusts Residential REITs Real Estate Real Estate Investment Trusts Retail REITs Real Estate Real Estate Investment Trusts Specialty REITs Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS ### Credit Risk IQ – Types of Credit Risk Analysis ACCESS REPORTS What Types of Analysis are Available? With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark’s Credit Risk IQ analytics spotlight a variety of different metrics to analyse trends and patterns. Credit Indices: Trends This type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors. This example plots the change in credit risk as a percentage (starting from a base level in October 2022) for European Corporates, comparing rated and unrated European Corporates. You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in March 2023. Rated entities overall decreased in credit risk (-2.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1% PD change over the last 12 months). This example shows an alternative visualization of the same type of analysis, only adapting the plot to account for a greater number of segments. You can see that there is a sharp increase in credit risk in Africa over the last year with Botswana, Nigeria, and Kenya leading the way with a respective +6%, +24%, and +27% PD increase over the last 12 months. Credit Distribution This plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time. The example shows that a majority of ratings within our rated US Oil & Gas Producers segment lies in the bb category, but this proportion has been decreasing over the last 12 months. Looking specifically at private entities within that segment, you can see that there is a higher percentage of HY (from bb to c) entities compared to the credit distribution of public entities. This might be worth monitoring as financial information on private entities is often harder to get. Credit Indices: Trends This type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors. This example plots the change in credit risk as a percentage (starting from a base level in October 2022) for European Corporates, comparing rated and unrated European Corporates. You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in March 2023. Rated entities overall decreased in credit risk (-2.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1% PD change over the last 12 months). This example shows an alternative visualization of the same type of analysis, only adapting the plot to account for a greater number of segments. You can see that there is a sharp increase in credit risk in Africa over the last year with Botswana, Nigeria, and Kenya leading the way with a respective +6%, +24%, and +27% PD increase over the last 12 months. Notch Movements The notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgrades. In the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch. Transition Matrix The credit rating transition matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating at the start of the period and the columns the rating at the end of the period.The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as: 4-Category Rating 21-Category Ratings IGa aaa, aa+, aa, aa-, a+, a, a- IGb bbb+, bbb, bbb- HYb bb+, bb, bb-, b+, b, b- HYc ccc+, ccc, ccc-, cc, c For instance, looking at the first row and second column of this example credit rating transition matrix, it reveals that, out of a total of 5,642 entities, 6.6% transitioned from IGa to IGb over the specified time period. The value in the HYc row and HYb column shows that 26.1% of the 161 HYc entities improved from HYc to HYb. Correlation Matrix The correlation matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations: A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa. A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa. A value approaching 0 signifies minimal to no relationship between the segments. This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments. In this instance, Mexico and Argentina demonstrate the lowest correlation, with a value of -0.5. Conversely, the highest degree of correlation is observed between Mexico and the broader Latin American segment, with a value of 0.73. Credit Indices: Upgrades vs. Downgrades The dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded. For each sector, the number of upgrades and the number of downgrades is calculated. The net position expressed as the percentage of upgrades minus downgrades is plotted. If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar. This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change. In this example, the Media and Retail industries have experienced runs of more downgrades over the 12 months shown. In contrast, companies in the Travel & Leisure sector have continued to show more upgrades. Breakdown The Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary.This helps better understand the type of entities in the industry and in turn, better interpret the different analyses. The graphs show an example breakdown of the entities included in the Industry Reports.The majority of entities are in Europe (~40%), North America (~36%), and Asia (~12%).About 70% are Corporates and 30% are Financials.15% are rated by either S&P or Fitch and 85% are unrated.13% are publicly owned and 87% are private entities.Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS ### Credit Risk IQ – Industry Reports Credit Risk IQ – Industry Reports ACCESS REPORTS What Do the Industry Reports Cover? The 10,000+ monthly Industry Reports analyse credit risk on a subset of our Corporate and Financial entities.For a demo and more information on the underlying Credit Benchmark dataset, please get in touch here. Examples Here are some examples to give you an idea of what the reports look like:United States Corporates: Industry AnalysisGerman Financials: Super Sector AnalysisAsian Retail: Ownership Analysis Different Comparisons There are many ways to differentiate risk. The industry reports split the universe of consensus ratings across related segments to allow you to see where credit risk is diverging. Geography Comparison Credit Benchmark allows you to compare risk across a multitude of different countries spanning all regions. Regional Comparison The region analysis reports compare credit risk trends across different regions.The left graph shows how average credit risk has changed within the Consumer Services industry across Asia, Africa, Europe, Pacific, Latin America and North America throughout 2023.Asia and Africa saw steady improvements, with risk decreasing.This compares with North America and Latin America where risk has increased. Country Comparison The example here shows the distribution of credit consensus ratings in Singapore, India, South Korea, Hong Kong, China and Japan, for Industrials at the end of 2023.The Credit Benchmark dataset includes over 900 Industrial entities in Asia. Industry Comparison Credit Benchmark defines a hierarchical industry structure which goes from broad categorisations such as Corporates and Financials, down to more granular ones such as Trucking and Reinsurance.The Industry Reports include comparisons across related sub-industries. Sub Sector Comparison Sub sector analysis reports compare credit risk across a given sector.The sub sectors within the Industrial Transportation sector can be seen in the Industry Classification. They are Delivery Services, Marine Transportation, Railroads, Transportation Services and Trucking.The graph shows whether there have been net upgrades or downgrades each month.Delivery Services and Railroads experienced significantly more downgrades than upgrades in October 2023. Ownership Comparison Ownership analysis reports contrast credit risk for public and private companies.With their different abilities to raise funding and control the direction of the company private companies’ credit risk can often change differently from public ones. Credit Benchmark publishes a consensus rating for over 200 US Automobiles & Parts companies, of which approximately 80% are private.Throughout 2023, private US Automobiles & Parts companies saw their credit risk decrease by 6%.However, for public companies, it increased by 5%. Rated/Unrated Comparison Rated/unrated analysis reports contrast credit risk for entities rated by traditional credit rating agencies (CRAs) with entities that are unrated. Being rated by a traditional rating agency might increase the number of investors, for example by giving confidence in the company or allowing investors who may have restrictions on what they can invest in. Approximately 88% of the entity-level consensus ratings for Canadian Basic Materials are unrated.There are clear differences in the credit quality of the unrated entities and those with a rating from a CRA.The graph shows that the CRA-rated entities are mostly spread across the a, bbb and bb ratings, while consensus ratings for unrated entities are mainly sitting in bb. How Can the Industry Reports Be Used? The Credit Risk IQ reports provide unique insights into how credit risk is changing across a wide range of different sectors of the economy. Many industries do not behave uniformly and can diverge in unexpected ways. The forward-looking nature of consensus credit ratings means that our analytics provide a differentiated view into the migration of credit risk. As an example, the reports could be used in the following ways: Assess overall macro-level credit trends to inform portfolio allocation decisions Benchmark credit risk in your portfolio against Credit Benchmark’s representative credit indices. Report to stakeholders on credit risk trends in relevant sectors. Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS ### Credit Risk IQ – Data Analytics & Industry Trends Credit Risk IQ –Data Analytics & Industry Trends ACCESS REPORTS Credit Benchmark’s Credit Risk IQ Industry Trends show how credit risk is evolving through time. Our dataset of more than 115,000 Credit Consensus Ratings (CCRs), derived from the contributed risk views from over 40 leading banks globally provides unique insights into the credit quality of industries and countries beyond that of traditional sources of credit ratings.The 5,500+ monthly Industry Reports highlight the breadth and depth of Credit Benchmark’s entity-level consensus ratings. The reports show how banks' predictions of credit risk over the next year are changing across different industries. Industry Reports The reports compare a wide range of geographies and industries, as well as rated/unrated* and public/private companies. Types of Credit Risk Analysis The Credit Consensus Ratings can be analysed in various ways. We explain what the different types of analysis are. In Depth Looking for more details on how the entity-level Credit Consensus Ratings and industry trends are derived? Read more here.*Rated by S&P or FitchIn Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS ### Specialty Credit and Political Risk Insurance and Reinsurance Specialty Credit and Political Risk Insurance and ReinsuranceCredit Consensus Data for Specialty Credit and Political Risk Insurance and Reinsurance book demo Why Credit Benchmark? Underwrite more business, more confidentlyA tiny percentage of underwriting opportunities are bound, leaving a huge amount of potential business on the table for direct insurers. Meanwhile, reinsurers need to map multiple books of business to effectively measure and report credit risk in their portfolio.Relying on traditional credit risk data presents challenges: much of the insurance market is private or unrated, and available credit information can become stale quickly. Time-consuming analysis leads to inefficiencies when screening for new business.Using credit consensus data, direct insurers can see what leading global financial institutions think of obligors, uncovering more compelling underwriting opportunities with fewer resources. Reinsurers can map, measure and monitor their portfolio more effectively. Solutions How we can help your business book demo Confidently underwrite more opportunities within your target geographies, sectors and credit risk tolerance Sift out which opportunities justify the attention of precious analyst resources especially in the more opaque private or unrated space. Build portfolio resilience and fine-tune underwriting strategy by monitoring the portfolio by individual names, sectors and geographies with consensus credit risk data and analytics. Facilitate more meaningful and frequent management reporting, especially under quickly changing market conditions. Make better sense of the legal entities in a book of business with coverage of parent and subsidiary-level entities and using Credit Benchmark’s sophisticated mapping engine. Help CPR actuaries finesse pricing models with unique consensus LGD data and sector credit risk correlations produced from the expertise of global banks. Case Study The Client A leading CPR business within the Lloyd’s of London specialty market arm of a top three US P&C insurance group. The Challenge The underwriters and credit analysts at this insurer found that traditional agency rating coverage of their names of interest fell short, and they lacked confidence in the quality and provenance of the data available to them. The actuaries were spending too much time on entity mapping and using external data references that were refreshed infrequently. The Solution Credit Benchmark’s extensive consensus coverage on unrated and private names increased the client’s underwriting activity by enhancing the decision-making process, while the provenance of the data provided increased peace of mind. Weekly updates informed underwriting strategy and enabled increased management reporting, and the team benefited from Credit Benchmark doing the heavy lifting of entity mapping, allowing them to do business more efficiently. A leading CPR business within the Lloyd’s of London specialty market arm of a top three US P&C insurance group.The underwriters and credit analysts at this insurer found that traditional agency rating coverage of their names of interest fell short, and they lacked confidence in the quality and provenance of the data available to them. The actuaries were spending too much time on entity mapping and using external data references that were refreshed infrequently.Credit Benchmark’s extensive consensus coverage on unrated and private names increased the client’s underwriting activity by enhancing the decision-making process, while the provenance of the data provided increased peace of mind. Weekly updates informed underwriting strategy and enabled increased management reporting, and the team benefited from Credit Benchmark doing the heavy lifting of entity mapping, allowing them to do business more efficiently. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### Significant Risk Transfers and Capital Relief Trades Structured Credit / Securitization TeamCredit Consensus Data for Risk Sharing Transactions book demo Why Credit Benchmark? Credit Benchmark data can help drive efficiencies and transparency in your risk sharing businessSignificant Risk Transfers, also known as Capital Relief Trades, are growing in popularity as banks seek to release and redeploy regulatory capital, and investors are looking to benefit from exposures to bank-owned assets.As a result, investors require a higher level of informational transparency than what is currently available in the market to ensure that they invest in portfolios that accurately reflect their risk / return profile.Credit Benchmark's consensus data and analytics are increasingly utilized by a growing number of investors and issuing banks for greater trade intelligence as market conditions become more challenging. Solutions How we can help your business book demo Quickly measure the credit risk of a portfolio across publicly rated and unrated obligors, and pinpoint areas of potential concern for further analysis. Venture into new geographies with the largest global source of credit risk data, benefiting reinsurance solutions by reaching otherwise opaque markets. Complement issuer-sourced information, putting an issuing bank’s credit view into the context of those of leading global peers with real-world exposures; identify large outliers and systematic bias. Fill in the gaps in the portfolio on unrated or unknown names, supporting capital relief trades by making trades more efficient and securing appropriate pricing. Track divergences between Credit Consensus Ratings and credit rating agencies for a more up-to-date view of risk and leverage in pricing meetings, benefiting credit risk transfer strategies. Enhance investor understanding of the risk profile of undisclosed portfolios with industry, sectoral or geographical risk indices, providing valuable insights for portfolio risk management. Case Study The Client The portfolio management team within a leading European private money management firm, conducting capital relief trades with European banks. The Challenge A lack of public ratings, and data staleness for those which were available meant assessing the risk of a new trade was difficult. This was especially true when trying to enter new markets where reliable credit risk data is scarce. These obstacles also made it harder to monitor changes in the risk profile of existing portfolios. The Solution Credit Benchmark’s strong coverage on publicly unrated names granted the client confidence to undertake more trades and better monitor their existing portfolio for changes in risk. Noting divergences between Credit Consensus Ratings and traditional agency ratings was important to the client as they considered the bank-sourced consensus view as more trustworthy and up-to-date, and this allowed them leverage in pricing meetings. The provenance of the data based on the internal risk views of over 40 leading global banks also gave them comfort given the fact their trading counterparts are part of a peer group of the same banks providing their risk views to the credit consensus. The portfolio management team within a leading European private money management firm, conducting capital relief trades with European banks.A lack of public ratings, and data staleness for those which were available meant assessing the risk of a new trade was difficult. This was especially true when trying to enter new markets where reliable credit risk data is scarce. These obstacles also made it harder to monitor changes in the risk profile of existing portfolios.Credit Benchmark’s strong coverage on publicly unrated names granted the client confidence to undertake more trades and better monitor their existing portfolio for changes in risk. Noting divergences between Credit Consensus Ratings and traditional agency ratings was important to the client as they considered the bank-sourced consensus view as more trustworthy and up-to-date, and this allowed them leverage in pricing meetings. The provenance of the data based on the internal risk views of over 40 leading global banks also gave them comfort given the fact their trading counterparts are part of a peer group of the same banks providing their risk views to the credit consensus. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### Securities Finance and Prime Brokerage Securities Finance and Prime BrokerageCredit Consensus Data for Securities Finance and Prime Brokerage book demo Why Credit Benchmark? Access more inventory, optimize capital allocation, and improve overall organizational efficiencyUnderstanding and communicating counterparty creditworthiness within a firm or to its clients is critical to doing business and driving prudent decision-making. The sheer volume of beneficial owners and borrowers involved in securities finance transactions creates logistical issues and data bottlenecks that can impact business. Credit Benchmark data provides transparency into the securities lending market and its participants, benefiting beneficial owners, lending agents, tri-party providers, principal borrowers, and technology data providers. Solutions How we can help your business book demo Capital management Understanding the optimal industry and rating can help benchmark portfolio-wide RWA optimization to drive the most capital-efficient business. The ability to understand what others think can help inform and support decisions to revise classifications that are detrimental. Risk management Access to Credit Consensus Ratings on 110,000+ legal entities, including banks, subsidiaries, CCPs, members, asset managers, and their underlying funds, helps clients measure, manage, and monitor counterparty risk on all sides more quickly. Alerting and monitoring capabilities track any portfolio credit risk movements. Market structure Getting permission to do business with unfamiliar or unrated counterparts is a significant challenge for any business and an obstacle for peer-to-peer flow. Credit Benchmark facilitates and speeds up approval of new types of counterparts. Enhanced reporting Consensus data seamlessly integrates into agent reporting systems, providing borrower and beneficial owner information. This data helps fill the data gaps and speeds up counterparty trading approvals. ALD and onboarding Credit Benchmark’s coverage of 38,000 funds can help improve the understanding and decision-making process by providing transparency and the ability to focus, prioritize and optimize management of capital and RWAs to do more business. Collateral management Credit Benchmark data expands collateral eligibility by combining entity-level ratings with open-source notching to the security level, offering benefits across the market and to its participants. Case Study The Client A major US-based agent bank and asset manager. The Challenge Many of the client’s beneficial owner and borrower names were publicly unrated, making it challenging to onboard and do business quickly. Capital constraints and regulatory imperatives made it difficult to do more standard business. The Solution Credit Benchmark allowed the agency lending program to see the borrowers that they are facing off against. The data was presented in reporting both internally and externally to their beneficial owner clients. The front-line credit team was able to approve and review fund counterparts more efficiently, facilitating more business. Benchmarking industry classifications and counterparty ratings helped the organization reduce RWA and optimize capital. A major US-based agent bank and asset manager.Many of the client’s beneficial owner and borrower names were publicly unrated, making it challenging to onboard and do business quickly. Capital constraints and regulatory imperatives made it difficult to do more standard business.Credit Benchmark allowed the agency lending program to see the borrowers that they are facing off against. The data was presented in reporting both internally and externally to their beneficial owner clients. The front-line credit team was able to approve and review fund counterparts more efficiently, facilitating more business. Benchmarking industry classifications and counterparty ratings helped the organization reduce RWA and optimize capital. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### Fund Financing Fund FinancingCredit Consensus Data for Fund Financing book demo Why Credit Benchmark? Independent consensus credit data provides clarity within the Fund Finance marketCredit Consensus Ratings provide transparency into an otherwise opaque market where lack of representative credit risk information creates headwinds for doing business. Credit Consensus Ratings are utilised for a variety of financing solutions including subscription finance, NAV financing and GP financing. Solutions How we can help your business book demo LP Look Through for Revolving Facilities: Credit Consensus Ratings provide transparency into the quality of LPs when there is little to no ratings information available. Net Asset Value (NAV) Financing: High degree of Credit Consensus Ratings on underlying companies. 90% of Credit Benchmark’s coverage is currently unrated by traditional ratings agencies. For firms entering the subscription finance markets, consensus data can help to plug an informational gap where a lack of a strong sponsor relationship may slow deal progress. Understanding the creditworthiness of funds and entities when evaluating the underlying collateral base for GP and LP Financing vehicles Case Study The Client A major European bank. The Challenge A large proportion of the client’s LP list were publicly unrated creating challenges around the accurate assessment of the credit risk. The Solution Following a coverage check, Credit Benchmark were able to provide robust coverage on the portfolio of interest, providing ratings on the names the client was unable to get a traditional rating agency rating for. A major European bank.A large proportion of the client's LP list were publicly unrated creating challenges around the accurate assessment of the credit risk.Following a coverage check, Credit Benchmark were able to provide robust coverage on the portfolio of interest, providing ratings on the names the client was unable to get a traditional rating agency rating for. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### IFRS 9 / CECL Impairment Benchmarking Credit Risk Modeling TeamsCredit Consensus Data for Impairments BenchmarkingUnder IFRS9 / CECL book demo Why Credit Benchmark? Point-in-Time term structures provide comparability for the impairment processIn addition to “through the cycle” probabilities of default, Credit Benchmark also collects and aggregates Point-in-Time (PIT) PD curves from a growing number of global banks, allowing our clients to access a comprehensive set of consensus term structures at entity-, sector-, industry-, geographical level. Leveraging the insights provided through the benchmarking outputs, clients are able to identify, justify and articulate the key drivers of variance in expected credit loss and provisions to both internal and external stakeholders. Solutions How we can help your business book demo Better understand key drivers of divergences of ECL to equip Investor Relations team to articulate Impairment comparisons. Benchmark PIT PDs / Curves against peers to allow for identification of drivers of earnings volatility. Track changes in Credit Consensus Ratings to bolster staging assessment process, compare internal staging assumptions against the consensus, and enhance view on unrated / LDP portfolios. Optimize internal processes by identifying risk areas with largest relative / absolute PD movements, monitoring rating changes well before year-end, and improving connectivity and reconciliation between credit ratings, regulatory capital, and impairment. Utilise benchmarking outputs to assess the impact of economic scenarios and weightings in impairment outcomes. Case Study The Client The model validation team at a major UK-based Bank The Challenge The model validation team wanted to implement a robust model monitoring and validation framework for IFRS 9 utilising a representative independent dataset. They were also looking to help justify amendments to models and validation framework to auditors and regulators. The Solution Credit Benchmark’s Consensus Term Structures facilitated like-for-like benchmarking on an economically representative proportion of the bank’s portfolio. Independent and representative data allowed for tangible justification to internal and external stakeholders and formed a central part of their validation and monitoring framework. The model validation team at a major UK-based BankThe model validation team wanted to implement a robust model monitoring and validation framework for IFRS 9 utilising a representative independent dataset. They were also looking to help justify amendments to models and validation framework to auditors and regulators.Credit Benchmark’s Consensus Term Structures facilitated like-for-like benchmarking on an economically representative proportion of the bank’s portfolio. Independent and representative data allowed for tangible justification to internal and external stakeholders and formed a central part of their validation and monitoring framework. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### Corporate Treasury Corporate TreasuryCredit Consensus Data for Corporate Treasury book demo Why Credit Benchmark? Navigate the credit risk of customers, supply chains, financial counterparts, and investmentsCorporate treasury departments often have numerous customers, partners, and suppliers around the world. They also tend to have complex supply chains with hard to identify second and third order risks.Credit Benchmark’s unique coverage of 110,000 legal entities around the world, the majority of which are unrated by major rating agencies, can help corporate treasurers better understand and manage these risks. Solutions How we can help your business book demo Monitor the credit risk profile of your customers, suppliers and vendors using Credit Benchmark’s expansive coverage, macro indices and analytical tools. Enhance your visibility of the creditworthiness of unrated and private entities at a subsidiary level. Seamlessly integrate Credit Benchmark data with other market metrics through Bloomberg supply chain analytics. Support your existing KYC process by leveraging consensus data in the onboarding process. Case Study The Client The accounts receivable team at a large FTSE 250 company needed a better understanding of their revenue vulnerability amidst the COVID-19 crisis. The Challenge The client’s main points of concern were to understand their customers’ credit risk, and to seek additional intelligence for their contract review and negotiation processes. The vast majority of their customers were publicly unrated and their existing external credit reference sources were sometimes a year out of date. The Solution After running a comprehensive mapping and coverage exercise on their largest exposures, the client was satisfied that Credit Benchmark would provide them with a valuable source of credit risk information enormously additive to their existing workflows. They were also happy that Credit Benchmark was able to do the heavy lifting of mapping to their internal database and customising the data to fit seamlessly into their own internal systems and dashboards. We were also able to provide the client with their own credit tear sheets to use for accounts payable negotiations. The accounts receivable team at a large FTSE 250 company needed a better understanding of their revenue vulnerability amidst the COVID-19 crisis.The client’s main points of concern were to understand their customers’ credit risk, and to seek additional intelligence for their contract review and negotiation processes. The vast majority of their customers were publicly unrated and their existing external credit reference sources were sometimes a year out of date.After running a comprehensive mapping and coverage exercise on their largest exposures, the client was satisfied that Credit Benchmark would provide them with a valuable source of credit risk information enormously additive to their existing workflows. They were also happy that Credit Benchmark was able to do the heavy lifting of mapping to their internal database and customising the data to fit seamlessly into their own internal systems and dashboards. We were also able to provide the client with their own credit tear sheets to use for accounts payable negotiations. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### Central Counterparty Clearing Houses (CCPs) Central Counterparty Clearing Houses (CCPs) Credit Consensus Data for CCPs book demo Why Credit Benchmark? Better manage your clearing member network risk exposureHigh standards of risk management are integral to the smooth functioning of a CCP. A lack of reliable credit intelligence on CCP member and member client credit risk at the exact legal entity level can make challenging internal models difficult. Credit consensus data helps to fill in these gaps on CCP member and member client risk. Solutions How we can help your business book demo Weekly updates as financial institutions revise their opinions allow CCP analysts to continually challenge their own models and assumptions. Monitor credit views on clearing members who do not have a public credit rating to enrich annual credit assessments of clearing members. Conduct enhanced portfolio reporting to review trends and generate more frequent management reporting. Leverage automating alerting on recent upgrades and downgrades within a portfolio. Expand credit risk analysis to clearing members’ clients, including opaque buy-side names, to gain a picture of member network risk. Help onboard new members by quickly and easily analysing the credit of new kinds of members including funds. Case Study The Client A leading global derivatives clearing house. The Challenge The credit analyst team was spending days inefficiently analysing unrated companies to determine their membership eligibility or when refreshing the house view of existing members. On top of this, the client was concerned about being indirectly exposed to significant second order risk through members’ weaker end clients, and didn’t have the internal resources to assess the credit risk of the 2,000+ entities that made up this second order risk. The Solution The client was able to save time by beginning their analysis of potential new members by checking the entity’s Credit Consensus Rating, making the membership process quicker and easier. The breadth of the consensus dataset, including publicly unrated buy-side names, also allowed the client to better monitor the credit of their members’ clients, and monitor key markets with Credit Benchmark industry, sector, and geography indices. A leading global derivatives clearing house.The credit analyst team was spending days inefficiently analysing unrated companies to determine their membership eligibility or when refreshing the house view of existing members. On top of this, the client was concerned about being indirectly exposed to significant second order risk through members’ weaker end clients, and didn’t have the internal resources to assess the credit risk of the 2,000+ entities that made up this second order risk.The client was able to save time by beginning their analysis of potential new members by checking the entity’s Credit Consensus Rating, making the membership process quicker and easier. The breadth of the consensus dataset, including publicly unrated buy-side names, also allowed the client to better monitor the credit of their members’ clients, and monitor key markets with Credit Benchmark industry, sector, and geography indices. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### Bank Credit Risk Management Bank Credit Risk ManagementCredit Consensus Data for Bank Credit Risk Management book demo Why Credit Benchmark? Better identify, quantify, and monitor your credit risk leveraging Credit Consensus dataSince 2015 Credit Benchmark has been producing Credit Consensus Ratings & Analytics by bringing together the internal risk views of ~40 of the world’s largest banks (almost half of which are GSIBs).Credit Consensus Ratings on 115,000+ individual obligors (less than 10% with external ratings) enable banks to maximise their available information set to enhance their risk management and decision-making across the client lifecycle. Enhanced behavioural analytics ensure banks are fully informed on how their portfolio performance compares to the market. Solutions How we can help your business book demo Automated portfolio monitoring and surveillance can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters – managing exceptions and responding to early warnings. Access to the full global consensus database (not just to internal firm data) provides greater insights for use in considering industry, geographical and sectoral business expansion. Consensus data can be used to expedite a high-level review of target clients and implement market intelligence-led prospecting. Incorporate our credit risk management software to build bespoke reports and seamlessly integrate data into internal workflows, annual reviews, new client / deal approvals, credit committees, industry reviews, portfolio monitoring exercises, early warning indicators, and pre-deal screening. Benchmark, understand and optimise the capital allocated to the credit risk you are taking and inform decision making at an entity, sector or portfolio level. Enhance your regulatory discussions with a better understanding of your peer landscape at a granular level through our credit risk management solutions. Review outliers between traditional agency ratings and Credit Benchmark data. Demonstrate a robust counterparty risk management approach to potential clients and investors. Case Study The Client A major UK-based bank. The Challenge Leveraging external data in the end-to-end client risk management lifecycle, including origination, initial onboarding, annual reviews, early warning framework, thematic portfolio insights and distribution. The Solution Credit Benchmark’s comprehensive coverage at an individual entity and portfolio level has allowed the bank to embed the data in a systematic manner across the client lifecycle. When compared to existing external data sources, Credit Benchmark’s coverage was in excess of 75% of balance sheet utilisation and as such able to provide meaningful insights across the portfolio.Additionally, due to the data exchange model where the bank received access to the full dataset (not just where there is overlap with their portfolio), Credit Benchmark’s data has been a valuable source of insight on the broader market both at the point of inception of the client relationship and throughout the traditional lifecycle.Credit Benchmark’s thematic portfolio analysis has been embedded in a myriad of different senior management forums, allowing extensive use of the dataset and custom reporting suite to provide pertinent and valuable insights into the performance of the bank’s portfolio.Seamless integration of the bank’s data with the Credit Benchmark’s outputs has been key to successful implementation, including utilising the weekly updates as a key input into an Early Warning framework. A major UK-based bank.Leveraging external data in the end-to-end client risk management lifecycle, including origination, initial onboarding, annual reviews, early warning framework, thematic portfolio insights and distribution.Credit Benchmark’s comprehensive coverage at an individual entity and portfolio level has allowed the bank to embed the data in a systematic manner across the client lifecycle. When compared to existing external data sources, Credit Benchmark’s coverage was in excess of 75% of balance sheet utilisation and as such able to provide meaningful insights across the portfolio.Additionally, due to the data exchange model where the bank received access to the full dataset (not just where there is overlap with their portfolio), Credit Benchmark’s data has been a valuable source of insight on the broader market both at the point of inception of the client relationship and throughout the traditional lifecycle.Credit Benchmark’s thematic portfolio analysis has been embedded in a myriad of different senior management forums, allowing extensive use of the dataset and custom reporting suite to provide pertinent and valuable insights into the performance of the bank’s portfolio.Seamless integration of the bank’s data with the Credit Benchmark’s outputs has been key to successful implementation, including utilising the weekly updates as a key input into an Early Warning framework. In Numbers 115,000 Entities with Credit Consensus Ratings 40,000+ entities, 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Weekly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Unparalleled coverageUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Robust methodologyFree from “issuer-pays” conflict and any bank bias. Real-world perspectivesDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. Up-to-Date, in The KnowThe consensus is refreshed weekly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Safety in numbersA unique growing global dataset. Related Material Who We Serve Specialty Credit & Political Risk Insurance Corporate Treasury Credit Risk Modeling Teams Securities Finance & Prime Brokerage Bank Credit Risk Management Structured Credit / Securitization Team Central Counterparty Clearing Houses (CCPs) Fund Financing ### Products - Products & Tools Products & Tools Credit Benchmark provides a data-driven view of credit risk, offering coverage, granularity, and collective insights not available anywhere else.Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Instead of being based on the 'issuer pays model', this product represents the views of those with 'skin in the game'. book demo The Credit Benchmark Web AppThe Credit Benchmark Web App is a secure, online visualization platform which offers users the unique ability to access and analyze the full Credit Benchmark rating universe. Permissioned users can also use the Web App to compare their own organization's credit risk estimates against the consensus ratings.The Web App is designed to easily access:✓ Comparisons and trends across entities, sectors, and geographies✓ Credit Consensus Ratings on individual entities✓ Portfolio monitoring and alerting on the names that matter most to you✓ Positioning of your own estimates against the consensus (if provided)https://youtu.be/cS08MU2JfBs Entity-Level Risk Credit Consensus Ratings Credit Consensus Ratings provide a unique measure of creditworthiness on 110,000+ counterparts and borrowers across emerging and developed markets, based on inputs from 40+ leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). 90% of the entities covered are otherwise unrated, or private entities, providing an unparalleled perspective of risk and liquidity.Credit Consensus Ratings are supplemented by descriptive analytics and reference data that provide insights into the underlying credit views that make up the consensus.Historical charting allows you to benchmark trends — the Credit Consensus Rating vs. your own estimate over time. Macro- Level Insights Credit Indices Credit Indices are macro-level risk indicators that offer the ability to compare credit trends and distributions across more than 170 countries and close to 200 industries, sectors and sub-sectors. Over 1,200 trend-tracking, forward-looking Credit Indices are available, reflecting Credit Benchmark’s expanding universe of 10 million credit risk observations contributed annually from the world’s leading financial institutions. The Credit Indices therefore provide insights into the real-world risk views of the world’s most experienced risk takers. Leveraging our comprehensive set of indices allows for investment professionals to construct precise and representative Correlation- and Transition Matrices, which more appropriately reflect the true risk dynamics within the market. Security-Level Ratings Assessments Bonds & Loans This service combines Credit Benchmark's Credit Consensus Ratings with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 to 150,000 bonds and loans amounting to $34+ trillion outstanding.This service combines both Credit Benchmark and Bloomberg data and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism. READ MORE Analytical Tools Monitoring, managing and mitigating your risk Below are some of the different functionalities unlocked using Credit Benchmark data and the benefits they offer: Credit Risk IQ Credit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions.These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities.Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. ACCESS REPORTS Solutions Delivery channels to fit your workflow Web Application Portfolio monitoring and alerting Analyse and monitor industry or geographical trends Entity-level drill-down, descriptive analytics, and peer comparison Excel Add-In Incorporate consensus data into existing spreadsheets and models Pre-built template library Convenient and fluent graphical interface to create and edit filters to query the database Datafeed Comprehensive flat file Incorporates your internal identifiers and reference data for efficient data mapping Structured file format for quick transfer into users' own system Direct / API Web services Enterprise API Structured data model High-performance, flexible delivery mechanism to support in-house built solutions Third Parties Third-party channels including Bloomberg Terminal and Enterprise Data License Data marketplaces including AWS Marketplace ### Contribute Join the network Join a growing network of the world's leading financial institutions 40+ major banks globally, almost half of which are GSIBs, contribute data to the world’s most comprehensive consensus credit risk networkOur unique suite of data and analytics solutions, offered exclusively for contributors, provides new, unique risk insights at the micro- and macro-level  Counterparty Risk ManagementLeverage Credit Benchmark’s growing universe of consensus estimates to better track credit changes at the entity and sector level. Efficiently focus on and prioritize your counterpart analysis where the consensus view differs from your own. Credit Portfolio ManagementBenchmark your portfolio risk ratings against your peers, on a like-for-like basis or against all observations for a given sector or industry to get a broader sense of macro trends. Use the Credit Benchmark portfolio monitoring tool to get alerted to changes in various risk metrics. Risk Analytics& ModellingProvide your modelling and analytics teams with robust entity- and aggregate- level data that can be used to drive internal model calibration and validation exercises and help them be better informed for regulatory interactions. book demo Information SecurityInformation Security is critical to Credit Benchmark’s success and maintaining the confidentiality of our clients’ data is our top priority. Enhanced security at our office site. Segregated technical environments. Biannual testing conducted by third parties. World-class data encryption. Management oversight from the CEO and the Board. ComplianceCredit Benchmark’s designated compliance committee provides oversight across: Information Security: Robust information security architecture to maintain client confidentiality. Sensitive data is received and delivered via secure transmissions and hosted in a compliant technology environment. Methodology: Data is delivered using industry-standard consensus rules for contributed data models. A minimum number of observations on an entity are required for data to be published in order to maintain client confidentiality. Compliance with code of business conduct: All employees are required to maintain the highest standards of conduct. GovernanceCredit Benchmark’s designated compliance committee provides oversight across: Advisory Board: Robust information security architecture to maintain client confidentiality. Sensitive data is received and delivered via secure transmissions and hosted in a compliant technology environment. Compliance & Policy: Robust internal compliance and policy standards are adhered to to ensure the quality and relevance of the data output. Data Source and Provenance Regulatory changes have led to the world’s major banks essentially creating their own micro credit rating agencies. Credit Benchmark’s platform combines the views of thousands of analysts, representing the interests of institutions with real world risk exposure. These views are then aggregated and analyzed in a secure, anonymized and compliant environment, providing for the first time a unique insight into the risk activity of the world’s leading financial institutions. book demo The data collected from contributors is a specific measure of credit risk: a one-year, forward-looking Probability of Default (PD) and forward-looking senior unsecured Loss Given Default (LGD). The underlying inputs from contributors are subject to a rigorous data quality approval process and derived from models that are approved by regulatory authorities. Contributors have a strong incentive to ensure the accuracy of each PD and LGD, which are used in their regulatory submissions, leading to a credible market view of credit risk.After being anonymized and aggregated, the contributed risk estimates are mapped to the appropriate credit category on the Credit Benchmark scale, which is calibrated annually by the Methodology Committee and can be used as a comparison to the scales published by the rating agencies. Contributors can also see their submissions in their own rating scale.Credit Benchmark produces regular data updates with history going back to 2015. ### Credit Consensus Ratings and Data Analytics Identify, quantify and monitor your credit risk leveraging Credit Benchmark's data and analytics.BOOK DEMOCredit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service.LEARN MOREGo to Bloomberg2025 Default Risk Outlook: G7 + ChinaDefault risk for High Yield Corporates and Financials forecast to rise across all G7 + China economies in 2025 with exception of the US, according to Credit Benchmark’s Default Risk Outlook.READ NOWNow Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports reveal the evolution of credit risk across diverse dimensions. These monthly reports offer forward-looking analyses of default risk for over 5,000 sectors, covering various geographies and industries, including rated, unrated, private, and public entities. Credit Benchmark examines credit risk behavior within each industry to identify key trends and signals at a macro level.ACCESS REPORTS Credit Risk Solutions Focus your attention where and when it matters most with access to the largest and most timely source of credit risk data globally. Bank Credit Risk ManagementLearn more ➔ Significant Risk Transfer / Capital Relief TradesLearn more ➔ Fund FinancingLearn more ➔ IFRS 9 / CECL Impairment BenchmarkingLearn more ➔ Securities Finance and Prime BrokerageLearn more ➔ Specialty Credit & Political Risk InsuranceLearn more ➔ Corporate TreasuryLearn more ➔ Central Counterparty Clearing Houses (CCPs)Learn more ➔ https://youtu.be/9DJwOP6fDwM What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients every two weeks. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔ What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients weekly. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔ About the ProductComplex risk decisions are supported by easy access to 110,000+ Credit Consensus Ratings, 130,000+ bond and loan rating assessments, 1,200+ sector indices, and a suite of in-depth analytics - available via Web App, Excel add-in, API, flat-file download, and partner channels including Bloomberg. Risk professionals at banks, insurance companies, asset managers, and other firms use the data to gain visibility on entities without a public rating, monitor and benchmark portfolios, assess and analyze credit trends, inform risk sharing transactions, and fulfil regulatory requirements. Learn more ➔ Company News Insights & Research View more Subscribe to the newsletter Click here News on credit trends, exclusive research, surveillance monitors, webinars and events delivered to your inbox monthly. Subscribe → Subscribe to the newsletter News on credit trends, exclusive research, surveillance monitors, webinars and events delivered to your inbox monthly. Learn more ➔ Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By submitting this form, you agree to Credit Benchmark Terms of Use and Privacy Policy. Δ ### Credit Benchmark Data on Bloomberg Credit Consensus Data on Bloomberg BOOK DEMO Credit Benchmark Data on the Bloomberg Terminal and via Enterprise Data License Precise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service. Bloomberg TerminalCredit Consensus SearchCharting: Price versus Credit RiskAccess custom sample worksheets and searchesCustom Worksheet Credit Consensus Ratings on Bloomberg Credit Consensus Ratings available on Bloomberg provide a unique measure of creditworthiness on 40,000 counterparts and borrowers across emerging and developed markets. Compiled from the anonymized and aggregated internal risk views of 40+ of the world’s leading banks, Credit Consensus Ratings provide an independent, real-world perspective of risk.Updated twice monthly, the data provides dynamic and unparalleled coverage of public and private companies; 90% of the entities covered are unrated by the top three rating agencies.Credit Consensus Ratings are supplemented by descriptive analytics that provides insights into the underlying credit views that make up the consensus.Credit Benchmark data can now be seamlessly integrated into your existing workflows and alongside other content on the Bloomberg Terminal. The data is easily accessible on CRPR, SRCH, and throughout the Terminal to help support various risk management and investment management use cases. Use Cases for Credit Consensus Ratings Risk Management​ Credit Benchmark data enhances existing risk management processes and frameworks, including for Counterparty, Supply Chain, Vendor and Enterprise Risk Management applications. Portfolio Monitoring and Analysis Overlay Credit Benchmark data against your portfolio within the Terminal to unlock unique insights. The data can complement your existing portfolio monitoring, analysis, and decision-making workflows. Security Selection and Portfolio Construction Leverage Credit Benchmark data as an input into fixed income screens to efficiently identify new investment opportunities. The data can complement your existing security selection and portfolio construction workflows. Sector Analysis Overlay Credit Benchmark data for new macro credit insights on industries and sectors as well as for Bloomberg Indices. Identify whether a certain index is overbought or oversold relative to the credit profile. Bond and Loan Rating Assessments on Bloomberg Through a partnership with Bloomberg, Credit Benchmark also offers rating assessments (notching) for bonds and loans issued by the 40,000 entities with Credit Consensus Ratings.This service combines the Credit Benchmark Consensus with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.The production combines both Credit Benchmark and Bloomberg information and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism.These Bond and Loan Rating Assessments are available to licensed clients alongside the existing Credit Benchmark entity-level coverage via standard Bloomberg functions, including Search, Worksheets, Launchpad, Excel API, and CRPR.Bloomberg also offers access to the same information via Data License Per Security for clients looking to use this information within their internal systems. Use Cases for Bond and Loan Assessments Collateral Management Improving the scope of collateral eligibility to include unrated securities and optimize the use of existing collateral. Portfolio Monitoring and Analysis Using Credit Benchmark Rating Assessment to support optimization of regulatory capital requirements. Investment Risk Management Use within investment risk management reporting and governance. Credit Research Using Credit Benchmark data as an input into credit analysis and associated reporting. Due Diligence Demonstrate independent assessment of credit risk of bond or loan exposure. Global Coverage Credit Consensus Ratings and Bond and Loan Rating Assessments ### Privacy Policy Privacy Policy 1. Introduction This is the Privacy Policy for www.creditbenchmark.com (the “Site”) and the Credit Benchmark CB WebApp client portal (the “Portal”). The Site and Portal are operated by Credit Benchmark Limited. We recognise that many visitors and users of this Site and our Portal are concerned about the information they provide to us, and how we treat that information. This privacy policy, explains who we are, why and how we collect and process your personal information (also referred to here as personal data) what we do with it, your rights and what controls you have. For the purposes of United Kingdom (UK) and European Data Protection Law, we are the data controller in relation to the personal data processed in accordance with this policy, (except where this policy explains otherwise). Your use of this Site and where relevant our Portal indicates to us that you have read and understood our privacy practices, as outlined in this privacy policy. If you have any questions or concerns regarding this privacy policy, please contact: info@creditbenchmark.com. We may update this privacy policy from time to time by changing it on the Site and the Portal and will take steps where possible to notify you in relation to any material changes. Please check this policy regularly for changes. If you continue to use the Site or Portal or if you submit information to us following such changes, we will take your continued use as acceptance of the new terms. This privacy policy was last updated December 2024. This policy sets out: What information we collect aboutyou Our use of Cookies and other technologies How we use the information we collect Our promotional updates and communications When we share the information we collect Where we store or transfer information Data security How long we keep your information Links Your rights Contacting us What information we collect about you Alongside to cookies, we use API to collect user navigation details and content viewed on our site. Collected details are stored in our premises in secured storage. This data is used for aggregating and analysing the usage. Analysed details are used to improve our product and also to understand user needs. Certain cookies we use last only for the duration of your web session and expire when you close your browser. Other cookies are used to remember you when you return to the Site and will last for longer. 