Tag: finance

Countries

Fitch Upgrades Spain to ‘A’; Outlook Stable

AtlanticIS

Spain, September 26, 2025 – FitchRatings has upgraded Spain’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘A’ from ‘A-‘. The Outlook is Stable. Fitch has also upgraded Spain’s Short-Term IDR to ‘F1+’ from ‘F1’.

Key Rating DriversThe upgrade of Spain’s IDRs reflects the following key rating drivers and their relative weights:

High

Economic Outperformance: Spain’s economic performance has exceeded expectations and significantly outpaced other major eurozone economies. Economic growth is supported by large migration inflows and strong, increasingly diversified services exports. Recent productivity gains, moderate wage growth and relatively low energy prices have boosted external competitiveness and strengthened private external balance sheets. Fitch expects the economy to remain resilient, helped by limited exposure to US tariffs and ongoing net external deleveraging.

Growth Exceeds Expectations: We have raised our real GDP growth forecast for Spain to 2.7% in 2025 and 2.0% in 2026, reflecting stronger-than-expected quarterly growth in 1H25. Growth has been broad, with the services sector strengthening due to a rebound in tourism (with higher off-season inflows and quality upgrades) and solid performance in non-tourism services such as information communication technology and professional services. Business and consumer sentiment indicators are positive. The manufacturing sector (11% of gross value added) has benefited from increased solar and wind generation, which has helped lower electricity prices to well below the eurozone average.

Favourable Growth Prospects: Fitch has revised Spain’s potential growth estimate to 2% from 1.4%, mainly due to rapid expansion in labour inputs and supported by higher total factor productivity. Strong labour force growth reflects significant migration inflows, mostly from Latin America, while recent reforms and a shared language have supported labour market integration. Labour productivity growth has risen to over 1% annually from 2022 to 2024, compared with 0.3% between 2014 and 2021, although further improvements are needed to lift GDP per capita growth, which remains below headline growth.

Labour Market Supports Growth: Labour market conditions have strengthened significantly, with activity and employment rates reaching record highs, bolstering economic growth. Temporary employment has fallen to historical lows, supported by the 2022 labour market reform. The unemployment rate remains the highest in the euro area, at about 10.4% as of July, despite recent progress in reducing it.

Medium

Reduced External Vulnerabilities: Net external indebtedness continues to fall, extending the trend that began after the eurozone crisis and was interrupted only briefly by the pandemic. Net external debt declined to 44% of GDP at end-2024, down from a peak of 95% in 2013, driven by improving private external balance sheets and ongoing current account surpluses. The current account balance improved to 3.1% of GDP in 2024, supported by a stronger service surplus from tourism and diversification into non-tourism exports deficit. The primary and secondary income balance remain highly negative due to large remittance outflows and Recovery and Resilience Facility grants.

Fitch expects current account surpluses to average 2.6% of GDP between 2025 and 2027 (relative to an average deficit of 0.5% for the ‘A’ rated median), with net external debt falling below 40% of GDP, reaching 37% by 2027, gradually closing the gap to the net creditor position of the peer median of 6.1%.

Spain’s ‘A’ IDRs also reflect the following key rating drivers:

Rating Fundamentals: The ratings are supported by governance indicators consistent with the ‘A’ rating category and eurozone membership supporting institutional stability. These strengths are balanced against a still high public debt ratio.

Political Deadlock: Spain’s centre-left minority government increasingly struggles to secure parliamentary support, including for the passage of budgets since 2023, from smaller parties, including from the Catalan separatist party. Prime Minister Sánchez faces mounting pressure from corruption allegations involving the Socialist Party and family members, while political and regional fragmentation impedes progress on crucial reforms, including housing supply solutions and the development of a coherent fiscal consolidation strategy. Parliamentary elections are not due until 2027.

Moderate Fiscal Deficits: We forecast the general government deficit will fall to 2.6% of GDP in 2025 from 3.1% in 2024, driven by the absence of one-off expenses and continued revenue growth offsetting a gradual increase in interest costs. Spain will meet its NATO defence spending target of 2% of GDP this year, up from 1.4% in 2024, with a limited impact on the deficit due to spending reallocations and reclassifications. We forecast a deficit of 2.4% of GDP in 2026, reflecting the phase-out of flood relief measures, rising to 2.5% in 2027 as elections approach and interest expenses increase. This is slightly below the ‘A’ rated peer median of 3.1% in 2026 and 2.9% in 2027.

