Quality of Irish-issued debt has stabilised, says S&P

The quality of Irish-issued debt stabilised in the first half of 2021 with the number of upgrades once again matching the number of downgrades and the outlook also improving, a report by credit ratings agency S&P Global has found.

The number of ratings carrying a stable outlook increased from 73 per cent at the end of 2020 to 83 per cent at the end of June 2021, while those with a negative outlook decreased from 22 per cent to 12 per cent.

S&P said this was due to a surge of new structured issuers – whose ratings typically have a stable outlook – and also the expectations of greater rating stability as the global economy continues to recover from the pandemic.

“We see that the nature of the rating actions shifted, with upgrades now matching downgrades, and most of those positive changes were in the corporate sector in the half,” said S&P credit analyst Patrick Drury Byrne.

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Ratings

New ratings issued were mostly in structured finance, with 11 of the total of 14 assigned in the first half. Residential mortgage-backed securities (RMBS) led the charge as issuers primarily sought to exploit favourable financing conditions.

S&P commented that the global economic recovery was “clearly good news” for the corporate sector. However, corporates still represent two-thirds of all ratings on Irish issuers with negative outlooks and S&P said it could be at least 2023 before certain sectors, such as those related to transportation, return to pre-pandemic credit metrics.

The stronger rating profile of the Irish-rated corporate portfolio nevertheless “compares favourably” with that of the European, Middle East and Africa region as a whole.

In May, S&P affirmed its “AA-” sovereign rating on the Republic of Ireland, with a stable outlook. It forecasts that the underlying domestic economy will rebound by 4 per cent on average in 2021-2022.