S&P Comments on Credit Impact of September 11 Attack"There now seems little doubt that the US and global economies will slip into recession, " said Standard & Poor's in a report released Wednesday commenting on the aftermath of the September 11 attack.Centering on the credit impact of the attack, the report said that the effects can be divided into two categories: those that are a direct result of the attack, and those that will be a result of the attack's general exacerbation of the US and global economic downturn. The US airline industry was hit the hardest. In the 10 days following the attack on the World Trade Center, the influential ratings agency downgraded nine US airlines or put their ratings on its CreditWatch with negative implications. The next US sectors to feel the credit impact were airports and aerospace. In days, every North American airport and airport- related special facility and 13 commercial aerospace companies -- airplane manufacturers, engine producers, suppliers of aircraft systems, components and materials, and vendors providing aviation support -- were put on CreditWatch with negative implications. A negative CreditWatch placement usually indicates a high likelihood that the rating on a company's corporate debt will be lower in the next quarter or two. The lower a credit rating, the more difficult and expensive it can be for a company to raise money by issuing corporate debt. As a result of diminished travel which affects the business of hotels, 21 North American lodging companies had been put on CreditWatch negative. Followed were gaming companies, retail companies and theme parks. According to Standard and Poor's, other U.S. sectors, such as consumer products, capital goods, chemicals, metals and mining, forest products, auto suppliers, building materials and automotives will be affected by the deepening recession. Telecom and technology, already in a sharp downturn, might feel some short- term positive impact as companies rebuild and replace equipment. Standard & Poor's said that there will not be any immediate credit impact on U.S. defense companies' credit ratings because, although the U.S. government will certainly increase procurement funding, the defense budgeting process is a lengthy one. The ratings agency has also downgraded a number of U.S. insurers. As of September 25, 19 had been put on its CreditWatch with negative implications. |
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