Fiscal Uncertainties: Pro-active fiscal consolidation efforts have been limited, in Fitch’s view, and fiscal improvement has been driven mostly by the phasing out of temporary measures and strong revenue growth supported by a solid labour market and robust GDP growth. Political fragmentation raises uncertainty about parliamentary approval of the 2026 budget, and Fitch expects the 2023 budget to be rolled over for a third consecutive year, with new measures likely passed on a law by law throughout the year.

Fiscal uncertainty extends to the medium term due to the lack of a credible fiscal strategy. The government targets a deficit of 1.5% of GDP and a debt/GDP ratio of 94.8% by 2029 under its seven-year adjustment plan, but the plan lacks detailed measures and faces challenges from the absence of a budget and political majority for consolidation.

High Debt, Gradual Reduction: Fitch projects the general government debt ratio will fall from 101.6% of GDP in 2024 to 100.7% by 2027, and below 100% thereafter, supported by sound nominal GDP growth. This is high relative to the ‘A’ category median of 53.7%. However, we expect debt will temporarily increase in the short term, even as fiscal deficits narrow, due to Recovery and Resilience Facility funds and cash-to-accrual accounting adjustments totalling 3.6% of GDP in 2025-2026.

ESG – Governance: Spain has an ESG Relevance Score (RS) of ‘5[+]’ for Political Stability and Rights and the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Spain has a high WBGI ranking at 74, reflecting its long record of stable and peaceful political transitions, well-established rights for participation in the political process, strong institutional capacity, effective rule of law and a low level of corruption.

Source: Fitch Ratings

Banking

Fitch Affirms Credicorp Bank’s Long-Term IDR at ‘BB+’; Outlook Stable

AtlanticIS

Panama, October 06, 2025 – Fitch Ratings has affirmed Credicorp Bank, S.A.’s Long-Term Issuer Default Rating (IDR) at ‘BB+’, Short-Term IDR at ‘B’, Viability Rating (VR) at ‘bb+’ and the Government Support Rating (GSR) at ‘No Support’ (‘ns’). Fitch has also affirmed Credicorp’s Long- and Short-Term National Ratings at ‘AA(pan)’ and ‘F1+(pan)’, respectively. The Rating Outlook for the Long-Term IDR and Long-Term National Ratings is Stable.

Key Rating Drivers

Operating Environment with Moderate Influence: Panama’s sovereign rating (BB+/Stable) and broader operating environment moderately influence Credicorp’s VR, with the sovereign rating continuing to cap the Operating Environment (OE) score despite fundamentals that point to a ‘bbb’ category. While GDP growth has slowed and interest rates remain high, system credit growth, asset quality, and profitability are outperforming Fitch’s expectations. Fitch projects GDP per capita and Operational Risk Index (ORI) to remain stable and continue to preserve operating conditions for banks.

Consistent Business Profile with High Capitalization: Credicorp’s international and national scale ratings are driven by its ‘bb+’ VR. Fitch views Credicorp’s business profile as strong, supported by conservative risk management, which has led to good asset quality and resilient profitability. Credicorp’s capital strength significantly influences Fitch’s decision to rate the bank at the same level as the Panamanian sovereign and mitigates the risks inherent in its business model.

Consolidated Business Model: Fitch’s ‘bb-‘ score for Credicorp’s business profile exceeds the implied level of ‘b’. Credicorp’s consistent business model, marked by a lower-risk, atomized customer base and proven earnings generation, offsets its lower levels of total operating income (TOI) compared to regional peers. From 2022 to 2025, the bank’s average TOI was USD74 million.

Credicorp’s market position is moderate, with a market share of 1.5% by assets in the banking system. The bank’s strategy focuses on strengthening its local franchise through consumer lending and enhancing operational and commercial efficiencies via medium-term digital transformation.

Well-Managed Risks: Fitch views Credicorp’s underwriting standards and risk controls as sound, demonstrated by controlled loan deterioration over the economic cycle, resulting in lower credit costs than direct peers. As of June 2025, its loan impairment charges-to-average gross loans ratio was 0.3%, below other mid-sized banks. Fitch’s assessment is also supported by the bank’s reasonable collateral levels, prudent investment policies and conservative balance sheet growth.

Good Asset Quality: Credicorp has maintained good asset-quality metrics that compare favorably with most local peers by metrics and concentration. As of June 2025, stage 3 loans comprised 2.0% of the portfolio. Loan loss allowance coverage of stage 3 loans was a reasonable 74.9%. Good levels of collaterals also support this assessment Fitch expects asset quality ratios to remain stable, with a forecasted stage 3 ratio of 2.1% for 2026 and 2027.