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In addition we have activated the IP masking feature when using Google Analytics which means that Google anonymises the last octet of the IP address it receives from users’ devices. For more information see: https://support.google.com/analytics/answer/6004245 Our use of Cookies and other technologies Most web browsers automatically accept cookies but, if you prefer, you can change your browser to prevent that or to notify you each time a cookie is set. You can also learn more about cookies by visiting www.allaboutcookies.org  which includes additional useful information on cookies and how to block cookies using different types of browser. Please note however, that by blocking or deleting cookies used on the Site you may not be able to access our site and also take full advantage of the Site or Portal if you do so. If you want to disable cookies on our Site, you need to change your website browser settings to reject cookies. 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You can find more information about the individual cookies we use and the purposes for which we use them below: Cookie Name Purpose Additional Information Google Analytics __utma / __utmb / __utmc /__utmt/ __utmz/_ga/_gali/_gat/_gid These cookies collect statistical data regarding the performance and usage of our website Opt-out available at: https://tools.google.com/dlpage/gaoptout Google APISID/ CONSENT/ HSID/ NID/ SAPISID/ SIDCC These cookies install certain Google utilities and can store information about your preferences   Google SID/HSID These are security cookies used to authenticate users, prevent fraudulent use of login credentials, and protect user data from unauthorized parties   LinkedIn _guid/_lipt/bcookie/lang/liap/lidc/gpv_pn/li_mc/liap, li_gc/lidc/bcookie/bscookie/UserMatchHistory/li_sugr/AnalyticsSyncHistory/ln_or These cookies are used for the LinkedIn Share feature   AWS AWSELB This cookie is used for the Amazon Web Services Elastic Load Balancing functionality for routing client requests on the server   API __RequestVerificationToken_ This is a security cookie used to authenticate users   Authcookie *.creditbenchmark.com This cookie is used to store user session authentication token details and used to validate the user on every request to web server Must needed HubSpot hubspotutk/_hsrc/_hstc     Google Analytics & Ads _ga/_gid/_gat_*/_gcl_*/_gat_gtm/_ga_*     Microsoft Clarity _clck/_clsk     Segment.io ajs_anonymous_id/ajs_user_id/ajs_group_id     Internal/Custom Platform _portal_user/_clPortalUser/_ts/_tsv/ar_debug/ate_session/c_click/_click     Kameleoon kameleoonVisitorCode     ShareASale sharesaleSSCId     Pardot / Salesforce Marketing Cloud visitor_id/visitor_id*-hash     Marketo mc_user/mc_*/mc_test_group     Security / Auth Tools nonce-auth/secure-auth/wordpress_sec_*/XSRF-TOKEN     AdRoll adrol/ adroll_consent/adroll_shared     Cloudflare _cf_bm     CreditBenchmark creditbenchmark_cc/creditbenchmark_cc_fp     Facebook Pixel _fbp     Reddit Ads rdt_uuid     reB2B / LeadGen Tools reb2bpage/reb2bref/reb2bsessionID/reb2buid/reb2bvid     Adobe Marketing Cloud AMC_61785ED3D595C7C5     Authentication & Security XSRF-TOKEN/nonce-auth/secure-auth     Alongside of cookies we also use browser session/local storage to keep Okta login user and web site navigation details to persist the state of filters of a page. This data is temporary and lifetime of this data is limited to browse session and would be removed on closing the browser. 2. How we use the information we collect We use information held about you in the following ways: (i) Directly identifiable information you choose to provide We use your personally identifiable information to ensure in our legitimate interests that we provide you with the information or content that you have requested. In some cases, we may contact you about our programs, products, features or services provided you have given your consent to receive marketing material from us at the point we collected your information where required or otherwise in our legitimate interests and where these do not override your right to object to being contacted by us for these purposes. See ‘Our promotional updates and communications’. Where relevant we will take steps at your request to enter into any contract between you or the company you work for and us in order to supply services to you or your employer,  in administering your/your company’s account under the contract with us and where relevant to notify you of changes to our service. We use information collected on our Site in our legitimate interests to better understand at an aggregate level, your use of the Site and to enhance your enjoyment and experience. For example, we may use the information to improve the design and content of our Site or to analise the programs and services that we offer. (ii) Information we receive from other sources We use information provided by your employer to create, in our legitimate interests your account as an authorized user of the Portal to facilitate your access to the Portal we may combine this information with information you give to us and information we collect about you in our legitimate interests (where we have considered that these are not overridden by your rights). We will use this information and the combined information for the purposes set out above (depending on the types of information we receive). (iii) Automatic and other information we collect We will use this information in our legitimate interests, where we have considered these are not overridden by your rights in order to administer our Site and the Portal and for internal operations, including troubleshooting, data analysis, testing, research statistical and survey purposes. We also use this information to keep our Site and Portal secure and to ensure that content is presented in the most effective manner for you and your device. (IV) Microsoft clarity and microsoft advertising We partner with Microsoft Clarity and Microsoft Advertising to capture how you use and interact with our website through behavioral metrics, heatmaps, and session replay to improve and market our products/services. Website usage data is captured using first and third-party cookies and other tracking technologies to determine the popularity of products/services and online activity. Additionally, we use this information for site optimization, fraud/security purposes, and advertising. For more information about how Microsoft collects and uses your data, visit the Microsoft Privacy Statement. 3. 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In particular: Any member of our group which means our subsidiaries, our ultimate holding company and its subsidiaries, who support our processing of personal data under this policy; Other organizations who process your personal data on our behalf and in accordance with our instructions and UK, EEA or EEA member state Data Protection Law. This includes in supporting the services we provide in particular those providing website and data hosting services, providing fulfilment services, distributing any communications we send, supporting or updating marketing lists, facilitating feedback on our services and providing IT support services from time to time. These organizations (which may include third party suppliers, agents, sub-contractors and/or other companies in our group) will only use your information to the extent necessary to perform their support functions. 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In the event that we undergo a re-organization or are sold to a third party, you agree that any personal information we hold about you may be transferred to that re-organised entity or third party. We may disclose aggregate statistics about visitors to our Site in order to describe our Site and services to prospective partners and other reputable third parties and for other lawful purposes but these statistics will include no personally identifiable information. 5. Where we store or transfer information We may transfer your personal information outside the UK or the EEA: In order to store it In order to enable us to provide our Site or Portal to you and fulfil our contract with your company Where we are legally required to do so In order to facilitate the operation of our group of businesses, where it is in our legitimate interests and we have concluded these are not overridden by your rights. We transfer data to the USA, for the purpose of sharing data with our US based employees We also transfer your information to our partners abroad. For a full, current list of who we share your personal data with internationally, please contact us at info@creditbenchmark.com. 6. Data security Have put in place measures to seek to maintain the security of the personally identifiable information that we collect, including limiting the number of people who have physical access to our database servers, as well as installing electronic security systems that guard against unauthorised access. Please note however that although SSL encryption is in place for the Site no data transmission over the Internet can be guaranteed to be completely secure. Accordingly, we cannot ensure or warrant the security of any information that you transmit to us over the internet and any such submission is at your own risk. Where we have given you (or you have chosen) a password that enables you to access the Portal, you are responsible for keeping this password confidential. We ask you not to share a password with anyone. 7. How long we keep your information For job applications, we usually would limit the processing of the personal information gathered for up to one year, and delete thereafter unless required to hold longer to satisfy legal, contractual or legitimate interests. For all other personal data gathered, we would hold for up to seven years, or longer if required to satisfy legal, contractual or legitimate interests. 8. Links This Site contains links to third party web sites. Please be aware that Credit Benchmark is not responsible for the privacy practices of any third party sites. Please also be aware that the privacy policies of other sites may differ significantly from the privacy policy of this Site. We encourage our users to read the privacy statement of each and every web site that collects personally identifiable information. This privacy policy applies solely to information collected by this Site. 9. Your rights You have the right under certain circumstances: (a) To be provided with a copy of your personal data held by us; (b) To request the rectification or erasure of your personal data held by us; (c) To request that we restrict the processing of your personal data (while we verify or investigate your concerns with this information, for example); (d) To object to the further processing of your personal data, including the right to object to marketing (as mentioned in ‘Our promotional updates and communications’ section) (e) To request that your provided personal data be moved to a third party. You can also exercise the rights listed above at any time by contacting us at legal@creditbenchmark.com, for the attention of the Data Protection Officer If your request or concern is not satisfactorily resolved by us, you may approach your local data protection authority, (see http://ec.europa.eu/justice/data protection/bodies/authorities/index_en.html). The Information Commissioner is the supervisory authority in the UK and can provide further information about your rights and our obligations in relation to your personal data, as well as deal with any complaints that you have about our processing of your personal data. 10. Contacting us Please submit any questions concerns or comments you have about this privacy policy or any requests concerning your personal information by email to info@creditbenchmark.com or write to us at: Credit Benchmark, Suite A, 6 Honduras Street, London, EC1Y 0TH. ### Rating Agency Credit Risk The credit risk of a company rated by a traditional rating agency can vary significantly from a company that is not rated. ACCESS REPORTS Introduction Banks develop their own internal rating processes and methodologies independently of traditional rating agencies.An independent view aims to avoid the systematic risk that can occur from following a small number of viewpoints.Credit officers might use ratings from External Credit Assessment Institutions (ECAIs) as a benchmark, but they form their own opinion. Banks can have information about the companies they lend to that is more closely related to their lending practices than rating agencies.The behaviour of entities rated and unrated by rating agencies can vary due to several factors. Monitoring risk separately for these two segments can improve risk management.Only approximately 10% of entities in the Credit Benchmark dataset have a rating from a public rating agency. We can perform a free coverage check on your portfolio. This will highlight where we provide a rating beyond the main rating agencies. Monitoring Differences in Credit Risk Between Publicly Rated and Unrated Entities Differences in credit risk between a company rated by a traditional credit rating agency and an unrated one can stem from a variety of reasons including the level of information available, transparency, and market perceptions. Regulations Sometimes regulators or industry standards might mandate a company to obtain a credit rating. Having to comply with these regulations could impact the credit quality of a company. Unrated entities may not be subject to the same regulations and may face challenges in demonstrating their creditworthiness. This is one example where consensus credit ratings can help. The graph shows how publicly rated Semiconductor companies slightly improved in credit risk over 12 months up to March 2024. Meanwhile, unrated companies experienced a sharp decline. Financing Terms Investors and creditors often rely on ratings from rating agencies. A rated company may benefit from a positive market perception, leading to lower financing costs and greater access to capital. Conversely, an unrated entity may be subject to higher financing costs and limited access to certain types of financing. A credit rating distribution plot is helpful to understand how different the credit composition of entities within UK Electricity is. Rated companies are mostly rated ‘a’ while unrated entities are riskier with the bulk of them lying in bbb and bb. Financing Sources Companies with credit ratings can issue bonds or other debt instruments to a broader investor base, which could potentially be at more favourable terms.Unrated entities might face challenges accessing public debt markets and be limited to financing through private sources, that could have less favourable terms.To compensate for the perceived lack of information and higher uncertainty, credit risk lenders to unrated entities may require higher interest rates or additional collateral. Liquidity Companies with credit ratings may experience higher market liquidity for their debt securities, as rated instruments are generally more attractive to a wider range of investors.The absence of a rating may result in lower liquidity and reduced investor interest for debt securities.Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS ### Industry Credit Risk Assessing and monitoring industry credit risk is a critical component of managing portfolio risk. ACCESS REPORTS Introduction Credit Benchmark Industry SchemaIn addition to their internal ratings, banks also include their internal industry classifications for each entity. Credit Benchmark has developed an industry schema into which the banks’ industry categories are mapped.The Credit Benchmark industry schema provides a hierarchical taxonomy going from broad categorisations (such as the Industry or Super Sector) down to the most granular one (Sub Sector).To illustrate this, a portion of the hierarchy for Corporate Industrials is shown.For example, Trucking (Sub Sector) is a more granular segment within Industrial Transportation (Sector), which is more granular than Industrial Goods & Services (Super Sector), which itself is a more granular categorisation of Industrials (Industry). Industrials falls within the wider classification of Corporates (Entity Type). Entity Type Industry Super Sector Sector Sub Sector Corporates Industrials Industrial Goods & Services Industrial Transportation Delivery Services Corporates Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Corporates Industrials Industrial Goods & Services Industrial Transportation Railroads Corporates Industrials Industrial Goods & Services Industrial Transportation Transportation Services Corporates Industrials Industrial Goods & Services Industrial Transportation Trucking Banks Industry Schema Banks use a range of different industry classifications for internal purposes. Some banks use international and national classifications such as NAICS, SIC, NACE, ANZSIC codes. Others have developed their own classifications. The use of specific national industry schemas is generally related to the main geography of the bank. For instance, a US-based bank might be more likely to use NAICS codes. Credit Benchmark has developed an internal industry classification schema broadly based on a range of national and international industry classification schemas to represent a more global view. As part of Credit Benchmark’s process for mapping entity-level data, Credit Benchmark uses the industry metadata from banks combined with external reference data to derive a consensus industry classification for each entity. Consensus Industry Classification Example Here, 3 banks submit their internal credit rating and metadata for an entity. One bank sends a NAICS code, another a SIC code and the third one an ANZSIC code.Credit Benchmark has developed and maintains mappings from these and other industry classifications to the common Credit Benchmark schema.The entity is then mapped to the Credit Benchmark Sub Sector Trucking. Bank Contributed Code NAICS 484000 SIC 4213 ANZSIC 4610 Credit Benchmark Sub Sector Trucking What Factors Do Banks Take into Account When Assigning the Industry of an Entity? Different industries face distinct challenges, opportunities, and risk factors that can significantly impact a company’s financial health and creditworthiness. Credit risk officers use knowledge of industry-specific dynamics to manage credit risk for a portfolio of companies. Cyclicality Industries exhibit different cyclical patterns influenced by economic conditions. The graph shows the net upgrades minus downgrades within different industries. Red bars show more downgrades and green bars more upgrades. Even for these high-level industries, there are differences in the severity and timing of the downturn and upturn periods. Differences between more granular sectors can be even more pronounced. Understanding where an industry is in its economic cycle helps credit risk teams assess the potential for deterioration or improvement for entities in that industry. Some industries may be more sensitive to economic downturns, while others may be more resilient and some may even be counter-cyclical in nature. Industry-specific factors form part of the rating process for determining the banks' internal credit ratings. Assigning an accurate industry code to an entity ensures portfolio reporting represents the correct risk. Regulation Banks' internal ratings reflect industry-specific regulations which can vary widely and cause significant differences in credit risk trends and ratings. Banks monitor compliance with industry-specific regulations and adjust their ratings accordingly, as changes in regulatory requirements can affect a company's operations and financial performance. Any failure to follow regulations could lead to legal and financial consequences, which has an impact on credit risk. Levels of Competition Different industries have their own market dynamics, with varying levels of competition, barriers to entry, and market concentration. For example, the Utility Sector has high barriers to entry because of the important inherent cost and level of regulations. Companies operating in highly competitive industries may face pressure on pricing and margins, affecting their credit risk. Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS Assessing and Monitoring Credit Risk Across Industries Given the diverse nature of credit risk factors impacting different industries, reviewing trends and relationships between industries is an important part of managing a portfolio.In addition, industry consensus data can be used to calculate correlations between different industries and assess concentration risk.The below examples highlight the types of analyses that can be used to manage the risk of a portfolio.Contact us for a free coverage check to see how these analyses can enhance your portfolio’s credit risk reporting. Entity Type Entity Type categorises entities at the highest level, with the main Entity Types being Corporates, Financials, Sovereigns, and Funds.This analysis shows how Latin American Corporates and Financials started diverging at the start of August 2023. Industry This graph displays the range of behaviours of different Industries within Brazilian Corporates. Brazilian Basic Materials and Consumer Services deteriorated while Industrials and Oil & Gas entities improved between March 2023 and March 2024. Super Sector Financial entities can be further categorised into Banks, Financial Services, Insurance, and Real Estate. This plot shows the net upgrades minus downgrades for the various Super Sectors within Asian Financials. Asian Insurance has been the worst-performing segment over the 12-month period with an overwhelming majority of net downgrades. Sector There are over 50 Sectors in the Credit Benchmark Industry classification. This graph shows how Life and Nonlife UK Insurance sectors differ in rating distribution. UK Nonlife Insurance has a higher portion of high-yield entities and the specific portion of bb-, b-, and c-rated entities has increased over the last 6 months. Sub Sector Sub Sector is the most granular industry classification with over 130 categories. The notch movements analysis quickly highlights notch movements in ratings across segments. In North American Mining, the Sub Sectors General Mining and Gold Mining show differences. There were more 1-notch upgrades than downgrades in North American Gold Mining entities, showing that Gold Mining is improving in credit risk whereas the General mining Sub Sector shows more deteriorations. ### Geographic Credit Risk Assessing and monitoring geographic credit risk is an important part of managing credit risk across a portfolio. ACCESS REPORTS Introduction Banks contributing their internal ratings to Credit Benchmark review the geographic credit risk of each entity and assign it a country of risk.The country of risk is the most important country the entity is exposed to and is the most representative of its credit risk profile.Credit Benchmark’s data processing algorithms use the country of risk information from each bank combined with external data to assign a consensus country of risk to each entity.A broad range of international and large national banks contribute their internal risk ratings to Credit Benchmark. The resulting dataset comprises consensus credit ratings across 150 countries. The map highlights countries where credit consensus ratings are available for the Credit Risk IQ universe. What Factors Do Banks Consider when Assigning the Country of Risk of an Entity? Credit risk officers within banks, as part of their process for assigning internal ratings, assess various economic, industry, environmental, and political factors that can impact businesses differently across regions. Economy Credit risk teams look at a range of economic conditions across regions and countries.They consider factors such as GDP growth, inflation rates, and employment levels which all have a direct impact on the financial health of companies.Companies may face currency risk, especially if they have significant revenue or debt denominated in foreign currencies. This will be factored into the country of risk and the bank's internal credit ratings. Exchange rate fluctuations can impact the financial performance and debt-servicing capabilities of these companies.The stability of supply chains and quality of infrastructure vary across regions and countries. As a result, companies heavily reliant on specific geographies for production or distribution may face operational challenges. Environment Different geographies expose companies to natural and environmental risks such as earthquakes, hurricanes, floods, or other climate-related events. Businesses operating in geographies prone to such risks may face disruptions, leading to potential financial strain and impacting their creditworthiness. Environmental factors (part of broader ESG initiatives) are an increasing component of banks’ risk assessments and lending practices. A company's level of exposure to one country will be factored into the choice of country of risk. Environmental policies can vary significantly across countries. Some countries focus more on reducing the impact of climate change than others. For example, the European Central Bank has defined physical and transitional risks in its guidelines on how it expects banks to consider environmental risks in their credit assessments. Industry Banks' credit risk professionals focus on specific industries and geographies. The rating and country they assign incorporate their knowledge of local conditions. For instance, demand for certain products or services may be higher in specific geographies due to cultural preferences or local demographic trends. Understanding market dynamics in different geographies is an important part of assigning internal credit ratings in banks and managing risk across a portfolio. Companies that fail to understand or adapt to cultural nuances in different geographies may face challenges in maintaining customer relationships and market share, impacting their credit risk. Political Differences in bankruptcy processes and definitions also change the default risk between different countries and jurisdictions. Understanding the local regulations that apply to each entity is an important part of assigning the country of risk. The bankruptcy processes in the countries an entity operates in have a significant impact on the likelihood of this company being able to restructure if it gets into trouble. Political stability and the regulatory frameworks must also be considered. Entities operating in lightly regulated geographies could be more likely to default. Any volatile or changing political environments need to be monitored because changes in government policies, legal systems, or geopolitical tensions can affect the creditworthiness of companies. Access the Industry Reports for free to see what Credit Consensus Ratings can offer. ACCESS REPORTS Assessing and Monitoring Credit Risk Across Geographies Assessing and monitoring geographic credit risk allows risk managers to quickly see systematic differences in trends and behaviours.Reports can highlight diverging geographies and help a portfolio manager identify where to focus their attention. The following examples show the types of insights that the Credit Benchmark data can offer.All of the analyses shown can be tailored to your portfolio. If you are interested, please ask for a free coverage check. Regional Comparison​ The region analysis reports compare credit risk trends across different regions. The example graph shows how average credit risk has changed within the Food & Beverage sector across Africa, Asia, Europe, Latin America, North America and Pacific from March 2023 to March 2024. All regions experienced an overall increase in credit risk with Africa, Pacific, and North America leading the way. Country Comparison The example here shows the distribution through time of credit consensus ratings in France, Germany, Ireland, Italy, Luxembourg, Netherlands, Spain, Switzerland, and the United Kingdom for Industrial Goods and Services as of March 2024. This type of analysis shows where the credit risk of your portfolio has shifted. Significant changes in credit risk highlight areas of your portfolio to focus on. ### Supply Chain Risk Management - Template ### Buy-Side Monitor ### Prime broker, ISDA & GSIB Subsidiary Monitor ### Book demo - Credit Risk Analytics ### Modern Slavery, Child Labor and Human Trafficking Statement Modern Slavery, Child Labor and Human Trafficking Statement Credit Benchmark believes that human rights are an absolute and universal standard, and everyone has a basic right to expect safe and fair working conditions.  Credit Benchmark is opposed and committed to preventing acts of modern slavery, child labour and human trafficking from occurring within its business and supply chains and imposes the same high standards on its suppliers. We take appropriate steps to ensure that we respect and maintain the fundamental human rights of those who are working for Credit Benchmark. We expect all who work with us to adopt these same high standards. Policy Credit Benchmark is committed to ensuring that there is no modern slavery or human trafficking in our supply chains or in any part of our business through the following policies: Credit Benchmark’s Code of Business Conduct and Ethics This policy demonstrates our commitment to conducting business that is both compliant with applicable laws and our company values.  The Code of Business Conduct and Ethics sets the standard for our employees in their dealings with customers, partners, competitors, and vendors. All Credit Benchmark employees, consultants, and contractors must review and accept the Code of Business Conduct and Ethics and are contractually committed to complying.  Annual refresher policy acknowledgment and signing is also mandatory for all employees, consultants, and contractors. Recruitment Policy Credit Benchmark operates a robust recruitment policy and guidelines, including conducting eligibility-to-work checks for all employees and contractors in respective countries of employment to safeguard against human trafficking or individuals being forced to work against their will. Whistleblowing Policy Credit Benchmark’s whistleblowing policy and process ensures that all employees know that they can raise concerns about how colleagues are being treated, or practices within our business or supply chain, without fear of reprisal. Diversity, Equity & Inclusion Policy Credit Benchmark has a committed DEI policy, designed to ensure the fair treatment of our employees and potential employees. Health and Safety Policy This policy sets out Credit Benchmark’s approach to ensure the organisation provides a healthy and safe working environment for our staff and contractors that work out of our premises and from home. Customers and Supply Chain Credit Benchmark’s customers are leading organizations worldwide, primarily financial service companies. Credit Benchmark is committed to ensuring that we have a robust and well-managed outsourced and third-party supplier network. Our supply chains consist predominantly of leading global data and IT solutions providers predominantly based in Western Europe and North America. Our business provides electronic financial data, which we create and generate ourselves. Our source of such raw data comes from regulated financial institutions. We do not provide, handle, or facilitate physical goods or services. As a result, the majority of our supply chain involves technically skilled professionals, and we have minimal exposure to unskilled and/or manual labor. We do not tolerate any form of slavery, forced or child labor or human trafficking within our supply chains and if we find evidence of a failure to comply with our policies, we will immediately seek to terminate our relationship with the relevant supplier. We ensure we meet and require all our suppliers to adhere to the standards set out by International Labor Organizations as regards to the employment of children and young people. Risk and Compliance Credit Benchmark regularly evaluates the nature and extent of its exposure to the risk of modern slavery, child labor and human trafficking occurring in our supply chain by proactively managing those who we work with. As part of our efforts to monitor and reduce any of these risks occurring within our supply chains, we have adopted due diligence procedures designed to: Establish and assess areas of potential risk in our business and supply chains Monitor potential risk areas in our business and supply chains Reduce the risk of slavery, child labor and human trafficking occurring in our business and supply chains Provide adequate protection for whistleblowers Credit Benchmark considers that the risk of slavery, human trafficking or child labor within its business and supply chain is low. We attribute this largely to our industry and the policies and procedures we have in place. We continue to monitor our supply chain, including having regard to any significant changes concerning our suppliers. If there are any suspicions of activity that are contrary to the Act, Credit Benchmark will investigate and take appropriate action. Ongoing Commitment Credit Benchmark recognizes its responsibility to ensure that its policies and systems exclude slavery, human trafficking, forced labor and child labor from the business on an ongoing basis. The company reviews its procedures, including staff training, to ensure that these issues will be continuously addressed in line with the requirements of the Act and good business practice. Our commitment to ethical business practices will continue internally, through our supplier due diligence policy and procedures, in addition to monitoring of changes in legal and regulatory changes. The Management Team and Board of Directors endorse the statement and are fully committed to its implementation. Their responsibility includes: Implementing this statement Providing adequate resources and investment to minimize the risk of modern slavery, child labor and human trafficking taking place within the business and its supply chain Ensuring that the company’s approach and this statement are regularly reviewed Ensuring that the commitments outlined in this statement are adhered to Publication, Review and Feedback This statement is made in accordance with the UK Modern Slavery Act provisions and constitutes Credit Benchmark’s anti-slavery and human trafficking statement for the current financial year. This statement will be reviewed and published annually. 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The Credit Benchmark team is closely monitoring the data in response to the COVID-19 crisis to deliver timely information on rapidly changing credit risk trends. Below is a sample of US Retail entities, ranked by their consensus credit risk level. These observations are valid as of 31st January 2020. The most recent data is available upon request. To download the full Credit Risk Ranking tear sheet for US Retail companies and request access to our entire up-to-date database of 50,000+ companies and corresponding credit risk insights, please fill out your details: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. 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Subscribe to our monthly newsletter for email updates First Name (required) Last Name (required) Company (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### vacancies top Join our team of technology, financial services and data experts. ### vacancies View All Job Openings Who we areCredit Benchmark is a financial data analytics company that has partnered with the world’s leading financial institutions to create the largest and most sophisticated contributed credit risk data platform in the market. We help clients identify, quantify, and monitor credit risk across a wide array of exposures by leveraging CB’s unique and sophisticated data and analytics. The comprehensive nature of CB’s consensus ratings coverage on over 100,000 sovereigns, FIs, NBFIs, corporates and funds uniquely places CB as the leading provider of credit risk intelligence.We are growing rapidly and are looking to hire an experienced Account Director (AD) to join our New York Office.  The roleThe primary focus of this role will be to identify functional areas within our customers across North America where we can expand and further embed our credit risk data and analytical tools. Clients range from large Tier 1 GSIBs, regional banks, large sophisticated institutional investors, insurance / re-insurance firms, hedge funds, pension funds and a growing number of structured credit market participants. A key success factor for this role is the ability to manage large and complex client relationships and to ensure appropriate account planning, product positioning, use case development and commercial execution in order to leverage our existing client base as a key source of commercial success.The AD will be a senior member of the Commercial Team and report directly to the Head of Commercial.This is an ideal role for someone with several years of account management experience dealing extensively with large, complex and sophisticated clients.We offer an exciting, collaborative environment with opportunities for tremendous growth. The role will be based in New York City with a hybrid working pattern involving three days in the office minimum and moderate travel.  Your responsibilities will includeManage the retention, expansion, profitability, success and customer satisfaction of strategic client relationshipsBuild, expand, and manage critical relationships at senior executive levels throughout the organizationProspecting for growth opportunities at existing clients aligned to proven use casesCollaborating with various teams at Credit Benchmark to successfully execute strategic goalsNegotiating commercial and contract termsDeveloping an understanding of the user landscape and articulating use cases across clientsDevelop and own key KPIs for measurement of customer success and identification of at risk accountsImplement key account strategies to maximise the commercial potential in the short, medium and long termDirect management responsibilities of a junior account manager with scope to expand over timeTracking product usage and implementing a strategy to increase product utilization and further embed content deliveryActing as the firm’s primary arbiter for all client related issues  What we are looking forIdeally you will:Have a minimum of 5 years experience account managing large, complex and sophisticated clientsThorough knowledge and experience of best practices for account management – including account planning, expansion strategies, commercialization of adjacent opportunities, at risk account identification and remediation, key KPIs supporting account management activities, organizational mapping, etcKnowledge of credit risk workflow and challenges, and experience with credit risk data / solutions (desirable)Be as strong team player with a consultative approach to help drive revenue growth, close new deals, and originating opportunities for new solutions based on client needsHave a broad understanding of capital markets across the buy and sell sides and ability to develop knowledge across areas including securities lending / prime brokerage, capital & risk management, sales & trading, structured credit and debt capital markets.Strong client management skills with a customer-centric attitude, excellent communication and interpersonal skillsHave the strong motivation and flexibility required to function in a start-up environmentHave a self-starter, proactive approach, with an ability to work under pressure and deliver to deadlinesBe eligible to work in the US  SalarySalary for this role is $120,000 – $140,000 dependent on skillset and experienceGenerous Incentive Compensation scheme  BenefitsHolidays: Competitive holiday packageHealth and Wellbeing: Medical, Dental and Vision Insurance cover,401(K) Plan: Opportunity to join company 401(K) planTravel: Commuter BenefitsFamily Friendly: Supportive environment and generous paid leave for new parentsLearning and Development: Professional development opportunities through seminars, conferences, training and courses and internal mentorshipCommunity: Supportive, collaborative, and social team environment  Our commitment to diversity, equity, and inclusionAt Credit Benchmark, we are deeply committed to diversity, equity and inclusion. 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We do not discriminate based upon any legally protected characteristic and are committed to fostering a working culture that is free of discrimination and harassment. Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures and employment.If you require reasonable accommodation in completing this application, interviewing, completing any pre-employment testing, or otherwise participating in the employee selection process, please let us know by contacting our HR team at careers@creditbenchmark.com ### Date ### Author Follow: Linkedin ### Request a Free Trial Book a Demo Please complete the form below and a member of the team will be in touch. By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### Join The Network Join the network Please complete the form below to learn how you can join the world's most comprehensive credit risk data platform. By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### 2024/25 Default Risk Outlook: UK Industries Download PDF : UK Default Risk Outlook About this reportCredit Benchmark’s UK Default Risk Outlook draws on an extensive database of over 105,000 unique Consensus Credit Ratings (CCRs). These Consensus Credit Ratings represent the internal risk views of expert analysts at the world’s leading banks – a previously untapped source of risk intelligence. 90% of the entities with Consensus Credit Ratings are not rated by a major credit rating agency, meaning these projections offer a new and significant capacity for analysing default risk.Although this report focuses on UK Industries, the methodology can be applied to the broad and highly representative dataset of 105,000+ Consensus Credit Ratings (see here for Default Risk Outlook on US Industries and here for EU Industries). The probability of default projections can be customized for our clients to match their own classification schemas and align more accurately with their portfolios and exposures.Vigilant risk management is vital when navigating an unpredictable economic climate. With broader, deeper, and more frequent analytics than previously available, Credit Benchmark is now able to offer the market a comprehensive and differentiated view on default risks.If you would like a free and fully confidential analysis of the default risk projections of your own portfolio, we encourage you to get in touch here. Table of Contents Overview: UK Macro Risk Landscape Credit default risk for UK companies is expected to plateau by mid-2025. The UK’s new Labour administration faces tight fiscal limits, but it has so far passed the currency and bond market credibility test. Andy Haldane of the FT expects an influx of international capital, responding to political uncertainty in the US and EU. Former Governor of the Bank of England Mark Carney has outlined a revised public-private partnership model under Labour’s National Wealth Fund, proposing a 25% Public / 75% Private funding split. Part of this is intended to bring long term investors (pension funds and insurance companies) into national infrastructure projects. Reform of planning laws will aim to tackle the chronic UK housing shortage which is good volume news for housebuilders, but margins may be thinner. With no quick fix for the NHS – other than pay rises – current broader Health Care sector trends are likely to continue.The credit impact of these changes will take time to unfold. Some sectors – Railways and the Utilities – face major restructuring, with possible public ownership, and these are excluded from this report. More broadly, the new administration sees a need for sustained private sector investment; aiming for positive long-term results at the cost of short-term balance sheet strains.Without significantly lower interest rates coming into play, the 1-year credit outlook still forecasts a modest increase in UK Corporate default rates. Current projections show that default risk will decrease for only 18% of the 134 UK sectors tracked by Credit Benchmark in the next 12 months. This report highlights that the most vulnerable industries are those with global drivers: Basic Materials, Technology, and Telecoms. The major domestic groupings – Corporates, Industrials and Financials – show modest deterioration, while Consumer, Healthcare and Oil & Gas sectors show little change. The final section of this report lists the top 10 improving and deteriorating sectors; detailed analysis for these is available on request. 2024/25 UK Default Risk Forecast Default risks to plateau over next 12 months; any rate cuts will have limited short-term impact, but positive medium-term outlook if bond and currency markets remain stable, and proposed public-private investment boom gathers momentum.Credit Benchmark’s projected default rate for Q1 2025 Change (%) in the probability of default (PD) during 2024/25 Key TakeawaysWe predict UK default^ risks to drift higher during H2 2024, plateauing in H1 2025 as growth picks up. But higher inflation or any post-election FX volatility could delay BoE rate cuts.Basic Materials, Telecoms and Technology are expected to show higher (>10% increase) default rates by Q2 2025.Industrials, Corporates, Financials and Consumer Industries are forecast to post moderately higher (5% to 10% increases).Health Care and Oil & Gas are expected to show no material change.The range of possible UK default rates is wide and the larger industry projections are skewed to the lower end. This leaves some scope for surprise post-election credit upgrades.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Non-Financial Corporates* Labour policies likely to favour growth but may heighten inflation risks. Default risks to rise in H2 2024 but stabilise by mid-2025.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Distribution by rating category (%) Key TakeawaysWe predict UK Corporate default^ risks to rise by about 8% over the next 12 months. There is a 10% chance that it is lower, but more than 50% of projections show a material increase.Deteriorations currently outnumber Improvements, but the balance is likely to peak before mid-2025, clearing the way for upgrades in H2 2025. NB: IF the UK Corporates credit cycle turns positive earlier – e.g. due to lower rates and / or an investment boom – then expect to see other industries also swinging towards Improvement.Credit migrations will be limited but we expect categories ‘bbb’ and ‘c’ to increase, with ‘bb’ and ‘b’ decreasing. The ‘a’ category is also likely to increase.Credit Benchmark covers 8,701 UK non-financial Corporate obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Improvement.* Covering all corporate sectors, including those discussed in this report, but excluding financial institutions.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector  credit breakdown as weights derived from contributed bank data. Outlook for UK Financial Institutions Default risks set to rise as heavily indebted borrowers face rollover challenges; backdrop of global regulatory change, possible rate cuts and UK investment boom should limit any deterioration.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict UK Financials default^ risks to increase by 6% in H2 2024 and H1 2025. Projections include a small drop (10% chance) but there is a 60% chance of an increase of 6% or more.Deteriorations outnumber Improvements; the balance has plateaued but has not yet swung back to Improvement.Credit migrations are being pulled to the credit distribution tails. We expect the ‘bb’ category to decrease, with shifts to ‘a’ and ‘c’; the latter is a key driver of the default rate.Credit Benchmark covers 2,304 UK Financial Institution obligors, 93% of which are not rated by a credit rating agency.Historic 2-year trend: Deterioration.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Oil & Gas Default Risk outlook stable; but GB Energy plan will bring opportunities and risks for private energy majors. Current trends are skewed more to increase than decrease.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysMedian forecasts for the UK Oil & Gas sector show no change in default^ risks over the next 12 months. However, the outlook depends on post-Election policies on subsidies, exploration licences and taxation. There is a 40% chance of small increase, but a 20% chance of a drop of 10% or more.Deteriorations and Improvements are in balance but expect Deteriorations to dominate over next 12 months;this suggests high default risks by H2 2025.Credit migrations are mixed. We expect the ‘bb’ category to shrink, with upgrades to ‘bbb’ but also a small shift to the ‘b’ category.Credit Benchmark covers 277 UK Oil & Gas obligors, 94% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Industrials* Default rates to rise nearly 10% over next 12 months, but early investment boom could mitigate.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Industrials default^ rates are forecast to rise 9% by mid 2025. There is only a 10% chance of a modest drop, and a 10% chance of an increase exceeding the median forecast of 9%. However, this industry grouping is a bellwether for the UK economy; if Labour policies succeed in kickstarting an investment boom expect to see the signs here.Deteriorations are slightly ahead of Improvements; any significant shift towards net Improvements could mitigate the current projected increase in default risks.Credit migrations are mixed. We expect a shift from ‘bb’ and ‘b’ to ‘c’, but also some moves into ‘a’ and ‘bbb’.Credit Benchmark covers 3,241 UK Industrial obligors, 99% of which are not rated by a credit rating agency.Historic 2-year trend: Improving.* Covering the manufacture of industrial goods and services, e.g., constructions materials, aerospace, electronic equipment and components, defense equipment, railroads, marine transportation, industrial machinery, commercial vehicles and trucks, etc.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Basic Materials* Significant increase (16%) in default risks expected by mid-2025 as EIU expects China/US growth to ease while UK, Japan and EU take up some but not all slack.