In this short post today, we will look at the news recently regarding the rating agencies’ declarations regarding two countries’ sovereign debt ratings, what underpins them, and what may be next for countries facing up to the COVID-19 pandemic, amongst a number of other impactful factors. The first news came from South Africa. As was to be expected on account of the other two rating agencies downgrading South Africa to ‘junk status’, Moody’s finally took the leap and cut South Africa’s rating to Ba1, from Baa3, with the outlook remaining negative . In providing details as to why Moody’s finally followed S&P and Fitch in downgrading South Africa to junk status, albeit 3 years later, the agency stated that the key driver underpinning the downgrade was ‘ the continuing deterioration in fiscal strength and structurally very weak growth, which Moody’s does not expect current policy settings to address effectively ’ (sign-in required). The agency then went on to detail the reasoni...

The giant Japanese conglomerate SoftBank, a holding company that holds shares in Sprint, Alibaba, Uber, and many others, was recently downgraded by Moody’s dragging it further into ‘junk’ status. However, it has decided to take aim at this decision and has suggested that Moody’s has ‘ biased and mistaken views ’. Is this retaliation to Moody’s justified, or is it a company, and a CEO, under increasing pressure as its debts continue to build? SoftBank, founded in 1981 by Masayoshi Son (now CEO), went public in 1994 and was valued at $3 billion. Since then, it has gone on to become one of the world’s largest public companies, and Japan’s second largest behind Toyota. However, recently there have been concerns from the market that the company was exposing itself to too much debt, with the Financial Times reporting that SoftBank currently has $55 billion in net debt. It was on this basis, supposedly, that Moody’s took its recent decision to downgrade SoftBank’s credit rating by two...

A number of financial media outlets, including Forbes, the Wall Street Journal, and the Financial Times are all reporting that a wave of downgrades is soon to be upon us because of the effects of the Covid-19 pandemic. In this post, we will take a look at those who have been downgraded, those likely to be downgraded, and also the wider effect of these downgrades. Also, it will be worth asking why so many downgrades are on the horizon because, as one journalist recently wrote (Cezary Podkul of the WSJ), ‘ a bond rated AAA is supposed to keep that grade, even in tough times like these ’. This is the theoretical foundation of the credit rating differentiation, so why so many downgrades? On the 17 th March, Forbes reported that ExxonMobil had been downgraded by S&P, to AA from AA+. On the same day, S&P took aim at Boeing, downgrading the beleaguered aircraft manufacturer’s rating by two notches , from AA- to BBB (just two notches above ‘junk status’. There are, perhaps, o...

In response to the global pandemic involving the transmission of the Covid-19 (Coronavirus) disease, a number of extraordinary measures are being put in place around the world. In the UK, the Conservative Government has taken a number of steps which, ideologically, go against their principles. Today, the latest in a line of extraordinary measures was taken when the Department for Transport stepped in to, essentially, nationalise the rail industry in the UK on an emergency basis. The developments and details of that extraordinary measure form this post. Rail services, along with other modes of travel like aeroplanes and coaches , were quick to suffer the natural consequences of the worsening of the Covid-19 pandemic. A number of rail operators had already started to reduce their services before the British Prime Minister requested that non-essential travel be avoided, and this was accentuated by a further reduction in services in places like London (where up to 40 underground st...

Of course, the title of this post is a little misleading in that the airline industry is not the only industry facing extraordinary pressure because of the global pandemic. However, it does provide an interesting case study to show how the pandemic can affect an industry in a number of different ways. Just some of those pressures will be discussed in today’s post. One of the first consequences to the airlines was the detailing of a number of ‘ ghost flights ’ taking place around a number of important hubs. These ghost flights describe the process whereby an airline will fly an empty (or severely reduced capacity) flight in order to maintain a specific slot in an airport’s schedule. A number of slots on high-profile routes can be worth tens-of-millions of dollars to an airline, and a massive secondary market exists for such slots. However, under EU rules as just one example, an airline must use 80% of these allocated slots or risk losing them to a competitor. As the slots are par...

An article in today’s edition of the Financial Times , entitled ‘ Heavy flows into ESG funds raise questions over ratings ’, attempts to shine a light on the business of ESG rating agencies, or Sustainable rating agencies, as the process of incorporated ESG (Environment, Social, and Governance-based) considerations into investment decisions is becoming more mainstream. However, upon reflection, the sentiment of the article is a little understated so, in this post, we will assess the article closer and think more about the trajectory of this industry (particularly in relation to the much larger credit rating industry). The article begins my making valid points regarding the increasing importance of such ratings, with the discussion focusing on the fact that a growing number of investment indices are now focusing on the ratings much more as well as banks now offering better borrowing terms for entities that can demonstrate stronger ESG scores. I analysed this trend in my recent b...