Moody's Gloomy on Many Sectors' Credit
By Jonathan Stempel
NEW YORK (Reuters) - Moody's Investors Service on Thursday painted a gloomy picture for the creditworthiness of companies in most U.S. economic sectors, in the wake of last week's attacks on the World Trade Center and the Pentagon (news - web sites).
Companies making inexpensive products and items that most people would deem ``essentials'' are likely to fare best, while companies in the travel, leisure and media sectors, as well as those making big-ticket items such as automobiles, will fare less well, the rating agency said in a conference call.
Chief among the sectors that will face the most pressure, and one on which the economy relies heavily, is the airline sector. Most top U.S. airlines were downgraded this week, as top executives seek a government bailout.
``We anticipate that the industry will face significant operating losses through 2002,'' said managing director Michael Mulvaney. ``Even with a support package, fundamental credit risk within the sector has increased materially,'' and defaults are ''likely'' within the next four to six weeks.
Lawsuits, moreover, could weigh on airlines and airports. ''There are a lot of people looking for deep pockets,'' said Richard Bittenbender, a Moody's senior credit officer, noting that the prospect of bankruptcy filings didn't deter lawyers from pushing lawsuits related to asbestos exposure.
Among larger U.S. airlines, Mulvaney said, Southwest Airlines Co. (NYSE:LUV - news), a ``low cost carrier with reasonable liquidity,'' is best able to weather a downturn, while America West Holdings Corp. (NYSE:AWA - news) and US Airways Inc. (NYSE:U - news), even with a bailout, have ``limited'' ability to weather more shocks.
The hotel industry, meanwhile, is in ``better shape'' now than it was in the early 1990s, its last downturn, because there are fewer new hotels, said managing director Angela Jameson. Cruise companies, though, may suffer for ``a few more years'' because of the many new ships being commissioned.
AUTOS, RETAIL
The picture is also negative for companies in the ``capital goods'' sector, which includes makers of autos and other industrial parts. Mulvaney said these ``were already delivering weak performance and the potential for a more pronounced economic downturn will create additional rating pressure.''
The ratings of two of the biggest such companies, Ford Motor Co. (NYSE:F - news) and General Motors Corp. (NYSE:GM - news), are already on review for downgrade, and Mulvaney said last week's events ''exacerbate'' those automakers' problems.
For retailers, many of whom ``have been in recession for a year or so'' according to Jameson, the prospects are mixed.
The apparel sector, she said, ``is likely to be a difficult one,'' and retailers that do not compete aggressively on price, such as Dillard's Inc. (NYSE:DDS - news), J.C. Penney Co. (NYSE:JCP - news), Nordstrom Inc. (NYSE:JWN - news), Saks Inc. (NYSE:SKS - news) and Sears Roebuck & Co. (NYSE:S - news), could face downward rating pressure.
However, she said, ``it's not all doom and gloom.'' Though regional discount chains will have difficulty, national retailers with ``strong product positions'' and low price points, including Kohl's Corp. (NYSE:KSS - news), Target Corp. (NYSE:TGT - news) and Wal-Mart Stores Inc. (NYSE:WMT - news), should keep their ratings.
That also goes for home improvement giants Home Depot Inc. (NYSE:HD - news) and Lowe's Cos. (NYSE:LOW - news) and big supermarket chains such as Kroger Co. (NYSE:KR - news) and Safeway Inc. (NYSE:SWY - news), Jameson said.
``Consumers will still eat, drink, brush their teeth and wash their clothes,'' she said.
MEDIA, TELECOM
Media companies, especially those that devoted dozens of hours of commercial-free time to covering the attacks and their aftermath, may suffer if advertising revenue drops further. ''Nearly a full week of revenue has been lost'' for many, said managing director Bob Konefal.
Though he labeled the gravity of ad losses from last week as ``temporary,'' he said ``it will be at least several more weeks before advertising returns to more normal levels.''
This could hurt AOL Time Warner Inc. (NYSE:AOL - news), Walt Disney Co. (NYSE:DIS - news), General Electric Co. (NYSE:GE - news), News Corp Ltd. (NCP.AX) and Viacom Inc. (NYSE:VIA - news), he said, though most of these companies should hold their ratings unless they aggressively buy back their shares, he said.
Konefal said that in contrast, for telecommunications and technology companies, last week's events could prove a ''short-term positive'' because they highlight a need for people to have multiple means of communications, such as cell phones. Telecom equipment vendors benefit, he said, though the outlook for long-distance phone companies remains negative.
Moody's said the attacks should have little effect on the chemical, energy, health care, oil and gas and paper sectors. |
