CHICAGO--()--Market conditions for U.S. corporate credit will remain favorable with issuers generally well-positioned against market and regulatory risks in 2013, according to Fitch Ratings.
Contributing to the favorable outlook are expectations for modest GDP growth in 2013, healthy operating margins, solid balance sheets and extended maturity profiles. Fitch believes these factors should provide corporations with ample flexibility to face ongoing macroeconomic risks abroad and government tax/spending uncertainties in the U.S. Corporations have conservatively managed their capital structures and capital allocation, despite a low and declining cost of capital.
Downside risks are limited and mainly company-specific, characterized by more by business-model risks and operating underperformance rather than leverage.
The short-term resolution of the fiscal cliff will do little to address tax and spending uncertainties. Legislative and regulatory risks will remain high, acting as a drag on investment. Although the framework of spending cuts may become more evident following the upcoming sequence of deadlines in February and March, clarity on the specifics of corporate taxation may be less so. If Congress jumps into full-fledged tax reform, the debate over the details of tax policies could be lengthy before resolution. A further uncertainty is the Affordable Care Act, as the implementation date nears.
Capital expenditures will decline modestly in 2013, although Fitch does expect an increase in strategic acquisitions, given a slow-growth environment and low-cost capital.
Fitch further expects the favorable issuance environment to continue. With heavy inflows into the fixed-income asset class in 2013, institutional investors are increasingly worried about a likely decline in bond supply and their ability to place new money and to reinvest principal and interest into paper with adequate yields. Fitch believes this could point to an extended period of very low coupons.
The full '2013 Outlook: U.S. Corporate Credit' is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research: 2013 Outlook: U.S. Corporate Credit