As of June 2025, Credicorp’s collaterals represented 81.2% to the total loan portfolio, while the top 20 borrowers represented 0.64x of the common equity Tier 1 (CET1) ratio. Fitch expects the bank to keep loan delinquencies at manageable levels by focusing on sectors and products where it has extensive expertise.

Consistent Profitability Supported by Associates: Credicorp has demonstrated good profitability and resilience. As of June 2025, the operating profit-to-risk-weighted assets (RWA) ratio was 2.4%, above the 2022-2025 average of 2.0%. Stable asset performance and recurrent profits from investments in associated companies have bolstered profitability. The net interest income from the loan book continues to compose nearly 68.8% of TOI.

However, Credicorp’s operating profits are substantially supported by the profits generated by associates, which as of June 2025 made up 50.6% of the bank’s operating profit (average 2022-2025: 41.1%). Fitch expects Credicorp’s profitability to remain strong, supported by its growth targets and benefits from its associates. Fitch forecasts an operating profit to RWA ratio of 2.2% for 2026 and 2027.

Capitalization a Rating Strength: Credicorp’s capitalization and leverage ratios are stronger versus similarly rated peers, and Fitch deems them a rating strength. As of June 2025, the bank’s regulatory CET1-to-RWA ratio was 21.9%, far exceeding the 10.5% total regulatory minimum. When including the regulatory countercyclical buffer (CCyB), the CET1 ratio reaches 23.6%.

Fitch expects the bank’s capitalization ratios to remain strong in the foreseeable future, supported by reasonable credit growth, consistent earnings generation, and moderate dividend payments. Fitch forecasts a CET1 ratio (including dynamic provision) of approximately 24% for 2026 and 2027.

Stable Deposit Base: Credicorp’s financing is supported by a growing deposit base that has historically maintained the loan-to-deposit ratio below 100%, ahead of its closest peers. As of June 2025, the ratio was 91.5%, influenced by moderate loan growth. Although its funding is concentrated, with customer deposits representing 92.8% of total funding, Credicorp complements its funding structure with medium-term wholesale sources that support asset-liability management.

As of June 2025, the balance of the 20 largest depositors represented 27.8% of total deposits, a proportion that has decreased in recent years, in line with the bank’s funding deconcentration strategy (June 2022: 36.8%). Fitch expects funding and liquidity metrics to remain stable in the medium term, with a likely loans to deposits ratio of 91.8% for both 2026 and 2027.

Source: Fitch Ratings

Countries

US corporate default tally in 2023 was highest since pandemic, with more to come this year

AtlanticIS

United States, January 31, 2024

  • Elevated defaults point to rising tide in early 2024 before easing by year-end. Nonfinancial corporate family defaults nearly tripled to 92 in 2023 from 31 in 2022, the highest annual default tally since 2020. Our 12-month trailing issuer-weighted default rate wrapped the year at 5.6%, and is set to peak at 5.8% in early 2024, before slowly reverting to its historic average by June 2024 and then moderating further to around 4% by year-end. Although Q.o.Q. defaults were unchanged at 20 in Q4, levels remain elevated.
  • Private equity (PE) backed companies lead Q4 defaults. In contrast to public counterparts, defaulted PE-owned companies affected more loans than bonds, with about $7.8 billion versus $5.0 billion, respectively. Given the high incidence of senior secured loan-only LBOs among distressed issuers, leveraged loans will continue to experience higher defaults than high yield bonds. Majority of Q4 DEs involved amend-and-extend transactions, including loan maturity extensions, interest rate conversions to PIK.
  • Half of Q4 defaults were repeat defaulters, with 70% of these having a PE backer. Most re-defaulters were companies which completed at least one round of DEs in the past, followed by another out-of-court restructuring during the last three months of the year. Many were companies which had undergone one or two rounds of DEs previously and ultimately sought Chapter 11 protection or missed debt payments. We expect this trend to persist through most of next year, as the default rate is set to remain above average through the first half of the year.
  • Media sector stood out in Q4 with three defaults, completed as distressed exchanges (DEs) . However, the total defaulted debt for this group was small relative to the largest defaults in the telecommunications, retail, services, healthcare and packaging sectors. Looking ahead, the telecommunications and durable consumer goods sectors will face the highest default rates projected for 2024.
  • Credit risks remain high for lower-rated segment of spec-grade universe. The distressed subset of the B3N List, Caa2-PD and lower rated companies rose to 97, up from 87 in the previous quarter and 82 a year earlier. Many of these weaker private companies will succumb to default as liquidity conditions for those in the leveraged loan market deteriorates in the months ahead.

