Various Rating Actions Taken In Business Services Sector

NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today said business and consumer services providers are facing unprecedented operational disruptions and revenue declines as worldwide social distancing sanctions force nonessential business to temporarily suspend operations and consumers to stay indoors. Most business are commencing with short-term closures (few weeks to a month) but we believe extensions are likely. The risk of foregone volumes and revenues during this period of COVID-19-related disruption is substantial, as many services companies provide largely intangible, point of sale experiences. Although 2020 revenue growth will undoubtedly decline, a prolonged economic downturn would have broader reaching credit implications, including a spike in layoffs. Despite the sector's largely variable cost structure, we would also expect a contraction in cash flow generation as the elevated debt service needs of our highly leveraged issuers stress liquidity.
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus pandemic. Some government authorities estimate it will peak between June and August, and we are using this assumption in assessing the economic and credit implications. We believe measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers. As the situation evolves, we will update our assumptions and estimates accordingly. Additionally, see "COVID-19 Macroeconomic Update: The Global Recession Is Here And Now" published March 17.
We plan to publish individual reports as soon as practical. Ratings on CreditWatch reflect significant anticipated stress on revenue and cash flow over the next several months, or possibly longer, that could cause us to lower ratings over a short time frame, even if companies currently have good leverage levels and liquidity cushions. Outlook revisions to negative reflect the possibility of a downgrade over the next six to 12 months. Downgrades typically reflect operating metrics and leverage measures that were already weak compared with downgrade thresholds at the previous rating and are likely to deteriorate over the next year or very thin liquidity in the face of high fixed charges.
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