Corporate credit trends to diverge by region, credit quality in 2024

Corporate credit trends would diverge by region though global credit metrics are generally expected to be stable to improving this year, even with sharply lower economic growth, with most issuers’ leverage expected to be negative rating sensitivity, said Fitch Ratings recently. 

The credit rating agency expects revenue, margin and leverage trends to differ across regions and default rates among lower-quality, speculative-grade issuers to rise due to deteriorating economic conditions and the pressure of high interest rates.

Major projections for corporate credit trends

• Aggregate EBITDA leverage is projected to be slightly lower at 2.7x in 2024 compared with 2.8x for 2023 for our global portfolio. 
• Leverage is expected to decline in North America, led by Media & Entertainment and Aerospace & Defense, and in Asia Pacific, led by Gaming, Lodging & Leisure and Chemical. 
• Conversely, there would be a slight year-over-year increase in leverage for EMEA, led by Natural Resources, and for LATAM led by Oil & Gas. Forecasts are largely unchanged since June 2023.
• Slightly higher aggregate debt for our global portfolio in 2024 is expected to be offset by improved top-line performance, modestly higher profitability due to disinflation, and revenue and cash flow growth. 
• Revenue growth is projected to increase 1.8% in 2024, after declining 1.7% in 2023. The recovery is expected to lag in EMEA due to stagnant economic activity and to be the strongest in Asia Pacific even as the property sector continues to struggle.
• The aggregate global portfolio EBITDA margin is projected to expand to 17.7% in 2024, from 17.4% in 2023, with flat-to-higher margins in all regions except LATAM, due largely to Oil & Gas profitability normalising. 
• Margin expansion expectations have been lowered over the past six months even as revenue growth forecasts were revised higher.
• Credit trends for high-yield (HY) and investment-grade issuers are expected to demonstrate similar 2024 trajectories for revenue, margins and leverage. 
• However, HY issuers continue to be more adversely affected by high interest rates as aggregate interest coverage globally is projected to decline to 4.1x in 2024 from 4.2x in 2023 and 5.5x in 2022. 
• Conversely, for investment-grade companies, the firm expects coverage to be 10.0x in 2024, up from 9.8x in 2023 but down from 12.1x in 2022, due partly to higher cash interest income and less variable-rate debt. 
• Coverage is expected to be flat at 8.2x for our entire global portfolio in 2024 after declining from 10.2x in 2022.