The sovereign debt situation is still a “wild card” and the economic environment remains fragile, Moody’s managing director and head of EMEA corporate finance group Myriam Durand told treasurers this week. “The balance of risk remains on the downside even if on the surface it looks quiet.”
Speaking at an ACT breakfast event on corporate ratings, Durand said: “The potential for further severe shocks remains clear. Watch out for risks and make sure you have Plan Bs and Plan Cs in place. Think about your plans for various scenarios.”
She also highlighted how companies have been turning their backs on banks in favour of the bond markets since the financial crisis struck in 2008. There has been a “big bank-to-bond transformation” over the past five years, she said, and despite fears over the so-called “refinancing wall”, companies had managed to secure refinancing without much difficulty.
The credit quality of new issuers has continued to fall and Moody’s has made more downgrades than upgrades since 2008, said Durand, yet default rates were extremely low. There was no reason why default rates should suddenly go through the roof, she added, but weakening credit quality increased the risk of issuers being downgraded if they lacked room to manoeuvre.
Durand warned that although confidence appeared to be returning to the financial markets, corporates were not yet embarking on large-scale capital expenditure programmes. “We haven’t seen any big movement yet,” she said.
Sally Percy is editor of The Treasurer