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Basic Materials default^ rates are predicted to increase by 16% over the next 12 months. There is a 10% chance of a small drop, but a more than 50% chance of an increase in the 15% - 20% range.Deteriorations have risen sharply relative to Improvements. While this may plateau, it will take time for the global cycle to swing to significant net Improvement. NB: this industry group has been in net Deterioration for most of the past 5 years.Credit migrations show modest downgrade shift. We expect the ‘bb’ category to shrink, with transitions to the ‘b’ and ‘c’ categories as well as some upgrades to ‘a’.Credit Benchmark covers 471 UK Basic Materials obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating* Covering the mining industries for aluminum, iron, steel, coal, gold platinum and precious metals, non-ferrous metals, as well as forestry  and paper products.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Consumer Goods Consumer Goods show a modest increase in default rates; but could overshoot. Post-election policies unlikely to have immediate material impact.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict UK Consumer Goods to show a small (5%) increase in default^ risks into 2025. There is a small chance of a decrease, but a 25% chance of an increase of closer to 10%.Deteriorations currently modestly outweigh Improvements, but in previous cycles this sector has made large shifts. If deteriorations spike again, a further increase in default rates is possible in H2 2025.Credit migrations show movement to the tails. The ‘bb’ sector is expected to shrink, with migrations to both lower HY and lower IG categories.Credit Benchmark covers 1,223 UK Consumer Goods obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Consumer Services Consumer Services at risk of modest deterioration in 2025 but – unlike Consumer Goods – there is a material chance of improvement.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Consumer Services are also forecast to post a 5% rise in default^ rates by mid-2025. However, there is a 30% chance of a material drop in the 10% - 15% range. There is a small chance that any increase exceeds 10%.Deteriorations and Improvements are currently in balance. The past few years have been skewed to Deterioration but current trends imply limited downside.Credit migrations show a mixed picture for 2025. The ‘bb’ and ‘b’ categories are being squeezed, with some moves to the high default risk ‘c’ category but a noticeable shift to the lower IG area as well.Credit Benchmark covers 2,265 UK Consumer Services obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Improving.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Technology Significant credit deterioration continues despite high funding for startups. New UK Government pledges measures to expand sector but individual company outcomes are highly volatile.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict the UK Technology sector to show a marked increase (+13%) in default^ risks into 2025, continuing a long-term trend increase. There is only a limited chance of a small improvement, but deterioration in the 10% - 20% range is much more likely.Deteriorations vs. Improvements are at their highest level since 2020. The balance is now dropping slowly; periods of net improvement have been short in previous cycles.Credit migrations show a bias to downgrades. Projections show a major shift out of the ‘b’ category, mainly into ‘c’ but with some upgrades to ‘bb’ and ‘bbb’.Credit Benchmark covers 430 UK Technology obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Telecoms Sector needs major infrastructure and funding overhaul; global move to satellite suggests credit challenges persisting in 2025.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysThe UK Telecoms sector is projecting another sizeable increase (+14%) in default^ risks, continuing its long-term decline. The upper bound of the projected range suggests increases of 20%+. There is limited scope for a major drop, and that would be conditional on a burst of M&A in the sector. Persistent deterioration into H2 2025 is likely.Deteriorations continue to outnumber Improvements although the balance is well below its long term high. It is unlikely to move towards sustained Improvement anytime soon.Credit migrations are equally split between upgrades and downgrades, but the increase in the ‘c’ category the key issue as the main source of defaults. Projections show a squeeze in the ‘b’ category with moves into the ‘bb’ and ‘c’ categories.Credit Benchmark covers 122 UK Telecomms obligors, 94% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Health Care NHS reforms will take time to benefit private suppliers, but some private care providers may benefit from ability-to-pay approach. Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysOur UK Health Care forecast is for little change in default^ risk. There is a 10% chance that mid-2025 default rates drop from current levels, but most projections are higher with the upper bound close to an 8% increase.Deteriorations vs. Improvements are close to balance, but modest move to Improvement likely by mid-2025.Credit migrations are skewed towards the ‘bbb’ category, but small jump in ‘c’ risks pull average default risk slightly up. General trend is towards upgrade from high yield to investment grade.Credit Benchmark covers 388 UK Health Care obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Selected Mid-Scale Sectors Largest Deterioration (Default Rate increase >+10%) Household Goods & Home Construction Food & Drug Retailers Real Estate Holding & Development Chemicals Industrial Machinery Media Hotels Building Materials & Fixtures Computer Services Construction & Materials Home Construction will continue to be hit by higher mortgage rates, with some resets only now making an impact (planning reform should be a boost to the sector longer term, but meeting housebuilding targets runs the risk of lower margins.) Real Estate generally – especially Offices – is also expected to continue to suffer, along with Household Goods, Building Materials, and Construction Materials. Other discretionary spending sectors – Media and Hotels – are expected to continue to deteriorate along with essentials such as Food & Drug Retailers.Chemicals, Industrial Machinery, and Computer Services are likely to be medium-term beneficiaries of a pro-investment policy stance.Largest Improvement (Default Rate increase <0%)Aerospace & DefenceInsuranceSpecialty FinancePharmaceuticals & BiotechnologyBeveragesRestaurants & BarsAutomobiles & PartsTravel & LeisureOil & Gas ProducersBroadline RetailersA limited number of sectors are projected to show modest default rate improvements over the next 12 months. Geopolitics will continue to drive improvement in Aerospace and Defence. Spending habits focused on small tickets will support hospitality and leisure segments, while insurance continues to benefit from harder rates in Property & Casualty lines. Specialty Finance is at the core of the Private Credit boom – attracting additional funding as well as increased regulator scrutiny. AI is helping Pharma & Biotech to shorten development cycles. Plans to tackle climate change are still in direct conflict with the immediate demand for petrol-driven transport; Oil & Gas and Autos & Parts are forecast to see default risk improvements into 2025.Contact Credit Benchmark for more details on any of these sectors. Download PDF Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report Appendix Additional definitions and explanationsAll projections cover H2 2024 and H1 2025.The historic data set that we used for our projections is based only on derived metrics from one-year ex ante probability of default (“PD”) estimates contributed by major global banks to Credit Benchmark. No external micro- or macro-level data was used.The reported “Default Rate” is defined as a weighted average of S&P’s long-term observed default rates in each of the seven main rating categories (from “aaa” down to “c”), using the monthly sector credit breakdown as weights derived from contributed bank data.This gives an index of default risk combined across investment-grade and high-yield borrowers, and this index only changes when contributing banks amend the credit classification of borrowers. It is therefore directly linked to changes in transition rates, which can be tracked and potentially predicted via the deterioration vs improvement net balance, which records ALL movements in single-name PDs across all rating categories.Our projections are a combination of three types:The proportion of sector borrowers projected to be in the “c” category by H1 2025. The majority of defaulting borrowers will transition from this category.The rolling 12m net balance of deteriorations vs improvements (“DIN”) across all credit categories in each sector, projected to the end of H1 2025. This is used to weight peak and trough transition matrices as a function of the sector credit cycle phase.The modelled default rate projected directly to end H1 2025.Industry credit “betas” estimated from historical long run relationships with the Corporate index, and then projected as a function of the Corporate Index projections.  This provides an element of consistency and anchoring across the otherwise independently projected industries.All projection types use multiple historic periods to give a range of future possible outcomes. Many of these give similar results, but some project large outliers in either tail of the distribution.Reported ranges cover the 10th to 90th percentiles, and the central case is based on the 50th percentile. ### 2024/25 Default Risk Outlook: UK Industries Download PDF : UK Default Risk Outlook About this reportCredit Benchmark’s UK Default Risk Outlook draws on an extensive database of over 105,000 unique Consensus Credit Ratings (CCRs). These Consensus Credit Ratings represent the internal risk views of expert analysts at the world’s leading banks – a previously untapped source of risk intelligence. 90% of the entities with Consensus Credit Ratings are not rated by a major credit rating agency, meaning these projections offer a new and significant capacity for analysing default risk.Although this report focuses on UK Industries, the methodology can be applied to the broad and highly representative dataset of 105,000+ Consensus Credit Ratings (see here for Default Risk Outlook on US Industries and here for EU Industries). The probability of default projections can be customized for our clients to match their own classification schemas and align more accurately with their portfolios and exposures.Vigilant risk management is vital when navigating an unpredictable economic climate. With broader, deeper, and more frequent analytics than previously available, Credit Benchmark is now able to offer the market a comprehensive and differentiated view on default risks.If you would like a free and fully confidential analysis of the default risk projections of your own portfolio, we encourage you to get in touch here. Table of Contents Overview: UK Macro Risk Landscape Credit default risk for UK companies is expected to plateau by mid-2025. The UK’s new Labour administration faces tight fiscal limits, but it has so far passed the currency and bond market credibility test. Andy Haldane of the FT expects an influx of international capital, responding to political uncertainty in the US and EU. Former Governor of the Bank of England Mark Carney has outlined a revised public-private partnership model under Labour’s National Wealth Fund, proposing a 25% Public / 75% Private funding split. Part of this is intended to bring long term investors (pension funds and insurance companies) into national infrastructure projects. Reform of planning laws will aim to tackle the chronic UK housing shortage which is good volume news for housebuilders, but margins may be thinner. With no quick fix for the NHS – other than pay rises – current broader Health Care sector trends are likely to continue.The credit impact of these changes will take time to unfold. Some sectors – Railways and the Utilities – face major restructuring, with possible public ownership, and these are excluded from this report. More broadly, the new administration sees a need for sustained private sector investment; aiming for positive long-term results at the cost of short-term balance sheet strains.Without significantly lower interest rates coming into play, the 1-year credit outlook still forecasts a modest increase in UK Corporate default rates. Current projections show that default risk will decrease for only 18% of the 134 UK sectors tracked by Credit Benchmark in the next 12 months. This report highlights that the most vulnerable industries are those with global drivers: Basic Materials, Technology, and Telecoms. The major domestic groupings – Corporates, Industrials and Financials – show modest deterioration, while Consumer, Healthcare and Oil & Gas sectors show little change. The final section of this report lists the top 10 improving and deteriorating sectors; detailed analysis for these is available on request. 2024/25 UK Default Risk Forecast Default risks to plateau over next 12 months; any rate cuts will have limited short-term impact, but positive medium-term outlook if bond and currency markets remain stable, and proposed public-private investment boom gathers momentum.Credit Benchmark’s projected default rate for Q1 2025 Change (%) in the probability of default (PD) during 2024/25 Key TakeawaysWe predict UK default^ risks to drift higher during H2 2024, plateauing in H1 2025 as growth picks up. But higher inflation or any post-election FX volatility could delay BoE rate cuts.Basic Materials, Telecoms and Technology are expected to show higher (>10% increase) default rates by Q2 2025.Industrials, Corporates, Financials and Consumer Industries are forecast to post moderately higher (5% to 10% increases).Health Care and Oil & Gas are expected to show no material change.The range of possible UK default rates is wide and the larger industry projections are skewed to the lower end. This leaves some scope for surprise post-election credit upgrades.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Non-Financial Corporates* Labour policies likely to favour growth but may heighten inflation risks. Default risks to rise in H2 2024 but stabilise by mid-2025.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Distribution by rating category (%) Key TakeawaysWe predict UK Corporate default^ risks to rise by about 8% over the next 12 months. There is a 10% chance that it is lower, but more than 50% of projections show a material increase.Deteriorations currently outnumber Improvements, but the balance is likely to peak before mid-2025, clearing the way for upgrades in H2 2025. NB: IF the UK Corporates credit cycle turns positive earlier – e.g. due to lower rates and / or an investment boom – then expect to see other industries also swinging towards Improvement.Credit migrations will be limited but we expect categories ‘bbb’ and ‘c’ to increase, with ‘bb’ and ‘b’ decreasing. The ‘a’ category is also likely to increase.Credit Benchmark covers 8,701 UK non-financial Corporate obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Improvement.* Covering all corporate sectors, including those discussed in this report, but excluding financial institutions.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector  credit breakdown as weights derived from contributed bank data. Outlook for UK Financial Institutions Default risks set to rise as heavily indebted borrowers face rollover challenges; backdrop of global regulatory change, possible rate cuts and UK investment boom should limit any deterioration.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict UK Financials default^ risks to increase by 6% in H2 2024 and H1 2025. Projections include a small drop (10% chance) but there is a 60% chance of an increase of 6% or more.Deteriorations outnumber Improvements; the balance has plateaued but has not yet swung back to Improvement.Credit migrations are being pulled to the credit distribution tails. We expect the ‘bb’ category to decrease, with shifts to ‘a’ and ‘c’; the latter is a key driver of the default rate.Credit Benchmark covers 2,304 UK Financial Institution obligors, 93% of which are not rated by a credit rating agency.Historic 2-year trend: Deterioration.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Oil & Gas Default Risk outlook stable; but GB Energy plan will bring opportunities and risks for private energy majors. Current trends are skewed more to increase than decrease.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysMedian forecasts for the UK Oil & Gas sector show no change in default^ risks over the next 12 months. However, the outlook depends on post-Election policies on subsidies, exploration licences and taxation. There is a 40% chance of small increase, but a 20% chance of a drop of 10% or more.Deteriorations and Improvements are in balance but expect Deteriorations to dominate over next 12 months;this suggests high default risks by H2 2025.Credit migrations are mixed. We expect the ‘bb’ category to shrink, with upgrades to ‘bbb’ but also a small shift to the ‘b’ category.Credit Benchmark covers 277 UK Oil & Gas obligors, 94% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Industrials* Default rates to rise nearly 10% over next 12 months, but early investment boom could mitigate.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Industrials default^ rates are forecast to rise 9% by mid 2025. There is only a 10% chance of a modest drop, and a 10% chance of an increase exceeding the median forecast of 9%. However, this industry grouping is a bellwether for the UK economy; if Labour policies succeed in kickstarting an investment boom expect to see the signs here.Deteriorations are slightly ahead of Improvements; any significant shift towards net Improvements could mitigate the current projected increase in default risks.Credit migrations are mixed. We expect a shift from ‘bb’ and ‘b’ to ‘c’, but also some moves into ‘a’ and ‘bbb’.Credit Benchmark covers 3,241 UK Industrial obligors, 99% of which are not rated by a credit rating agency.Historic 2-year trend: Improving.* Covering the manufacture of industrial goods and services, e.g., constructions materials, aerospace, electronic equipment and components, defense equipment, railroads, marine transportation, industrial machinery, commercial vehicles and trucks, etc.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Basic Materials* Significant increase (16%) in default risks expected by mid-2025 as EIU expects China/US growth to ease while UK, Japan and EU take up some but not all slack.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Basic Materials default^ rates are predicted to increase by 16% over the next 12 months. There is a 10% chance of a small drop, but a more than 50% chance of an increase in the 15% - 20% range.Deteriorations have risen sharply relative to Improvements. While this may plateau, it will take time for the global cycle to swing to significant net Improvement. NB: this industry group has been in net Deterioration for most of the past 5 years.Credit migrations show modest downgrade shift. We expect the ‘bb’ category to shrink, with transitions to the ‘b’ and ‘c’ categories as well as some upgrades to ‘a’.Credit Benchmark covers 471 UK Basic Materials obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating* Covering the mining industries for aluminum, iron, steel, coal, gold platinum and precious metals, non-ferrous metals, as well as forestry  and paper products.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Consumer Goods Consumer Goods show a modest increase in default rates; but could overshoot. Post-election policies unlikely to have immediate material impact.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict UK Consumer Goods to show a small (5%) increase in default^ risks into 2025. There is a small chance of a decrease, but a 25% chance of an increase of closer to 10%.Deteriorations currently modestly outweigh Improvements, but in previous cycles this sector has made large shifts. If deteriorations spike again, a further increase in default rates is possible in H2 2025.Credit migrations show movement to the tails. The ‘bb’ sector is expected to shrink, with migrations to both lower HY and lower IG categories.Credit Benchmark covers 1,223 UK Consumer Goods obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Consumer Services Consumer Services at risk of modest deterioration in 2025 but – unlike Consumer Goods – there is a material chance of improvement.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysUK Consumer Services are also forecast to post a 5% rise in default^ rates by mid-2025. However, there is a 30% chance of a material drop in the 10% - 15% range. There is a small chance that any increase exceeds 10%.Deteriorations and Improvements are currently in balance. The past few years have been skewed to Deterioration but current trends imply limited downside.Credit migrations show a mixed picture for 2025. The ‘bb’ and ‘b’ categories are being squeezed, with some moves to the high default risk ‘c’ category but a noticeable shift to the lower IG area as well.Credit Benchmark covers 2,265 UK Consumer Services obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Improving.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Technology Significant credit deterioration continues despite high funding for startups. New UK Government pledges measures to expand sector but individual company outcomes are highly volatile.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysWe predict the UK Technology sector to show a marked increase (+13%) in default^ risks into 2025, continuing a long-term trend increase. There is only a limited chance of a small improvement, but deterioration in the 10% - 20% range is much more likely.Deteriorations vs. Improvements are at their highest level since 2020. The balance is now dropping slowly; periods of net improvement have been short in previous cycles.Credit migrations show a bias to downgrades. Projections show a major shift out of the ‘b’ category, mainly into ‘c’ but with some upgrades to ‘bb’ and ‘bbb’.Credit Benchmark covers 430 UK Technology obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Telecoms Sector needs major infrastructure and funding overhaul; global move to satellite suggests credit challenges persisting in 2025.Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysThe UK Telecoms sector is projecting another sizeable increase (+14%) in default^ risks, continuing its long-term decline. The upper bound of the projected range suggests increases of 20%+. There is limited scope for a major drop, and that would be conditional on a burst of M&A in the sector. Persistent deterioration into H2 2025 is likely.Deteriorations continue to outnumber Improvements although the balance is well below its long term high. It is unlikely to move towards sustained Improvement anytime soon.Credit migrations are equally split between upgrades and downgrades, but the increase in the ‘c’ category the key issue as the main source of defaults. Projections show a squeeze in the ‘b’ category with moves into the ‘bb’ and ‘c’ categories.Credit Benchmark covers 122 UK Telecomms obligors, 94% of which are not rated by a credit rating agency.Historic 2-year trend: Deteriorating.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Outlook for UK Health Care NHS reforms will take time to benefit private suppliers, but some private care providers may benefit from ability-to-pay approach. Projected 2024 default rate distribution Deteriorations vs improvements % of total Distribution by rating category (%) Projected change in credit distribution (%) Key TakeawaysOur UK Health Care forecast is for little change in default^ risk. There is a 10% chance that mid-2025 default rates drop from current levels, but most projections are higher with the upper bound close to an 8% increase.Deteriorations vs. Improvements are close to balance, but modest move to Improvement likely by mid-2025.Credit migrations are skewed towards the ‘bbb’ category, but small jump in ‘c’ risks pull average default risk slightly up. General trend is towards upgrade from high yield to investment grade.Credit Benchmark covers 388 UK Health Care obligors, 98% of which are not rated by a credit rating agency.Historic 2-year trend: Stable.^ Default Risk is defined as a weighted average of S&P long-term observed default rates in each rating category, using the monthly sector credit breakdown as weights derived from contributed bank data. Selected Mid-Scale Sectors Largest Deterioration (Default Rate increase >+10%) Household Goods & Home Construction Food & Drug Retailers Real Estate Holding & Development Chemicals Industrial Machinery Media Hotels Building Materials & Fixtures Computer Services Construction & Materials Home Construction will continue to be hit by higher mortgage rates, with some resets only now making an impact (planning reform should be a boost to the sector longer term, but meeting housebuilding targets runs the risk of lower margins.) Real Estate generally – especially Offices – is also expected to continue to suffer, along with Household Goods, Building Materials, and Construction Materials. Other discretionary spending sectors – Media and Hotels – are expected to continue to deteriorate along with essentials such as Food & Drug Retailers.Chemicals, Industrial Machinery, and Computer Services are likely to be medium-term beneficiaries of a pro-investment policy stance.Largest Improvement (Default Rate increase <0%)Aerospace & DefenceInsuranceSpecialty FinancePharmaceuticals & BiotechnologyBeveragesRestaurants & BarsAutomobiles & PartsTravel & LeisureOil & Gas ProducersBroadline RetailersA limited number of sectors are projected to show modest default rate improvements over the next 12 months. Geopolitics will continue to drive improvement in Aerospace and Defence. Spending habits focused on small tickets will support hospitality and leisure segments, while insurance continues to benefit from harder rates in Property & Casualty lines. Specialty Finance is at the core of the Private Credit boom – attracting additional funding as well as increased regulator scrutiny. AI is helping Pharma & Biotech to shorten development cycles. Plans to tackle climate change are still in direct conflict with the immediate demand for petrol-driven transport; Oil & Gas and Autos & Parts are forecast to see default risk improvements into 2025.Contact Credit Benchmark for more details on any of these sectors. Download PDF Please complete your details to download the PDF of this report: First Name (required) Last Name (required) Company (required) Telephone (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ Download Report Appendix Additional definitions and explanationsAll projections cover H2 2024 and H1 2025.The historic data set that we used for our projections is based only on derived metrics from one-year ex ante probability of default (“PD”) estimates contributed by major global banks to Credit Benchmark. No external micro- or macro-level data was used.The reported “Default Rate” is defined as a weighted average of S&P’s long-term observed default rates in each of the seven main rating categories (from “aaa” down to “c”), using the monthly sector credit breakdown as weights derived from contributed bank data.This gives an index of default risk combined across investment-grade and high-yield borrowers, and this index only changes when contributing banks amend the credit classification of borrowers. It is therefore directly linked to changes in transition rates, which can be tracked and potentially predicted via the deterioration vs improvement net balance, which records ALL movements in single-name PDs across all rating categories.Our projections are a combination of three types:The proportion of sector borrowers projected to be in the “c” category by H1 2025. The majority of defaulting borrowers will transition from this category.The rolling 12m net balance of deteriorations vs improvements (“DIN”) across all credit categories in each sector, projected to the end of H1 2025. This is used to weight peak and trough transition matrices as a function of the sector credit cycle phase.The modelled default rate projected directly to end H1 2025.Industry credit “betas” estimated from historical long run relationships with the Corporate index, and then projected as a function of the Corporate Index projections.  This provides an element of consistency and anchoring across the otherwise independently projected industries.All projection types use multiple historic periods to give a range of future possible outcomes. Many of these give similar results, but some project large outliers in either tail of the distribution.Reported ranges cover the 10th to 90th percentiles, and the central case is based on the 50th percentile. ### Access reports ACCESS REPORTS ### Richard Sharp's pages The credit risk of a publicly owned company (one whose shares are traded on a public stock exchange) can differ from that of a privately owned company (one whose shares are not publicly traded) due to several factors associated with their ownership structures and regulatory environments. ACCESS REPORTS Introduction The majority of Credit Benchmark's consensus credit ratings are for non-public entities.There is generally less readily available information on private companies. It can then be harder to form an opinion on their creditworthiness.Credit risk teams will consider several factors related to a company's ownership when determining the bank's internal ratings. How Do Banks Take Ownership into Account as Part of their Internal Credit Ratings? There are important differences between the way private and public companies are managed and funded. Qualitative and quantitative factors used in banks' internal rating systems can include components related to a company's ownership.Some of these differences are discussed below. Access to Capital Publicly owned companies generally have greater access to capital markets through the issuance of publicly traded debt and equity. Broader access can provide them with more diverse funding sources and greater financial flexibility. This can reduce credit risk compared to privately owned companies relying on private financing. Banks' credit risk officers will assess the funding strategy and debt structure when assigning internal credit ratings. This then feeds into consensus credit ratings. Across Credit Benchmark's Corporates and Financials, approximately 87% of the consensus credit ratings are for non-public companies. Disclosure Publicly owned companies are subject to more stringent disclosure and reporting requirements imposed by regulatory bodies such as the Securities and Exchange Commission in the United States.This higher level of transparency provides investors and creditors with more comprehensive and timely information about the company's financial health, operations, and risk factors, facilitating a more accurate assessment of credit risk.Private companies, in contrast, may disclose less information, making it challenging for external stakeholders to assess their credit risk.However, banks, through their lending processes, have access to companies' non-public financial and lending circumstances. This unique information contributes to the robustness of the consensus credit ratings. Market Confidence The market value of a publicly owned company's equity can serve as a real-time indicator of market sentiment and confidence in the company's credit risk. Private companies may face challenges in demonstrating market confidence. As banks lend across the spectrum, to both private and public companies, Credit Benchmark's consensus credit ratings can help to fill that gap. Ownership Structure Ownership structure is a very important qualitative factor used in banks' internal credit ratings.Publicly owned companies often have a diverse ownership structure with a wide shareholder base.This structure contributes to greater stability and continuity, as opinions and changes are typically less concentrated.Privately owned companies, on the other hand, may face credit risk associated with less diversity, changes in ownership, and the potential for conflicts among a smaller group of owners.If you are interested in seeing what Credit Consensus Ratings can offer, sign up here to access the Credit Risk IQ Reports for free. ACCESS REPORTS Managing Credit Risk Differences Between Publicly and Privately Owned Companies Because different market conditions can impact public and private companies differently, it can be useful to segment your portfolio accordingly for better credit risk monitoring.The below graphs show how credit risk has diverged between public and private companies within the Computer Hardware and Software sectors.Across entities in the Computer Hardware sector, the credit risk of public companies remained relatively stable. However, the average credit risk of private companies increased by 10%. The difference in creditworthiness between private and public companies is highlighted in the credit distribution chart of UK Software & Computer Services companies. ### Search Results ### Knowledge base Managing Credit Portfolio Default Risk with Credit Rating Transition Matrices Request free portfolio default risk analysis What is a credit rating transition matrix and how are they used? A credit rating transition matrix shows, for a group of companies, the proportion that migrate from one credit rating category to another over a set time period. For example it could show the proportion of firms with rating AA that migrate to AAA, A, BBB, BB, B and C, plus those that remain in the AA rating category, in the course of a single year. For some use cases, it also includes a Default column to show the proportion of firms that default.Use cases for credit rating transition matrices include calibration of default risk term structures, pricing of bonds and other credit-risky instruments and asset-liability stochastic projections. This page focuses specifically on their use for short term credit risk portfolio management and optimization. Access 500+ free global transition matrices on Credit Risk IQ Sample credit rating transition matrix: North American Consumer Services during Covid downturn (February 2020 – February 2021) Detailed vs generic credit rating transition matrices Credit rating transition matrices are key components in default models and credit portfolio management, but calibration can be a challenge. The simplest approach tracks actual credit migrations for a cohort of names over a specified time period, but this has the drawback that smaller industries or short time periods may be subject to high sampling variation and outliers; and even large samples can show persistent anomalies. This page describes a more generic approach with worked examples using large samples of consensus credit ratings from the Credit Benchmark dataset (e.g. all Corporates) for multiple time periods. It shows how generic credit rating transition matrices can be adapted by credit cycle data to derive robust, time-varying and industry-specific credit migration probabilities. Credit Benchmark vs. S&P credit migration rates S&P’s annual default and migration study for 2023 comprehensively documents 42 years of credit rating history. For example: S&P Global Corporates data shows that in an average year, 87.63% of S&P AA-rated Global Corporates do not transition to another 7-category rating in the same year; 6.40% of the BB-rated Global Corporates downgrade to B in the course of an average year.The Credit Benchmark consensus credit rating equivalent has a shorter history but a larger sample. The tables below compare average one-year migrations for 6 credit rating categories (AAA/AA, A, BBB, BB, B, and C*.) The differences are larger in the lower right high yield grades**; Credit Benchmark consensus credit rating data shows fewer firms remaining in the same credit rating category (despite the shorter time period). Consensus credit rating data especially shows significantly more upgrades from B to BB. So the overall credit migration rate (+/-) is noticeably higher in Credit Benchmark’s consensus credit ratings. There are a number of possible reasons for this. Credit rating agencies frequently adjust rating “Credit Watch” and “Credit Outlook” status without changing the actual credit rating, whereas bank lenders will change the actual probability of default. Credit agency ratings are opinion based, so their credibility hinges on longevity and stability. Bank internal ratings need to reflect prevailing risk levels at various time horizons ranging from Point-in-Time to pure Through-the-Cycle.* Adjusted for the removal of the Default (“D”) and Not Rated (“NR”) columns as well as combining the AAA and AA rows/columns to reflect the very small universe of AAA names. ** Credit Benchmark consensus credit data includes more firms with withdrawn ratings or those that have chosen not to be rated. Peaks and troughs in credit rating transition matrices Credit rating transition matrices change over time and can show considerable industry variation*. The matrices below show the scale of this over the Covid era for Global Corporates.For Global Corporates, the credit downturn phase (top right matrix) shows large values on the first off-diagonal of the upper right triangle. The largest values are in the higher credit rating categories. The credit upturn phase (lower left matrix) shows large values on the first off-diagonal of the lower left triangle; the largest values are in the lower credit rating categories. The pre- and post-Covid years are skewed to credit upgrades.Similar free matrices are available for Global Financials, as well as for specific geographies, industries and sectors via Credit Benchmark’s Credit Risk IQ portal. 5,000+ free industry reports are available monthly via Credit Risk IQ. Access 500+ free global transition matrices on Credit Risk IQ * See S&P standard deviation statistics in the first table of this report. Credit cycle adjustments for industry-specific time-varying matrices Credit cycle data offers a simple but powerful way to estimate robust, time-varying credit rating transition matrices for a broad range of industries and sectors. A key advantage of Credit Benchmark’s consensus credit ratings data is the large number of probability of default risk updates every month, and these include small changes in risk estimates – below the threshold for actual rating changes. This gives a form of early warning that major credit rating transition matrix changes may be in the pipeline. The chart below illustrates this. The blue triangles show the credit cycle, measured by rolling 12-month net credit deterioration/improvement balances. The plotted line is the 50th percentile of this metric across 1200 indices derived from Credit Benchmark’s consensus credit rating data. The bars show key statistics for the end-year credit rating transition matrix – blue shows the average % of Global Corporate entities that are unchanged in credit quality, green shows total credit upgrades, and red shows total credit downgrades for each year. The final column averages these over the 6 years 2018-2023. Covid brings a spike in credit deteriorations (i.e. probability of default changes), rising to 140% of the total number of names (i.e. some names show multiple credit risk rises). In 2019, Upgrades and Downgrades (i.e. credit rating category changes) were in balance; by the end of 2020, Downgrades outnumber Upgrades by 2:1. The net credit deterioration/improvement moved quickly in 2020, flagging up the pending credit rating transition matrix change. Monthly consensus credit ratings data makes it possible to predict future credit rating transition matrix changes with a high level of confidence. A credit portfolio manager can measure current industry net credit deterioration/improvement vs. its long-term range, with the long run average as a baseline. The distance above or below the baseline relative to the maximum or minimum net credit deterioration/improvement provides the weight for a linear combination of the long run credit rating transition matrix and the Trough or Peak credit rating transition matrix, giving a credit cycle adjusted credit rating transition matrix for that industry in the current time period. This is a simplified version of the z-factor approach.  For default rate forecasting, Credit Benchmark uses separate credit rating transition matrices for Corporates vs. Financials; but we assume that large sample credit rating transition matrices can be used for most corporate industries. Observed differences are mainly due to sampling variation or industry credit cycle timing differences. The next section illustrates the calculations.  Example of credit cycle adjustments used to calibrate robust, industry-specific credit rating transition matrices A sample portfolio consists of entirely of US Technology obligors within Credit Benchmark’s consensus credit ratings dataset. Portfolio single name exposures are aa=5%, a=17%, bbb=25%, bb=35%, b=15%, c=3%. Using current credit exposures as weights for the S&P long term Observed Default Rates gives portfolio probability of default risk of 147 Bps (top left). Using the Long Run consensus credit rating transition matrix, it will rise 1.3% in the next year to 149 (next column, top left) as a result of credit migrations. This assumes no portfolio changes or movements in the expected default rate per credit rating category during the year.During the Covid pandemic, the equivalent default rate would rise 13% to 166 Bps (middle second column, halfway down). During the recovery, it would drop 11% to 131 Bps (Second column, bottom right). Currently the net credit deterioration/improvement is 36% of the historical high (shown above credit cycle chart), so the credit rating transition matrix used is a weighted average of 36% of the Trough transition matrix and 68% of the Long Run transition matrix. This implies a 6% increase in the coming year to 155 Bps.The net credit deterioration/improvement chart suggests that the rate of credit deterioration is set to drop relative to credit improvements. Projecting this out by 12+ months would likely show a drop in prospective default risk vs. current. Similarly, an industry which was currently in the green but heading into the red could show a dramatic increase in projected default risk. Some industries lead or lag the main credit cycle.This approach can be used for every industry in the portfolio and will have a direct bearing on portfolio decisions, including Significant Risk Transfer (SRT) deal structures. Portfolio optimization example: optimizing exposures to avoid future spike in default rates This example quantifies the combined benefit of industry net credit deterioration/improvement metrics and large sample credit rating transition matrices. The table below shows the structure of a hypothetical US credit portfolio weighted by consensus credit rating categories. Current probability of default rates for each industry listed in the last (bold) column are derived from the product of the credit rating category weights and long-term S&P observed default rates – Oil & Gas are lowest, and Technology is highest. The portfolio exposures in the second last (grey) column partly reflect these risk levels – light in Technology and heavy in Oil & Gas. The credit-cycle adjusted long term global corporate transition matrix can be used to give the projected 1-year ahead credit structure for each industry; and this gives a revised set of future expected default rates: Adjusting for credit cycles, all industries apart from Travel & Leisure are projected to increase over the next year. The weighted average portfolio risk (bottom row) shows an increase of 3.8%, mainly due to the high Oil & Gas exposure, which has the lowest risk level but the highest projected risk increase.This analysis can be taken further, by allowing for 7-year correlations between credit cycles: Oil & Gas and Travel & Leisure show a lower correlation with Industrials compared with other Industries. The table below adds a row for correlation adjusted risks: The portfolio risk level has dropped from 1.54% to 1.45% (with correlations <1, some risks cancel out) but the projected increase is slightly higher, rising 3.9% from 1.45% to 1.50%. Credit portfolio managers may have scope to adjust their exposures. That makes it possible to hedge against expected future risk increases. The table below shows an optimal set of exposures that leave estimated future risk unchanged from the current level. Despite rising credit risk in most industries, the new portfolio has the same level of overall risk as the initial allocation, offsetting the deteriorating transition pattern over the year. This is achieved by allocating more to Industrials and Oil & Gas (rising, but low) and away from Consumer industries, especially higher risk Consumer Services. Travel and Leisure is high but falling and receives an increased allocation; Technology is high and increasing but has a small increase in allocation to balance reductions elsewhere. This shows that there is scope to achieve a lower risk level despite the increasing probability of default risk in most industries. Credit Benchmark produces free credit rating transition matrices on 500 different geographies and industries. You can also build transition matrices on your own portfolios, using historical consensus credit cycle data on 100,000+ obligors. Get in touch below for a complimentary analysis of default risk on your portfolio. Request free portfolio default risk analysis Addition of default rates as extra credit rating transition matrix column The matrices in the previous examples do not include firms that transition to “NR” (not rated) or “D” (Default), but for many use cases (e.g. term structures) it is necessary to add a default column.The Credit Benchmark credit rating transition matrix equivalent below uses 1-year probability of default midpoints for each credit rating category. These are typically higher than the median observed rates (“conservative margin”) but are within the historic observed ranges. The S&P credit rating transition matrix below includes median long term observed default rates for each credit category; these and the preceding columns are normalised to give row totals of 100%. The differences below show the same pattern noted earlier in this report – consensus credit rating data generally shows higher migration rates in both directions. S&P also publish “Not Rated” (NR) rates. These withdrawn ratings cover defaults, takeovers, changes in ratings provider. They are, however, correlated with historic default rates. Credit Benchmark consensus credit rating data includes dropped names, and these may be useful as a time-varying default proxy. Consensus credit rating category probability of default to rating scale Book Demo Credit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products. Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Book Demo form template official Book Demo Credit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products. Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Blog & Whitepaper Sidebar Form Want more exclusive credit risk insights? Subscribe to our monthly newsletter for email updates First Name (required) Last Name (required) Company (required) Company Email (required) Submit By clicking the "Submit" button, you are agreeing to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### in numbers final REALLY FINAL In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### how we can help final REALLY FINAL Solutions How we can help your business book demo Incorporate our credit risk management software to build bespoke reports and seamlessly integrate data into internal workflows, annual reviews, new client/deal approvals, credit committees, industry reviews, portfolio monitoring exercises, early warning indicators, and pre-deal screening. Benchmark, understand and optimise the capital allocated to the credit risk you are taking and inform decision making at an entity, sector or portfolio level. Enhance your regulatory discussions with a better understanding of your peer landscape at a granular level through our credit risk management solutions. Review outliers between traditional agency ratings and Credit Benchmark data. Demonstrate a robust counterparty risk management approach to potential clients and investors. Automated portfolio monitoring and surveillance can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters – managing exceptions and responding to early warnings. Access to the full global consensus database (not just to internal firm data) provides greater insights for use in considering industry, geographical and sectoral business expansion. Consensus data can be used to expedite a high-level review of target clients and implement market intelligence-led prospecting. ### other solutions final REALLY FINAL Risk Solutions Other Solutions Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking ### the benefits of consensus credit final REALLY FINAL The Benefits of Consensus Credit Data Rating the unratedUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. IndependentFree from “issuer-pays” conflict and any bank bias. Real-world exposureDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. DynamicThe consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Expanding footprintA unique growing global dataset. ### in numbers final REALLY FINAL In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### Elementor Loop Item #5344 ### Elementor Loop Item #5329 ### Subscribe to the Newsletter Subscribe to our newsletter By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### terms, privacy and slavery Modern Slavery, Child Labor and Human Trafficking Statement Credit Benchmark believes that human rights are an absolute and universal standard, and everyone has a basic right to expect safe and fair working conditions.  Credit Benchmark is opposed and committed to preventing acts of modern slavery, child labour and human trafficking from occurring within its business and supply chains and imposes the same high standards on its suppliers. We take appropriate steps to ensure that we respect and maintain the fundamental human rights of those who are working for Credit Benchmark. We expect all who work with us to adopt these same high standards. Policy Credit Benchmark is committed to ensuring that there is no modern slavery or human trafficking in our supply chains or in any part of our business through the following policies: Credit Benchmark’s Code of Business Conduct and Ethics  This policy demonstrates our commitment to conducting business that is both compliant with applicable laws and our company values.  The Code of Business Conduct and Ethics sets the standard for our employees in their dealings with customers, partners, competitors, and vendors. All Credit Benchmark employees, consultants, and contractors must review and accept the Code of Business Conduct and Ethics and are contractually committed to complying.  Annual refresher policy acknowledgment and signing is also mandatory for all employees, consultants, and contractors. Recruitment Policy  Credit Benchmark operates a robust recruitment policy and guidelines, including conducting eligibility-to-work checks for all employees and contractors in respective countries of employment to safeguard against human trafficking or individuals being forced to work against their will. Whistleblowing Policy  Credit Benchmark’s whistleblowing policy and process ensures that all employees know that they can raise concerns about how colleagues are being treated, or practices within our business or supply chain, without fear of reprisal. Diversity, Equity & Inclusion Policy Credit Benchmark has a committed DEI policy, designed to ensure the fair treatment our employees and potential employees. Health and Safety Policy This policy sets out Credit Benchmark’s approach to ensure the organisation provides a healthy and safe working environment for our staff and contractors that work out of our premises and from home. Customers and Supply Chain Credit Benchmark’s customers are leading organizations worldwide, primarily financial service companies. Credit Benchmark is committed to ensuring that we have a robust and well-managed outsourced and third-party supplier network. Our supply chains consist predominantly of leading global data and IT solutions providers predominantly based in Western Europe and North America. Our business provides electronic financial data, which we create and generate ourselves. Our source of such raw data comes from regulated financial institutions. We do not provide, handle, or facilitate physical goods or services. As a result, the majority of our supply chain involves technically skilled professionals, and we have minimal exposure to unskilled and/or manual labor. We do not tolerate any form of slavery, forced or child labor or human trafficking within our supply chains and if we find evidence of a failure to comply with our policies, we will immediately seek to terminate our relationship with the relevant supplier. We ensure we meet and require all our suppliers to adhere to the standards set out by International Labor Organizations as regards to the employment of children and young people. Risk and Compliance Credit Benchmark regularly evaluates the nature and extent of its exposure to the risk of modern slavery, child labor and human trafficking occurring in our supply chain by proactively managing those who we work with. As part of our efforts to monitor and reduce any of these risks occurring within our supply chains, we have adopted due diligence procedures designed to: establish and assess areas of potential risk in our business and supply chains monitor potential risk areas in our business and supply chains reduce the risk of slavery, child labor and human trafficking occurring in our business and supply chains provide adequate protection for whistleblowers Credit Benchmark considers that the risk of slavery, human trafficking or child labor within its business and supply chain is low. We attribute this largely to our industry and the policies and procedures we have in place. We continue to monitor our supply chain, including having regard to any significant changes concerning our suppliers. If there are any suspicions of activity that are contrary to the Act, Credit Benchmark will investigate and take appropriate action. Ongoing Commitment Credit Benchmark recognizes its responsibility to ensure that its policies and systems exclude slavery, human trafficking, forced labor and child labor from the business on an ongoing basis. The company reviews its procedures, including staff training, to ensure that these issues will be continuously addressed in line with the requirements of the Act and good business practice. Our commitment to ethical business practices will continue internally, through our supplier due diligence policy and procedures, in addition to monitoring of changes in legal and regulatory changes. The Management Team and Board of Directors endorse the statement and are fully committed to its implementation. Their responsibility includes: Implementing this statement Providing adequate resources and investment to minimize the risk of modern slavery, child labor and human trafficking taking place within the business and its supply chain Ensuring that the company’s approach and this statement are regularly reviewed Ensuring that the commitments outlined in this statement are adhered to Publication, Review and Feedback This statement is made in accordance with the UK Modern Slavery Act provisions and constitutes Credit Benchmark’s anti-slavery and human trafficking statement for the current financial year. This statement will be reviewed and published annually. Credit Benchmark welcomes feedback from its stakeholders concerning this statement.  