This Week In Credit

Retail And Restaurants: Rising Negative Bias

Downgrades outnumbered upgrades for the third consecutive week, despite an uptick in the latter. Credit deterioration remained concentrated in speculative-grade--all downgrades (but one) and most negative outlooks and CreditWatch placements. More than half of the downgrades are in three sectors: health care, media and entertainment, and consumer products.

The retail and restaurants sector now has the most negative net outlook bias following several negative rating actions--all on U.S.-based speculative-grade issuers--including one selective default.

Last week, three out of four defaults were in Europe. Reasons for defaults were evenly split between distressed exchanges and missed payments, bringing this year’s total to 43, or around 25% fewer than at this time in 2024.

This Month In Credit

Stalling Momentum?

Net bias (positive minus negative bias) stalled at 4.9% as of March 31 after 10 months of continued increases.

The shift in momentum is largely due to a rise in new potential downgrades, up by 70%, to the highest level of additions in the past 12 months.

In contrast, weakest links (issuers rated 'B-' and below on either negative outlooks or CreditWatch negative) continued to decline, reaching 218--the lowest level since September 2022.

While defaults increased to nine in March, the year-to-date count (26) tracks below first-quarter 2024 (37). We are maintaining our base-case projections for 2025, however, the longer tariff uncertainty lasts, or if it worsens, the greater the likelihood defaults move toward our pessimistic cases.