The COVID-19 pandemic is affecting virtually all businesses globally--including ours. Below we answer some questions about the pandemic's effect on S&P Global Ratings and how our credit analysis and surveillance are proceeding during this time.

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Questions And Answers

Who develops S&P Global Ratings' macroeconomic forecasts, and how are they used by rating analysts?

Our global chief economist and his team of regional economists develop our economic forecasts with input from our analytical teams. Our rating analysts in turn consider these macroeconomic forecasts as key inputs to the forecasts that they develop for specific industries and companies.

How does S&P Global Ratings support coordination across sectors and regions?

S&P Global Ratings established four regional credit conditions committees (CCCs) shortly after the global financial crisis. The purpose of these is to enable and promote a consistent and systematic consideration of broader economic trends in our analytical processes and to identify macro vulnerabilities and risks. CCCs are forums in which senior sector analysts and economists seek to identify and discuss broad credit trends and risks across asset classes (corporates, infrastructure, banks, insurers, governments, and structured finance transactions) and consider the potential interconnections of these trends and risks. CCCs typically meet quarterly, and S&P Global Ratings routinely communicates the outcome of CCC deliberations to ratings staff and to the marketplace through quarterly publications and webcasts. Analytical teams remain responsible for sector-level assumptions and their application to specific credits.

Over the course of the past several weeks, CCCs have been meeting more frequently to monitor the impact of the COVID-19 pandemic on economies and credit markets. CCC members have played a leading role in publications (see the dedicated COVID topic page on our public website: https://www.spglobal.com/ratings/en/research-insights/topics/coronavirus-impact).

How else does S&P Global Ratings support analytical consistency?

A few years ago, we established analytical oversight and consistency councils (AOCCs) across asset classes and regions. There are regional AOCCs that cover an asset class within a region (U.S. and Canadian corporates, for example) as well as global AOCCs that cover an asset class globally (such as global financial institutions). AOCC members are primarily senior rating analysts.

How do AOCCs support S&P Global Ratings' analytical framework?

The AOCCs' role is the oversight of analytical excellence and comparability of credit ratings. They accomplish this through varied activities that include communicating the broad credit trends and risks identified by CCCs to rating analysts and helping leverage that information to develop actionable steps specific to each asset class. AOCCs can also provide direction to ratings analysts on the interpretation of criteria, help provide alignment on the analytical approach for unique or complex credit factors, and communicate views on key analytical assumptions and emerging risks. However, AOCCs are not rating committees and do not make rating decisions on individual companies or transactions.

How is the coronavirus pandemic affecting S&P Global Ratings' surveillance?

Our rating surveillance is currently heavily focused on the evolving economic conditions caused by the pandemic. However, other factors are also affecting our surveillance priorities, such as the severe decline in oil prices. Analytical teams are considering which companies/transactions are most highly exposed to the current economic environment, and they're prioritizing surveillance accordingly. For example, in corporate ratings, companies in the transportation, oil and gas, gaming, lodging, and cruise line sectors are considered highly exposed to current economic conditions and therefore are a primary focus of our surveillance efforts.

How is S&P Global Ratings factoring central bank actions and government fiscal actions into ratings?

We look favorably on central banks' actions to preserve liquidity and the massive amounts of fiscal stimulus proposed or being implemented by many governments, as they will likely provide significant support to credit markets. For instance, we believe that these actions could reduce the overall number of defaults. We will consider the potential effects of these actions at both the macroeconomic and company/transaction-specific levels as we conduct our surveillance. However, the significant short-term decline in demand for many products and services is imposing severe stress on credit markets. We believe that governments' and central banks' fiscal stimulus measures will likely not fully offset the negative economic consequences. As a result, we expect there to still be downgrades.

Since the pandemic could pass in a few months, should S&P Global Ratings look beyond this event when assessing a company's creditworthiness?

Throughout much of the world, S&P Global Ratings expects severe economic stress in the near term as a result of the significant drop in demand for goods and services resulting from the pandemic. There are many companies with speculative-grade ratings that are vulnerable to default in this environment. Indeed, S&P Global Ratings expects a surge in defaults in the U.S. and Europe in the next 12 months.

Conversely, we view credits with investment-grade ratings as having greater ability to weather adverse credit conditions. We might still take rating actions on such companies, but we generally expect these changes to be less frequent and less severe because these borrowers typically benefit from stronger business positions and greater financial flexibility. That said, a global pandemic such as this one is a rare event that brings many uncertainties, including the possibilities that the coronavirus will return after we think that it has passed or that the need for social distancing could persist longer than we anticipate. It could take many quarters for some industries to recover to pre-pandemic levels. So, while our analysis will continue to consider the additional financial flexibility that is typical for investment-grade companies, it also will consider our evolving view about the longer-term implications of the pandemic for an industry and a company's business profile.

How will S&P Global Ratings treat the various forms of technical default that might occur in the next few months?

Our ratings address the willingness and ability of an obligor to pay its obligations fully and on time. If the lack of ability or willingness lead to a failure to fulfill the payment obligations in full or on time, and if we believe that a payment will not come within the grace period, we would typically view that as a default and lower the rating to 'D', in accordance with our published ratings definitions.

We typically consider technical defaults to be those rare instances when we believe that the obligor had both the willingness and the financial ability to make a payment but could not make the payment on time due to a temporary glitch or impediment that we believe is highly likely to be resolved in the short term. In these instances, we might not lower the rating to 'D'.

Payment delays or payment holidays have been cited recently as potential ways governments and policymakers could address the economic stress caused by the pandemic. We will take into consideration how these proposals are effectively implemented and how they affect the creditworthiness and payment obligations of the obligors we rate. These proposals can be implemented in a variety of ways and can affect creditors differently in terms of timing and amounts. For example, an obligor might delay one or all of its payment obligations on the basis of a payment holiday declared by, for example, the sovereign state where the obligor is domiciled. If we believe that the obligor invoked the payment holiday for the purpose of avoiding an imminent failure to fulfill its obligations, we could still lower the rating to 'D'. Even when creditors have agreed to the payment holiday, we could still consider it a distressed exchange as per our ratings criteria and lower the rating to 'D' if we believe that the obligor would have missed the payment had it not been for the payment holiday itself and the investor did not really have a choice.

We will consider each obligor's financial and liquidity situation and the specific contractual obligations in place when determining if a 'D' rating is appropriate.

Is S&P Global Ratings continuing to receive timely information from issuers during the pandemic, and how will S&P Global Ratings respond if a company delays the release of its financial information?

So far, information has continued to flow between issuers and S&P Global Ratings. Occasionally, a company might announce a delay in the release of its financial information. We evaluate these situations based on the information's importance to the rating analysis and whether alternative information is available or sufficient to support the ratings. We could decide to refer the matter to a committee for potential rating action, including a CreditWatch placement or a rating suspension or withdrawal.

How do S&P Global Ratings credit analysts make their credit determinations when away from the office? Are they now conducting all their business via conference calls and emails?

S&P Global Ratings has a robust business-continuity plan in place. It employs a number of platforms for communications--voice, email, video conference/virtual meetings, and messaging--and secure systems so that analysts can continue to do their jobs effectively.