This can be submitted to us by email to info@creditbenchmark.com ### credit risk IQ top banner ACCESS REPORTS Sign up ### book demo global book demo ### Schedule a Demo Schedule a demo Please complete the form below to arrange a demo. By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### how we can help FINAL august 24 SolutionsHow we can help your business BOOK A DEMO Automated portfolio monitoring and surveillance can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters – managing exceptions and responding to early warnings. Access to the full global consensus database (not just to internal firm data) provides greater insights for use in considering industry, geographical and sectoral business expansion. Consensus data can be used to expedite a high-level review of target clients and implement market intelligence-led prospecting. Incorporate our credit risk management software to build bespoke reports and seamlessly integrate data into internal workflows, annual reviews, new client / deal approvals, credit committees, industry reviews, portfolio monitoring exercises, early warning indicators, and pre-deal screening. Benchmark, understand and optimise the capital allocated to the credit risk you are taking and inform decision making at an entity, sector or portfolio level. Enhance your regulatory discussions with a better understanding of your peer landscape at a granular level through our credit risk management solutions. Review outliers between traditional agency ratings and Credit Benchmark data. Demonstrate a robust counterparty risk management approach to potential clients and investors. ### Private vs. Public Credit Risk The credit risk of a publicly owned company (one whose shares are traded on a public stock exchange) can differ from that of a privately owned company (one whose shares are not publicly traded) due to several factors associated with their ownership structures and regulatory environments. ACCESS REPORTS Introduction The majority of Credit Benchmark's consensus credit ratings are for non-public entities.There is generally less readily available information on private companies. It can then be harder to form an opinion on their creditworthiness.Credit risk teams will consider several factors related to a company's ownership when determining the bank's internal ratings. How Do Banks Take Ownership into Account as Part of their Internal Credit Ratings? There are important differences between the way private and public companies are managed and funded. Qualitative and quantitative factors used in banks' internal rating systems can include components related to a company's ownership.Some of these differences are discussed below. Access to Capital Publicly owned companies generally have greater access to capital markets through the issuance of publicly traded debt and equity. Broader access can provide them with more diverse funding sources and greater financial flexibility. This can reduce credit risk compared to privately owned companies relying on private financing. Banks' credit risk officers will assess the funding strategy and debt structure when assigning internal credit ratings. This then feeds into consensus credit ratings. Across Credit Benchmark's Corporates and Financials, approximately 87% of the consensus credit ratings are for non-public companies. Disclosure Publicly owned companies are subject to more stringent disclosure and reporting requirements imposed by regulatory bodies such as the Securities and Exchange Commission in the United States.This higher level of transparency provides investors and creditors with more comprehensive and timely information about the company's financial health, operations, and risk factors, facilitating a more accurate assessment of credit risk.Private companies, in contrast, may disclose less information, making it challenging for external stakeholders to assess their credit risk.However, banks, through their lending processes, have access to companies' non-public financial and lending circumstances. This unique information contributes to the robustness of the consensus credit ratings. Market Confidence The market value of a publicly owned company's equity can serve as a real-time indicator of market sentiment and confidence in the company's credit risk. Private companies may face challenges in demonstrating market confidence. As banks lend across the spectrum, to both private and public companies, Credit Benchmark's consensus credit ratings can help to fill that gap. Ownership Structure Ownership structure is a very important qualitative factor used in banks' internal credit ratings.Publicly owned companies often have a diverse ownership structure with a wide shareholder base.This structure contributes to greater stability and continuity, as opinions and changes are typically less concentrated.Privately owned companies, on the other hand, may face credit risk associated with less diversity, changes in ownership, and the potential for conflicts among a smaller group of owners. If you are interested in seeing what Credit Consensus Ratings can offer, sign up here to access the Credit Risk IQ Reports for free. ACCESS REPORTS Managing Credit Risk Differences Between Publicly and Privately Owned Companies Because different market conditions can impact public and private companies differently, it can be useful to segment your portfolio accordingly for better credit risk monitoring.The below graphs show how credit risk has diverged between public and private companies within the Computer Hardware and Software sectors.Across entities in the Computer Hardware sector, the credit risk of public companies remained relatively stable. However, the average credit risk of private companies increased by 10%. The difference in creditworthiness between private and public companies is highlighted in the credit distribution chart of UK Software & Computer Services companies. ### Discover_More Learn more about Credit Benchmark Premium Data and Analytics Please complete the form below and someone from the Credit Benchmark team will be in touch soon First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### Form download post ### current vacancies Join our team of technology, financial services and data experts. Credit Benchmark is a technology-enabled financial data analytics company founded by serial entrepreneurs and backed by Balderton Capital and Index Ventures. We are a fast-growing team of technology, financial services and data experts who are committed to enhancing the transparency and stability of the global marketplace by offering an entirely new dataset on credit risk. We are always looking for smart and talented people to join our growing team, so even if you don’t see an appropriate role below, please email us at careers@creditbenchmark.com. Credit Benchmark is proud to be an Equal Employment Opportunity employer. We believe no one should be at a professional disadvantage because of their background. We do not discriminate based upon any legally protected characteristic and are committed to fostering a working culture that is free of discrimination and harassment. We ensure our recruitment processes and practices follow the principles of our Diversity, Equality and Inclusion policy and all staff involved in our recruitment processes are thoroughly trained in this area. Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures. In submitting your application to us, you acknowledge and consent to our processing of your personal data. For further details of how we process personal data and comply with data protection laws, please refer to Credit Benchmark’s privacy policy. Current job openings at credit benchmark Account DirectorNew York, United StatesSales Director – Buy Side (US)New York, United States ### current job opening template Join our team of technology, financial services and data experts. View All Job Openings Who we areCredit Benchmark is a financial data analytics company that has partnered with the world’s leading financial institutions to create the largest and most sophisticated contributed credit risk data platform in the market. We help clients identify, quantify, and monitor credit risk across a wide array of exposures by leveraging CB’s unique and sophisticated data and analytics. The comprehensive nature of CB’s consensus ratings coverage on over 100,000 sovereigns, FIs, NBFIs, corporates and funds uniquely places CB as the leading provider of credit risk intelligence.We are growing rapidly and are looking to hire an experienced Account Director (AD) to join our New York Office.  The roleThe primary focus of this role will be to identify functional areas within our customers across North America where we can expand and further embed our credit risk data and analytical tools. Clients range from large Tier 1 GSIBs, regional banks, large sophisticated institutional investors, insurance / re-insurance firms, hedge funds, pension funds and a growing number of structured credit market participants. A key success factor for this role is the ability to manage large and complex client relationships and to ensure appropriate account planning, product positioning, use case development and commercial execution in order to leverage our existing client base as a key source of commercial success.The AD will be a senior member of the Commercial Team and report directly to the Head of Commercial.This is an ideal role for someone with several years of account management experience dealing extensively with large, complex and sophisticated clients.We offer an exciting, collaborative environment with opportunities for tremendous growth. The role will be based in New York City with a hybrid working pattern involving three days in the office minimum and moderate travel.  Your responsibilities will includeManage the retention, expansion, profitability, success and customer satisfaction of strategic client relationshipsBuild, expand, and manage critical relationships at senior executive levels throughout the organizationProspecting for growth opportunities at existing clients aligned to proven use casesCollaborating with various teams at Credit Benchmark to successfully execute strategic goalsNegotiating commercial and contract termsDeveloping an understanding of the user landscape and articulating use cases across clientsDevelop and own key KPIs for measurement of customer success and identification of at risk accountsImplement key account strategies to maximise the commercial potential in the short, medium and long termDirect management responsibilities of a junior account manager with scope to expand over timeTracking product usage and implementing a strategy to increase product utilization and further embed content deliveryActing as the firm’s primary arbiter for all client related issues  What we are looking forIdeally you will:Have a minimum of 5 years experience account managing large, complex and sophisticated clientsThorough knowledge and experience of best practices for account management – including account planning, expansion strategies, commercialization of adjacent opportunities, at risk account identification and remediation, key KPIs supporting account management activities, organizational mapping, etcKnowledge of credit risk workflow and challenges, and experience with credit risk data / solutions (desirable)Be as strong team player with a consultative approach to help drive revenue growth, close new deals, and originating opportunities for new solutions based on client needsHave a broad understanding of capital markets across the buy and sell sides and ability to develop knowledge across areas including securities lending / prime brokerage, capital & risk management, sales & trading, structured credit and debt capital markets.Strong client management skills with a customer-centric attitude, excellent communication and interpersonal skillsHave the strong motivation and flexibility required to function in a start-up environmentHave a self-starter, proactive approach, with an ability to work under pressure and deliver to deadlinesBe eligible to work in the US  SalarySalary for this role is $120,000 – $140,000 dependent on skillset and experienceGenerous Incentive Compensation scheme  BenefitsHolidays: Competitive holiday packageHealth and Wellbeing: Medical, Dental and Vision Insurance cover,401(K) Plan: Opportunity to join company 401(K) planTravel: Commuter BenefitsFamily Friendly: Supportive environment and generous paid leave for new parentsLearning and Development: Professional development opportunities through seminars, conferences, training and courses and internal mentorshipCommunity: Supportive, collaborative, and social team environment  Our commitment to diversity, equity, and inclusionAt Credit Benchmark, we are deeply committed to diversity, equity and inclusion. This means celebrating who we are as individuals and as a team because our company and culture reflect the sum of our employees. We strive to create a mindful and respectful environment that includes fairness, kindness, and understanding. We empower each other to bring our authentic selves to work and champion our colleagues’ development and achievements. Our diversity brings a multitude of perspectives and ideas and is imperative to the success of our business. We are dedicated to ensuring that principles of diversity, equity and inclusion are rooted in Credit Benchmark’s DNA. We continue to build on these principles as our company grows while retaining the progress we have made as team. Credit Benchmark is proud to be an Equal Employment Opportunity employer. We believe no one should be at a professional disadvantage because of their background. We do not discriminate based upon any legally protected characteristic and are committed to fostering a working culture that is free of discrimination and harassment. Credit Benchmark is also committed to providing reasonable accommodations for qualified individuals with disabilities in our job application procedures and employment.If you require reasonable accommodation in completing this application, interviewing, completing any pre-employment testing, or otherwise participating in the employee selection process, please let us know by contacting our HR team at careers@creditbenchmark.com ### page top new theme ### rodape If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### topics with image Information SecurityInformation Security is critical to Credit Benchmark’s success and maintaining the confidentiality of our clients’ data is our top priority. Enhanced security at our office site. Segregated technical environments. Biannual testing conducted by third parties. World-class data encryption. Management oversight from the CEO and the Board. ComplianceCredit Benchmark’s designated compliance committee provides oversight across: Information Security: Robust information security architecture to maintain client confidentiality. Sensitive data is received and delivered via secure transmissions and hosted in a compliant technology environment. Methodology: Data is delivered using industry-standard consensus rules for contributed data models. A minimum number of observations on an entity are required for data to be published in order to maintain client confidentiality. Compliance with code of business conduct: All employees are required to maintain the highest standards of conduct. GovernanceCredit Benchmark’s designated compliance committee provides oversight across: Advisory Board Robust information security architecture to maintain client confidentiality. Sensitive data is received and delivered via secure transmissions and hosted in a compliant technology environment. Compliance & Policy Robust internal compliance and policy standards are adhered to to ensure the quality and relevance of the data output. ### contribute modules Join the network Join a growing network of the world’s leading financial institutions Banks, insurance companies, asset managers and other sophisticated risk practitioners can contribute data to the world’s most comprehensive consensus credit risk network  Our unique suite of data and analytics solutions, offered exclusively for contributors, provides new, unique risk insights at the micro- and macro-level  Counterparty Risk ManagementLeverage Credit Benchmark’s growing universe of consensus estimates to better track credit changes at the entity and sector level. Efficiently focus on and prioritize your counterpart analysis where the consensus view differs from your own. Credit Portfolio ManagementBenchmark your portfolio risk ratings against your peers, on a like-for-like basis or against all observations for a given sector or industry to get a broader sense of macro trends. Use the Credit Benchmark portfolio monitoring tool to get alerted to changes in various risk metrics. Risk Analytics& ModellingProvide your modelling and analytics teams with robust entity- and aggregate- level data that can be used to drive internal model calibration and validation exercises and help them be better informed for regulatory interactions. ### insights, whitepapers, monitors FINAL ### how we can help special credi SolutionsHow we can help your business BOOK A DEMO Confidently underwrite more opportunities within your target geographies, sectors and credit risk tolerance Sift out which opportunities justify the attention of precious analyst resources especially in the more opaque private or unrated space. Build portfolio resilience and fine-tune underwriting strategy by monitoring the portfolio by individual names, sectors and geographies with consensus credit risk data and analytics. Facilitate more meaningful and frequent management reporting, especially under quickly changing market conditions. Make better sense of the legal entities in a book of business with coverage of parent and subsidiary-level entities and using Credit Benchmark’s sophisticated mapping engine. Help CPR actuaries finesse pricing models with unique consensus LGD data and sector credit risk correlations produced from the expertise of global banks. ### how we can help special credi SolutionsHow we can help your business BOOK A DEMO Confidently underwrite more opportunities within your target geographies, sectors and credit risk tolerance Sift out which opportunities justify the attention of precious analyst resources especially in the more opaque private or unrated space. Build portfolio resilience and fine-tune underwriting strategy by monitoring the portfolio by individual names, sectors and geographies with consensus credit risk data and analytics. Facilitate more meaningful and frequent management reporting, especially under quickly changing market conditions. Make better sense of the legal entities in a book of business with coverage of parent and subsidiary-level entities and using Credit Benchmark’s sophisticated mapping engine. Help CPR actuaries finesse pricing models with unique consensus LGD data and sector credit risk correlations produced from the expertise of global banks. ### how we can help special credi SolutionsHow we can help your business BOOK A DEMO Confidently underwrite more opportunities within your target geographies, sectors and credit risk tolerance Sift out which opportunities justify the attention of precious analyst resources especially in the more opaque private or unrated space. Build portfolio resilience and fine-tune underwriting strategy by monitoring the portfolio by individual names, sectors and geographies with consensus credit risk data and analytics. Facilitate more meaningful and frequent management reporting, especially under quickly changing market conditions. Make better sense of the legal entities in a book of business with coverage of parent and subsidiary-level entities and using Credit Benchmark’s sophisticated mapping engine. Help CPR actuaries finesse pricing models with unique consensus LGD data and sector credit risk correlations produced from the expertise of global banks. ### how we can help significant ris SolutionsHow we can help your business BOOK A DEMO Quickly measure the credit risk of a portfolio across publicly rated and unrated obligors, and pinpoint areas of potential concern for further analysis. Venture into new geographies with the largest global source of credit risk data, benefiting reinsurance solutions by reaching otherwise opaque markets. Complement issuer-sourced information, putting an issuing bank’s credit view into the context of those of leading global peers with real-world exposures; identify large outliers and systematic bias. Fill in the gaps in the portfolio on unrated or unknown names, supporting capital relief trades by making trades more efficient and securing appropriate pricing. Track divergences between Credit Consensus Ratings and credit rating agencies for a more up-to-date view of risk and leverage in pricing meetings, benefiting credit risk transfer strategies. Enhance investor understanding of the risk profile of undisclosed portfolios with industry, sectoral or geographical risk indices, providing valuable insights for portfolio risk management. ### how we can help significant ris SolutionsHow we can help your business BOOK A DEMO Quickly measure the credit risk of a portfolio across publicly rated and unrated obligors, and pinpoint areas of potential concern for further analysis. Venture into new geographies with the largest global source of credit risk data, benefiting reinsurance solutions by reaching otherwise opaque markets. Complement issuer-sourced information, putting an issuing bank’s credit view into the context of those of leading global peers with real-world exposures; identify large outliers and systematic bias. Fill in the gaps in the portfolio on unrated or unknown names, supporting capital relief trades by making trades more efficient and securing appropriate pricing. Track divergences between Credit Consensus Ratings and credit rating agencies for a more up-to-date view of risk and leverage in pricing meetings, benefiting credit risk transfer strategies. Enhance investor understanding of the risk profile of undisclosed portfolios with industry, sectoral or geographical risk indices, providing valuable insights for portfolio risk management. ### how we can help securities financ SolutionsHow we can help your business BOOK A DEMO Capital management Understanding the optimal industry and rating can help benchmark portfolio-wide RWA optimization to drive the most capital-efficient business. The ability to understand what others think can help inform and support decisions to revise classifications that are detrimental. Risk management Access to Credit Consensus Ratings on 100,000+ legal entities, including banks, subsidiaries, CCPs, members, asset managers, and their underlying funds, helps clients measure, manage, and monitor counterparty risk on all sides more quickly. Alerting and monitoring capabilities track any portfolio credit risk movements. Market structure Getting permission to do business with unfamiliar or unrated counterparts is a significant challenge for any business and an obstacle for peer-to-peer flow. Credit Benchmark facilitates and speeds up approval of new types of counterparts. Enhanced reporting Consensus data seamlessly integrates into agent reporting systems, providing borrower and beneficial owner information. This data helps fill the data gaps and speeds up counterparty trading approvals. ALD and onboarding Credit Benchmark’s coverage of 38,000 funds can help improve the understanding and decision-making process by providing transparency and the ability to focus, prioritize and optimize management of capital and RWAs to do more business. Collateral management Credit Benchmark data expands collateral eligibility by combining entity-level ratings with open-source notching to the security level, offering benefits across the market and to its participants. ### how we can help securities financ SolutionsHow we can help your business BOOK A DEMO Capital management Understanding the optimal industry and rating can help benchmark portfolio-wide RWA optimization to drive the most capital-efficient business. The ability to understand what others think can help inform and support decisions to revise classifications that are detrimental. Risk management Access to Credit Consensus Ratings on 100,000+ legal entities, including banks, subsidiaries, CCPs, members, asset managers, and their underlying funds, helps clients measure, manage, and monitor counterparty risk on all sides more quickly. Alerting and monitoring capabilities track any portfolio credit risk movements. Market structure Getting permission to do business with unfamiliar or unrated counterparts is a significant challenge for any business and an obstacle for peer-to-peer flow. Credit Benchmark facilitates and speeds up approval of new types of counterparts. Enhanced reporting Consensus data seamlessly integrates into agent reporting systems, providing borrower and beneficial owner information. This data helps fill the data gaps and speeds up counterparty trading approvals. ALD and onboarding Credit Benchmark’s coverage of 38,000 funds can help improve the understanding and decision-making process by providing transparency and the ability to focus, prioritize and optimize management of capital and RWAs to do more business. Collateral management Credit Benchmark data expands collateral eligibility by combining entity-level ratings with open-source notching to the security level, offering benefits across the market and to its participants. ### how we can help ifrs 9 SolutionsHow we can help your business BOOK A DEMO Better understand key drivers of divergences of ECL to equip Investor Relations team to articulate Impairment comparisons. Benchmark PIT PDs / Curves against peers to allow for identification of drivers of earnings volatility. Track changes in Credit Consensus Ratings to bolster staging assessment process, compare internal staging assumptions against the consensus, and enhance view on unrated / LDP portfolios. Optimize internal processes by identifying risk areas with largest relative / absolute PD movements, monitoring rating changes well before year-end, and improving connectivity and reconciliation between credit ratings, regulatory capital, and impairment. Utilise benchmarking outputs to assess the impact of economic scenarios and weightings in impairment outcomes. ### how we can help ifrs 9 SolutionsHow we can help your business BOOK A DEMO Better understand key drivers of divergences of ECL to equip Investor Relations team to articulate Impairment comparisons. Benchmark PIT PDs / Curves against peers to allow for identification of drivers of earnings volatility. Track changes in Credit Consensus Ratings to bolster staging assessment process, compare internal staging assumptions against the consensus, and enhance view on unrated / LDP portfolios. Optimize internal processes by identifying risk areas with largest relative / absolute PD movements, monitoring rating changes well before year-end, and improving connectivity and reconciliation between credit ratings, regulatory capital, and impairment. Utilise benchmarking outputs to assess the impact of economic scenarios and weightings in impairment outcomes. ### how we can help fund financin SolutionsHow we can help your business BOOK A DEMO LP Look Through for Revolving Facilities: Credit Consensus Ratings provide transparency into the quality of LPs when there is little to no ratings information available. Net Asset Value (NAV) Financing: High degree of Credit Consensus Ratings on underlying companies. 90% of Credit Benchmark’s coverage is currently unrated by traditional ratings agencies. For firms entering the subscription finance markets, consensus data can help to plug an informational gap where a lack of a strong sponsor relationship may slow deal progress. Understanding the creditworthiness of funds and entities when evaluating the underlying collateral base for GP and LP Financing vehicles ### how we can help fund financin SolutionsHow we can help your business BOOK A DEMO LP Look Through for Revolving Facilities: Credit Consensus Ratings provide transparency into the quality of LPs when there is little to no ratings information available. Net Asset Value (NAV) Financing: High degree of Credit Consensus Ratings on underlying companies. 90% of Credit Benchmark’s coverage is currently unrated by traditional ratings agencies. For firms entering the subscription finance markets, consensus data can help to plug an informational gap where a lack of a strong sponsor relationship may slow deal progress. Understanding the creditworthiness of funds and entities when evaluating the underlying collateral base for GP and LP Financing vehicles ### in numbers FINAL In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### Global in numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### other solutions FINAL Risk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### Global other solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### the benefits FINAL The Benefits of Consensus Credit Data Rating the unratedUnparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. IndependentFree from “issuer-pays” conflict and any bank bias. Real-world exposureDriven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entityRisk data is processed through a sophisticated purpose-built mapping engine. DynamicThe consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoringAssess risk over the lifetime of a transaction. Secure reportingEase of internal integration within reporting. Expanding footprintA unique growing global dataset. ### how we can help corporate treas SolutionsHow we can help your business BOOK A DEMO Monitor the credit risk profile of your customers, suppliers and vendors using Credit Benchmark’s expansive coverage, macro indices and analytical tools. Enhance your visibility of the creditworthiness of unrated and private entities at a subsidiary level. Seamlessly integrate Credit Benchmark data with other market metrics through Bloomberg supply chain analytics. Support your existing KYC process by leveraging consensus data in the onboarding process. ### how we can help corporate treas SolutionsHow we can help your business BOOK A DEMO Monitor the credit risk profile of your customers, suppliers and vendors using Credit Benchmark’s expansive coverage, macro indices and analytical tools. Enhance your visibility of the creditworthiness of unrated and private entities at a subsidiary level. Seamlessly integrate Credit Benchmark data with other market metrics through Bloomberg supply chain analytics. Support your existing KYC process by leveraging consensus data in the onboarding process. ### BOOK DEMO GLOBAL book demo ### other solutions new theme Risk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### in numbers webp In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### in numbers webp In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### how we can help ccp SolutionsHow we can help your business BOOK A DEMO Twice-monthly updates as financial institutions revise their opinions allow CCP analysts to continually challenge their own models and assumptions. Monitor credit views on clearing members who do not have a public credit rating to enrich annual credit assessments of clearing members. Conduct enhanced portfolio reporting to review trends and generate more frequent management reporting. Leverage automating alerting on recent upgrades and downgrades within a portfolio. Expand credit risk analysis to clearing members’ clients, including opaque buy-side names, to gain a picture of member network risk. Help onboard new members by quickly and easily analysing the credit of new kinds of members including funds. ### how we can help ccp SolutionsHow we can help your business BOOK A DEMO Twice-monthly updates as financial institutions revise their opinions allow CCP analysts to continually challenge their own models and assumptions. Monitor credit views on clearing members who do not have a public credit rating to enrich annual credit assessments of clearing members. Conduct enhanced portfolio reporting to review trends and generate more frequent management reporting. Leverage automating alerting on recent upgrades and downgrades within a portfolio. Expand credit risk analysis to clearing members’ clients, including opaque buy-side names, to gain a picture of member network risk. Help onboard new members by quickly and easily analysing the credit of new kinds of members including funds. ### understand your risk form - new theme Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset.By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. ### bloomberg webp - new theme Credit Consensus Data on Bloomberg Free Trial Credit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service. Credit Consensus Ratings on BloombergCredit Consensus Ratings available on Bloomberg provide a unique measure of creditworthiness on 40,000 counterparts and borrowers across emerging and developed markets. Compiled from the anonymized and aggregated internal risk views of 40+ of the world’s leading banks, Credit Consensus Ratings provide an independent, real-world perspective of risk.Updated twice monthly, the data provides dynamic and unparalleled coverage of public and private companies; 90% of the entities covered are unrated by the top three rating agencies.Credit Consensus Ratings are supplemented by descriptive analytics that provides insights into the underlying credit views that make up the consensus.Credit Benchmark data can now be seamlessly integrated into your existing workflows and alongside other content on the Bloomberg Terminal. The data is easily accessible on CRPR, SRCH, and throughout the Terminal to help support various risk management and investment management use cases. Use Cases for Credit Consensus Ratings Risk Management​ Credit Benchmark data enhances existing risk management processes and frameworks, including for Counterparty, Supply Chain, Vendor and Enterprise Risk Management applications. Portfolio Monitoring and Analysis Overlay Credit Benchmark data against your portfolio within the Terminal to unlock unique insights. The data can complement your existing portfolio monitoring, analysis, and decision-making workflows. Security Selection and Portfolio Construction Leverage Credit Benchmark data as an input into fixed income screens to efficiently identify new investment opportunities. The data can complement your existing security selection and portfolio construction workflows. Sector Analysis Overlay Credit Benchmark data for new macro credit insights on industries and sectors as well as for Bloomberg Indices. Identify whether a certain index is overbought or oversold relative to the credit profile. Bond and Loan Rating Assessments on BloombergThrough a partnership with Bloomberg, Credit Benchmark also offers rating assessments (notching) for bonds and loans issued by the 40,000 entities with Credit Consensus Ratings.This service combines the Credit Benchmark Consensus with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.The production combines both Credit Benchmark and Bloomberg information and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism.These Bond and Loan Rating Assessments are available to licensed clients alongside the existing Credit Benchmark entity-level coverage via standard Bloomberg functions, including Search, Worksheets, Launchpad, Excel API, and CRPR.Bloomberg also offers access to the same information via Data License Per Security for clients looking to use this information within their internal systems. Use Cases for Bond and Loan Rating Assessments Collateral Management Improving the scope of collateral eligibility to include unrated securities and optimize the use of existing collateral. Regulatory Funding Capital Allocation Using Credit Benchmark Rating Assessment to support optimization of regulatory capital requirements. Investment Risk Management Use within investment risk management reporting and governance. Credit Research Using Credit Benchmark data as an input into credit analysis and associated reporting. Due Diligence Demonstrate independent assessment of credit risk of bond or loan exposure. Global CoverageCredit Consensus Ratings and Bond and Loan Rating Assessments Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### bloomberg webp - new theme Credit Consensus Data on Bloomberg Free Trial Credit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service. Bloomberg TerminalCredit Consensus SearchCharting: Price versus Credit RiskAccess custom sample worksheets and searchesCustom Worksheet Credit Consensus Ratings on BloombergCredit Consensus Ratings available on Bloomberg provide a unique measure of creditworthiness on 40,000 counterparts and borrowers across emerging and developed markets. Compiled from the anonymized and aggregated internal risk views of 40+ of the world’s leading banks, Credit Consensus Ratings provide an independent, real-world perspective of risk.Updated twice monthly, the data provides dynamic and unparalleled coverage of public and private companies; 90% of the entities covered are unrated by the top three rating agencies.Credit Consensus Ratings are supplemented by descriptive analytics that provides insights into the underlying credit views that make up the consensus.Credit Benchmark data can now be seamlessly integrated into your existing workflows and alongside other content on the Bloomberg Terminal. The data is easily accessible on CRPR, SRCH, and throughout the Terminal to help support various risk management and investment management use cases. Use Cases for Credit Consensus Ratings Risk Management​ Credit Benchmark data enhances existing risk management processes and frameworks, including for Counterparty, Supply Chain, Vendor and Enterprise Risk Management applications. Portfolio Monitoring and Analysis Overlay Credit Benchmark data against your portfolio within the Terminal to unlock unique insights. The data can complement your existing portfolio monitoring, analysis, and decision-making workflows. Security Selection and Portfolio Construction Leverage Credit Benchmark data as an input into fixed income screens to efficiently identify new investment opportunities. The data can complement your existing security selection and portfolio construction workflows. Sector Analysis Overlay Credit Benchmark data for new macro credit insights on industries and sectors as well as for Bloomberg Indices. Identify whether a certain index is overbought or oversold relative to the credit profile. Bond and Loan Rating Assessments on BloombergThrough a partnership with Bloomberg, Credit Benchmark also offers rating assessments (notching) for bonds and loans issued by the 40,000 entities with Credit Consensus Ratings.This service combines the Credit Benchmark Consensus with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.The production combines both Credit Benchmark and Bloomberg information and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism.These Bond and Loan Rating Assessments are available to licensed clients alongside the existing Credit Benchmark entity-level coverage via standard Bloomberg functions, including Search, Worksheets, Launchpad, Excel API, and CRPR.Bloomberg also offers access to the same information via Data License Per Security for clients looking to use this information within their internal systems. Use Cases for Bond and Loan Rating Assessments Collateral Management Improving the scope of collateral eligibility to include unrated securities and optimize the use of existing collateral. Regulatory Funding Capital Allocation Using Credit Benchmark Rating Assessment to support optimization of regulatory capital requirements. Investment Risk Management Use within investment risk management reporting and governance. Credit Research Using Credit Benchmark data as an input into credit analysis and associated reporting. Due Diligence Demonstrate independent assessment of credit risk of bond or loan exposure. Global CoverageCredit Consensus Ratings and Bond and Loan Rating Assessments Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### ANALYTICAL TOOLS Analytical ToolsMonitoring, managing and mitigating your riskBelow are some of the different functionalities via which Credit Benchmark’s products and services can be accessed and the benefits they offer: Client Analytics Compare the internal risk view of your portfolio against the consensus view, and filter by different segment cuts for a more granular view of your risk exposure. Chart the notch difference averages between your own internal estimates and the consensus view by industry. My Portfolio Upload your portfolio and continuously monitor its credit quality by using the Credit Benchmark Web App portfolio function. Portfolios can be shared dynamically with other users across your team or firm and feed into management reporting cycles. Monitoring & Alerting Automated portfolio monitoring and notifications can flag negative or positive movements, enabling analysts to cover a larger set of names, direct resources to where it matters most — and, crucially, to manage exceptions and respond to early warnings. Watch List & Surveillance In-built Surveillance provides insights on the most prevalent movers in your portfolio and the wider consensus universe. The Watch List leverages Credit Consensus Ratings and descriptive analytics to provide insights into entities that are experiencing credit deterioration. Credit Transition Matrices Our Credit Transition Matrices (CTMs) facilitate the modelling of default risk. The CTMs are constructed using the full breadth of Credit Benchmark’s dataset, which includes over 100,000 consensus entities, ensuring long-term stability. These CTMs can be used to plot broad credit trends, build sector-specific views, or produce term structures for use in portfolio modelling. Correlation Matrices Credit Benchmark can provide Correlation Matrices that show the industry- and region-specific correlations within a pool. The correlation matrices are constructed using Credit Benchmark’s industry and region schema, offering a detailed view of concentration and correlation risk across your portfolio. ### ANALYTICAL TOOLS Analytical ToolsMonitoring, managing and mitigating your riskBelow are some of the different functionalities via which Credit Benchmark’s products and services can be accessed and the benefits they offer: Client Analytics Compare the internal risk view of your portfolio against the consensus view, and filter by different segment cuts for a more granular view of your risk exposure. Chart the notch difference averages between your own internal estimates and the consensus view by industry. My Portfolio Upload your portfolio and continuously monitor its credit quality by using the Credit Benchmark Web App portfolio function. Portfolios can be shared dynamically with other users across your team or firm and feed into management reporting cycles. Monitoring & Alerting Automated portfolio monitoring and notifications can flag negative or positive movements, enabling analysts to cover a larger set of names, direct resources to where it matters most — and, crucially, to manage exceptions and respond to early warnings. Watch List & Surveillance In-built Surveillance provides insights on the most prevalent movers in your portfolio and the wider consensus universe. The Watch List leverages Credit Consensus Ratings and descriptive analytics to provide insights into entities that are experiencing credit deterioration. Credit Transition Matrices Our Credit Transition Matrices (CTMs) facilitate the modelling of default risk. The CTMs are constructed using the full breadth of Credit Benchmark’s dataset, which includes over 100,000 consensus entities, ensuring long-term stability. These CTMs can be used to plot broad credit trends, build sector-specific views, or produce term structures for use in portfolio modelling. Correlation Matrices Credit Benchmark can provide Correlation Matrices that show the industry- and region-specific correlations within a pool. The correlation matrices are constructed using Credit Benchmark’s industry and region schema, offering a detailed view of concentration and correlation risk across your portfolio. ### products and tools - new theme Products & Tools Credit Benchmark provides a data-driven view of credit risk, offering coverage, granularity, and collective insights not available anywhere else.Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Instead of being based on the 'issuer pays model', this product represents the views of those with 'skin in the game'. BOOK DEMO Entity-Level RiskCredit Consensus RatingsCredit Consensus Ratings provide a unique measure of creditworthiness on 100,000+ counterparts and borrowers across emerging and developed markets, based on inputs from 40+ leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). 90% of the entities covered are otherwise unrated, or private entities, providing an unparalleled perspective of risk and liquidity.Credit Consensus Ratings are supplemented by descriptive analytics and reference data that provide insights into the underlying credit views that make up the consensus.Historical charting allows you to benchmark trends — the Credit Consensus Rating vs. your own estimate over time. Macro-Level InsightsCredit IndicesCredit Indices are macro-level risk indicators that offer the ability to compare credit trends and distributions across more than 170 countries and close to 200 industries, sectors and sub-sectors.Over 1,200 trend-tracking, forward-looking Credit Indices are available, reflecting Credit Benchmark’s expanding universe of 10 million credit risk observations contributed annually from the world’s leading financial institutions. The Credit Indices therefore provide insights into the real-world risk views of the world’s most experienced risk takers.Leveraging our comprehensive set of indices allows for investment professionals to construct precise and representative Correlation- and Transition Matrices, which more appropriately reflect the true risk dynamics within the market. Security-Level Ratings AssessmentsBonds & LoansCredit Benchmark, in partnership with Bloomberg, offers rating assessments (notching) for bonds and loans issued by 40,000+ entities with Credit Consensus Ratings.This service combines Credit Benchmark's Credit Consensus Ratings with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.This service combines both Credit Benchmark and Bloomberg data and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism. READ MORE Analytical ToolsMonitoring, managing and mitigating your riskBelow are some of the different functionalities via which Credit Benchmark’s products and services can be accessed and the benefits they offer: Now Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions.These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. ACCESS REPORTS SolutionsDelivery channels to fit your workflow In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Book a DemoCredit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products.Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. By clicking the ‘request demo’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Risk SolutionsCredit Risk Solutions ### products and tools - new theme Products & Tools Credit Benchmark provides a data-driven view of credit risk, offering coverage, granularity, and collective insights not available anywhere else.Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Instead of being based on the 'issuer pays model', this product represents the views of those with 'skin in the game'. BOOK DEMO Entity-Level RiskCredit Consensus RatingsCredit Consensus Ratings provide a unique measure of creditworthiness on 100,000+ counterparts and borrowers across emerging and developed markets, based on inputs from 40+ leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). 90% of the entities covered are otherwise unrated, or private entities, providing an unparalleled perspective of risk and liquidity.Credit Consensus Ratings are supplemented by descriptive analytics and reference data that provide insights into the underlying credit views that make up the consensus.Historical charting allows you to benchmark trends — the Credit Consensus Rating vs. your own estimate over time. Macro-Level InsightsCredit IndicesCredit Indices are macro-level risk indicators that offer the ability to compare credit trends and distributions across more than 170 countries and close to 200 industries, sectors and sub-sectors.Over 1,200 trend-tracking, forward-looking Credit Indices are available, reflecting Credit Benchmark’s expanding universe of 10 million credit risk observations contributed annually from the world’s leading financial institutions. The Credit Indices therefore provide insights into the real-world risk views of the world’s most experienced risk takers.Leveraging our comprehensive set of indices allows for investment professionals to construct precise and representative Correlation- and Transition Matrices, which more appropriately reflect the true risk dynamics within the market. Security-Level Ratings AssessmentsBonds & LoansCredit Benchmark, in partnership with Bloomberg, offers rating assessments (notching) for bonds and loans issued by 40,000+ entities with Credit Consensus Ratings.This service combines Credit Benchmark's Credit Consensus Ratings with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.This service combines both Credit Benchmark and Bloomberg data and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism. READ MORE Analytical ToolsMonitoring, managing and mitigating your riskBelow are some of the different functionalities via which Credit Benchmark’s products and services can be accessed and the benefits they offer: Client Analytics Compare the internal risk view of your portfolio against the consensus view, and filter by different segment cuts for a more granular view of your risk exposure. Chart the notch difference averages between your own internal estimates and the consensus view by industry. My Portfolio Upload your portfolio and continuously monitor its credit quality by using the Credit Benchmark Web App portfolio function. Portfolios can be shared dynamically with other users across your team or firm and feed into management reporting cycles. Monitoring & Alerting Automated portfolio monitoring and notifications can flag negative or positive movements, enabling analysts to cover a larger set of names, direct resources to where it matters most — and, crucially, to manage exceptions and respond to early warnings. Watch List & Surveillance In-built Surveillance provides insights on the most prevalent movers in your portfolio and the wider consensus universe. The Watch List leverages Credit Consensus Ratings and descriptive analytics to provide insights into entities that are experiencing credit deterioration. Credit Transition Matrices Our Credit Transition Matrices (CTMs) facilitate the modelling of default risk. The CTMs are constructed using the full breadth of Credit Benchmark’s dataset, which includes over 100,000 consensus entities, ensuring long-term stability. These CTMs can be used to plot broad credit trends, build sector-specific views, or produce term structures for use in portfolio modelling. Correlation Matrices Credit Benchmark can provide Correlation Matrices that show the industry- and region-specific correlations within a pool. The correlation matrices are constructed using Credit Benchmark’s industry and region schema, offering a detailed view of concentration and correlation risk across your portfolio. Now Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions.These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. ACCESS REPORTS SolutionsDelivery channels to fit your workflow Web Application • Portfolio monitoring and alerting • Analyse and monitor industry or geographical trends • Entity-level drill-down, descriptive analytics, and peer comparison Excel Add-In • Incorporate consensus data into existing spreadsheets and models • Pre-built template library • Convenient and fluent graphical interface to create and edit filters to query the database Datafeed • Comprehensive flat file • Incorporates your internal identifiers and reference data for efficient data mapping • Structured file format for quick transfer into users' own system Direct / API • Web services Enterprise API • Structured data model • High-performance, flexible delivery mechanism to support in-house built solutions Third Parties • Third-party channels including Bloomberg Terminal and Enterprise Data License • Data marketplaces including AWS Marketplace In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Book a DemoCredit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products.Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. By clicking the ‘request demo’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Risk SolutionsCredit Risk Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### team - individual template Adam Worricker Head of Client Operations ### team individual box Adam Worricker Head of Client Operations ### featured - insights monitors whitepapers webinars Credit Spotlight on UK Water Industry UK water firms are under scrutiny after the recent default of Thames Water owner Kemble; Credit Benchmark's consensus risk data has been flagging problems in the water sector for some time. Default risk forecasts estimate that sector risk is set to rise by at least 10% in the next year, with potential to rise by as much as 20%.Read more. ### page top - insights monitor whitepapers webinars ### Insights, Monitors and whitepapers - new theme Credit Spotlight on UK Water Industry UK water firms are under scrutiny after the recent default of Thames Water owner Kemble; Credit Benchmark's consensus risk data has been flagging problems in the water sector for some time. Default risk forecasts estimate that sector risk is set to rise by at least 10% in the next year, with potential to rise by as much as 20%.Read more. ### Credit risk IQ in depth ACCESS REPORTS Sign up What Do the Industry Reports Analyse? Credit Benchmark generates forward-looking analyses of default risk across 5,000+ industry reports. These reports span various geographies, industries*, with rated and unrated**, privately and publicly owned entities. Credit Benchmark dives into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. Each credit index is made up of the ratings of individual entities within it. Each entity within the index has a rating or Probability of Default (“PD”). The credit index forms the aggregated view of the credit risk of those entities as a whole. * Corporates & Financials are currently available. Please get in touch for information on other types of entities. ** Rated by S&P or Fitch How is a Credit Consensus Rating (CCR) Derived? Large sophisticated banks set their own internal credit risk ratings in order to manage the credit risk of the counterparties they lend to. For example: whether to lend in the first place, how much to lend and how much to charge the counterparty. Their credit ratings for counterparties are derived by credit risk analysts & statistical modellers taking into account a range of quantitative variables (as an example, for a Corporate this might include leverage and debt ratios from the company’s management and public financial statements) and qualitative factors (which could include for example brand value and stability of management). The ratings are regularly updated to reflect changes in each counterparty’s economic situation. The ratings help banks manage their risk of non-payment (default or bankruptcy) from a counterparty they have lent to (default risk). These loans typically span many years, so the banks assessments look forward over the next year and evaluate the risk that the counterparty will default1 over the next 12 months.Each bank has developed & refined its own credit risk assessment & modelling process. Banks each have their own independent validation and review teams, who challenge the processes and review decisions. Banks' models and rating processes are also subject to review by financial regulators (such as the Fed, EBA, Bank of England) and/or the banks' own auditors. Credit Benchmark receives from banks a 1-year forward-looking Probability of Default (PD) linked to the banks' internal rating. Credit Benchmark derives a Credit Consensus Rating (CCR) using the following steps: These PDs are averaged, to get the average view of the risk of the counterparty defaulting over the next year. This average view is called the consensus because it is a consensus opinion of the default risk of the counterparty. The consensus PD is mapped to a letter rating using a custom Credit Benchmark rating scale that has been calibrated using banks' internal rating scales. The diagram outlines the process for an example entity.In this example, five banks have sent a PD for the same counterparty, the average of which is 40 basis points (bps).Using the custom Credit Benchmark rating scale, this maps to a bbb- Credit Consensus Rating.By aggregating the view of five banks, the Credit Consensus Rating reflects a more diversified opinion of the credit risk for this entity.1 Banks contributing to Credit Benchmark follow the Basel definition of Default. What Do We Mean by Forward-Looking Analyses? The banks are providing and updating on a regular basis a 1-year forward-looking Probability of Default (PD) which feeds into all our analyses. Looking at the below graph as an example entity, you can see that the PD published for January 2023 of 2 bps is the probability of the entity defaulting between the end of January 2023 and the end of December 2024. Equally, the PD published for December 2023 of 7 bps is the probability of the entity defaulting between the end of December 2023 and the end of November 2024. Therefore, our Credit Consensus Ratings represent the forward-looking credit view of banks over the next year. Creating a Unique Legal Entity Identifier One of the main challenges of creating Credit Consensus Ratings for unique legal entities is ensuring that when bank data is aggregated together, the averaged data pertains to the same legal entity.Credit Benchmark has invested heavily in the entity mapping and concordance process, using data from Bloomberg, Dun & Bradstreet, FactSet, Thomson Reuters, country specific entity identifier databases and several public sources including the Securities Exchange Commission (SEC) and Global Legal Entity Identifiers (LEI); and the data mapping process is supported by a dedicated team of 25+ members of staff. Data Validation As part of the onboarding process for contributing banks, legal, compliance and information security requirements must be met, and a detailed methodology review must be completed to ensure that their planned data contributions are comparable with those from other contributing banks. The methodology review identifies issues with items such as guarantees and currency mismatches and assesses the comparability of the actual internal credit rating process. The aim of the methodology review is to ensure that any data differences between contributing banks arise from different views of credit risk, rather than from any other reason. Credit Benchmark does not express any view on individual models, nor does it modify the contributed data in any way. On an on-going basis quantitative rules are used to identify data inconsistencies or outliers where the Probability of Default value is materially different from other contributions or a previous contribution from the same bank. Credit Benchmark Rating Scale Notch Consensus 21-Rating Consensus 7-Rating Consensus 4-Rating Consensus 2-Rating PD Lower Bound bps PD Mid Point bps PD Upper Bound bps 1 aaa aaa IGa IG 0 0.79 1.25 2 aa+ aa IGa IG 1.25 1.68 2.25 3 aa aa IGa IG 2.25 2.7 3.25 4 aa- aa IGa IG 3.25 3.93 4.75 5 a+ a IGa IG 4.75 5.45 6.25 6 a a IGa IG 6.25 7.29 8.5 7 a- a IGa IG 8.5 10.9 14 8 bbb+ bbb IGb IG 14 17 20 9 bbb bbb IGb IG 20 24 30 10 bbb- bbb IGb IG 30 38 48 11 bb+ bb HYb HY 48 60 76 12 bb bb HYb HY 76 92 112 13 bb- bb HYb HY 112 148 195 14 b+ b HYb HY 195 267 365 15 b b HYb HY 365 487 650 16 b- b HYb HY 650 806 1,000 17 ccc+ c HYc HY 1,000 1,304 1,700 18 ccc c HYc HY 1,700 2,062 2,500 19 ccc- c HYc HY 2,500 3,041 3,700 20 cc c HYc HY 3,700 5,016 6,800 21 c c HYc HY 6800 8,246 10,000 22 d d d d 10,000 10,000 10,000 Industry Classification In addition to Probability of Default, banks also include other metadata associated with each entity, this includes the banks internal industry classification. Credit Benchmark has developed an industry schema into which the banks' own industry categories are mapped.As part of Credit Benchmark’s process for mapping entity level data, Credit Benchmark calculates a consensus industry classification for each entity using the entity-level industry data included in the banks' data files.The industry schema provides a hierarchical taxonomy going from broad categorisations (such as the Industry or Super Sector) down to a more granular one (such as Sub Sector).The Credit Benchmark’s industry schema for Corporates & Financial Institutions is shown below. Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Super Sector Sector Sub Sector Banks Banks Banks Financial Services Financial Services Asset Managers Financial Services Financial Services Consumer Finance Financial Services Financial Services Investment Services Financial Services Financial Services Mortgage Finance Financial Services Financial Services Specialty Finance Insurance Life Insurance Life Insurance Insurance Nonlife Insurance Full Line Insurance Insurance Nonlife Insurance Insurance Brokers Insurance Nonlife Insurance Monoline Insurance Insurance Nonlife Insurance Property & Casualty Insurance Insurance Nonlife Insurance Reinsurance Real Estate Real Estate Investment & Services Real Estate Holding & Development Real Estate Real Estate Investment & Services Real Estate Services Real Estate Real Estate Investment Trusts Diversified REITs Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Real Estate Real Estate Investment Trusts Industrial & Office REITs Real Estate Real Estate Investment Trusts Mortgage REITs Real Estate Real Estate Investment Trusts Residential REITs Real Estate Real Estate Investment Trusts Retail REITs Real Estate Real Estate Investment Trusts Specialty REITs Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Super Sector Sector Sub Sector Banks Banks Banks Financial Services Financial Services Asset Managers Financial Services Financial Services Consumer Finance Financial Services Financial Services Investment Services Financial Services Financial Services Mortgage Finance Financial Services Financial Services Specialty Finance Insurance Life Insurance Life Insurance Insurance Nonlife Insurance Full Line Insurance Insurance Nonlife Insurance Insurance Brokers Insurance Nonlife Insurance Monoline Insurance Insurance Nonlife Insurance Property & Casualty Insurance Insurance Nonlife Insurance Reinsurance Real Estate Real Estate Investment & Services Real Estate Holding & Development Real Estate Real Estate Investment & Services Real Estate Services Real Estate Real Estate Investment Trusts Diversified REITs Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Real Estate Real Estate Investment Trusts Industrial & Office REITs Real Estate Real Estate Investment Trusts Mortgage REITs Real Estate Real Estate Investment Trusts Residential REITs Real Estate Real Estate Investment Trusts Retail REITs Real Estate Real Estate Investment Trusts Specialty REITs If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Credit risk IQ in depth ACCESS REPORTS Sign up What Do the Industry Reports Analyse? Credit Benchmark generates forward-looking analyses of default risk across 5,000+ industry reports. These reports span various geographies, industries*, with rated and unrated**, privately and publicly owned entities. Credit Benchmark dives into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. Each credit index is made up of the ratings of individual entities within it. Each entity within the index has a rating or Probability of Default (“PD”). The credit index forms the aggregated view of the credit risk of those entities as a whole. * Corporates & Financials are currently available. Please get in touch for information on other types of entities. ** Rated by S&P or Fitch How is a Credit Consensus Rating (CCR) Derived? Large sophisticated banks set their own internal credit risk ratings in order to manage the credit risk of the counterparties they lend to. For example: whether to lend in the first place, how much to lend and how much to charge the counterparty. Their credit ratings for counterparties are derived by credit risk analysts & statistical modellers taking into account a range of quantitative variables (as an example, for a Corporate this might include leverage and debt ratios from the company’s management and public financial statements) and qualitative factors (which could include for example brand value and stability of management). The ratings are regularly updated to reflect changes in each counterparty’s economic situation. The ratings help banks manage their risk of non-payment (default or bankruptcy) from a counterparty they have lent to (default risk). These loans typically span many years, so the banks assessments look forward over the next year and evaluate the risk that the counterparty will default1 over the next 12 months.Each bank has developed & refined its own credit risk assessment & modelling process. Banks each have their own independent validation and review teams, who challenge the processes and review decisions. Banks' models and rating processes are also subject to review by financial regulators (such as the Fed, EBA, Bank of England) and/or the banks' own auditors. Credit Benchmark receives from banks a 1-year forward-looking Probability of Default (PD) linked to the banks' internal rating. Credit Benchmark derives a Credit Consensus Rating (CCR) using the following steps: These PDs are averaged, to get the average view of the risk of the counterparty defaulting over the next year. This average view is called the consensus because it is a consensus opinion of the default risk of the counterparty. The consensus PD is mapped to a letter rating using a custom Credit Benchmark rating scale that has been calibrated using banks' internal rating scales. The diagram outlines the process for an example entity.In this example, five banks have sent a PD for the same counterparty, the average of which is 40 basis points (bps).Using the custom Credit Benchmark rating scale, this maps to a bbb- Credit Consensus Rating.By aggregating the view of five banks, the Credit Consensus Rating reflects a more diversified opinion of the credit risk for this entity.1 Banks contributing to Credit Benchmark follow the Basel definition of Default. What Do We Mean by Forward-Looking Analyses? The banks are providing and updating on a regular basis a 1-year forward-looking Probability of Default (PD) which feeds into all our analyses. Looking at the below graph as an example entity, you can see that the PD published for January 2023 of 2 bps is the probability of the entity defaulting between the end of January 2023 and the end of December 2024. Equally, the PD published for December 2023 of 7 bps is the probability of the entity defaulting between the end of December 2023 and the end of November 2024. Therefore, our Credit Consensus Ratings represent the forward-looking credit view of banks over the next year. Creating a Unique Legal Entity Identifier One of the main challenges of creating Credit Consensus Ratings for unique legal entities is ensuring that when bank data is aggregated together, the averaged data pertains to the same legal entity.Credit Benchmark has invested heavily in the entity mapping and concordance process, using data from Bloomberg, Dun & Bradstreet, FactSet, Thomson Reuters, country specific entity identifier databases and several public sources including the Securities Exchange Commission (SEC) and Global Legal Entity Identifiers (LEI); and the data mapping process is supported by a dedicated team of 25+ members of staff. Data Validation As part of the onboarding process for contributing banks, legal, compliance and information security requirements must be met, and a detailed methodology review must be completed to ensure that their planned data contributions are comparable with those from other contributing banks. The methodology review identifies issues with items such as guarantees and currency mismatches and assesses the comparability of the actual internal credit rating process. The aim of the methodology review is to ensure that any data differences between contributing banks arise from different views of credit risk, rather than from any other reason. Credit Benchmark does not express any view on individual models, nor does it modify the contributed data in any way. On an on-going basis quantitative rules are used to identify data inconsistencies or outliers where the Probability of Default value is materially different from other contributions or a previous contribution from the same bank. Credit Benchmark Rating Scale Notch Consensus 21-Rating Consensus 7-Rating Consensus 4-Rating Consensus 2-Rating PD Lower Bound bps PD Mid Point bps PD Upper Bound bps 1 aaa aaa IGa IG 0 0.79 1.25 2 aa+ aa IGa IG 1.25 1.68 2.25 3 aa aa IGa IG 2.25 2.7 3.25 4 aa- aa IGa IG 3.25 3.93 4.75 5 a+ a IGa IG 4.75 5.45 6.25 6 a a IGa IG 6.25 7.29 8.5 7 a- a IGa IG 8.5 10.9 14 8 bbb+ bbb IGb IG 14 17 20 9 bbb bbb IGb IG 20 24 30 10 bbb- bbb IGb IG 30 38 48 11 bb+ bb HYb HY 48 60 76 12 bb bb HYb HY 76 92 112 13 bb- bb HYb HY 112 148 195 14 b+ b HYb HY 195 267 365 15 b b HYb HY 365 487 650 16 b- b HYb HY 650 806 1,000 17 ccc+ c HYc HY 1,000 1,304 1,700 18 ccc c HYc HY 1,700 2,062 2,500 19 ccc- c HYc HY 2,500 3,041 3,700 20 cc c HYc HY 3,700 5,016 6,800 21 c c HYc HY 6800 8,246 10,000 22 d d d d 10,000 10,000 10,000 Industry Classification In addition to Probability of Default, banks also include other metadata associated with each entity, this includes the banks internal industry classification. Credit Benchmark has developed an industry schema into which the banks' own industry categories are mapped.As part of Credit Benchmark’s process for mapping entity level data, Credit Benchmark calculates a consensus industry classification for each entity using the entity-level industry data included in the banks' data files.The industry schema provides a hierarchical taxonomy going from broad categorisations (such as the Industry or Super Sector) down to a more granular one (such as Sub Sector).The Credit Benchmark’s industry schema for Corporates & Financial Institutions is shown below. Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Super Sector Sector Sub Sector Banks Banks Banks Financial Services Financial Services Asset Managers Financial Services Financial Services Consumer Finance Financial Services Financial Services Investment Services Financial Services Financial Services Mortgage Finance Financial Services Financial Services Specialty Finance Insurance Life Insurance Life Insurance Insurance Nonlife Insurance Full Line Insurance Insurance Nonlife Insurance Insurance Brokers Insurance Nonlife Insurance Monoline Insurance Insurance Nonlife Insurance Property & Casualty Insurance Insurance Nonlife Insurance Reinsurance Real Estate Real Estate Investment & Services Real Estate Holding & Development Real Estate Real Estate Investment & Services Real Estate Services Real Estate Real Estate Investment Trusts Diversified REITs Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Real Estate Real Estate Investment Trusts Industrial & Office REITs Real Estate Real Estate Investment Trusts Mortgage REITs Real Estate Real Estate Investment Trusts Residential REITs Real Estate Real Estate Investment Trusts Retail REITs Real Estate Real Estate Investment Trusts Specialty REITs Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Super Sector Sector Sub Sector Banks Banks Banks Financial Services Financial Services Asset Managers Financial Services Financial Services Consumer Finance Financial Services Financial Services Investment Services Financial Services Financial Services Mortgage Finance Financial Services Financial Services Specialty Finance Insurance Life Insurance Life Insurance Insurance Nonlife Insurance Full Line Insurance Insurance Nonlife Insurance Insurance Brokers Insurance Nonlife Insurance Monoline Insurance Insurance Nonlife Insurance Property & Casualty Insurance Insurance Nonlife Insurance Reinsurance Real Estate Real Estate Investment & Services Real Estate Holding & Development Real Estate Real Estate Investment & Services Real Estate Services Real Estate Real Estate Investment Trusts Diversified REITs Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Real Estate Real Estate Investment Trusts Industrial & Office REITs Real Estate Real Estate Investment Trusts Mortgage REITs Real Estate Real Estate Investment Trusts Residential REITs Real Estate Real Estate Investment Trusts Retail REITs Real Estate Real Estate Investment Trusts Specialty REITs If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Credit risk IQ types of credit ACCESS REPORTS Sign up What Types of Analysis are Available? With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark's Credit Risk IQ analytics spotlight a variety of different metrics to analyse trends and patterns.What Types of Analysis are Available?With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark's Credit Risk IQ analytics spotlight a variety of different metrics to analyse trends and patterns. Credit Indices: Trends This type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors.Credit Indices: TrendsThis type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors. This example plots the change in credit risk as a percentage (starting from a base level in October 2022) for European Corporates, comparing rated and unrated European Corporates.You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in March 2023. Rated entities overall decreased in credit risk (-2.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1% PD change over the last 12 months). This example plots the change in credit risk as a percentage (starting from a base level in October 2022) for European Corporates, comparing rated and unrated European Corporates.You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in March 2023. Rated entities overall decreased in credit risk (-2.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1% PD change over the last 12 months). This example shows an alternative visualization of the same type of analysis, only adapting the plot to account for a greater number of segments.You can see that there is a sharp increase in credit risk in Africa over the last year with Botswana, Nigeria, and Kenya leading the way with a respective +6%, +24%, and +27% PD increase over the last 12 months. This example shows an alternative visualization of the same type of analysis, only adapting the plot to account for a greater number of segments.You can see that there is a sharp increase in credit risk in Africa over the last year with Botswana, Nigeria, and Kenya leading the way with a respective +6%, +24%, and +27% PD increase over the last 12 months. Credit Distribution This plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time.Credit DistributionThis plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time. The example shows that a majority of ratings within our rated US Oil & Gas Producers segment lies in the bb category, but this proportion has been decreasing over the last 12 months.Looking specifically at private entities within that segment, you can see that there is a higher percentage of HY (from bb to c) entities compared to the credit distribution of public entities. This might be worth monitoring as financial information on private entities is often harder to get. Notch Movements The notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgrades.Notch MovementsThe notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgrades. In the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch.In the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch. Transition Matrix The credit rating transition matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating at the start of the period and the columns the rating at the end of the period. The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as:Transition Matrix The credit rating transition matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating at the start of the period and the columns the rating at the end of the period. The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as: 4-Category Rating 21-Category Ratings IGa aaa, aa+, aa, aa-, a+, a, a- IGb bbb+, bbb, bbb- HYb bb+, bb, bb-, b+, b, b- HYc ccc+, ccc, ccc-, cc, c For instance, looking at the first row and second column of this example credit rating transition matrix, it reveals that, out of a total of 5,642 entities, 6.6% transitioned from IGa to IGb over the specified time period.The value in the HYc row and HYb column shows that 26.1% of the 161 HYc entities improved from HYc to HYb. Correlation Matrix The correlation matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations:A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa.A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa.A value approaching 0 signifies minimal to no relationship between the segments.This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments.Correlation MatrixThe correlation matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations:A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa.A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa.A value approaching 0 signifies minimal to no relationship between the segments.This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments. In this instance, Mexico and Argentina demonstrate the lowest correlation, with a value of -0.5. Conversely, the highest degree of correlation is observed between Mexico and the broader Latin American segment, with a value of 0.73. In this instance, Panama and Argentina demonstrate the lowest correlation, with a value of -0.42. Conversely, the highest degree of correlation is observed between Peru and the broader Latin American segment, with a value of 0.76. Credit Indices: Upgrades vs. Downgrades The dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded.For each sector, the number of upgrades and the number of downgrades is calculated.The net position expressed as the percentage of upgrades minus downgrades is plotted.If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar.This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change.Credit Indices: Upgrades vs. DowngradesThe dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded.For each sector, the number of upgrades and the number of downgrades is calculated.The net position expressed as the percentage of upgrades minus downgrades is plotted.If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar.This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change. In this example, the Media and Retail industries have experienced runs of more downgrades over the 12 months shown.In contrast, companies in the Travel & Leisure sector have continued to show more upgrades. Breakdown The Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary.This helps better understand the type of entities in the industry and in turn, better interpret the different analyses.BreakdownThe Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary.This helps better understand the type of entities in the industry and in turn, better interpret the different analyses. The graphs show an example breakdown of the entities included in the Industry Reports.The majority of entities are in Europe (~40%), North America (~36%), and Asia (~12%).About 70% are Corporates and 30% are Financials.15% are rated by either S&P or Fitch and 85% are unrated.13% are publicly owned and 87% are private entities. The graphs show an example breakdown of the entities included in the Industry Reports.The majority of entities are in Europe (~40%), North America (~36%), and Asia (~12%).About 70% are Corporates and 30% are Financials.15% are rated by either S&P or Fitch and 85% are unrated.13% are publicly owned and 87% are private entities. If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Credit risk IQ types of credit ACCESS REPORTS Sign up What Types of Analysis are Available? With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark's Credit Risk IQ analytics spotlight a variety of different metrics to analyse trends and patterns.What Types of Analysis are Available?With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark's Credit Risk IQ analytics spotlight a variety of different metrics to analyse trends and patterns. Credit Indices: Trends This type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors.Credit Indices: TrendsThis type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors. This example plots the change in credit risk as a percentage (starting from a base level in October 2022) for European Corporates, comparing rated and unrated European Corporates.You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in March 2023. Rated entities overall decreased in credit risk (-2.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1% PD change over the last 12 months). This example plots the change in credit risk as a percentage (starting from a base level in October 2022) for European Corporates, comparing rated and unrated European Corporates.You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in March 2023. Rated entities overall decreased in credit risk (-2.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1% PD change over the last 12 months). This example shows an alternative visualization of the same type of analysis, only adapting the plot to account for a greater number of segments.You can see that there is a sharp increase in credit risk in Africa over the last year with Botswana, Nigeria, and Kenya leading the way with a respective +6%, +24%, and +27% PD increase over the last 12 months. This example shows an alternative visualization of the same type of analysis, only adapting the plot to account for a greater number of segments.You can see that there is a sharp increase in credit risk in Africa over the last year with Botswana, Nigeria, and Kenya leading the way with a respective +6%, +24%, and +27% PD increase over the last 12 months. Credit Distribution This plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time.Credit DistributionThis plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time. The example shows that a majority of ratings within our rated US Oil & Gas Producers segment lies in the bb category, but this proportion has been decreasing over the last 12 months.Looking specifically at private entities within that segment, you can see that there is a higher percentage of HY (from bb to c) entities compared to the credit distribution of public entities. This might be worth monitoring as financial information on private entities is often harder to get. Notch Movements The notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgrades.Notch MovementsThe notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgrades. In the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch.In the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch. Transition Matrix The credit rating transition matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating at the start of the period and the columns the rating at the end of the period. The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as:Transition Matrix The credit rating transition matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating at the start of the period and the columns the rating at the end of the period. The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as: 4-Category Rating 21-Category Ratings IGa aaa, aa+, aa, aa-, a+, a, a- IGb bbb+, bbb, bbb- HYb bb+, bb, bb-, b+, b, b- HYc ccc+, ccc, ccc-, cc, c For instance, looking at the first row and second column of this example credit rating transition matrix, it reveals that, out of a total of 5,642 entities, 6.6% transitioned from IGa to IGb over the specified time period.The value in the HYc row and HYb column shows that 26.1% of the 161 HYc entities improved from HYc to HYb. Correlation Matrix The correlation matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations:A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa.A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa.A value approaching 0 signifies minimal to no relationship between the segments.This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments.Correlation MatrixThe correlation matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations:A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa.A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa.A value approaching 0 signifies minimal to no relationship between the segments.This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments. In this instance, Mexico and Argentina demonstrate the lowest correlation, with a value of -0.5. Conversely, the highest degree of correlation is observed between Mexico and the broader Latin American segment, with a value of 0.73. In this instance, Panama and Argentina demonstrate the lowest correlation, with a value of -0.42. Conversely, the highest degree of correlation is observed between Peru and the broader Latin American segment, with a value of 0.76. Credit Indices: Upgrades vs. Downgrades The dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded.For each sector, the number of upgrades and the number of downgrades is calculated.The net position expressed as the percentage of upgrades minus downgrades is plotted.If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar.This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change.Credit Indices: Upgrades vs. DowngradesThe dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded.For each sector, the number of upgrades and the number of downgrades is calculated.The net position expressed as the percentage of upgrades minus downgrades is plotted.If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar.This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change. In this example, the Media and Retail industries have experienced runs of more downgrades over the 12 months shown.In contrast, companies in the Travel & Leisure sector have continued to show more upgrades. Breakdown The Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary.This helps better understand the type of entities in the industry and in turn, better interpret the different analyses.BreakdownThe Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary.This helps better understand the type of entities in the industry and in turn, better interpret the different analyses. The graphs show an example breakdown of the entities included in the Industry Reports.The majority of entities are in Europe (~40%), North America (~36%), and Asia (~12%).About 70% are Corporates and 30% are Financials.15% are rated by either S&P or Fitch and 85% are unrated.13% are publicly owned and 87% are private entities. The graphs show an example breakdown of the entities included in the Industry Reports.The majority of entities are in Europe (~40%), North America (~36%), and Asia (~12%).About 70% are Corporates and 30% are Financials.15% are rated by either S&P or Fitch and 85% are unrated.13% are publicly owned and 87% are private entities. If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Credit risk IQ industry trends ACCESS REPORTS Sign up What Do the Industry Reports Cover? The 5,000+ monthly Industry Reports analyse credit risk on a subset of our Corporate and Financial entities. For a demo and more information on the underlying Credit Benchmark dataset, please get in touch here.ExamplesHere are some examples to give you an idea of what the reports look like:United States Corporates: Industry AnalysisGerman Financials: Super Sector AnalysisAsian Retail: Ownership Analysis  Different Comparisons There are many ways to differentiate risk. The industry reports split the universe of consensus ratings across related segments to allow you to see where credit risk is diverging. Geography Comparison Credit Benchmark allows you to compare risk across a multitude of different countries spanning all regions. Regional Comparison The region analysis reports compare credit risk trends across different regions.The left graph shows how average credit risk has changed within the Consumer Services industry across Asia, Africa, Europe, Pacific, Latin America and North America throughout 2023.Asia and Africa saw steady improvements, with risk decreasing.This compares with North America and Latin America where risk has increased. Country Comparison The example here shows the distribution of credit consensus ratings in Singapore, India, South Korea, Hong Kong, China and Japan, for Industrials at the end of 2023.The Credit Benchmark dataset includes over 900 Industrial entities in Asia. Industry Comparison Credit Benchmark defines a hierarchical industry structure which goes from broad categorisations such as Corporates and Financials, down to more granular ones such as Trucking and Reinsurance.The Industry Reports include comparisons across related sub-industries. Sub Sector Comparison Sub sector analysis reports compare credit risk across a given sector.The sub sectors within the Industrial Transportation sector can be seen in the Industry Classification. They are Delivery Services, Marine Transportation, Railroads, Transportation Services and Trucking.The graph shows whether there have been net upgrades or downgrades each month.Delivery Services and Railroads experienced significantly more downgrades than upgrades in October 2023. Ownership Comparison Ownership analysis reports contrast credit risk for public and private companies.With their different abilities to raise funding and control the direction of the company private companies' credit risk can often change differently from public ones. Credit Benchmark publishes a consensus rating for over 200 US Automobiles & Parts companies, of which approximately 80% are private.Throughout 2023, private US Automobiles & Parts companies saw their credit risk decrease by 6%.However, for public companies, it increased by 5%. Rated/Unrated Comparison Rated/unrated analysis reports contrast credit risk for entities rated by traditional credit rating agencies (CRAs) with entities that are unrated.Being rated by a traditional rating agency might increase the number of investors, for example by giving confidence in the company or allowing investors who may have restrictions on what they can invest in. Approximately 88% of the entity-level consensus ratings for Canadian Basic Materials are unrated.There are clear differences in the credit quality of the unrated entities and those with a rating from a CRA.The graph shows that the CRA-rated entities are mostly spread across the a, bbb and bb ratings, while consensus ratings for unrated entities are mainly sitting in bb. How Can the Industry Reports Be Used? The Credit Risk IQ reports provide unique insights into how credit risk is changing across a wide range of different sectors of the economy. The breadth of the Credit Benchmark dataset means that trends and themes can be discovered that are otherwise hard to find elsewhere.Many industries do not behave uniformly and can diverge in unexpected ways. The forward-looking nature of Credit Consensus Ratings (CCRs) means that our analyses provide an indicator of where credit risk is heading.As an example, they could be used in the following ways:1. Benchmark credit risk in your portfolio against Credit Benchmark’s representative credit indices.2. Report to stakeholders on credit risk trends in relevant sectors. If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Credit risk IQ industry trends ACCESS REPORTS Sign up What Do the Industry Reports Cover? The 5,000+ monthly Industry Reports analyse credit risk on a subset of our Corporate and Financial entities. For a demo and more information on the underlying Credit Benchmark dataset, please get in touch here.ExamplesHere are some examples to give you an idea of what the reports look like:United States Corporates: Industry AnalysisGerman Financials: Super Sector AnalysisAsian Retail: Ownership Analysis  Different Comparisons There are many ways to differentiate risk. The industry reports split the universe of consensus ratings across related segments to allow you to see where credit risk is diverging. Geography Comparison Credit Benchmark allows you to compare risk across a multitude of different countries spanning all regions. Regional Comparison The region analysis reports compare credit risk trends across different regions.The left graph shows how average credit risk has changed within the Consumer Services industry across Asia, Africa, Europe, Pacific, Latin America and North America throughout 2023.Asia and Africa saw steady improvements, with risk decreasing.This compares with North America and Latin America where risk has increased. Country Comparison The example here shows the distribution of credit consensus ratings in Singapore, India, South Korea, Hong Kong, China and Japan, for Industrials at the end of 2023.The Credit Benchmark dataset includes over 900 Industrial entities in Asia. Industry Comparison Credit Benchmark defines a hierarchical industry structure which goes from broad categorisations such as Corporates and Financials, down to more granular ones such as Trucking and Reinsurance.The Industry Reports include comparisons across related sub-industries. Sub Sector Comparison Sub sector analysis reports compare credit risk across a given sector.The sub sectors within the Industrial Transportation sector can be seen in the Industry Classification. They are Delivery Services, Marine Transportation, Railroads, Transportation Services and Trucking.The graph shows whether there have been net upgrades or downgrades each month.Delivery Services and Railroads experienced significantly more downgrades than upgrades in October 2023. Ownership Comparison Ownership analysis reports contrast credit risk for public and private companies.With their different abilities to raise funding and control the direction of the company private companies' credit risk can often change differently from public ones. Credit Benchmark publishes a consensus rating for over 200 US Automobiles & Parts companies, of which approximately 80% are private.Throughout 2023, private US Automobiles & Parts companies saw their credit risk decrease by 6%.However, for public companies, it increased by 5%. Rated/Unrated Comparison Rated/unrated analysis reports contrast credit risk for entities rated by traditional credit rating agencies (CRAs) with entities that are unrated.Being rated by a traditional rating agency might increase the number of investors, for example by giving confidence in the company or allowing investors who may have restrictions on what they can invest in. Approximately 88% of the entity-level consensus ratings for Canadian Basic Materials are unrated.There are clear differences in the credit quality of the unrated entities and those with a rating from a CRA.The graph shows that the CRA-rated entities are mostly spread across the a, bbb and bb ratings, while consensus ratings for unrated entities are mainly sitting in bb. How Can the Industry Reports Be Used? The Credit Risk IQ reports provide unique insights into how credit risk is changing across a wide range of different sectors of the economy. The breadth of the Credit Benchmark dataset means that trends and themes can be discovered that are otherwise hard to find elsewhere.Many industries do not behave uniformly and can diverge in unexpected ways. The forward-looking nature of Credit Consensus Ratings (CCRs) means that our analyses provide an indicator of where credit risk is heading.As an example, they could be used in the following ways:1. Benchmark credit risk in your portfolio against Credit Benchmark’s representative credit indices.2. Report to stakeholders on credit risk trends in relevant sectors. If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Credit IQ Data analytics - new theme ACCESS REPORTS Sign up Credit Benchmark’s Credit Risk IQ Industry Trends show how credit risk is evolving through time.Our dataset of more than 100,000 Credit Consensus Ratings (CCRs), derived from the contributed risk views from over 40 leading banks globally provides unique insights into the credit quality of industries and countries beyond that of traditional sources of credit ratings. The 5,000+ monthly Industry Reports highlight the breadth and depth of Credit Benchmark’s entity-level consensus ratings. The reports show how banks' predictions of credit risk over the next year are changing across different industries. Industry Reports The reports compare a wide range of geographies and industries, as well as rated/unrated* and public/private companies. Types of Credit Risk Analysis The Credit Consensus Ratings can be analysed in various ways. We explain what the different types of analysis are. In Depth Looking for more details on how the entity-level Credit Consensus Ratings and industry trends are derived? Read more here.*Rated by S&P or Fitch In Numbers If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Credit IQ Data analytics - new theme ACCESS REPORTS Sign up Credit Benchmark’s Credit Risk IQ Industry Trends show how credit risk is evolving through time.Our dataset of more than 100,000 Credit Consensus Ratings (CCRs), derived from the contributed risk views from over 40 leading banks globally provides unique insights into the credit quality of industries and countries beyond that of traditional sources of credit ratings. The 5,000+ monthly Industry Reports highlight the breadth and depth of Credit Benchmark’s entity-level consensus ratings. The reports show how banks' predictions of credit risk over the next year are changing across different industries. Industry Reports The reports compare a wide range of geographies and industries, as well as rated/unrated* and public/private companies. Types of Credit Risk Analysis The Credit Consensus Ratings can be analysed in various ways. We explain what the different types of analysis are. In Depth Looking for more details on how the entity-level Credit Consensus Ratings and industry trends are derived? Read more here.*Rated by S&P or Fitch In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS REPORTS ### Specialty credit - new theme Specialty Credit and Political Risk Insurance and ReinsuranceCredit Consensus Data for Specialty Credit and Political Risk Insurance and Reinsurance BOOK A DEMO Why Credit Benchmark?Underwrite more business, more confidentlyA tiny percentage of underwriting opportunities are bound, leaving a huge amount of potential business on the table for direct insurers. Meanwhile, reinsurers need to map multiple books of business to effectively measure and report credit risk in their portfolio. Relying on traditional credit risk data presents challenges: much of the insurance market is private or unrated, and available credit information can become stale quickly. Time-consuming analysis leads to inefficiencies when screening for new business. Using credit consensus data, direct insurers can see what leading global financial institutions think of obligors, uncovering more compelling underwriting opportunities with fewer resources. Reinsurers can map, measure and monitor their portfolio more effectively. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client A leading CPR business within the Lloyd’s of London specialty market arm of a top three US P&C insurance group.  The Challenge The underwriters and credit analysts at this insurer found that traditional agency rating coverage of their names of interest fell short, and they lacked confidence in the quality and provenance of the data available to them. The actuaries were spending too much time on entity mapping and using external data references that were refreshed infrequently.  The Solution Credit Benchmark’s extensive consensus coverage on unrated and private names increased the client’s underwriting activity by enhancing the decision-making process, while the provenance of the data provided increased peace of mind. Twice-monthly updates informed underwriting strategy and enabled increased management reporting, and the team benefited from Credit Benchmark doing the heavy lifting of entity mapping, allowing them to do business more efficiently. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Specialty credit - new theme Specialty Credit and Political Risk Insurance and ReinsuranceCredit Consensus Data for Specialty Credit and Political Risk Insurance and Reinsurance BOOK A DEMO Why Credit Benchmark?Underwrite more business, more confidentlyA tiny percentage of underwriting opportunities are bound, leaving a huge amount of potential business on the table for direct insurers. Meanwhile, reinsurers need to map multiple books of business to effectively measure and report credit risk in their portfolio. Relying on traditional credit risk data presents challenges: much of the insurance market is private or unrated, and available credit information can become stale quickly. Time-consuming analysis leads to inefficiencies when screening for new business. Using credit consensus data, direct insurers can see what leading global financial institutions think of obligors, uncovering more compelling underwriting opportunities with fewer resources. Reinsurers can map, measure and monitor their portfolio more effectively. SolutionsHow we can help your business BOOK A DEMO Confidently underwrite more opportunities within your target geographies, sectors and credit risk tolerance Sift out which opportunities justify the attention of precious analyst resources especially in the more opaque private or unrated space. Build portfolio resilience and fine-tune underwriting strategy by monitoring the portfolio by individual names, sectors and geographies with consensus credit risk data and analytics. Facilitate more meaningful and frequent management reporting, especially under quickly changing market conditions. Make better sense of the legal entities in a book of business with coverage of parent and subsidiary-level entities and using Credit Benchmark’s sophisticated mapping engine. Help CPR actuaries finesse pricing models with unique consensus LGD data and sector credit risk correlations produced from the expertise of global banks. Case Study  The Client A leading CPR business within the Lloyd’s of London specialty market arm of a top three US P&C insurance group.  The Challenge The underwriters and credit analysts at this insurer found that traditional agency rating coverage of their names of interest fell short, and they lacked confidence in the quality and provenance of the data available to them. The actuaries were spending too much time on entity mapping and using external data references that were refreshed infrequently.  The Solution Credit Benchmark’s extensive consensus coverage on unrated and private names increased the client’s underwriting activity by enhancing the decision-making process, while the provenance of the data provided increased peace of mind. Twice-monthly updates informed underwriting strategy and enabled increased management reporting, and the team benefited from Credit Benchmark doing the heavy lifting of entity mapping, allowing them to do business more efficiently. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Significant risk transfer - new theme Significant Risk Transfers and Capital Relief TradesCredit Consensus Data for Risk Sharing Transactions BOOK A DEMO Why Credit Benchmark?Credit Benchmark data can help drive efficiencies and transparency in your risk sharing businessSignificant Risk Transfers, also known as Capital Relief Trades, are growing in popularity as banks seek to release and redeploy regulatory capital, and investors are looking to benefit from exposures to bank-owned assets. As a result, investors require a higher level of informational transparency than what is currently available in the market to ensure that they invest in portfolios that accurately reflect their risk / return profile. Credit Benchmark's consensus data and analytics are increasingly utilized by a growing number of investors and issuing banks for greater trade intelligence as market conditions become more challenging. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client The portfolio management team within a leading European private money management firm, conducting capital relief trades with European banks. The Challenge A lack of public ratings, and data staleness for those which were available meant assessing the risk of a new trade was difficult. This was especially true when trying to enter new markets where reliable credit risk data is scarce. These obstacles also made it harder to monitor changes in the risk profile of existing portfolios. The Solution Credit Benchmark’s strong coverage on publicly unrated names granted the client confidence to undertake more trades and better monitor their existing portfolio for changes in risk. Noting divergences between Credit Consensus Ratings and traditional agency ratings was important to the client as they considered the bank-sourced consensus view as more trustworthy and up-to-date, and this allowed them leverage in pricing meetings. The provenance of the data based on the internal risk views of over 40 leading global banks also gave them comfort given the fact their trading counterparts are part of a peer group of the same banks providing their risk views to the credit consensus. