MARC Ratings today published its 2021 Annual Corporate Default and Ratings Transition Study which tracks the history of corporate ratings assigned by the rating agency since its inception in 1996 through to December 31, 2021. This is MARC Ratings' 17th Annual Corporate Default and Ratings Transition Study.
In 2021, MARC Ratings recorded four downgrades and three upgrades but zero defaults. Rating drift remained negative but improved to -1.2% (2020: -4.3%). Downgrade rate came in marginally higher than the previous year, while upgrade rate reached its highest level in more than a decade, highlighting the differential impact of the COVID-19 pandemic across industries.
As a result of increased rating migration, ratings stability edged lower to 91.6% in 2021 (2020: 95.7%) but remained above its historical average of 87.4% since 2000. The sturdy ratings stability was primarily due to the dominance of high-grade issuers with stronger business resilience to crises.
The absence of severe negative rating actions or rating cliffs underscores continuous timely rating action on the part of MARC Ratings. Over the long term, the ratings accuracy ratio came in at 71.0%, marginally higher than the 70.1% reported in the previous default study. This scenario implies an improvement in the effectiveness of MARC Ratings in measuring relative default risk.
The current trend of negative rating actions outpacing positive rating actions in MARC Ratings' universe will prevail as corporates' credit metrics remain under pressure on sluggish sales and rising costs. This is true for sectors such as travel and retail that have been severely impacted by the pandemic-induced lockdown measures and where recovery will likely remain protracted. However, ongoing normalisation of economic activities should support revenue growth for most issuers. The predominance of investment-grade credits and stable outlooks in MARC Ratings' universe also suggests a sideways credit quality trend. As such, a significant increase in negative rating actions in the near term is unlikely.
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