Key Takeaways
- We have revised our outlooks on the U.S. airport, toll roads, and parking facilities sectors to negative, as COVID-19 fears, travel restrictions, and the economic fallout reduce overall mobility, with a prolonged or steeper decline likely to pressure credit quality.
- We are maintaining our negative outlooks on the port and transit sectors, as the implications of slowing trade flows and curtailed domestic mobility are exacerbating the trends of decreasing container volumes and revenues at port operators, and lower passenger boardings at transit authorities.
- The ultimate impact of the coronavirus pandemic on our U.S. transportation infrastructure ratings will depend on its duration and the measures rated issuers take to mitigate its effects.
Our transportation infrastructure outlook highlights broader economic and industry trends that could lead to changes in credit quality (ratings and outlooks) over the near-to-intermediate term. Over the next several weeks, we will be surveying our transportation infrastructure portfolio to assess the effects of this developing situation. Rating actions or outlook revisions could be broad-based or credit-specific. For an update on our global airport portfolio, please see "The Coronavirus Pandemic Could Reduce Global Air Passengers By Up To 30% In 2020," published March 17, 2020.
S&P Global Ratings' 2020 outlook for business conditions and credit quality across U.S. public transportation infrastructure (See "U.S. Transportation Infrastructure 2020 Outlook: Toll And Airport Sectors Positive, Port And Transit Sectors Negative," published Jan. 15, 2020) has changed due to the unprecedented and still-developing travel and trade disruptions and the likely broader and still-undetermined economic impact caused by the coronavirus pandemic. We see credit exposures for airlines; airports; consolidated rental car facilities at airports; ports; toll roads; transit operators; and parking facilities, all of which have issued debt supported by revenues that are affected by activity levels. Consequently, we have taken the following actions:
- We revised the airport sector outlook to negative from positive;
- We revised the special facilities sector outlook to negative from stable;
- We revised the toll roads sector outlook to negative from positive; and
- We revised the parking facilities sector outlook to negative from stable.
Our outlooks remain negative for the port and mass transit sectors. The sector outlook for the federal grant-secured sector remains stable, reflecting the historically strong bipartisan support for the grant program that is not subject to volume risk.
The global economic outlook has taken a turn for the worse since our last update (see "U.S. Airport Sector Well-Positioned While U.S. Ports Prepare For Volume Declines Under Our Baseline Coronavirus Scenario," published Feb. 12, 2020), as the spread of COVID-19 cases across the globe has caused a dramatic reduction in air traffic, port container volumes, cruise ship sailings, public transit ridership, and overall mobility. The World Health Organization has declared the coronavirus a pandemic, with confirmed cases increasing in more than 100 countries. In addition to the human cost, uncertainty about the speed of the spread of the coronavirus has roiled financial markets, weighed on business across industries and sectors, and looks set to take a significant bite out of global GDP growth. Travel restrictions, widespread event and business travel cancellations, and reduced mobility, in our opinion, will hurt activity levels across our transportation portfolio. We believe this reduction in activity levels has wide implications across the U.S. economy and the public finance market.
Risks remain that travel restrictions and consumer behavior changes due to additional U.S. outbreaks will severely reduce activity levels. The cascading effects of this pandemic are making it difficult for issuers to forecast its impact. Longer term, changes in supply chains, economic softening, and recessionary pressures would affect our view of ratings.
The current environment will test many key credit factors of the transportation infrastructure providers. Historically, we have not taken negative rating actions associated with outbreaks (e.g., SARS in 2002-2003, MERS in 2012, and the H1N1 swine flu in 2009-2010), since their impact was temporary and the recovery relatively rapid. However, we view this situation as unique with far-reaching effects, making historical comparisons difficult. We expect liquidity positions, which are currently generally solid (with median unrestricted days' cash on hand for transportation infrastructure entities that has averaged near 600 days for fiscals 2018 and 2019), to be hurt as issuers address near-term pressures.
The larger unknowns are the severity and duration of this pandemic and the reaction of policymakers and consumers to changing conditions. We believe that significant risks remain to the downside, given uncertainty about when the crisis will peak and whether the pandemic will persist beyond the second quarter of 2020; the impact on the economy and transportation infrastructure sectors could extend well beyond that time frame. Alternatively, disruptions caused by the pandemic could be significant for the first half of this year, with volume levels returning to normalcy in the second half, due, in part, to a rapid recovery in certain industries and regions.
Related Research:
- Coronavirus Impact: Key Takeaways From Our Articles, March 12, 2020
- COVID-19's Potential Effects In U.S. Public Finance Vary By Sector, March 5, 2020
- Coronavirus' Global Spread Poses More Serious Challenges For Airlines, March 12, 2020
- When The Cycle Turns: U.S. Airport Balance Sheets--And Exposures--Increase With Traffic, July 9, 2019
- U.S. Ports Face Headwinds, Feb. 19, 2020
This report does not constitute a rating action.
| Primary Credit Analyst: | Kurt E Forsgren, Boston (1) 617-530-8308; kurt.forsgren@spglobal.com |
| Secondary Contacts: | Joseph J Pezzimenti, New York (1) 212-438-2038; joseph.pezzimenti@spglobal.com |
| Todd R Spence, Farmers Branch (1) 214-871-1424; todd.spence@spglobal.com | |
| Paul J Dyson, San Francisco (1) 415-371-5079; paul.dyson@spglobal.com |
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