Credit Outlook: 1 February 2024. Pg. 35
Moody’s Investors Service

Corporates

Gol files for Chapter 11, a credit negative for Abra and certain ABS deals, neutral for Avianca

AtlanticIS

Brazil, January 25, 2024 – Gol Linhas Aereas Inteligentes S.A. (Ca negative) filed for voluntary protection under the US Chapter 11 financial reorganization process. Gol’s reorganization process increases liquidity risks for its parent company, Abra Group Limited (Caa3 negative), and the possibility of rental cash flow disruption for certain asset-backed securities (ABS) deals with significant exposure to aircraft leased to Gol.

As part of the filing for Chapter 11, Gol was granted an automatic stay for all debt obligations, including the secured notes due 2028, which are the main source of cash to Abra to cover its own interest payments. The uncertainties regarding the continuity of interest payments and management fees from Gol to Abra increase Abra’s credit risk and could lead to liquidity squeezes, which led us to downgrade Abra’s ratings to Caa3 from Caa1.

At the end of January 2024, Abra had $86 million in cash. Abra’s main source of cash relates to the cash payments from Gol’s secured notes due 2028, and management fees from Gol and Avianca Group International Limited (B2 stable), which provides coverage for the cash interest payment at Abra. We estimate that Abra’s sources of cash excluding the payments from Gol cover its cash interest expense by only 0.4x-0.5x, compared with 1.5x-2x with Gol’s interest payments and management fees. Abra’s main cash outflows relate to its notes interest payments ($60 million-$70 million per year) and annual expenses at the holding level of approximately $20 million per year. With this liquidity profile, Abra could absorb up to two years with no cash inflow from Gol before consuming all of its cash position and potentially entering into a debt restructure with its own creditors.

Gol secured $950 million in a debtor-in-possession (DIP) financing to continue operating during the reorganization process, granted by creditors of Abra. The DIP could lead to continued interest payments for Abra, however the final decision is subject to court hearings as part of Gol’s reorganization process. Before Gol filed for Chapter 11, Abra signed a forbearance agreement with its creditors to avoid the exercise of the rights and remedies with respect to specified defaults as a result of Gol’s filing.

Under Chapter 11, Gol will continue renewing its fleet, returning older aircraft that are grounded and receiving new-generation aircraft. The airline will maintain the timetable to receive new aircraft that were delayed in 2023 and ones that are scheduled for delivery in 2024.

Out of the eight aircraft lease ABS that we have rated since 2021, five have exposure to aircraft1 leased to Gol. These transactions benefit from lessee diversity, with exposure to Gol in these transactions ranging from approximately 2% to 22% of the most recently reported adjusted base value. Certain ABS deals may experience some fluctuations in rent cash flow collections in the coming months as Gol undergoes reorganization. However, liquidity facilities, performance triggers, and deleveraging among other structural features, will help shield senior bondholders from risk. In the event that lease negotiations fail2, deals will likely lose rent cash flow related to the Gol lease until lessors can repossess and re-lease or sell these aircraft. Given the current aircraft shortage in the market, lessors could potentially release these aircraft at favorable lease rates or sell for a premium with shorter downtime.

For Avianca, the potential contagion channels of Gol’s filing for Chapter 11 are contained. Avianca’s post-bankruptcy exit financing contains restrictive covenants, including, among others, debt incurrence limitations, limitations on restricted payments and investments and limitations on related party transactions. Pursuant to the covenants, Avianca’s ability to distribute cash or lend funds to Abra would be very limited. These restrictions serve to insulate Avianca from the financial distress of Gol or any contagion effect on Abra.

The Chapter 11 filing is a result of an accumulated cash burn and high financial leverage for Gol derived from high interest rates, the grounding of the Boeing MAX aircraft in 2019 and the pandemic, which led to weakening liquidity. We downgraded Gol’s ratings to Ca to reflect our view of some prospect for recovery for existing secured and unsecured creditors and will subsequently withdraw the rating. With the Chapter 11, Gol expects to strengthen its financial position, while maintaining the current size of its operations.

Credit Outlook: 1 February 2024. Pg. 6
Moody’s Investors Service