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Significant risk transfer - new theme Significant Risk Transfers and Capital Relief TradesCredit Consensus Data for Risk Sharing Transactions BOOK A DEMO Why Credit Benchmark?Credit Benchmark data can help drive efficiencies and transparency in your risk sharing businessSignificant Risk Transfers, also known as Capital Relief Trades, are growing in popularity as banks seek to release and redeploy regulatory capital, and investors are looking to benefit from exposures to bank-owned assets. As a result, investors require a higher level of informational transparency than what is currently available in the market to ensure that they invest in portfolios that accurately reflect their risk / return profile. Credit Benchmark's consensus data and analytics are increasingly utilized by a growing number of investors and issuing banks for greater trade intelligence as market conditions become more challenging. SolutionsHow we can help your business BOOK A DEMO Quickly measure the credit risk of a portfolio across publicly rated and unrated obligors, and pinpoint areas of potential concern for further analysis. Venture into new geographies with the largest global source of credit risk data, benefiting reinsurance solutions by reaching otherwise opaque markets. Complement issuer-sourced information, putting an issuing bank’s credit view into the context of those of leading global peers with real-world exposures; identify large outliers and systematic bias. Fill in the gaps in the portfolio on unrated or unknown names, supporting capital relief trades by making trades more efficient and securing appropriate pricing. Track divergences between Credit Consensus Ratings and credit rating agencies for a more up-to-date view of risk and leverage in pricing meetings, benefiting credit risk transfer strategies. Enhance investor understanding of the risk profile of undisclosed portfolios with industry, sectoral or geographical risk indices, providing valuable insights for portfolio risk management. Case Study  The Client The portfolio management team within a leading European private money management firm, conducting capital relief trades with European banks. The Challenge A lack of public ratings, and data staleness for those which were available meant assessing the risk of a new trade was difficult. This was especially true when trying to enter new markets where reliable credit risk data is scarce. These obstacles also made it harder to monitor changes in the risk profile of existing portfolios. The Solution Credit Benchmark’s strong coverage on publicly unrated names granted the client confidence to undertake more trades and better monitor their existing portfolio for changes in risk. Noting divergences between Credit Consensus Ratings and traditional agency ratings was important to the client as they considered the bank-sourced consensus view as more trustworthy and up-to-date, and this allowed them leverage in pricing meetings. The provenance of the data based on the internal risk views of over 40 leading global banks also gave them comfort given the fact their trading counterparts are part of a peer group of the same banks providing their risk views to the credit consensus. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Securities Finance - new theme Securities Finance and Prime BrokerageCredit Consensus Data for Securities Finance and Prime Brokerage BOOK A DEMO Why Credit Benchmark?Access more inventory, optimize capital allocation, and improve overall organizational efficiencyUnderstanding and communicating counterparty creditworthiness within a firm or to its clients is critical to doing business and driving prudent decision-making. The sheer volume of beneficial owners and borrowers involved in securities finance transactions creates logistical issues and data bottlenecks that can impact business. Credit Benchmark data provides transparency into the securities lending market and its participants, benefiting beneficial owners, lending agents, tri-party providers, principal borrowers, and technology data providers. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client A major US-based agent bank and asset manager.  The Challenge Many of the client’s beneficial owner and borrower names were publicly unrated, making it challenging to onboard and do business quickly. Capital constraints and regulatory imperatives made it difficult to do more standard business.  The Solution Credit Benchmark allowed the agency lending program to see the borrowers that they are facing off against. The data was presented in reporting both internally and externally to their beneficial owner clients. The front-line credit team was able to approve and review fund counterparts more efficiently, facilitating more business. Benchmarking industry classifications and counterparty ratings helped the organization reduce RWA and optimize capital. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Securities Finance - new theme Securities Finance and Prime BrokerageCredit Consensus Data for Securities Finance and Prime Brokerage BOOK A DEMO Why Credit Benchmark?Access more inventory, optimize capital allocation, and improve overall organizational efficiencyUnderstanding and communicating counterparty creditworthiness within a firm or to its clients is critical to doing business and driving prudent decision-making. The sheer volume of beneficial owners and borrowers involved in securities finance transactions creates logistical issues and data bottlenecks that can impact business. Credit Benchmark data provides transparency into the securities lending market and its participants, benefiting beneficial owners, lending agents, tri-party providers, principal borrowers, and technology data providers. SolutionsHow we can help your business BOOK A DEMO Capital management Understanding the optimal industry and rating can help benchmark portfolio-wide RWA optimization to drive the most capital-efficient business. The ability to understand what others think can help inform and support decisions to revise classifications that are detrimental. Risk management Access to Credit Consensus Ratings on 100,000+ legal entities, including banks, subsidiaries, CCPs, members, asset managers, and their underlying funds, helps clients measure, manage, and monitor counterparty risk on all sides more quickly. Alerting and monitoring capabilities track any portfolio credit risk movements. Market structure Getting permission to do business with unfamiliar or unrated counterparts is a significant challenge for any business and an obstacle for peer-to-peer flow. Credit Benchmark facilitates and speeds up approval of new types of counterparts. Enhanced reporting Consensus data seamlessly integrates into agent reporting systems, providing borrower and beneficial owner information. This data helps fill the data gaps and speeds up counterparty trading approvals. ALD and onboarding Credit Benchmark’s coverage of 38,000 funds can help improve the understanding and decision-making process by providing transparency and the ability to focus, prioritize and optimize management of capital and RWAs to do more business. Collateral management Credit Benchmark data expands collateral eligibility by combining entity-level ratings with open-source notching to the security level, offering benefits across the market and to its participants. Case Study  The Client A major US-based agent bank and asset manager.  The Challenge Many of the client’s beneficial owner and borrower names were publicly unrated, making it challenging to onboard and do business quickly. Capital constraints and regulatory imperatives made it difficult to do more standard business.  The Solution Credit Benchmark allowed the agency lending program to see the borrowers that they are facing off against. The data was presented in reporting both internally and externally to their beneficial owner clients. The front-line credit team was able to approve and review fund counterparts more efficiently, facilitating more business. Benchmarking industry classifications and counterparty ratings helped the organization reduce RWA and optimize capital. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### fund financing - new theme Fund FinancingCredit Consensus Data for Fund Financing BOOK A DEMO Why Credit Benchmark?Independent consensus credit data provides clarity within the Fund Finance marketCredit Consensus Ratings provide transparency into an otherwise opaque market where lack of representative credit risk information creates headwinds for doing business. Credit Consensus Ratings are utilised for a variety of financing solutions including subscription finance, NAV financing and GP financing. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client A major European bank.  The Challenge A large proportion of the client's LP list were publicly unrated creating challenges around the accurate assessment of the credit risk.  The Solution Following a coverage check, Credit Benchmark were able to provide robust coverage on the portfolio of interest, providing ratings on the names the client was unable to get a traditional rating agency rating for. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Securities finance - new theme Securities Finance and Prime BrokerageCredit Consensus Data for Securities Finance and Prime Brokerage BOOK A DEMO Why Credit Benchmark?Access more inventory, optimize capital allocation, and improve overall organizational efficiencyUnderstanding and communicating counterparty creditworthiness within a firm or to its clients is critical to doing business and driving prudent decision-making. The sheer volume of beneficial owners and borrowers involved in securities finance transactions creates logistical issues and data bottlenecks that can impact business. Credit Benchmark data provides transparency into the securities lending market and its participants, benefiting beneficial owners, lending agents, tri-party providers, principal borrowers, and technology data providers. SolutionsHow we can help your business BOOK A DEMO Capital management Understanding the optimal industry and rating can help benchmark portfolio-wide RWA optimization to drive the most capital-efficient business. The ability to understand what others think can help inform and support decisions to revise classifications that are detrimental. Risk management Access to Credit Consensus Ratings on 100,000+ legal entities, including banks, subsidiaries, CCPs, members, asset managers, and their underlying funds, helps clients measure, manage, and monitor counterparty risk on all sides more quickly. Alerting and monitoring capabilities track any portfolio credit risk movements. Market structure Getting permission to do business with unfamiliar or unrated counterparts is a significant challenge for any business and an obstacle for peer-to-peer flow. Credit Benchmark facilitates and speeds up approval of new types of counterparts. Enhanced reporting Consensus data seamlessly integrates into agent reporting systems, providing borrower and beneficial owner information. This data helps fill the data gaps and speeds up counterparty trading approvals. ALD and onboarding Credit Benchmark’s coverage of 38,000 funds can help improve the understanding and decision-making process by providing transparency and the ability to focus, prioritize and optimize management of capital and RWAs to do more business. Collateral management Credit Benchmark data expands collateral eligibility by combining entity-level ratings with open-source notching to the security level, offering benefits across the market and to its participants. Case Study  The Client A major US-based agent bank and asset manager.  The Challenge Many of the client’s beneficial owner and borrower names were publicly unrated, making it challenging to onboard and do business quickly. Capital constraints and regulatory imperatives made it difficult to do more standard business.  The Solution Credit Benchmark allowed the agency lending program to see the borrowers that they are facing off against. The data was presented in reporting both internally and externally to their beneficial owner clients. The front-line credit team was able to approve and review fund counterparts more efficiently, facilitating more business. Benchmarking industry classifications and counterparty ratings helped the organization reduce RWA and optimize capital. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### fund financing - new theme Fund FinancingCredit Consensus Data for Fund Financing BOOK A DEMO Why Credit Benchmark?Independent consensus credit data provides clarity within the Fund Finance marketCredit Consensus Ratings provide transparency into an otherwise opaque market where lack of representative credit risk information creates headwinds for doing business. Credit Consensus Ratings are utilised for a variety of financing solutions including subscription finance, NAV financing and GP financing. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client A major European bank.  The Challenge A large proportion of the client's LP list were publicly unrated creating challenges around the accurate assessment of the credit risk.  The Solution Following a coverage check, Credit Benchmark were able to provide robust coverage on the portfolio of interest, providing ratings on the names the client was unable to get a traditional rating agency rating for. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### fund financing - new theme Fund FinancingCredit Consensus Data for Fund Financing BOOK A DEMO Why Credit Benchmark?Independent consensus credit data provides clarity within the Fund Finance marketCredit Consensus Ratings provide transparency into an otherwise opaque market where lack of representative credit risk information creates headwinds for doing business. Credit Consensus Ratings are utilised for a variety of financing solutions including subscription finance, NAV financing and GP financing. SolutionsHow we can help your business BOOK A DEMO LP Look Through for Revolving Facilities: Credit Consensus Ratings provide transparency into the quality of LPs when there is little to no ratings information available. Net Asset Value (NAV) Financing: High degree of Credit Consensus Ratings on underlying companies. 90% of Credit Benchmark’s coverage is currently unrated by traditional ratings agencies. For firms entering the subscription finance markets, consensus data can help to plug an informational gap where a lack of a strong sponsor relationship may slow deal progress. Understanding the creditworthiness of funds and entities when evaluating the underlying collateral base for GP and LP Financing vehicles Case Study  The Client A major European bank.  The Challenge A large proportion of the client's LP list were publicly unrated creating challenges around the accurate assessment of the credit risk.  The Solution Following a coverage check, Credit Benchmark were able to provide robust coverage on the portfolio of interest, providing ratings on the names the client was unable to get a traditional rating agency rating for. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### IFRS 9 - new theme IFRS 9 / CECL Impairment BenchmarkingCredit Consensus Data for Impairments BenchmarkingUnder IFRS9 / CECL BOOK A DEMO Why Credit Benchmark?Point-in-Time term structures provide comparability for the impairment processIn addition to “through the cycle” probabilities of default, Credit Benchmark also collects and aggregates Point-in-Time (PIT) PD curves from a growing number of global banks, allowing our clients to access a comprehensive set of consensus term structures at entity-, sector-, industry-, geographical level.Leveraging the insights provided through the benchmarking outputs, clients are able to identify, justify and articulate the key drivers of variance in expected credit loss and provisions to both internal and external stakeholders. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client The model validation team at a major UK-based Bank The Challenge The model validation team wanted to implement a robust model monitoring and validation framework for IFRS 9 utilising a representative independent dataset. They were also looking to help justify amendments to models and validation framework to auditors and regulators. The Solution Credit Benchmark’s Consensus Term Structures facilitated like-for-like benchmarking on an economically representative proportion of the bank’s portfolio. Independent and representative data allowed for tangible justification to internal and external stakeholders and formed a central part of their validation and monitoring framework. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### IFRS 9 - new theme IFRS 9 / CECL Impairment BenchmarkingCredit Consensus Data for Impairments BenchmarkingUnder IFRS9 / CECL BOOK A DEMO Why Credit Benchmark?Point-in-Time term structures provide comparability for the impairment processIn addition to “through the cycle” probabilities of default, Credit Benchmark also collects and aggregates Point-in-Time (PIT) PD curves from a growing number of global banks, allowing our clients to access a comprehensive set of consensus term structures at entity-, sector-, industry-, geographical level.Leveraging the insights provided through the benchmarking outputs, clients are able to identify, justify and articulate the key drivers of variance in expected credit loss and provisions to both internal and external stakeholders. SolutionsHow we can help your business BOOK A DEMO Better understand key drivers of divergences of ECL to equip Investor Relations team to articulate Impairment comparisons. Benchmark PIT PDs / Curves against peers to allow for identification of drivers of earnings volatility. Track changes in Credit Consensus Ratings to bolster staging assessment process, compare internal staging assumptions against the consensus, and enhance view on unrated / LDP portfolios. Optimize internal processes by identifying risk areas with largest relative / absolute PD movements, monitoring rating changes well before year-end, and improving connectivity and reconciliation between credit ratings, regulatory capital, and impairment. Utilise benchmarking outputs to assess the impact of economic scenarios and weightings in impairment outcomes. Case Study  The Client The model validation team at a major UK-based Bank The Challenge The model validation team wanted to implement a robust model monitoring and validation framework for IFRS 9 utilising a representative independent dataset. They were also looking to help justify amendments to models and validation framework to auditors and regulators. The Solution Credit Benchmark’s Consensus Term Structures facilitated like-for-like benchmarking on an economically representative proportion of the bank’s portfolio. Independent and representative data allowed for tangible justification to internal and external stakeholders and formed a central part of their validation and monitoring framework. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Elementor Single Post #151 Share Repost Search Insights & Research Insights & Research Monitors Podcasts & Webinars Whitepapers In the Press Company Announcements Latest insights Related materials ### Single page Share Repost Executive SummaryUS Speculative Grade (“High Yield”) Corporate Bond Default RatesLeveraged LoansBackground: High Yield / Speculative Grade Bond Default Rate Patterns in Historic S&P DataDownload Executive Summary Key Findings Default rates for US Speculative Grade bonds and Leveraged Loans are rising, expected to peak in Q2 2024. Credit Consensus estimates are based on twice monthly DIR (Deterioration/Improvement Ratio) covering thousands of issuers across a wide range of sectors. Credit Consensus data implies 12-month rolling Q2 2024 median default rates of 4% for Speculative Grade, and 2.5% for Leveraged Loans. 25% chance of 5% or more for Speculative Grade, 3.2% or more for Leveraged Loans. 10% chance of 6%+ for Speculative Grade, 3.5% for Leveraged Loans. Worst-case (similar to 2008/9) highly unlikely but would mean 9% for Speculative Grade and 5%+ for Leveraged Loans. The recent Moody’s downgrades and review announcements for 16 US banks have come as a wake-up call to investors.  The downgrades included a number of Trust banks, usually one of the lower risk segments in the financial sector. The issue is higher interest rates: Trust banks have been heavily dependent on low-cost finance, and depositors are now becoming much more active in moving cash balances.  It highlights a broader issue – competition for funding is rising rapidly.  As a result, credit default rates are trending up, and likely to rise further over the next 12 months. S&P report a provisional June 2023 default rate for US speculative grade (“High Yield”) corporate bonds of 3.24% (up a hefty 74Bps from 2.5% in March), and this is currently projected to hit 4.25% by Q2 2024. They also project a pessimistic scenario where defaults hit 6.25%, and an optimistic scenario where they drop back to 1.75%. The June increase is above the recent trend, so it is possible that all the S&P 2024 projections – optimistic, median and pessimistic – may be revised upwards in the second half of this year. Credit Consensus Ratings[1] imply a broadly equivalent mid-2024 default rate in the range of 3.3% to 5.0%. The median projection is 4.0%, but the default rate could plausibly reach 7% or more. For Leveraged Loans, the median forecast for mid-2024 is 2.4%, with an interquartile range of 2.1% to 3.2%; but there is a small chance that they exceed 5%. These estimates are derived from the Deterioration/Improvement Ratio (“DIR”) – a metric based on monthly credit risk estimates from banks covering thousands of issuers across a wide range of sectors. This metric is very similar to the S&P Downgrade/Upgrade Ratio (“DUR”). This and other S&P metrics are described in detail in the final section, which shows that every peak in default rates has its own unique characteristics, but that the overall DUR is closely correlated with aggregate default rates. However, the consensus-based DIR is more granular than the DUR because it captures deteriorations in credit quality that may precede a full notch downgrade, and it is based on a larger borrower universe. US Speculative Grade (“High Yield”) Corporate Bond Default Rates The chart below shows the DIR range for more than 100 US credit indices since 2017, along with the 12-month rolling S&P US Speculative Grade Corporate Bond default rate. Sources: Credit Benchmark, Standard & Poor’s Inc[2]. This shows that the median DIR is close to 1, (i.e., deteriorations and improvements are in balance). The upper quartile has reached 2 at some points in the credit cycle – i.e., deteriorations outnumber improvements in the ratio of 2:1. The ratio was close to 8 during the Covid crisis. The next chart shows a related metric, the proportion of credit consensus indices with a DIR greater than 1. This measure has a range of 0% (all DIRs below 1) to 100% (all DIRs above 1, i.e., all show a balance to deterioration). It is plotted for all sector indices globally as well as for US indices specifically. Sources: Credit Benchmark, Standard & Poor’s Inc The chart shows that this metric currently stands at slightly over 50% for global indices and nearly 70% for US indices.  Both measures have been climbing steeply in recent quarters, and the sharp Q2 increase in defaults provisionally reported by S&P is consistent with this.  As both charts show, DIR metrics are highly correlated with the S&P default rate - although the various series diverge in some quarters[3]. Combining the “signal” (the DIR / S&P correlation) with the “noise” (the divergences) it is possible to extrapolate the likely path of US Speculative Grade / High Yield (“HY”) default rates, as well as the best case and worst-case probabilities. The next chart plots the likely (smoothed) trend and optimistic/pessimistic distribution for the US HY default rate. The numbers to the right of the bars are the corresponding percentiles for each simulated default rate. Source: Credit Benchmark Current trends in consensus DIR metrics imply that the default rate is likely to climb to 4% but there is a significant chance (25%) that it exceeds the S&P projections of 4.25% and a 10% chance of exceeding 6%. There is a 5% chance of it reaching the 7% - 9% range, and a 1% chance of hitting 9% or more.  There is also a 25% chance that the default rate is better than the central projection, peaking at 3.3%; with a 10% chance of stabilizing at 2.9% by mid-2024. There is a less than 1% chance that it will drop below 2%. These projections suggest that the default rate is most likely to be slightly lower (4%) than the S&P forecast of 4.25%; but there is a 1 in 4 chance of at least matching the S&P projection, and a 10% chance of exceeding it. Based on the current behavior of credit consensus estimates, there is very little chance of the S&P optimistic scenario where default rates dip below 2% by 2024. However, default rates are notoriously difficult to predict because even in downturns defaults are sparse, and usually sector- or segment- specific.  Since credit consensus data includes large numbers of unrated issuers, it reflects the state of the wider economy, including the credit dynamics of some of the larger SMEs. So, projections from this dataset run the risk that they overstate the worst-case default rate for the S&P rated universe but may give an accurate picture of the wider economy default rate. Leveraged Loans According to LCD, the 10-year default rate average for US Leveraged Loans is 1.57%. The latest 12m rolling average is 1.86%, a steep increase from 1.58% in May and 1.31% in April. S&P expect the rate to hit 2.5% in March 2024.  (It is worth noting that these are 12-month trailing numbers – some reports use annualized 3-month estimates which results in a much more volatile series with some very high peaks.) The relationship between credit consensus metrics and US Leveraged Loan default rates is similar to the S&P speculative default rate discussed previously. The projections reported in this section are based on a subset of 540 Leveraged Loan issuers (rather than loans) that are all constituents of the Credit Suisse Leveraged Loan Index. However, as the chart below shows, the projected outcomes are much narrower. Source: Credit Benchmark The median projected default rate for leveraged issuers is 2.5%, with an interquartile range of 2.1% to 3.2%. There is a 10% chance of 3.5% or more – close to double the long run average. There is also a very low probability – but high impact – worst case of 5.3% - more than triple the long run average. Background: High Yield / Speculative Grade Bond Default Rate Patterns in Historic S&P Data With higher interest rates and stubborn core inflation, all major rating agencies are forecasting higher default rates by the end of 2023 and into 2024. Multiple research papers by major agencies show that – in large samples – credit ratings are a good predictor of future default rates.  The chart below uses the S&P default study to plot the regional breakdown of default waves since 1996. Source: Standard & Poor’s Financial Services LLC. Default spikes are highly correlated across regions, and the correlation seems to be rising although the peaks are lower in recent waves. The next chart shows the most recent credit category preceding a default. Source: Standard & Poor’s Financial Services LLC. Reassuringly, most defaults occur in companies that were previously in the C categories, and the proportion has been increasing in recent years.  S&P also report that multiple downgrades precede an actual company default, so it makes sense to use their downgrades / upgrades ratio (“DUR”) to predict default rates. The two series are plotted below. Source: Standard & Poor’s Financial Services LLC. While actual defaults are rare, they are often clustered during economic downturns, and the next chart shows the sector breakdown of these spikes. Source: Standard & Poor’s Financial Services LLC. Some sectors – like Oil & Gas and Real Estate – tend to feature heavily in every default rate cluster. But the detail of each cluster seems to be unique; the spike around 2000 is particularly diverse. In conclusion: defaults are clustered in time, and these clusters are correlated across regions.  Most defaults are in companies in the c-category, but the sector split of each default cluster is less predictable.  The downgrade/upgrade ratio is strongly correlated with the default rate; so, any metric which is a leading indicator of the DUR can also be a leading indicator of default rates.  Credit Consensus data is based on issuers, rather than bonds; the equivalent metric – the DIR – is more granular, based on a large universe (with many unrated issuers) and is published every two weeks. It is also correlated with the S&P default rate (although the correlation is slightly lower than for the DUR), but it will be a valuable complementary metric as economies continue to be buffeted by high levels of economic uncertainty. Search ### New theme - footer form Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### New theme - footer form Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### New theme - Corporate treasury Corporate TreasuryCredit Consensus Data for Corporate Treasury BOOK A DEMO Why Credit Benchmark?Navigate the credit risk of customers, supply chains, financial counterparts, and investmentsCorporate treasury departments often have numerous customers, partners, and suppliers around the world. They also tend to have complex supply chains with hard to identify second and third order risks.Credit Benchmark’s unique coverage of 100,000 legal entities around the world, the majority of which are unrated by major rating agencies, can help corporate treasurers better understand and manage these risks. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client The accounts receivable team at a large FTSE 250 company needed a better understanding of their revenue vulnerability amidst the COVID-19 crisis. The Challenge The client’s main points of concern were to understand their customers’ credit risk, and to seek additional intelligence for their contract review and negotiation processes. The vast majority of their customers were publicly unrated and their existing external credit reference sources were sometimes a year out of date. The Solution After running a comprehensive mapping and coverage exercise on their largest exposures, the client was satisfied that Credit Benchmark would provide them with a valuable source of credit risk information enormously additive to their existing workflows. They were also happy that Credit Benchmark was able to do the heavy lifting of mapping to their internal database and customising the data to fit seamlessly into their own internal systems and dashboards. We were also able to provide the client with their own credit tear sheets to use for accounts payable negotiations. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### New theme - Corporate treasury Corporate TreasuryCredit Consensus Data for Corporate Treasury BOOK A DEMO Why Credit Benchmark?Navigate the credit risk of customers, supply chains, financial counterparts, and investmentsCorporate treasury departments often have numerous customers, partners, and suppliers around the world. They also tend to have complex supply chains with hard to identify second and third order risks.Credit Benchmark’s unique coverage of 100,000 legal entities around the world, the majority of which are unrated by major rating agencies, can help corporate treasurers better understand and manage these risks. SolutionsHow we can help your business BOOK A DEMO Monitor the credit risk profile of your customers, suppliers and vendors using Credit Benchmark’s expansive coverage, macro indices and analytical tools. Enhance your visibility of the creditworthiness of unrated and private entities at a subsidiary level. Seamlessly integrate Credit Benchmark data with other market metrics through Bloomberg supply chain analytics. Support your existing KYC process by leveraging consensus data in the onboarding process. Case Study  The Client The accounts receivable team at a large FTSE 250 company needed a better understanding of their revenue vulnerability amidst the COVID-19 crisis. The Challenge The client’s main points of concern were to understand their customers’ credit risk, and to seek additional intelligence for their contract review and negotiation processes. The vast majority of their customers were publicly unrated and their existing external credit reference sources were sometimes a year out of date. The Solution After running a comprehensive mapping and coverage exercise on their largest exposures, the client was satisfied that Credit Benchmark would provide them with a valuable source of credit risk information enormously additive to their existing workflows. They were also happy that Credit Benchmark was able to do the heavy lifting of mapping to their internal database and customising the data to fit seamlessly into their own internal systems and dashboards. We were also able to provide the client with their own credit tear sheets to use for accounts payable negotiations. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### New theme - Central Counterparty Central Counterparty Clearing Houses (CCPs)Credit Consensus Data for CCPs BOOK A DEMO Why Credit Benchmark?Better manage your clearing member network risk exposureHigh standards of risk management are integral to the smooth functioning of a CCP. A lack of reliable credit intelligence on CCP member and member client credit risk at the exact legal entity level can make challenging internal models difficult. Credit consensus data helps to fill in these gaps on CCP member and member client risk. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client A leading global derivatives clearing house.  The Challenge The credit analyst team was spending days inefficiently analysing unrated companies to determine their membership eligibility or when refreshing the house view of existing members. On top of this, the client was concerned about being indirectly exposed to significant second order risk through members’ weaker end clients, and didn’t have the internal resources to assess the credit risk of the 2,000+ entities that made up this second order risk.  The Solution The client was able to save time by beginning their analysis of potential new members by checking the entity’s Credit Consensus Rating, making the membership process quicker and easier. The breadth of the consensus dataset, including publicly unrated buy-side names, also allowed the client to better monitor the credit of their members’ clients, and monitor key markets with Credit Benchmark industry, sector, and geography indices. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### New theme - Central Counterparty Central Counterparty Clearing Houses (CCPs)Credit Consensus Data for CCPs BOOK A DEMO Why Credit Benchmark?Better manage your clearing member network risk exposureHigh standards of risk management are integral to the smooth functioning of a CCP. A lack of reliable credit intelligence on CCP member and member client credit risk at the exact legal entity level can make challenging internal models difficult. Credit consensus data helps to fill in these gaps on CCP member and member client risk. SolutionsHow we can help your business BOOK A DEMO Twice-monthly updates as financial institutions revise their opinions allow CCP analysts to continually challenge their own models and assumptions. Monitor credit views on clearing members who do not have a public credit rating to enrich annual credit assessments of clearing members. Conduct enhanced portfolio reporting to review trends and generate more frequent management reporting. Leverage automating alerting on recent upgrades and downgrades within a portfolio. Expand credit risk analysis to clearing members’ clients, including opaque buy-side names, to gain a picture of member network risk. Help onboard new members by quickly and easily analysing the credit of new kinds of members including funds. Case Study  The Client A leading global derivatives clearing house.  The Challenge The credit analyst team was spending days inefficiently analysing unrated companies to determine their membership eligibility or when refreshing the house view of existing members. On top of this, the client was concerned about being indirectly exposed to significant second order risk through members’ weaker end clients, and didn’t have the internal resources to assess the credit risk of the 2,000+ entities that made up this second order risk.  The Solution The client was able to save time by beginning their analysis of potential new members by checking the entity’s Credit Consensus Rating, making the membership process quicker and easier. The breadth of the consensus dataset, including publicly unrated buy-side names, also allowed the client to better monitor the credit of their members’ clients, and monitor key markets with Credit Benchmark industry, sector, and geography indices. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### New theme - Bank credit risk management Bank Credit Risk ManagementCredit Consensus Data for Bank Credit Risk Management BOOK A DEMO Why Credit Benchmark?Better identify, quantify, and monitor your credit risk leveraging Credit Consensus dataSince 2015 Credit Benchmark has been producing Credit Consensus Ratings & Analytics by bringing together the internal risk views of ~40 of the world’s largest banks (almost half of which are GSIBs).Credit Consensus Ratings on 100,000+ individual obligors (less than 10% with external ratings) enable banks to maximise their available information set to enhance their risk management and decision-making across the client lifecycle. Enhanced behavioural analytics ensure banks are fully informed on how their portfolio performance compares to the market. SolutionsHow we can help your business BOOK A DEMO Case Study  The Client A major UK-based bank. The Challenge Leveraging external data in the end-to-end client risk management lifecycle, including origination, initial onboarding, annual reviews, early warning framework, thematic portfolio insights and distribution. The Solution Credit Benchmark’s comprehensive coverage at an individual entity and portfolio level has allowed the bank to embed the data in a systematic manner across the client lifecycle. When compared to existing external data sources, Credit Benchmark’s coverage was in excess of 75% of balance sheet utilisation and as such able to provide meaningful insights across the portfolio. Additionally, due to the data exchange model where the bank received access to the full dataset (not just where there is overlap with their portfolio), Credit Benchmark’s data has been a valuable source of insight on the broader market both at the point of inception of the client relationship and throughout the traditional lifecycle. Credit Benchmark’s thematic portfolio analysis has been embedded in a myriad of different senior management forums, allowing extensive use of the dataset and custom reporting suite to provide pertinent and valuable insights into the performance of the bank’s portfolio. Seamless integration of the bank’s data with the Credit Benchmark’s outputs has been key to successful implementation, including utilising the fortnightly updates as a key input into an Early Warning framework. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsUnderstand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### New theme - Bank credit risk management Bank Credit Risk ManagementCredit Consensus Data for Bank Credit Risk Management BOOK A DEMO Why Credit Benchmark?Better identify, quantify, and monitor your credit risk leveraging Credit Consensus dataSince 2015 Credit Benchmark has been producing Credit Consensus Ratings & Analytics by bringing together the internal risk views of ~40 of the world’s largest banks (almost half of which are GSIBs).Credit Consensus Ratings on 100,000+ individual obligors (less than 10% with external ratings) enable banks to maximise their available information set to enhance their risk management and decision-making across the client lifecycle. Enhanced behavioural analytics ensure banks are fully informed on how their portfolio performance compares to the market. SolutionsHow we can help your business BOOK A DEMO Automated portfolio monitoring and surveillance can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters – managing exceptions and responding to early warnings. Access to the full global consensus database (not just to internal firm data) provides greater insights for use in considering industry, geographical and sectoral business expansion. Consensus data can be used to expedite a high-level review of target clients and implement market intelligence-led prospecting. Incorporate our credit risk management software to build bespoke reports and seamlessly integrate data into internal workflows, annual reviews, new client / deal approvals, credit committees, industry reviews, portfolio monitoring exercises, early warning indicators, and pre-deal screening. Benchmark, understand and optimise the capital allocated to the credit risk you are taking and inform decision making at an entity, sector or portfolio level. Enhance your regulatory discussions with a better understanding of your peer landscape at a granular level through our credit risk management solutions. Review outliers between traditional agency ratings and Credit Benchmark data. Demonstrate a robust counterparty risk management approach to potential clients and investors. Case Study  The Client A major UK-based bank. The Challenge Leveraging external data in the end-to-end client risk management lifecycle, including origination, initial onboarding, annual reviews, early warning framework, thematic portfolio insights and distribution. The Solution Credit Benchmark’s comprehensive coverage at an individual entity and portfolio level has allowed the bank to embed the data in a systematic manner across the client lifecycle. When compared to existing external data sources, Credit Benchmark’s coverage was in excess of 75% of balance sheet utilisation and as such able to provide meaningful insights across the portfolio. Additionally, due to the data exchange model where the bank received access to the full dataset (not just where there is overlap with their portfolio), Credit Benchmark’s data has been a valuable source of insight on the broader market both at the point of inception of the client relationship and throughout the traditional lifecycle. Credit Benchmark’s thematic portfolio analysis has been embedded in a myriad of different senior management forums, allowing extensive use of the dataset and custom reporting suite to provide pertinent and valuable insights into the performance of the bank’s portfolio. Seamless integration of the bank’s data with the Credit Benchmark’s outputs has been key to successful implementation, including utilising the fortnightly updates as a key input into an Early Warning framework. In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Elementor Footer #101 Sign up to our newsletter and never be out of The Know. Sign Up SIGN UP.STAY INFORMED. First Name* Enter Last Name* Company* Company Email* Telephone Δ By submitting this form, you agree to Credit BenchmarkTerms of Use and Privacy Policy.Follow us : Linkedin X-twitter 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. ### Elementor Header #99 book demo LOG IN ### New theme - Subscribe to the service Products & Tools Credit Benchmark provides a data-driven view of credit risk, offering coverage, granularity, and collective insights not available anywhere else.Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Instead of being based on the 'issuer pays model', this product represents the views of those with 'skin in the game'. BOOK DEMO Entity-Level RiskCredit Consensus RatingsCredit Consensus Ratings provide a unique measure of creditworthiness on 100,000+ counterparts and borrowers across emerging and developed markets, based on inputs from 40+ leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). 90% of the entities covered are otherwise unrated, or private entities, providing an unparalleled perspective of risk and liquidity.Credit Consensus Ratings are supplemented by descriptive analytics and reference data that provide insights into the underlying credit views that make up the consensus.Historical charting allows you to benchmark trends — the Credit Consensus Rating vs. your own estimate over time. Macro-Level InsightsCredit IndicesCredit Indices are macro-level risk indicators that offer the ability to compare credit trends and distributions across more than 170 countries and close to 200 industries, sectors and sub-sectors.Over 1,200 trend-tracking, forward-looking Credit Indices are available, reflecting Credit Benchmark’s expanding universe of 10 million credit risk observations contributed annually from the world’s leading financial institutions. The Credit Indices therefore provide insights into the real-world risk views of the world’s most experienced risk takers.Leveraging our comprehensive set of indices allows for investment professionals to construct precise and representative Correlation- and Transition Matrices, which more appropriately reflect the true risk dynamics within the market. Security-Level Ratings AssessmentsBonds & LoansCredit Benchmark, in partnership with Bloomberg, offers rating assessments (notching) for bonds and loans issued by 40,000+ entities with Credit Consensus Ratings.This service combines Credit Benchmark's Credit Consensus Ratings with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.This service combines both Credit Benchmark and Bloomberg data and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism. READ MORE Analytical ToolsMonitoring, managing and mitigating your riskBelow are some of the different functionalities via which Credit Benchmark’s products and services can be accessed and the benefits they offer: Client Analytics Compare the internal risk view of your portfolio against the consensus view, and filter by different segment cuts for a more granular view of your risk exposure. Chart the notch difference averages between your own internal estimates and the consensus view by industry. My Portfolio Upload your portfolio and continuously monitor its credit quality by using the Credit Benchmark Web App portfolio function. Portfolios can be shared dynamically with other users across your team or firm and feed into management reporting cycles. Monitoring & Alerting Automated portfolio monitoring and notifications can flag negative or positive movements, enabling analysts to cover a larger set of names, direct resources to where it matters most — and, crucially, to manage exceptions and respond to early warnings. Watch List & Surveillance In-built Surveillance provides insights on the most prevalent movers in your portfolio and the wider consensus universe. The Watch List leverages Credit Consensus Ratings and descriptive analytics to provide insights into entities that are experiencing credit deterioration. Credit Transition Matrices Our Credit Transition Matrices (CTMs) facilitate the modelling of default risk. The CTMs are constructed using the full breadth of Credit Benchmark’s dataset, which includes over 100,000 consensus entities, ensuring long-term stability. These CTMs can be used to plot broad credit trends, build sector-specific views, or produce term structures for use in portfolio modelling. Correlation Matrices Credit Benchmark can provide Correlation Matrices that show the industry- and region-specific correlations within a pool. The correlation matrices are constructed using Credit Benchmark’s industry and region schema, offering a detailed view of concentration and correlation risk across your portfolio. Now Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions.These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. ACCESS REPORTS SolutionsDelivery channels to fit your workflow Web Application • Portfolio monitoring and alerting • Analyse and monitor industry or geographical trends • Entity-level drill-down, descriptive analytics, and peer comparison Excel Add-In • Incorporate consensus data into existing spreadsheets and models • Pre-built template library • Convenient and fluent graphical interface to create and edit filters to query the database Datafeed • Comprehensive flat file • Incorporates your internal identifiers and reference data for efficient data mapping • Structured file format for quick transfer into users' own system Direct / API • Web services Enterprise API • Structured data model • High-performance, flexible delivery mechanism to support in-house built solutions Third Parties • Third-party channels including Bloomberg Terminal and Enterprise Data License • Data marketplaces including AWS Marketplace In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Book a DemoCredit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products.Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. By clicking the ‘request demo’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Risk SolutionsCredit Risk Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### New theme - subscribe to the service Products & Tools Credit Benchmark provides a data-driven view of credit risk, offering coverage, granularity, and collective insights not available anywhere else.Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Instead of being based on the 'issuer pays model', this product represents the views of those with 'skin in the game'. BOOK DEMO Entity-Level RiskCredit Consensus RatingsCredit Consensus Ratings provide a unique measure of creditworthiness on 100,000+ counterparts and borrowers across emerging and developed markets, based on inputs from 40+ leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). 90% of the entities covered are otherwise unrated, or private entities, providing an unparalleled perspective of risk and liquidity.Credit Consensus Ratings are supplemented by descriptive analytics and reference data that provide insights into the underlying credit views that make up the consensus.Historical charting allows you to benchmark trends — the Credit Consensus Rating vs. your own estimate over time. Macro-Level InsightsCredit IndicesCredit Indices are macro-level risk indicators that offer the ability to compare credit trends and distributions across more than 170 countries and close to 200 industries, sectors and sub-sectors.Over 1,200 trend-tracking, forward-looking Credit Indices are available, reflecting Credit Benchmark’s expanding universe of 10 million credit risk observations contributed annually from the world’s leading financial institutions. The Credit Indices therefore provide insights into the real-world risk views of the world’s most experienced risk takers.Leveraging our comprehensive set of indices allows for investment professionals to construct precise and representative Correlation- and Transition Matrices, which more appropriately reflect the true risk dynamics within the market. Security-Level Ratings AssessmentsBonds & LoansCredit Benchmark, in partnership with Bloomberg, offers rating assessments (notching) for bonds and loans issued by 40,000+ entities with Credit Consensus Ratings.This service combines Credit Benchmark's Credit Consensus Ratings with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.This service combines both Credit Benchmark and Bloomberg data and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism. READ MORE Analytical ToolsMonitoring, managing and mitigating your riskBelow are some of the different functionalities via which Credit Benchmark’s products and services can be accessed and the benefits they offer: Now Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions.These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. ACCESS REPORTS SolutionsDelivery channels to fit your workflow In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Book a DemoCredit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products.Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. By clicking the ‘request demo’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Risk SolutionsCredit Risk Solutions ### New theme - subscribe to the service Products & Tools Credit Benchmark provides a data-driven view of credit risk, offering coverage, granularity, and collective insights not available anywhere else.Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Instead of being based on the 'issuer pays model', this product represents the views of those with 'skin in the game'. BOOK DEMO Entity-Level RiskCredit Consensus RatingsCredit Consensus Ratings provide a unique measure of creditworthiness on 100,000+ counterparts and borrowers across emerging and developed markets, based on inputs from 40+ leading global financial institutions, almost half of which are Global Systemically Important Banks (GSIBs). 90% of the entities covered are otherwise unrated, or private entities, providing an unparalleled perspective of risk and liquidity.Credit Consensus Ratings are supplemented by descriptive analytics and reference data that provide insights into the underlying credit views that make up the consensus.Historical charting allows you to benchmark trends — the Credit Consensus Rating vs. your own estimate over time. Macro-Level InsightsCredit IndicesCredit Indices are macro-level risk indicators that offer the ability to compare credit trends and distributions across more than 170 countries and close to 200 industries, sectors and sub-sectors.Over 1,200 trend-tracking, forward-looking Credit Indices are available, reflecting Credit Benchmark’s expanding universe of 10 million credit risk observations contributed annually from the world’s leading financial institutions. The Credit Indices therefore provide insights into the real-world risk views of the world’s most experienced risk takers.Leveraging our comprehensive set of indices allows for investment professionals to construct precise and representative Correlation- and Transition Matrices, which more appropriately reflect the true risk dynamics within the market. Security-Level Ratings AssessmentsBonds & LoansCredit Benchmark, in partnership with Bloomberg, offers rating assessments (notching) for bonds and loans issued by 40,000+ entities with Credit Consensus Ratings.This service combines Credit Benchmark's Credit Consensus Ratings with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.This service combines both Credit Benchmark and Bloomberg data and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism. READ MORE Analytical ToolsMonitoring, managing and mitigating your riskBelow are some of the different functionalities via which Credit Benchmark’s products and services can be accessed and the benefits they offer: Client Analytics Compare the internal risk view of your portfolio against the consensus view, and filter by different segment cuts for a more granular view of your risk exposure. Chart the notch difference averages between your own internal estimates and the consensus view by industry. My Portfolio Upload your portfolio and continuously monitor its credit quality by using the Credit Benchmark Web App portfolio function. Portfolios can be shared dynamically with other users across your team or firm and feed into management reporting cycles. Monitoring & Alerting Automated portfolio monitoring and notifications can flag negative or positive movements, enabling analysts to cover a larger set of names, direct resources to where it matters most — and, crucially, to manage exceptions and respond to early warnings. Watch List & Surveillance In-built Surveillance provides insights on the most prevalent movers in your portfolio and the wider consensus universe. The Watch List leverages Credit Consensus Ratings and descriptive analytics to provide insights into entities that are experiencing credit deterioration. Credit Transition Matrices Our Credit Transition Matrices (CTMs) facilitate the modelling of default risk. The CTMs are constructed using the full breadth of Credit Benchmark’s dataset, which includes over 100,000 consensus entities, ensuring long-term stability. These CTMs can be used to plot broad credit trends, build sector-specific views, or produce term structures for use in portfolio modelling. Correlation Matrices Credit Benchmark can provide Correlation Matrices that show the industry- and region-specific correlations within a pool. The correlation matrices are constructed using Credit Benchmark’s industry and region schema, offering a detailed view of concentration and correlation risk across your portfolio. Now Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions.These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. ACCESS REPORTS SolutionsDelivery channels to fit your workflow Web Application • Portfolio monitoring and alerting • Analyse and monitor industry or geographical trends • Entity-level drill-down, descriptive analytics, and peer comparison Excel Add-In • Incorporate consensus data into existing spreadsheets and models • Pre-built template library • Convenient and fluent graphical interface to create and edit filters to query the database Datafeed • Comprehensive flat file • Incorporates your internal identifiers and reference data for efficient data mapping • Structured file format for quick transfer into users' own system Direct / API • Web services Enterprise API • Structured data model • High-performance, flexible delivery mechanism to support in-house built solutions Third Parties • Third-party channels including Bloomberg Terminal and Enterprise Data License • Data marketplaces including AWS Marketplace In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Book a DemoCredit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products.Please contact us to request a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. By clicking the ‘request demo’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Risk SolutionsCredit Risk Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### New theme - Bloomberg Credit Consensus Data on Bloomberg Free Trial Credit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service. Credit Consensus Ratings on BloombergCredit Consensus Ratings available on Bloomberg provide a unique measure of creditworthiness on 40,000 counterparts and borrowers across emerging and developed markets. Compiled from the anonymized and aggregated internal risk views of 40+ of the world’s leading banks, Credit Consensus Ratings provide an independent, real-world perspective of risk.Updated twice monthly, the data provides dynamic and unparalleled coverage of public and private companies; 90% of the entities covered are unrated by the top three rating agencies.Credit Consensus Ratings are supplemented by descriptive analytics that provides insights into the underlying credit views that make up the consensus.Credit Benchmark data can now be seamlessly integrated into your existing workflows and alongside other content on the Bloomberg Terminal. The data is easily accessible on CRPR, SRCH, and throughout the Terminal to help support various risk management and investment management use cases. Use Cases for Credit Consensus Ratings Bond and Loan Rating Assessments on BloombergThrough a partnership with Bloomberg, Credit Benchmark also offers rating assessments (notching) for bonds and loans issued by the 40,000 entities with Credit Consensus Ratings.This service combines the Credit Benchmark Consensus with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.The production combines both Credit Benchmark and Bloomberg information and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism.These Bond and Loan Rating Assessments are available to licensed clients alongside the existing Credit Benchmark entity-level coverage via standard Bloomberg functions, including Search, Worksheets, Launchpad, Excel API, and CRPR.Bloomberg also offers access to the same information via Data License Per Security for clients looking to use this information within their internal systems. Use Cases for Bond and Loan Rating AssessmentsGlobal CoverageCredit Consensus Ratings and Bond and Loan Rating Assessments Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### New theme - Bloomberg Credit Consensus Data on Bloomberg Free Trial Credit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service. Bloomberg TerminalCredit Consensus SearchCharting: Price versus Credit RiskAccess custom sample worksheets and searchesCustom Worksheet Credit Consensus Ratings on BloombergCredit Consensus Ratings available on Bloomberg provide a unique measure of creditworthiness on 40,000 counterparts and borrowers across emerging and developed markets. Compiled from the anonymized and aggregated internal risk views of 40+ of the world’s leading banks, Credit Consensus Ratings provide an independent, real-world perspective of risk.Updated twice monthly, the data provides dynamic and unparalleled coverage of public and private companies; 90% of the entities covered are unrated by the top three rating agencies.Credit Consensus Ratings are supplemented by descriptive analytics that provides insights into the underlying credit views that make up the consensus.Credit Benchmark data can now be seamlessly integrated into your existing workflows and alongside other content on the Bloomberg Terminal. The data is easily accessible on CRPR, SRCH, and throughout the Terminal to help support various risk management and investment management use cases. Use Cases for Credit Consensus Ratings Risk Management​ Credit Benchmark data enhances existing risk management processes and frameworks, including for Counterparty, Supply Chain, Vendor and Enterprise Risk Management applications. Portfolio Monitoring and Analysis Overlay Credit Benchmark data against your portfolio within the Terminal to unlock unique insights. The data can complement your existing portfolio monitoring, analysis, and decision-making workflows. Security Selection and Portfolio Construction Leverage Credit Benchmark data as an input into fixed income screens to efficiently identify new investment opportunities. The data can complement your existing security selection and portfolio construction workflows. Sector Analysis Overlay Credit Benchmark data for new macro credit insights on industries and sectors as well as for Bloomberg Indices. Identify whether a certain index is overbought or oversold relative to the credit profile. Bond and Loan Rating Assessments on BloombergThrough a partnership with Bloomberg, Credit Benchmark also offers rating assessments (notching) for bonds and loans issued by the 40,000 entities with Credit Consensus Ratings.This service combines the Credit Benchmark Consensus with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.The production combines both Credit Benchmark and Bloomberg information and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism.These Bond and Loan Rating Assessments are available to licensed clients alongside the existing Credit Benchmark entity-level coverage via standard Bloomberg functions, including Search, Worksheets, Launchpad, Excel API, and CRPR.Bloomberg also offers access to the same information via Data License Per Security for clients looking to use this information within their internal systems. Use Cases for Bond and Loan Rating Assessments Collateral Management Improving the scope of collateral eligibility to include unrated securities and optimize the use of existing collateral. Regulatory Funding Capital Allocation Using Credit Benchmark Rating Assessment to support optimization of regulatory capital requirements. Investment Risk Management Use within investment risk management reporting and governance. Credit Research Using Credit Benchmark data as an input into credit analysis and associated reporting. Due Diligence Demonstrate independent assessment of credit risk of bond or loan exposure. Global CoverageCredit Consensus Ratings and Bond and Loan Rating Assessments Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### Credit Analytics | Industry reports Log in Sign up Credit Benchmark’s Industry Trends show how credit risk is evolving through time around the world. Our dataset of more than 100,000 Credit Consensus Ratings (CCRs), derived from the contributed risk views from over 40 leading banks globally provides unique insights into the credit quality of industries and countries beyond that of traditional sources of credit ratings. The industry reports highlight the breadth and depth of Credit Benchmark’s entity-level consensus ratings. The industry reports show how banks' predictions of credit risk over the next year are evolving across different sectors. Industry Reports The reports compare a wide range of geographies and industries, as well as rated/unrated* and public/private companies. Types of Credit Risk Analysis The Credit Consensus Ratings can be analysed in various ways. We explain what the different types of analysis are. Types of Analysis Looking for more details on how the entity-level Credit Consensus Ratings and industry trends are derived? Read more here.*Rated by S&P or Fitch In Numbers If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here for free to access the Industry Reports. ACCESS SECTOR ANALYSIS ### Types of analysis Log in Sign up What Types of Analysis are Available?With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark's credit risk analytics spotlight a variety of different metrics to analyse trends and patterns. Credit Indices: TrendsThis type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors.This example plots the change in credit risk as a percentage (starting from a base level in July 2022) for European Corporates, comparing rated and unrated European Corporates.You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in February 2023. Rated entities overall decreased in credit risk (-3.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1.5% PD change over the last 12 months). This example shows an alternative visualisation of the same type of analysis, only adapting the plot to account for a greater number of segments.You can see that there is a sharp increase in credit risk in Africa over the last year with Mauritius, Nigeria, and Kenya leading the way with a respective +4%, +13%, and +24% PD increase over the last 12 months. Credit Distribution:This plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time. The example shows that a majority of ratings within our rated US Oil & Gas segment lies in the bb category, but this proportion has been decreasing over the last 12 and 6 months.Looking specifically at private entities within that segment, you can see that there is a higher percentage of HY (from bb to c) entities compared to the credit distribution of public entities. This might be worth monitoring as financial information on private entities is often harder to get. Notch Movements:The notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgradesIn the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch. Transition Matrix:The Transition Matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating [hyperlink to Credit Benchmark Scale section in In Depth] at the start of the period and the columns the rating at the end of the period.The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as: 4-Category Rating 21-Category Ratings IGa aaa, aa+, aa, aa-, a+, a, a- IGb bbb+, bbb, bbb- HYb bb+, bb, bb-, b+, b, b- HYc ccc+, ccc, ccc-, cc, c For instance, looking at the first row and second column, it reveals that, out of a total of 1,362 entities, 6% transitioned from IGa to IGb over the specified time period.The value in the HYc row & HYb column shows that 29.9% of the 87 HYc entities improved from HYc to HYb. Correlation Matrix:The Correlation Matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations:A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa.A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa.A value approaching 0 signifies minimal to no relationship between the segments.This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments.In this instance, Panama and Argentina demonstrate the lowest correlation, with a value of -0.42. Conversely, the highest degree of correlation is observed between Peru and the broader Latin American segment, with a value of 0.76. Credit Indices: Upgrades vs. Downgrades:The dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded.For each sector, the number of upgrades and the number of downgrades is calculated.The net position expressed as the percentage of upgrades minus downgrades is plotted.If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar.This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change. In this example, the Media & Retail industries have experienced runs of more downgrades over the 12 months shown.In contrast, companies in the Travel & Leisure sector have continued to show more upgrades. Breakdown:The Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary.This helps better understand the type of entities in the industry and in turn, better interpret the different analyses.The graphs show an example breakdown of the entities included in the industry analyses.The majority of entities are in Europe (~40%), North America (36%), and Asia (~12%).About 70% are Corporates and 30% are Financials.15% are rated by either S&P or Fitch and 85% are unrated.13% are publicly owned and 87% are private entities. Credit Benchmark’s dataset covers nearly 75,000 Corporates, Financials & Sovereigns entities that span across: 6 Regions Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Corporates, Financials & Sovereign entities Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Private & public companies Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. 100 countries Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. 120+ sectors Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Entities unrated by traditional rating agencies as well as rated entities Lorem ipsum dolor sit amet, consectetur adipiscing elit. This call-to-action is merely a placeholder, awaiting for the final content. Actual login and sign-up options are under construction. ACCESS SECTOR ANALYSIS ### In Depth Log in Sign up What Do the Industry Reports Analyse? Credit Benchmark generates forward-looking analyses of default risk across 5,000+ industries. These reports span various geographies, industries*, with rated and unrated**, privately and publicly owned entities. Credit Benchmark dives into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. Each credit index is made up of the ratings of individual entities within it. Each entity within the index has a rating or Probability of Default (“PD”) [hyperlink to How is a Credit Benchmark Credit Consensus Rating Derived? section]. The credit index forms the aggregated view of the credit risk of those entities as a whole. How is a Credit Consensus Rating (CCR) Derived?Large sophisticated banks set their own internal credit risk ratings in order to manage the credit risk of the counterparties they lend to. For example: whether to lend in the first place, how much to lend and how much to charge the counterparty.Their credit ratings for counterparties are derived by credit risk analysts & statistical modellers taking into account a range of quantitative variables (as an example, for a Corporate this might include leverage and debt ratios from the company’s management and public financial statements) and qualitative factors (which could include for example brand value and stability of management). The ratings are regularly updated to reflect changes in each counterparty’s economic situation.The ratings help banks manage their risk of non-payment (default or bankruptcy) from a counterparty they have lent to (default risk). These loans typically span many years, so the banks assessments look forward over the next year and evaluate the risk that the counterparty will default1 over the next 12 months.Each bank has developed & refined its own credit risk assessment & modelling process. Banks each have their own independent validation and review teams, who challenge the processes and review decisions. Banks' models and rating processes are also subject to review by financial regulators (such as the Fed, EBA, Bank of England) and/or the banks' own auditors.Credit Benchmark receives from banks a 1-year forward-looking Probability of Default (PD) linked to the banks' internal rating.Credit Benchmark derives a Credit Consensus Rating (CCR) using the following steps:These PDs are averaged, to get the average view of the risk of the counterparty defaulting over the next year. This average view is called the consensus because it is a consensus opinion of the default risk of the counterparty.The consensus PD is mapped to a letter rating using a custom Credit Benchmark rating scale [hyperlink to Credit Benchmark Scale section] that has been calibrated using banks' internal rating scales.The diagram outlines the process for an example entity.In this example, five banks have sent a PD for the same counterparty, the average of which is 40 basis points (bps).Using the custom Credit Benchmark rating scale, this maps to a bbb- Credit Consensus Rating.By aggregating the view of five banks, the Credit Consensus Rating reflects a more diversified opinion of the credit risk for this entity.1 Banks contributing to Credit Benchmark follow the Basel definition of Default. What Do We Mean by Forward-Looking Analyses?The banks are providing and updating on a regular basis 1-year forward-looking PDs which feed into all our analyses. Looking at the below graph as an example entity, you can see that the PD published for January 2023 of 2 bps is the probability of the entity defaulting between the end of January 2023 and the end of December 2024. Equally, the PD published for December 2023 of 7 bps is the probability of the entity defaulting between the end of December 2023 and the end of November 2024.Therefore, our Credit Consensus Ratings represent the forward-looking credit view of banks over the next year. Creating a Unique Legal Entity IdentifierOne of the main challenges of creating Credit Consensus Ratings for unique legal entities is ensuring that when bank data is aggregated together, the averaged data pertains to the same legal entity.Credit Benchmark has invested heavily in the entity mapping and concordance process, using data from Bloomberg, Dun & Bradstreet, FactSet, Thomson Reuters, country specific entity identifier databases and several public sources including the Securities Exchange Commission (SEC) and Global Legal Entity Identifiers (LEI); and the data mapping process is supported by a dedicated team of 25+ members of staff. Data ValidationAs part of the onboarding process for contributing banks, legal, compliance and information security requirements must be met, and a detailed methodology review must be completed to ensure that their planned data contributions are comparable with those from other contributing banks.The methodology review identifies issues with items such as guarantees and currency mismatches and assesses the comparability of the actual internal credit rating process. The aim of the methodology review is to ensure that any data differences between contributing banks arise from different views of credit risk, rather than from any other reason.Credit Benchmark does not express any view on individual models, nor does it modify the contributed data in any way.On an on-going basis quantitative rules are used to identify data inconsistencies or outliers where PD values are materially different from other contributions or a previous contribution from the same bank.Credit Benchmark Scale Rating ID Consensus 21-Rating Consensus 7-Rating Consensus 4-Rating Consensus 2-Rating PD Lower Bound bps PD Mid Point bps PD Upper Bound bps 1 aaa aaa IGa IG 0 0.79 1.25 2 aa+ aa IGa IG 1.25 1.68 2.25 3 aa aa IGa IG 2.25 2.7 3.25 4 aa- aa IGa IG 3.25 4.03 5 a+ a IGa IG 5 5.81 6.75 6 a a IGa IG 6.75 7.57 8.5 7 a- a IGa IG 8.5 10.91 14 8 bbb+ bbb IGb IG 14 16.73 20 9 bbb bbb IGb IG 20 24.49 30 10 bbb- bbb IGb IG 30 37.95 48 11 bb+ bb HYb HY 48 60.4 76 12 bb bb HYb HY 76 92.26 112 13 bb- bb HYb HY 112 147.78 195 14 b+ b HYb HY 195 266.79 365 15 b b HYb HY 365 487.08 650 16 b- b HYb HY 650 806.23 1000 17 ccc+ c HYc HY 1000 1303.84 1700 18 ccc c HYc HY 1700 2061.55 2500 19 ccc- c HYc HY 2500 3041.38 3700 20 cc c HYc HY 3700 5015.97 6800 21 c c HYc HY 6800 8246.21 10000 22 d d d d 10000 10000 10000 Industry ClassificationIn addition to PDs, banks also include other metadata associated with each entity, this includes the banks internal industry classification. Credit Benchmark has developed an industry schema into which the banks' own industry categories are mapped.As part of Credit Benchmark’s process for mapping entity level data, Credit Benchmark calculates a consensus industry classification for each entity using the entity-level industry data included in the banks' data files.The industry schema provides a hierarchical taxonomy going from broad categorisations (such as the Industry or Super Sector) down to a more granular one (such as Sub Sector).The Credit Benchmark’s industry schema for Corporates & Financial Institutions is shown below.Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Entity Type Super Sector Sector Sub Sector Financials Banks Banks Banks Financials Financial Services Financial Services Asset Managers Financials Financial Services Financial Services Consumer Finance Financials Financial Services Financial Services Investment Services Financials Financial Services Financial Services Mortgage Finance Financials Financial Services Financial Services Specialty Finance Financials Insurance Life Insurance Life Insurance Financials Insurance Nonlife Insurance Full Line Insurance Financials Insurance Nonlife Insurance Insurance Brokers Financials Insurance Nonlife Insurance Monoline Insurance Financials Insurance Nonlife Insurance Property & Casualty Insurance Financials Insurance Nonlife Insurance Reinsurance Financials Real Estate Real Estate Investment & Services Real Estate Holding & Development Financials Real Estate Real Estate Investment & Services Real Estate Services Financials Real Estate Real Estate Investment Trusts Diversified REITs Financials Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Financials Real Estate Real Estate Investment Trusts Industrial & Office REITs Financials Real Estate Real Estate Investment Trusts Mortgage REITs Financials Real Estate Real Estate Investment Trusts Residential REITs Financials Real Estate Real Estate Investment Trusts Retail REITs Financials Real Estate Real Estate Investment Trusts Specialty REITs Footnotes * Corporates & Financials are currently available. Please get in touch for information on other types of entities. ** Rated by S&P or Fitch This call-to-action is merely a placeholder, awaiting for the final content. Actual login and sign-up options are under construction. ACCESS SECTOR ANALYSIS ### NEW THEME - Bloomberg Credit Consensus Data on Bloomberg Free Trial Credit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service. Bloomberg TerminalCredit Consensus SearchCharting: Price versus Credit RiskAccess custom sample worksheets and searchesCustom Worksheet Credit Consensus Ratings on BloombergCredit Consensus Ratings available on Bloomberg provide a unique measure of creditworthiness on 40,000 counterparts and borrowers across emerging and developed markets. Compiled from the anonymized and aggregated internal risk views of 40+ of the world’s leading banks, Credit Consensus Ratings provide an independent, real-world perspective of risk.Updated twice monthly, the data provides dynamic and unparalleled coverage of public and private companies; 90% of the entities covered are unrated by the top three rating agencies.Credit Consensus Ratings are supplemented by descriptive analytics that provides insights into the underlying credit views that make up the consensus.Credit Benchmark data can now be seamlessly integrated into your existing workflows and alongside other content on the Bloomberg Terminal. The data is easily accessible on CRPR, SRCH, and throughout the Terminal to help support various risk management and investment management use cases. Use Cases for Credit Consensus Ratings Risk Management​ Credit Benchmark data enhances existing risk management processes and frameworks, including for Counterparty, Supply Chain, Vendor and Enterprise Risk Management applications. Portfolio Monitoring and Analysis Overlay Credit Benchmark data against your portfolio within the Terminal to unlock unique insights. The data can complement your existing portfolio monitoring, analysis, and decision-making workflows. Security Selection and Portfolio Construction Leverage Credit Benchmark data as an input into fixed income screens to efficiently identify new investment opportunities. The data can complement your existing security selection and portfolio construction workflows. Sector Analysis Overlay Credit Benchmark data for new macro credit insights on industries and sectors as well as for Bloomberg Indices. Identify whether a certain index is overbought or oversold relative to the credit profile. Bond and Loan Rating Assessments on BloombergThrough a partnership with Bloomberg, Credit Benchmark also offers rating assessments (notching) for bonds and loans issued by the 40,000 entities with Credit Consensus Ratings.This service combines the Credit Benchmark Consensus with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.The production combines both Credit Benchmark and Bloomberg information and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism.These Bond and Loan Rating Assessments are available to licensed clients alongside the existing Credit Benchmark entity-level coverage via standard Bloomberg functions, including Search, Worksheets, Launchpad, Excel API, and CRPR.Bloomberg also offers access to the same information via Data License Per Security for clients looking to use this information within their internal systems. Use Cases for Bond and Loan Rating Assessments Collateral Management Improving the scope of collateral eligibility to include unrated securities and optimize the use of existing collateral. Regulatory Funding Capital Allocation Using Credit Benchmark Rating Assessment to support optimization of regulatory capital requirements. Investment Risk Management Use within investment risk management reporting and governance. Credit Research Using Credit Benchmark data as an input into credit analysis and associated reporting. Due Diligence Demonstrate independent assessment of credit risk of bond or loan exposure. Global CoverageCredit Consensus Ratings and Bond and Loan Rating Assessments Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Email* Telephone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### New theme - Homepage Identify, quantify and monitor your credit risk leveraging Credit Benchmark's data and analytics. BOOK DEMOCredit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service.LEARN MORE2024 Default Risk Outlook: US IndustriesIn its first annual outlook report, Credit Benchmark predicts that rising default risks for US industries will peak by mid-2024, followed by a widespread credit recovery in H2, provided that interest rates are cut and barring further escalation in geopolitical risk.READ NOWNow Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions. These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level.ACCESS REPORTS Previous slide Next slide Credit Risk SolutionsFocus your attention where and when it matters most with access to the largest and most timely source of credit risk data globally. Bank Credit Risk ManagementLearn more ➔ Significant Risk Transfer / Capital Relief TradesLearn more ➔ Fund FinancingLearn more ➔ IFRS 9 / CECL Impairment BenchmarkingLearn more ➔ Securities Finance and Prime BrokerageLearn more ➔ Specialty Credit & Political Risk InsuranceLearn more ➔ Corporate TreasuryLearn more ➔ Central Counterparty Clearing Houses (CCPs)Learn more ➔ What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients every two weeks. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔ What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients every two weeks. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔ About the ProductComplex risk decisions are supported by easy access to 100,000+ Credit Consensus Ratings, 130,000+ bond and loan rating assessments, 1,200+ sector indices, and a suite of in-depth analytics - available via Web App, Excel add-in, API, flat-file download, and partner channels including Bloomberg. Risk professionals at banks, insurance companies, asset managers, and other firms use the data to gain visibility on entities without a public rating, monitor and benchmark portfolios, assess and analyze credit trends, inform risk sharing transactions, and fulfil regulatory requirements. Learn more ➔ ### New theme - Homepage Identify, quantify and monitor your credit risk leveraging Credit Benchmark's data and analytics. BOOK DEMOCredit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service.LEARN MORE2024 Default Risk Outlook: US IndustriesIn its first annual outlook report, Credit Benchmark predicts that rising default risks for US industries will peak by mid-2024, followed by a widespread credit recovery in H2, provided that interest rates are cut and barring further escalation in geopolitical risk.READ NOWNow Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide range of dimensions. These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark delves into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level.ACCESS REPORTS Previous slide Next slide Credit Risk SolutionsFocus your attention where and when it matters most with access to the largest and most timely source of credit risk data globally. Specialty Credit & Political Risk Insurance Corporate Treasury Point-in-Time (PIT) Impairments Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Bank Credit Risk ManagementLearn more ➔ Significant Risk Transfer / Capital Relief TradesLearn more ➔ Fund FinancingLearn more ➔ IFRS 9 / CECL Impairment BenchmarkingLearn more ➔ Securities Finance and Prime BrokerageLearn more ➔ Specialty Credit & Political Risk InsuranceLearn more ➔ Corporate TreasuryLearn more ➔ Central Counterparty Clearing Houses (CCPs)Learn more ➔ What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients every two weeks. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔ What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients every two weeks. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔ About the ProductComplex risk decisions are supported by easy access to 100,000+ Credit Consensus Ratings, 130,000+ bond and loan rating assessments, 1,200+ sector indices, and a suite of in-depth analytics - available via Web App, Excel add-in, API, flat-file download, and partner channels including Bloomberg. Risk professionals at banks, insurance companies, asset managers, and other firms use the data to gain visibility on entities without a public rating, monitor and benchmark portfolios, assess and analyze credit trends, inform risk sharing transactions, and fulfil regulatory requirements. Learn more ➔ ### Default Kit ### Credit Risk IQ template ACCESS REPORTS Sign up IntroductionCountry Information Credit Risk managers in banks review the geographic risk of each entity and assign a country of risk to the entity. The country of risk is assessed to be the most important country to which the entity is exposed to and is the best representative of their credit risk profile.Credit Benchmark’s data processing algorithms use the country of risk information from each bank combined with external data to assign a consensus country of risk to each entity.The broad range of international and large national banks contributing their internal risk ratings to Credit Benchmark consensus means that the Credit Benchmark dataset includes consensus credit ratings from over 150 countries. The map highlights countries with Corporate & Financial entities included in the Credit Benchmark dataset and are therefore included within the Credit Risk IQ industry reports. It highlights the breadth of coverage provided by consensus credit ratings.  Geography plays a crucial role in assessing credit risk due to its influence on various economic, political, and environmental factors that can impact businesses differently across regions. Credit Risk managers in banks assess each of these factors as part of their assessment to determine internal credit ratings. When monitoring credit risk on a portfolio, looking at the credit risk trends across different geographies is important for the same reasons. Economic conditions Political stability Geography Corporate & Financial Economic conditions Economic conditions vary significantly from one region or country to another. Factors such as GDP growth, inflation rates, and employment levels all have a direct impact on the financial health of companies. Political stability Political stability and the regulatory frameworks differ across countries and regions. Changes in government policies, legal systems, or geopolitical tensions can introduce uncertainties and affect the creditworthiness of companies. Differences in bankruptcy processes & definitions in also change the default risk between different countries & jurisdictions. The legal & regulatory frameworks are an important consideration when credit risk managers determine the country of risk. Geography Geography plays a crucial role in assessing credit risk due to its influence on various economic, political, and environmental factors that can impact businesses differently across regions. Credit Risk managers in banks assess each of these factors as part of their assessment to determine internal credit ratings. When monitoring credit risk on a portfolio, looking at the credit risk trends across different geographies is important for the same reasons. Corporate & Financial The map highlights countries with Corporate & Financial entities included in the Credit Benchmark dataset and are therefore included within the Credit Risk IQ industry reports. It highlights the breadth of coverage provided by consensus credit ratings. Natural and environmental risks Different geographies expose companies to natural and environmental risks such as earthquakes, hurricanes, floods, or other climate-related events. Businesses operating in geographies prone to such risks may face disruptions, leading to potential financial strain and impacting their creditworthiness.Currency RiskCompanies face currency risk, especially if they have significant revenue or debt denominated in foreign currencies. Exchange rate fluctuations can impact the financial performance and debt-servicing capabilities of these companies.Industry conditions Industry conditions can vary based on geographic factors. For instance, demand for certain products or services may be higher in specific regions due to cultural preferences or demographic trends. Understanding market dynamics in different geographies is essential for evaluating the geographic industry specific risks.Click HereSupply chains and infrastructureThe stability of supply chains and quality of infrastructure varies across countries and regions. Companies heavily reliant on specific geographies for production or distribution can face operational challenges if infrastructure is inadequate or supply chains are vulnerable.Click Here Previous slide Next slide Regional ComparisonCountry Information The region analysis reports compare credit risk trends across different regions.The left graph [which is the graph taken from the existing https://www.creditbenchmark.com/credit-risk-iq-industry-reports page] shows how average credit risk has changed within the Consumer Services industry across Asia, Africa, Europe, Pacific, Latin America and North America throughout 2023.Asia and Africa saw steady improvements, with risk decreasing.This compares with North America and Latin America where risk has increased. The map highlights countries with Corporate & Financial entities included in the Credit Benchmark dataset and are therefore included within the Credit Risk IQ industry reports. It highlights the breadth of coverage provided by consensus credit ratings. The map highlights countries with Corporate & Financial entities included in the Credit Benchmark dataset and are therefore included within the Credit Risk IQ industry reports. It highlights the breadth of coverage provided by consensus credit ratings. Country ComparisonCountry Information The example here shows the distribution of credit consensus ratings in Singapore, India, South Korea, Hong Kong, China and Japan, for Industrials at the end of 2023. [Same graph taken from the existing https://www.creditbenchmark.com/credit-risk-iq-industry-reports page]The Credit Benchmark dataset includes over 900 Industrial entities in Asia. Frequently Asked Questions Most frequent questions and answers Can I edit the files ? I am text block. Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Is it Layered ? There are many variations of passages of Lorem Ipsum available, but the majority have suffered alteration in some form, by injected humour, or randomised words which don't look even slightly believable. If you are going to use a passage of Lorem Ipsum, you need to be sure there isn't anything embarrassing hidden in the middle of text. How can I edit the masks ? All the Lorem Ipsum generators on the Internet tend to repeat predefined chunks as necessary, making this the first true generator on the Internet. It uses a dictionary of over 200 Latin words, combined with a handful of model sentence structures, to generate Lorem Ipsum which looks reasonable. The generated Lorem Ipsum is therefore always free from repetition, injected humour, or non-characteristic words etc. What do I need to open the files ? Contrary to popular belief, Lorem Ipsum is not simply random text. It has roots in a piece of classical Latin literature from 45 BC, making it over 2000 years old. Richard McClintock, a Latin professor at Hampden-Sydney College in Virginia, looked up one of the more obscure Latin words How can I edit smart objects ? The standard chunk of Lorem Ipsum used since the 1500s is reproduced below for those interested. Sections 1.10.32 and 1.10.33 from "de Finibus Bonorum et Malorum" by Cicero are also reproduced in their exact original form, accompanied by English versions from the 1914 translation Is the font free ? Contrary to popular belief, Lorem Ipsum is not simply random text. It has roots in a piece of classical Latin literature from 45 BC, making it over 2000 years old. Richard McClintock, a Latin professor at Hampden-Sydney College in Virginia, looked up one of the more obscure Latin words, consectetur If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here to access the Industry Reports for free. ACCESS INDUSTRY REPORTS ### DEV: Product Draft 03 Products & Tools Credit Benchmark provides a data-driven view of credit risk, offering coverage, granularity, and collective insight available nowhere else.Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. BOOK DEMO Entity-Level RiskCredit Consensus RatingsCredit Consensus Ratings provide a unique measure of creditworthiness on 100,000+ counterparts and borrowers across emerging and developed markets, based on inputs from 40+ leading global financial institutions, almost half of which are GSIBs. 90% of the entities covered are otherwise unrated or private, providing an unparalleled perspective of risk and liquidity.Credit Consensus Ratings are supplemented by descriptive analytics and reference data that provide insights into the underlying credit views that make up the consensus.Historical charting allows you to benchmark trends - the Credit Consensus Rating vs your own estimate over time. Macro-Level InsightsCredit IndicesCredit Indices are macro-level risk indicators that offer the ability to compare credit trends and distributions across more than 170 countries and close to 200 industries, sectors and sub-sectors.Over 1,200 trend-tracking, forward-looking Credit Indices are available, reflecting Credit Benchmark’s expanding universe of 10 million credit risk observations contributed annually from the world’s leading financial institutions. They provide insights into the real-world risk views of the world’s most experienced risk takers.Leveraging the comprehensive set of indices allows for the construction of precise and representative Correlation- and Transition Matrices which more appropriately reflect the true risk dynamics within the market. Security-Level Ratings AssessmentsBonds & LoansCredit Benchmark, in partnership with Bloomberg, offers rating assessments (notching) for bonds and loans issued by 40,000+ entities with Credit Consensus Ratings.This service combines the Credit Benchmark Consensus with Bloomberg’s security reference dataset to create security-level rating assessments for approximately 130,000 bonds and loans amounting to $34+ trillion outstanding.The production combines both Credit Benchmark and Bloomberg information and technology. As the resulting Rating Assessments are at the security level, the Bloomberg platform provides the perfect distribution mechanism. READ MORE Analytical ToolsMonitoring, managing and mitigating your risk Client Analytics Compare your internal risk view of your portfolio against the consensus view and filter by different segment cuts for a more granular view of your risk exposure. Chart the notch difference averages between your own internal estimates and the consensus view by industry. My Portfolio Upload your portfolio and continuously monitor its credit quality using the Credit Benchmark Web App portfolio function. Portfolios can be shared dynamically to other users across your team or firm and feed into management reporting cycles. Monitoring & Alerting Automated portfolio monitoring and notifications can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters - managing exceptions and responding to early warnings. Watch List & Surveillance In-built Surveillance provides insights on the most prevalent movers in your portfolio and the wider consensus universe. The Watch List leverages Credit Consensus Ratings and descriptive analytics to provide insights into entities that are experiencing credit deterioration. Credit Transition Matrices Our Credit Transition Matrices (CTMs) facilitate the modelling of default risk. The CTMs are constructed using the full breadth of Credit Benchmark’s dataset, which includes over 100,000 consensus entities, ensuring long-term stability. These CTMs can be used to plot broad credit trends, build sector specific views, or produce term structures for use in portfolio modelling. Correlation Matrices Credit Benchmark can provide Correlation Matrices that show the industry and region correlations within a pool. The correlation matrices are constructed using Credit Benchmark’s industry and region schema, offering a detailed view of concentration and correlation risk across your portfolio. Now Available: Credit Risk IQCredit Benchmark’s Credit Risk IQ reports show how credit risk is evolving across a wide array of dimensions.These monthly reports contain forward-looking analyses of default risk across 5,000+ sectors, spanning various geographies and industries, with rated and unrated, and privately and publicly owned entities. Credit Benchmark dives into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. ACCESS REPORTS SolutionsDelivery channels to fit your workflow Web Application • Portfolio monitoring and alerting • Analyse and monitor industry or geographical trends • Entity-level drill down, descriptive analytics, and peer comparison Excel Add-In • Incorporate consensus data into existing spreadsheets and models • Pre-built template library • Convenient and fluent graphical interface to create and edit filters to query the database Datafeed • Comprehensive flat file • Incorporates your internal identifiers and reference data for efficient data mapping • Structured file format for quick ingestion into system Direct / API • Web services Enterprise API • Structured data model • High performance, flexible delivery mechanism to support in-house built solutions Third Parties • Third-party channels including Bloomberg Terminal and Enterprise Data License • Data marketplaces including Databricks and AWS Marketplace In Numbers 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Book a DemoCredit Benchmark offers entity-level Credit Consensus Ratings on over 100,000 counterparts and borrowers globally, alongside an extensive suite of analytical tools and products.Talk to us for a full service demo and learn how Credit Benchmark helps risk professionals manage their capital and risk more effectively and efficiently. By clicking the ‘request demo’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Risk SolutionsCredit Risk Solutions Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### CB in numbers - Dynamic data 100,000 Entities with Credit Consensus Ratings 130,000 Bond and Loan Rating Assessments, Representing $34+ Trillion Outstanding 1 Million Risk Observations Feeding Into Twice-Monthly Data Updates 60 Million Credit Risk Observations Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### Access Industry Reports Button ACCESS REPORTS ### Sign Up Button Sign up ### Login button ACCESS REPORTS ### header marketing pages Log in Sign up ### Industry Reports Log in Sign up What Do the Industry Reports Cover?The Industry Reports analyse credit risk on a subset of our Corporate and Financial entities.For a demo and more information on the underlying Credit Benchmark dataset, please get in touch here.ExamplesHere are some examples to give you an idea of what the reports show:United States Corporates: Industry AnalysisGerman Financials: Super Sector AnalysisAsia Retail: Ownership Analysis  How Can the Industry Reports Be Used? The reports provide unique insights into how credit risk is changing across a wide range of different sectors of the economy. The breadth of the Credit Benchmark dataset means that trends and themes can be discovered that are otherwise hard to find elsewhere. Many industries do not behave uniformly and can diverge in unexpected ways. The forward-looking nature of Credit Consensus Ratings (CCRs) means that our analyses provide an indicator of where credit risk is heading. As an example, they could be used in the following ways: 1. Benchmark credit risk in your portfolio against Credit Benchmark’s representative credit indices. 2. Report to stakeholders on credit risk trends in relevant sectors. Credit Benchmark’s dataset covers nearly 75,000 Corporates, Financials & Sovereigns entities that span across: 6 Regions Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Corporates, Financials & Sovereign entities Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Private & public companies Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. 100 countries Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. 120+ sectors Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Entities unrated by traditional rating agencies as well as rated entities Lorem ipsum dolor sit amet, consectetur adipiscing elit. This call-to-action is merely a placeholder, awaiting for the final content. Actual login and sign-up options are under construction. ACCESS SECTOR ANALYSIS ### Credit Analytics | Industry reports Log in Sign up Credit Benchmark’s Industry Trends show how credit risk is evolving through time around the world. Our dataset of more than 100,000 Credit Consensus Ratings (CCRs), derived from the contributed risk views from over 40 leading banks globally provides unique insights into the credit quality of industries and countries beyond that of traditional sources of credit ratings. The industry reports highlight the breadth and depth of Credit Benchmark’s entity-level consensus ratings. The industry reports show how banks' predictions of credit risk over the next year are evolving across different sectors. Industry Reports The reports compare a wide range of geographies and industries, as well as rated/unrated* and public/private companies. Types of Credit Risk Analysis The Credit Consensus Ratings can be analysed in various ways. We explain what the different types of analysis are. Types of Analysis Looking for more details on how the entity-level Credit Consensus Ratings and industry trends are derived? Read more here.*Rated by S&P or Fitch In Numbers 75,000 Entities with Credit Consensus Ratings 800,000 Credit Risk Estimates Collected Each Month 50 Million Credit Risk Estimates Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies If you are interested in seeing what Credit Consensus Ratings can offer, sign-up here for free to access the Industry Reports. ACCESS SECTOR ANALYSIS ### Types of analysis Log in Sign up What Types of Analysis are Available?With 40+ banks regularly contributing their internal ratings to Credit Benchmark, the Credit Consensus Ratings (CCRs) are dynamic, changing frequently through time as events unfold.This leads to a diverse range of insights which can be seen from the trends and behaviours of the entities across different industries.Credit Benchmark's credit risk analytics spotlight a variety of different metrics to analyse trends and patterns. Credit Indices: TrendsThis type of analysis shows the percentage change in the Probability of Default (PD) over the last 12 months for different credit indices constructed from the underlying entity-level Credit Consensus Ratings. This helps to easily understand and visualize the evolution of credit risk through time and the difference or similarity in behaviour among different sectors.This example plots the change in credit risk as a percentage (starting from a base level in July 2022) for European Corporates, comparing rated and unrated European Corporates.You can see that rated and unrated European Corporates experienced a divergence in credit risk that started in February 2023. Rated entities overall decreased in credit risk (-3.5% PD change over the last 12 months) while unrated entities slightly increased in credit risk starting in April 2023 (+1.5% PD change over the last 12 months). This example shows an alternative visualisation of the same type of analysis, only adapting the plot to account for a greater number of segments.You can see that there is a sharp increase in credit risk in Africa over the last year with Mauritius, Nigeria, and Kenya leading the way with a respective +4%, +13%, and +24% PD increase over the last 12 months. Credit Distribution:This plot shows the credit distribution of entities within different sectors through time. The analysis highlights the evolution of the credit distribution at 3 points in time: 12 months ago, 6 months ago, and now. This can be useful for example to track the overall rating distribution or more specifically the percentage of Investment-Grade/High-Yield ratings in particular sectors of interest through time. The example shows that a majority of ratings within our rated US Oil & Gas segment lies in the bb category, but this proportion has been decreasing over the last 12 and 6 months.Looking specifically at private entities within that segment, you can see that there is a higher percentage of HY (from bb to c) entities compared to the credit distribution of public entities. This might be worth monitoring as financial information on private entities is often harder to get. Notch Movements:The notch movements analysis illustrates how ratings have shifted over the last 12 months. It provides information on the percentage of entities that have had their ratings upgraded or downgraded by one, two, or more notches. It also offers an overview of the percentage of entities that experienced rating upgrades and downgradesIn the example, Spain experienced a greater number of upgrades than downgrades. The majority of these downgrades and upgrades were by a single notch. Transition Matrix:The Transition Matrix analysis illustrates how entities have shifted from one rating category to another over time. The rows in the transition matrix contain the rating [hyperlink to Credit Benchmark Scale section in In Depth] at the start of the period and the columns the rating at the end of the period.The matrix shows transitions using Credit Benchmark’s four-category rating scale. The four categories are defined as: 4-Category Rating 21-Category Ratings IGa aaa, aa+, aa, aa-, a+, a, a- IGb bbb+, bbb, bbb- HYb bb+, bb, bb-, b+, b, b- HYc ccc+, ccc, ccc-, cc, c For instance, looking at the first row and second column, it reveals that, out of a total of 1,362 entities, 6% transitioned from IGa to IGb over the specified time period.The value in the HYc row & HYb column shows that 29.9% of the 87 HYc entities improved from HYc to HYb. Correlation Matrix:The Correlation Matrix analysis illustrates the relationship between month-to-month PD changes across different segments. It offers insight into how these segments relate to one another, with the following interpretations:A value near 1 indicates a strong positive correlation, signifying that when one variable rises, the other tends to do the same and vice versa.A value close to -1 signals a strong negative correlation, suggesting that as one variable increases, the other decreases and vice versa.A value approaching 0 signifies minimal to no relationship between the segments.This analysis serves as a valuable instrument for risk management, diversification, and investment decision-making. It provides an understanding of the interconnections within credit risk across various segments.In this instance, Panama and Argentina demonstrate the lowest correlation, with a value of -0.42. Conversely, the highest degree of correlation is observed between Peru and the broader Latin American segment, with a value of 0.76. Credit Indices: Upgrades vs. Downgrades:The dynamic nature of Credit Benchmark’s Credit Consensus Ratings mean that changing sentiment in credit risk can be picked up by comparing the number of entities being upgraded or downgraded.For each sector, the number of upgrades and the number of downgrades is calculated.The net position expressed as the percentage of upgrades minus downgrades is plotted.If there are more upgrades in a given month, this is shown as a green bar and if there are more downgrades, this is shown as a red bar.This type of analysis can help to pick up potential turning points in a sector where the view of credit risk starts to change. In this example, the Media & Retail industries have experienced runs of more downgrades over the 12 months shown.In contrast, companies in the Travel & Leisure sector have continued to show more upgrades. Breakdown:The Industry Reports include a breakdown of the entities making up the report, by various meta data such as: geography, industry, rated/unrated, private/public, and parent/subsidiary.This helps better understand the type of entities in the industry and in turn, better interpret the different analyses.The graphs show an example breakdown of the entities included in the industry analyses.The majority of entities are in Europe (~40%), North America (36%), and Asia (~12%).About 70% are Corporates and 30% are Financials.15% are rated by either S&P or Fitch and 85% are unrated.13% are publicly owned and 87% are private entities. Credit Benchmark’s dataset covers nearly 75,000 Corporates, Financials & Sovereigns entities that span across: 6 Regions Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Corporates, Financials & Sovereign entities Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Private & public companies Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. 100 countries Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. 120+ sectors Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo. Entities unrated by traditional rating agencies as well as rated entities Lorem ipsum dolor sit amet, consectetur adipiscing elit. This call-to-action is merely a placeholder, awaiting for the final content. Actual login and sign-up options are under construction. ACCESS SECTOR ANALYSIS ### In Depth Log in Sign up What Do the Industry Reports Analyse? Credit Benchmark generates forward-looking analyses of default risk across 5,000+ industries. These reports span various geographies, industries*, with rated and unrated**, privately and publicly owned entities. Credit Benchmark dives into the credit risk behaviour of entities within each industry to help you identify key trends and signals at a macro-level. Each credit index is made up of the ratings of individual entities within it. Each entity within the index has a rating or Probability of Default (“PD”) [hyperlink to How is a Credit Benchmark Credit Consensus Rating Derived? section]. The credit index forms the aggregated view of the credit risk of those entities as a whole. How is a Credit Consensus Rating (CCR) Derived?Large sophisticated banks set their own internal credit risk ratings in order to manage the credit risk of the counterparties they lend to. For example: whether to lend in the first place, how much to lend and how much to charge the counterparty.Their credit ratings for counterparties are derived by credit risk analysts & statistical modellers taking into account a range of quantitative variables (as an example, for a Corporate this might include leverage and debt ratios from the company’s management and public financial statements) and qualitative factors (which could include for example brand value and stability of management). The ratings are regularly updated to reflect changes in each counterparty’s economic situation.The ratings help banks manage their risk of non-payment (default or bankruptcy) from a counterparty they have lent to (default risk). These loans typically span many years, so the banks assessments look forward over the next year and evaluate the risk that the counterparty will default1 over the next 12 months.Each bank has developed & refined its own credit risk assessment & modelling process. Banks each have their own independent validation and review teams, who challenge the processes and review decisions. Banks' models and rating processes are also subject to review by financial regulators (such as the Fed, EBA, Bank of England) and/or the banks' own auditors.Credit Benchmark receives from banks a 1-year forward-looking Probability of Default (PD) linked to the banks' internal rating.Credit Benchmark derives a Credit Consensus Rating (CCR) using the following steps:These PDs are averaged, to get the average view of the risk of the counterparty defaulting over the next year. This average view is called the consensus because it is a consensus opinion of the default risk of the counterparty.The consensus PD is mapped to a letter rating using a custom Credit Benchmark rating scale [hyperlink to Credit Benchmark Scale section] that has been calibrated using banks' internal rating scales.The diagram outlines the process for an example entity.In this example, five banks have sent a PD for the same counterparty, the average of which is 40 basis points (bps).Using the custom Credit Benchmark rating scale, this maps to a bbb- Credit Consensus Rating.By aggregating the view of five banks, the Credit Consensus Rating reflects a more diversified opinion of the credit risk for this entity.1 Banks contributing to Credit Benchmark follow the Basel definition of Default. What Do We Mean by Forward-Looking Analyses?The banks are providing and updating on a regular basis 1-year forward-looking PDs which feed into all our analyses. Looking at the below graph as an example entity, you can see that the PD published for January 2023 of 2 bps is the probability of the entity defaulting between the end of January 2023 and the end of December 2024. Equally, the PD published for December 2023 of 7 bps is the probability of the entity defaulting between the end of December 2023 and the end of November 2024.Therefore, our Credit Consensus Ratings represent the forward-looking credit view of banks over the next year. Creating a Unique Legal Entity IdentifierOne of the main challenges of creating Credit Consensus Ratings for unique legal entities is ensuring that when bank data is aggregated together, the averaged data pertains to the same legal entity.Credit Benchmark has invested heavily in the entity mapping and concordance process, using data from Bloomberg, Dun & Bradstreet, FactSet, Thomson Reuters, country specific entity identifier databases and several public sources including the Securities Exchange Commission (SEC) and Global Legal Entity Identifiers (LEI); and the data mapping process is supported by a dedicated team of 25+ members of staff. Data ValidationAs part of the onboarding process for contributing banks, legal, compliance and information security requirements must be met, and a detailed methodology review must be completed to ensure that their planned data contributions are comparable with those from other contributing banks.The methodology review identifies issues with items such as guarantees and currency mismatches and assesses the comparability of the actual internal credit rating process. The aim of the methodology review is to ensure that any data differences between contributing banks arise from different views of credit risk, rather than from any other reason.Credit Benchmark does not express any view on individual models, nor does it modify the contributed data in any way.On an on-going basis quantitative rules are used to identify data inconsistencies or outliers where PD values are materially different from other contributions or a previous contribution from the same bank.Credit Benchmark Scale Rating ID Consensus 21-Rating Consensus 7-Rating Consensus 4-Rating Consensus 2-Rating PD Lower Bound bps PD Mid Point bps PD Upper Bound bps 1 aaa aaa IGa IG 0 0.79 1.25 2 aa+ aa IGa IG 1.25 1.68 2.25 3 aa aa IGa IG 2.25 2.7 3.25 4 aa- aa IGa IG 3.25 4.03 5 a+ a IGa IG 5 5.81 6.75 6 a a IGa IG 6.75 7.57 8.5 7 a- a IGa IG 8.5 10.91 14 8 bbb+ bbb IGb IG 14 16.73 20 9 bbb bbb IGb IG 20 24.49 30 10 bbb- bbb IGb IG 30 37.95 48 11 bb+ bb HYb HY 48 60.4 76 12 bb bb HYb HY 76 92.26 112 13 bb- bb HYb HY 112 147.78 195 14 b+ b HYb HY 195 266.79 365 15 b b HYb HY 365 487.08 650 16 b- b HYb HY 650 806.23 1000 17 ccc+ c HYc HY 1000 1303.84 1700 18 ccc c HYc HY 1700 2061.55 2500 19 ccc- c HYc HY 2500 3041.38 3700 20 cc c HYc HY 3700 5015.97 6800 21 c c HYc HY 6800 8246.21 10000 22 d d d d 10000 10000 10000 Industry ClassificationIn addition to PDs, banks also include other metadata associated with each entity, this includes the banks internal industry classification. Credit Benchmark has developed an industry schema into which the banks' own industry categories are mapped.As part of Credit Benchmark’s process for mapping entity level data, Credit Benchmark calculates a consensus industry classification for each entity using the entity-level industry data included in the banks' data files.The industry schema provides a hierarchical taxonomy going from broad categorisations (such as the Industry or Super Sector) down to a more granular one (such as Sub Sector).The Credit Benchmark’s industry schema for Corporates & Financial Institutions is shown below.Corporates Industry Super Sector Sector Sub Sector Oil & Gas Oil & Gas Oil & Gas Producers Exploration & Production Oil & Gas Oil & Gas Oil & Gas Producers Integrated Oil & Gas Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Oil Equipment & Services Oil & Gas Oil & Gas Oil Equipment, Services & Distribution Pipelines Oil & Gas Oil & Gas Alternative Energy Alternative Fuels Basic Materials Basic Resources Forestry & Paper Forestry Basic Materials Basic Resources Forestry & Paper Paper Basic Materials Basic Resources Industrial Metals & Mining Aluminum Basic Materials Basic Resources Industrial Metals & Mining Iron & Steel Basic Materials Basic Resources Industrial Metals & Mining Nonferrous Metals Basic Materials Basic Resources Mining Coal Basic Materials Basic Resources Mining General Mining Basic Materials Basic Resources Mining Gold Mining Basic Materials Basic Resources Mining Platinum & Precious Metals Basic Materials Chemicals Chemicals Commodity Chemicals Basic Materials Chemicals Chemicals Specialty Chemicals Industrials Construction & Materials Construction & Materials Building Materials & Fixtures Industrials Construction & Materials Construction & Materials Heavy Construction Industrials Industrial Goods & Services Aerospace & Defense Aerospace Industrials Industrial Goods & Services Aerospace & Defense Defense Industrials Industrial Goods & Services Electronic & Electrical Equipment Electrical Components & Equipment Industrials Industrial Goods & Services Electronic & Electrical Equipment Electronic Equipment Industrials Industrial Goods & Services General Industrials Containers & Packaging Industrials Industrial Goods & Services General Industrials Diversified Industrials Industrials Industrial Goods & Services Industrial Engineering Commercial Vehicles & Trucks Industrials Industrial Goods & Services Industrial Engineering Industrial Machinery Industrials Industrial Goods & Services Industrial Transportation Delivery Services Industrials Industrial Goods & Services Industrial Transportation Marine Transportation Industrials Industrial Goods & Services Industrial Transportation Railroads Industrials Industrial Goods & Services Industrial Transportation Transportation Services Industrials Industrial Goods & Services Industrial Transportation Trucking Industrials Industrial Goods & Services Support Services Business Support Services Industrials Industrial Goods & Services Support Services Business Training & Employment Agencies Industrials Industrial Goods & Services Support Services Financial Administration Industrials Industrial Goods & Services Support Services Industrial Suppliers Industrials Industrial Goods & Services Support Services Waste & Disposal Services Consumer Goods Automobiles & Parts Automobiles & Parts Auto Parts Consumer Goods Automobiles & Parts Automobiles & Parts Automobiles Consumer Goods Automobiles & Parts Automobiles & Parts Tires Consumer Goods Food & Beverage Beverages Brewers Consumer Goods Food & Beverage Beverages Distillers & Vintners Consumer Goods Food & Beverage Beverages Soft Drinks Consumer Goods Food & Beverage Food Producers Farming, Fishing & Plantations Consumer Goods Food & Beverage Food Producers Food Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Durable Household Products Consumer Goods Personal & Household Goods Household Goods & Home Construction Furnishings Consumer Goods Personal & Household Goods Household Goods & Home Construction Home Construction Consumer Goods Personal & Household Goods Household Goods & Home Construction Nondurable Household Products Consumer Goods Personal & Household Goods Leisure Goods Consumer Electronics Consumer Goods Personal & Household Goods Leisure Goods Recreational Products Consumer Goods Personal & Household Goods Leisure Goods Toys Consumer Goods Personal & Household Goods Personal Goods Clothing & Accessories Consumer Goods Personal & Household Goods Personal Goods Footwear Consumer Goods Personal & Household Goods Personal Goods Personal Products Consumer Goods Personal & Household Goods Tobacco Tobacco Health Care Health Care Health Care Equipment & Services Health Care Providers Health Care Health Care Health Care Equipment & Services Medical Equipment Health Care Health Care Health Care Equipment & Services Medical Supplies Health Care Health Care Pharmaceuticals & Biotechnology Biotechnology Health Care Health Care Pharmaceuticals & Biotechnology Pharmaceuticals Consumer Services Media Media Broadcasting & Entertainment Consumer Services Media Media Media Agencies Consumer Services Media Media Publishing Consumer Services Retail Food & Drug Retailers Drug Retailers Consumer Services Retail Food & Drug Retailers Food Retailers & Wholesalers Consumer Services Retail General Retailers Apparel Retailers Consumer Services Retail General Retailers Broadline Retailers Consumer Services Retail General Retailers Home Improvement Retailers Consumer Services Retail General Retailers Specialized Consumer Services Consumer Services Retail General Retailers Specialty Retailers Consumer Services Travel & Leisure Travel & Leisure Airlines Consumer Services Travel & Leisure Travel & Leisure Gambling Consumer Services Travel & Leisure Travel & Leisure Hotels Consumer Services Travel & Leisure Travel & Leisure Recreational Services Consumer Services Travel & Leisure Travel & Leisure Restaurants & Bars Consumer Services Travel & Leisure Travel & Leisure Travel & Tourism Telecommunications Telecommunications Fixed Line Telecommunications Fixed Line Telecommunications Telecommunications Telecommunications Mobile Telecommunications Mobile Telecommunications Utilities Utilities Electricity Alternative Electricity Utilities Utilities Electricity Conventional Electricity Utilities Utilities Gas, Water & Multi-utilities Gas Distribution Utilities Utilities Gas, Water & Multi-utilities Multi-utilities Utilities Utilities Gas, Water & Multi-utilities Water Technology Technology Software & Computer Services Computer Services Technology Technology Software & Computer Services Internet Technology Technology Software & Computer Services Software Technology Technology Technology Hardware & Equipment Computer Hardware Technology Technology Technology Hardware & Equipment Electronic Office Equipment Technology Technology Technology Hardware & Equipment Semiconductors Technology Technology Technology Hardware & Equipment Telecommunications Equipment Financials Entity Type Super Sector Sector Sub Sector Financials Banks Banks Banks Financials Financial Services Financial Services Asset Managers Financials Financial Services Financial Services Consumer Finance Financials Financial Services Financial Services Investment Services Financials Financial Services Financial Services Mortgage Finance Financials Financial Services Financial Services Specialty Finance Financials Insurance Life Insurance Life Insurance Financials Insurance Nonlife Insurance Full Line Insurance Financials Insurance Nonlife Insurance Insurance Brokers Financials Insurance Nonlife Insurance Monoline Insurance Financials Insurance Nonlife Insurance Property & Casualty Insurance Financials Insurance Nonlife Insurance Reinsurance Financials Real Estate Real Estate Investment & Services Real Estate Holding & Development Financials Real Estate Real Estate Investment & Services Real Estate Services Financials Real Estate Real Estate Investment Trusts Diversified REITs Financials Real Estate Real Estate Investment Trusts Hotel & Lodging REITs Financials Real Estate Real Estate Investment Trusts Industrial & Office REITs Financials Real Estate Real Estate Investment Trusts Mortgage REITs Financials Real Estate Real Estate Investment Trusts Residential REITs Financials Real Estate Real Estate Investment Trusts Retail REITs Financials Real Estate Real Estate Investment Trusts Specialty REITs Footnotes * Corporates & Financials are currently available. Please get in touch for information on other types of entities. ** Rated by S&P or Fitch This call-to-action is merely a placeholder, awaiting for the final content. Actual login and sign-up options are under construction. ACCESS SECTOR ANALYSIS ### Elementor Loop Item #12138 ### New pages' header Log in Sign up ### [NEW HOME] 05 Sector risk desktop + mobile Now Available: Sector Risk Reports Sign up now for access to thousands of detailed sector-specific credit risk reports, spanning 100 countries, 120+ sectors, public and private companies, agency rated and unrated; across Corporate, Financial and Sovereign entities.  Learn more ➔ ### [NEW HOME] 04.2 Tab menus desktop Illuminate the credit risk profile of private or unrated names Monitor and benchmark a portfolio; compare against the street view Assess and analyze macro and micro credit trends Confidently undertake risk sharing transactions Detect network risks via exposures to subsidiaries, clients, and supply chains Integrate the data into internal workflows and dashboards Demonstrate due diligence to investors and boards Fulfil regulatory requirements Illuminate the credit risk profile of private or unrated names Illuminate the credit risk profile of private or unrated namesDynamically filter the full universe of 80,000+ legal entities using multiple criteria including public / private and rated / unrated flags to refine results. Save and retrieve multiple screens and export underlying data directly into Excel.  Monitor and benchmark a portfolio; compare against the street view Monitor and benchmark a portfolio; compare against the street viewAutomated portfolio monitoring and surveillance can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters – managing exceptions and responding to early warnings. Assess and analyze macro and micro credit trends Assess and analyze macro and micro credit trendsTrack the historical and forward-looking risk profile of a single legal entity, monitor and be alerted to changes in creditworthiness, and assess contextually against macro sector credit indices. Confidently undertake risk sharing transactions Confidently undertake risk sharing transactionsQuickly measure the credit risk of a portfolio across publicly rated and unrated obligors, and pinpoint areas of potential concern for further analysis. Track divergences between Credit Benchmark data and credit rating agencies for a more up-to-date view of risk and leverage in pricing meetings, benefiting credit risk transfer strategy.  Detect network risks via exposures to subsidiaries, clients, and supply chains Detect network risks via exposures to subsidiaries, customers, and supply chainsSeamlessly integrate Credit Benchmark data with other market metrics through Bloomberg supply chain analytics. Monitor the credit risk profile of your customers, suppliers and vendors using Credit Benchmark’s expansive coverage, macro indices and analytical tools. Integrate the data into internal workflows and dashboards Integrate the data into internal workflows and dashboardsIncorporate Credit Benchmark data to build bespoke reports and seamlessly integrate data into internal workflows, annual reviews, new client / deal approvals, credit committees, industry reviews, portfolio monitoring exercises, early warning indicators, and pre-deal screening. Demonstrate due diligence to investors and boards Demonstrate due diligence to investors and boardsGain a more dynamic perspective on the risks within your supply chain and customer base, and incorporate into management meetings and investor reporting to demonstrate due diligence.  Fulfil regulatory requirements Fulfil regulatory requirementsEnhance your regulatory discussions with a better understanding of your peer landscape at a granular level through our credit risk data and analytics. ### [NEW HOME] 04.1 Tab menus mobile Illuminate the credit risk profile of private or unrated names Monitor and benchmark a portfolio; compare against the street view Assess and analyze macro and micro credit trends Confidently undertake risk sharing transactions Detect network risks via exposures to subsidiaries, clients, and supply chains Integrate the data into internal workflows and dashboards Demonstrate due diligence to investors and boards Fulfil regulatory requirements Illuminate the credit risk profile of private or unrated names Dynamically filter the full universe of 80,000+ legal entities using multiple criteria including public / private and rated / unrated flags to refine results. Save and retrieve multiple screens and export underlying data directly into Excel.  Monitor and benchmark a portfolio; compare against the street view Automated portfolio monitoring and surveillance can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters – managing exceptions and responding to early warnings. Assess and analyze macro and micro credit trends Track the historical and forward-looking risk profile of a single legal entity, monitor and be alerted to changes in creditworthiness, and assess contextually against macro sector credit indices. Confidently undertake risk sharing transactions Quickly measure the credit risk of a portfolio across publicly rated and unrated obligors, and pinpoint areas of potential concern for further analysis. Track divergences between Credit Benchmark data and credit rating agencies for a more up-to-date view of risk and leverage in pricing meetings, benefiting credit risk transfer strategy.  Detect network risks via exposures to subsidiaries, clients, and supply chains Seamlessly integrate Credit Benchmark data with other market metrics through Bloomberg supply chain analytics. Monitor the credit risk profile of your customers, suppliers and vendors using Credit Benchmark’s expansive coverage, macro indices and analytical tools. Integrate the data into internal workflows and dashboards Incorporate Credit Benchmark data to build bespoke reports and seamlessly integrate data into internal workflows, annual reviews, new client / deal approvals, credit committees, industry reviews, portfolio monitoring exercises, early warning indicators, and pre-deal screening. Demonstrate due diligence to investors and boards Gain a more dynamic perspective on the risks within your supply chain and customer base, and incorporate into management meetings and investor reporting to demonstrate due diligence. Fulfil regulatory requirements Enhance your regulatory discussions with a better understanding of your peer landscape at a granular level through our credit risk data and analytics. ### [NEW HOME] 03 What we do desktop + mobile What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients every two weeks. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔About the ProductComplex risk decisions are supported by easy access to 80,000+ Credit Consensus Ratings, 130,000+ bond and loan rating assessments, 1,200+ sector indices, and a suite of in-depth analytics - available via Web App, Excel add-in, API, flat-file download, and partner channels including Bloomberg. Risk professionals at banks, insurance companies, asset managers, and other firms use the data to gain visibility on entities without a public rating, monitor and benchmark portfolios, assess and analyze credit trends, inform risk sharing transactions, and fulfil regulatory requirements. Learn more ➔ Previous slide Next slide What We DoCredit Benchmark provides a data-driven view of credit risk, offering coverage, detail, and collective insight available nowhere else. First, we collect the entity-level credit risk views of the world’s leading financial institutions. Next, we map, cleanse, anonymize and aggregate these raw contributions to create a ‘credit consensus’, delivered to our clients every two weeks. The resulting Credit Consensus Ratings, Indices & Analytics are an entirely unique product backed by real-world market sentiment. Rather than the 'issuer pay model', it represents the views of those with 'skin in the game'. Learn more ➔ About the ProductComplex risk decisions are supported by easy access to 80,000+ Credit Consensus Ratings, 130,000+ bond and loan rating assessments, 1,200+ sector indices, and a suite of in-depth analytics - available via Web App, Excel add-in, API, flat-file download, and partner channels including Bloomberg. Risk professionals at banks, insurance companies, asset managers, and other firms use the data to gain visibility on entities without a public rating, monitor and benchmark portfolios, assess and analyze credit trends, inform risk sharing transactions, and fulfil regulatory requirements. Learn more ➔ ### [NEW HOME] 02 Use cases desktop Credit Risk SolutionsFocus your attention where and when it matters most with access to the largest and most timely source of credit risk data globally. Specialty Credit & Political Risk Insurance Corporate Treasury Point-in-Time (PIT) Impairments Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Bank Credit Risk ManagementLearn more ➔ Significant Risk Transfer / Capital Relief TradesLearn more ➔ Fund FinancingLearn more ➔ IFRS 9 / CECL Impairment BenchmarkingLearn more ➔ Securities Finance and Prime BrokerageLearn more ➔ Specialty Credit & Political Risk InsuranceLearn more ➔ Corporate TreasuryLearn more ➔ Central Counterparty Clearing Houses (CCPs)Learn more ➔ ### [NEW HOME] 01 Homepage banner Identify, quantify and monitor your credit risk leveraging Credit Benchmark's data and analytics. BOOK DEMOCredit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service.LEARN MOREMonthly Credit Outlook: August 2023The US downgrade by Fitch to AA+ highlights the political and fiscal challenges facing most Governments as they grapple with post-Covid higher inflation and slower growth. Current global economic data is mixed – growth is stronger than the gloomiest predictions, but slowing in many economies.READ NOWDefault Rate Forecast 2023/24: US Speculative Grade Borrowers and US Leveraged LoansDefault rates for US Speculative Grade bonds and Leveraged Loans are rising and expected to peak in Q2 2024. This whitepaper examines projected credit default rates for US issuers based on credit consensus data from global banks. READ NOW Previous slide Next slide ### Homepage new top banner Unique insights into the views of institutional risk expertsDynamic consensus data and analytics provide forward-looking insights into the credit quality and liquidity of companies and sectors globally. Access the combined risk views of experts from the world’s leading financial institutionsSCHEDULE A DEMOCredit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, probabilities of default, and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licensed clients via the Bloomberg Terminal and Data License service.LEARN MOREQuarterly Credit Outlook Q1 2023The credit optimism of early 2023 has faded as higher interest rates bite. Hopes for a soft landing centred on slowing inflation and an end to rate hikes, but the growing impact of current interest rate levels has blindsided markets: depositor fright at Treasury bond losses pushed 40-year-old Silicon Valley Bank into insolvency in 40 hours.READ MOREMonthly Credit Outlook: June 2023The world economy is still grappling with inflation and rising interest rates, partly driven by public sector pandemic debts. Private personal debt has also ballooned during the easy money era, fostering a large, unregulated shadow banking industry. While some corporates have emerged from the QE period with strong balance sheets, others have growing debts as consumer spending has dropped and existing supply chains have shifted or weakened. READ MORE Previous slide Next slide Subscribe to the Service Access unique insights and analysis from this exclusive, contributed credit risk dataset. Every contribution takes into account real-world risk exposures, and combined they provide a more comprehensive view of credit risk. learn more Join the Network Join a network of the world’s leading financial institutions to benchmark and validate your internal credit opinions against those of your peers and get a unique view of credit risk at the micro- and macro-level. learn more ### Interactive coverage map Global CoverageCredit Consensus Ratings and Bond and Loan Rating Assessments Interactive Map AMERICAS Entities: 15,000 Bonds: 33,000 Loans: 7,500 EMEA Entities: 19,000 Bonds: 72,500 Loans: 5,000 APAC Entities 6,000 Bonds: 7,000 Loans: 2,500 ### Use cases for security ratings Due Diligence Using Credit Benchmark data as an input into credit analysis and associated reporting. Credit Research Use within investment risk management reporting and governance. Investment Risk Management Use within investment risk management reporting and governance. Regulatory Funding Capital Allocation Using Credit Benchmark Rating Assessment to support optimization of regulatory capital requirements. ### scrolling header Unique insights into the views of institutional risk expertsDynamic consensus data and analytics provide forward-looking insights into the credit quality and liquidity of companies and sectors globally. Access the combined risk views of experts from the world’s leading financial institutionsSCHEDULE A DEMOCredit Benchmark Data on the Bloomberg Terminal and via Enterprise Data LicensePrecise consensus-based credit ratings, mid-point probabilities of default and advanced analytics on 40,000 mostly unrated private and public companies and 130,000 corporate bonds and loans are now available to licenced clients via the Bloomberg Terminal and Data License service.BOOK DEMOQuarterly Credit Outlook Q1 2023The credit optimism of early 2023 has faded as higher interest rates bite. Hopes for a soft landing centred on slowing inflation and an end to rate hikes, but the growing impact of current interest rate levels has blindsided markets: depositor fright at Treasury bond losses pushed 40-year-old Silicon Valley Bank into insolvency in 40 hours.READ MORE Previous slide Next slide Subscribeto the ServiceAccess unique insights and analysis from this exclusive, contributed credit risk dataset. Every contribution takes into account real-world risk exposures, and combined they provide a more comprehensive view of credit risk. LEARN MOREJoin theNetworkJoin a network of the world’s leading financial institutions to benchmark and validate your internal credit opinions against those of your peers and get a unique view of credit risk at the micro- and macro-level. LEARN MORE ### Use Cases template (bank credit risk) Bank Credit Risk ManagementCredit Consensus Data for Bank Credit Risk Management BOOK A DEMO Why Credit Benchmark?Better identify, quantify, and monitor your credit risk leveraging Credit Consensus dataSince 2015 Credit Benchmark has been producing Credit Consensus Ratings & Analytics by bringing together the internal risk views of ~40 of the world’s largest banks (almost half of which are GSIBs).Credit Consensus Ratings on 75,000+ individual obligors (less than 10% with external ratings) enable banks to maximise their available information set to enhance their risk management and decision-making across the client lifecycle. Enhanced behavioural analytics ensure banks are fully informed on how their portfolio performance compares to the market. SolutionsHow we can help your business BOOK A DEMO Automated portfolio monitoring and surveillance can flag negative or positive movement, creating additional capacity for analysts to cover a larger set of names, and expend resources to where it matters – managing exceptions and responding to early warnings. Access to the full global consensus database (not just to internal firm data) provides greater insights for use in considering industry, geographical and sectoral business expansion. Consensus data can be used to expedite a high-level review of target clients and implement market intelligence-led prospecting. Incorporate our credit risk management software to build bespoke reports and seamlessly integrate data into internal workflows, annual reviews, new client / deal approvals, credit committees, industry reviews, portfolio monitoring exercises, early warning indicators, and pre-deal screening. Benchmark, understand and optimise the capital allocated to the credit risk you are taking and inform decision making at an entity, sector or portfolio level. Enhance your regulatory discussions with a better understanding of your peer landscape at a granular level through our credit risk management solutions. Review outliers between traditional agency ratings and Credit Benchmark data. Demonstrate a robust counterparty risk management approach to potential clients and investors. Case Study  The Client A major UK-based bank. The Challenge Leveraging external data in the end-to-end client risk management lifecycle, including origination, initial onboarding, annual reviews, early warning framework, thematic portfolio insights and distribution. The Solution Credit Benchmark’s comprehensive coverage at an individual entity and portfolio level has allowed the bank to embed the data in a systematic manner across the client lifecycle. When compared to existing external data sources, Credit Benchmark’s coverage was in excess of 75% of balance sheet utilisation and as such able to provide meaningful insights across the portfolio. Additionally, due to the data exchange model where the bank received access to the full dataset (not just where there is overlap with their portfolio), Credit Benchmark’s data has been a valuable source of insight on the broader market both at the point of inception of the client relationship and throughout the traditional lifecycle. Credit Benchmark’s thematic portfolio analysis has been embedded in a myriad of different senior management forums, allowing extensive use of the dataset and custom reporting suite to provide pertinent and valuable insights into the performance of the bank’s portfolio. Seamless integration of the bank’s data with the Credit Benchmark’s outputs has been key to successful implementation, including utilising the fortnightly updates as a key input into an Early Warning framework. In Numbers 75,000 Entities with Credit Consensus Ratings 800,000 Credit Risk Estimates Collected Each Month 50 Million Credit Risk Estimates Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury Point-in-Time (PIT) Impairments Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Company* Company Email* Telephone REQUEST COVERAGE CHECK By clicking the ‘request coverage check’ button, you agree to the Credit Benchmark Terms of Use and Privacy Policy. Δ ### Elementor Loop Item #11299 ### Other solutions - links Specialty Credit & Political Risk Insurance Corporate Treasury IFRS 9 / CECL Impairment Benchmarking Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### other solutions LINKS Risk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury Point-in-Time (PIT) Impairments Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### Other solutions UPDATED Risk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury Point-in-Time (PIT) Impairments Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### CB in numbers UPDATED FINAL In Numbers 75,000 Entities with Credit Consensus Ratings 800,000 Credit Risk Estimates Collected Each Month 50 Million Credit Risk Estimates Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### Book a demo CTA BOOK A DEMO ### Other Solutions + LINKS Risk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury Point-in-Time (PIT) Impairments Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### CB In Numbers - Updated In Numbers 75,000 Entities with Credit Consensus Ratings 800,000 Credit Risk Estimates Collected Each Month 50 Million Credit Risk Estimates Collected Since Launch in 2015 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90% Of Universe Unrated by Traditional Rating Agencies 90% Of Corporate Universe Are Private Companies ### Understand your risk + FORM Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. First Name* Last Name* Email* Phone* By submitting this form you agree to Credit Benchmark’s Privacy Policy and Terms and Conditions. Δ ### Understand your risk module Understand your riskRequest a coverage check of your portfolio & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Other solutions Risk SolutionsOther Solutions Specialty Credit & Political Risk Insurance Corporate Treasury Point-in-Time (PIT) Impairments Securities Finance & Prime Brokerage Bank Credit Risk Management Significant Risk Transfer / Capital Relief Trades Central Counterparty Clearing Houses (CCPs) Fund Financing ### Related material Related Material ### The benefits The Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. ### CB in numbers module In Numbers 75,000 Entities with Credit Consensus Ratings 10 Million Contributed Credit Risk Estimates Yearly 40 Million Estimates Collected Since Launch 1,200 Industry & Sector Indices 160 Countries Covered 40 Major Global Banks Contributing, Almost Half Are GSIBs 20,000 Credit Analysts Contributing Risk Views 90 Of Universe Unrated by Traditional Rating Agencies ### How we can help module SolutionsHow we can help your business ">">BOOK A DEMO Twice-monthly updates as financial institutions revise their opinions allow CCP analysts to continually challenge their own models and assumptions. Monitor credit views on clearing members who do not have a public credit rating to enrich annual credit assessments of clearing members. Conduct enhanced portfolio reporting to review trends and generate more frequent management reporting. Leverage automating alerting on recent upgrades and downgrades within a portfolio. Expand credit risk analysis to clearing members’ clients, including opaque buy-side names, to gain a picture of member network risk. Help onboard new members by quickly and easily analysing the credit of new kinds of members including funds. ### Specialty Credit and Political Insurance Speciality Credit & Political Risk Insurance and ReinsuranceUnderwrite more business, more confidently ">">BOOK A DEMO Why Credit Benchmark?Credit Consensus Data for Specialty Credit & Political Risk InsuranceA tiny percentage of underwriting opportunities are bound, leaving a huge amount of potential business on the table for direct insurers. Meanwhile, reinsurers need to map multiple books of business to effectively measure and report credit risk in their portfolio.Relying on traditional credit risk data presents challenges: much of the insurance market is private or unrated, and available credit information can become stale quickly. Time-consuming analysis leads to inefficiencies when screening for new business.Using credit consensus data, direct insurers can see what leading global financial institutions think of obligors, uncovering more compelling underwriting opportunities with fewer resources. Reinsurers can map, measure and monitor their portfolio more effectively. SolutionsHow we can help your business ">">BOOK A DEMO Case Study  The Client A leading CPR business within the Lloyd’s of London specialty market arm of a top three US P&C insurance group. The Challenge The underwriters and credit analysts at this insurer found that traditional agency rating coverage of their names of interest fell short, and they lacked confidence in the quality and provenance of the data available to them. The actuaries were spending too much time on entity mapping and using external data references that were refreshed infrequently. The Solution Credit Benchmark’s extensive consensus coverage on unrated and private names increased the client’s underwriting activity by enhancing the decision-making process, while the provenance of the data provided increased peace of mind. Twice-monthly updates informed underwriting strategy and enabled increased management reporting, and the team benefited from Credit Benchmark doing the heavy lifting of entity mapping, allowing them to do business more efficiently. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsCheck your covered universeRequest a coverage check of your counterparty universe & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Significant Risk Transfer Significant Risk TransferCredit Benchmark data can help drive efficiencies and transparency in your risk sharing business ">">BOOK A DEMO Why Credit Benchmark?Credit Consensus Data for Risk Sharing TransactionsSignificant Risk Transfers (aka Capital Relief Trades) are growing in popularity as banks look to release and redeploy regulatory capital, and investors are looking to benefit from exposures to bank-owned assets. As a result, investors are seeking a higher level of informational transparency than that currently available in the market to ensure that they invest in portfolios that accurately reflect their risk / return profile. As market conditions become more challenging, a growing number of investors and issuing banks are turning to Credit Benchmark’s consensus data and analytics for greater trade intelligence. SolutionsHow we can help your business ">">BOOK A DEMO Case Study  The Client The portfolio management team within a leading European private money management firm, conducting capital relief trades with European banks. The Challenge A lack of public ratings, and data staleness for those which were available meant assessing the risk of a new trade was difficult. This was especially true when trying to enter new markets where reliable credit risk data is scarce. These obstacles also made it harder to monitor changes in the risk profile of existing portfolios. The Solution Credit Benchmark’s strong coverage on publicly unrated names granted the client confidence to undertake more trades and better monitor their existing portfolio for changes in risk. Noting divergences between Credit Consensus Ratings and traditional agency ratings was important to the client as they considered the bank-sourced consensus view as more trustworthy and up-to-date, and this allowed them leverage in pricing meetings. The provenance of the data based on the internal risk views of over 40 leading global banks also gave them comfort given the fact their trading counterparts are part of a peer group of the same banks providing their risk views to the credit consensus. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsCheck your covered universeRequest a coverage check of your counterparty universe & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Securities Finance & Prime Brokerage Securities Finance & Prime BrokerageAccess more inventory, optimize capital allocation, and improve overall organizational efficiency ">">BOOK A DEMO Why Credit Benchmark?Credit Consensus Data for Securities Finance & Prime BrokerageUnderstanding and communicating counterparty creditworthiness within a firm or to its clients is critical to doing business and driving prudent decision-making. The sheer volume of beneficial owners and borrowers involved in securities finance transactions creates logistical issues and data bottlenecks that can impact business.Credit Benchmark data provides transparency into the securities lending market and its participants, benefiting beneficial owners, lending agents, tri-party providers, principal borrowers, and technology data providers. SolutionsHow we can help your business ">">BOOK A DEMO Case Study  The Client A major US-based agent bank and asset manager. The Challenge Many of the client’s beneficial owner and borrower names were publicly unrated, making it challenging to onboard and do business quickly. Capital constraints and regulatory imperatives made it difficult to do more standard business. The Solution Credit Benchmark allowed the agency lending program to see the borrowers that they are facing off against. The data was presented in reporting both internally and externally to their beneficial owner clients. The front-line credit team was able to approve and review fund counterparts more efficiently, facilitating more business. Benchmarking industry classifications and counterparty ratings helped the organization reduce RWA and optimize capital. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsCheck your covered universeRequest a coverage check of your counterparty universe & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Point in time impairments Point-in-Time (PIT) ImpairmentsPoint-in-Time term structures provide comparability for the impairment process ">">BOOK A DEMO Why Credit Benchmark?Credit Consensus Data for Impairments Benchmarking Under IFRS9 / CECLIn addition to “through the cycle” probabilities of default, Credit Benchmark also collects and aggregates Point-in-Time (PIT) PD curves from a growing number of global banks, allowing our clients to access a comprehensive set of consensus term structures at entity-, sector-, industry-, geographical level.Leveraging the insights provided through the benchmarking outputs, clients are able to identify, justify and articulate the key drivers of variance in expected credit loss and provisions to both internal and external stakeholders. SolutionsHow we can help your business ">">BOOK A DEMO Case Study  The Client The model validation team at a major UK-based Bank The Challenge The model validation team wanted to implement a robust model monitoring and validation framework for IFRS 9 utilising a representative independent dataset. They were also looking to help justify amendments to models and validation framework to auditors and regulators. The Solution Credit Benchmark’s Consensus Term Structures facilitated like-for-like benchmarking on an economically representative proportion of the bank’s portfolio. Independent and representative data allowed for tangible justification to internal and external stakeholders and formed a central part of their validation and monitoring framework. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsCheck your covered universeRequest a coverage check of your counterparty universe & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Fund Financing Fund FinancingIndependent consensus credit data provides clarity within the Fund Finance market ">">BOOK A DEMO Why Credit Benchmark?Credit Consensus Data for Fund FinancingCredit Consensus Ratings provide transparency into an otherwise opaque market where lack of representative credit risk information creates headwinds for doing business. Credit Consensus Ratings are utilised for a variety of financing solutions including subscription finance, NAV financing and GP financing. SolutionsHow we can help your business ">">BOOK A DEMO Case Study  The ClientA major European bank. The ChallengeA large proportion of the client's LP list were publicly unrated creating challenges around the accurate assessment of the credit risk. The SolutionFollowing a coverage check, Credit Benchmark were able to provide robust coverage on the portfolio of interest, providing ratings on the names the client was unable to get a traditional rating agency rating for. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsCheck your covered universeRequest a coverage check of your counterparty universe & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Corporate Treasury Corporate TreasuryNavigate the credit risk of customers, supply chains, financial counterparts, and investments ">">BOOK A DEMO Why Credit Benchmark?Credit Consensus Data for Corporate TreasuryCorporate treasury departments often have numerous customers, partners, and suppliers around the world. They also tend to have complex supply chains with hard to identify second and third order risks. Credit Benchmark’s unique coverage of 75,000 legal entities around the world, the majority of which are unrated by major rating agencies, can help corporate treasurers better understand and manage these risks. SolutionsHow we can help your business ">">BOOK A DEMO Case Study  The Client The accounts receivable team at a large FTSE 250 company needed a better understanding of their revenue vulnerability amidst the COVID-19 crisis. The Challenge The client’s main points of concern were to understand their customers’ credit risk, and to seek additional intelligence for their contract review and negotiation processes. The vast majority of their customers were publicly unrated and their existing external credit reference sources were sometimes a year out of date. The Solution After running a comprehensive mapping and coverage exercise on their largest exposures, the client was satisfied that Credit Benchmark would provide them with a valuable source of credit risk information enormously additive to their existing workflows. They were also happy that Credit Benchmark was able to do the heavy lifting of mapping to their internal database and customising the data to fit seamlessly into their own internal systems and dashboards. We were also able to provide the client with their own credit tear sheets to use for accounts payable negotiations. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsCheck your covered universeRequest a coverage check of your counterparty universe & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Central Counterparty Clearing Houses Central Counterparty Clearing Houses (CCPs)Better manage your clearing member network risk exposure ">">BOOK A DEMO Why Credit Benchmark?Credit Consensus Data for CCPsHigh standards of risk management are integral to the smooth functioning of a CCP. A lack of reliable credit intelligence on CCP member and member client credit risk at the exact legal entity level can make challenging internal models difficult. Credit consensus data helps to fill in these gaps on CCP member and member client risk. SolutionsHow we can help your business ">">BOOK A DEMO Case Study  The Client A leading global derivatives clearing house. The Challenge The credit analyst team was spending days inefficiently analysing unrated companies to determine their membership eligibility or when refreshing the house view of existing members. On top of this, the client was concerned about being indirectly exposed to significant second order risk through members’ weaker end clients, and didn’t have the internal resources to assess the credit risk of the 2,000+ entities that made up this second order risk. The Solution The client was able to save time by beginning their analysis of potential new members by checking the entity’s Credit Consensus Rating, making the membership process quicker and easier. The breadth of the consensus dataset, including publicly unrated buy-side names, also allowed the client to better monitor the credit of their members’ clients, and monitor key markets with Credit Benchmark industry, sector, and geography indices. In NumbersThe Benefits of Consensus Credit Data Rating the unrated Unparalleled coverage of public and private issuers; filling the gaps left by traditional ratings agencies. Independent Free from “issuer-pays” conflict and any bank bias. Real-world exposure Driven by the credit views of >40 of the world’s largest regulated banks, almost half of which are GSIBs. Identify that entity Risk data is processed through a sophisticated purpose-built mapping engine. Dynamic The consensus is refreshed twice monthly to provide dynamic indicators of potential credit risk changes. Alerting and monitoring Assess risk over the lifetime of a transaction. Secure reporting Ease of internal integration within reporting. Expanding footprint A unique growing global dataset. Related MaterialRisk SolutionsOther SolutionsCheck your covered universeRequest a coverage check of your counterparty universe & access unique insights and analysis from our exclusive, contributed credit risk dataset. ### Default Kit