In this edition of Instant Insights, our key takeaways from recent articles include the following: our updated oil price assumptions, the effects of AI and crypto on the future of the internet, systemic risks faced by financial systems in light of AI's rapid adoption, and how Boeing's strike affects its suppliers. We dive into the risks to global credit conditions, Europe's electronic market makers, power as TSMC's increasing credit risk, utilities in California, and the Hellenic Financial Stability Fund's exit from the National Bank of Greece. We also feature the Global State Of Play report, German covered bond market insights, European CLO monitor, the sector intelligence report on leveraged finance in Europe, property transfer fees in France, as well as community college district fiscal medians, water utilities, risk-sharing pension plans of the five states, and the auto loan ABS tracker in the U.S.

S&P Global Ratings periodically updates this article, which contains an edited compilation of key takeaways from our most up-to-date thought leadership organized by sector, region/country, and publication date (see table 1).

Table 1

Key Takeaways From Our Most Recent Reports

Credit Conditions

1. Global Credit Conditions Q4 2024: Policy Rates Easing, Conflicts Simmering, Oct. 1, 2024

• Credit resilience amid stormy seas: Despite geopolitical risks increasing and rates remaining high through most of this year, refinancing activity has been strong across most ratings and sectors. Upgrades continue to outpace downgrades, and defaults have started to moderate in recent months. We expect the default rate to fall, but at a slower pace than it rose due to residual strain for the lowest-rated borrowers.
• Some grow, some slow: Most economies are set to grow this year, led by strong momentum in the U.S. due to resilient consumer spending and increased productivity. This is partially offset by only a gradual growth rebound in Europe and a sequential slowdown in China, which has been held back by its still flagging property sector. We expect global growth to slow modestly in 2025 as the U.S. moderates, Europe's pace picks up, and China's slows further.
• Vulnerability amid optimism: Market turmoil in early August proved short-lived, but has revealed market vulnerability to negative headlines, quickly unwound carry-trade positions, and currently rich valuations. Optimism is rooted in assumptions for sustained interest rate cuts ahead, but yields are likely to stabilize at higher long-term levels than pre-pandemic-era lows. The current geopolitical landscape and potential trade barriers ahead remain risks.

2. CreditWeek: What Are The Biggest Risks To Global Credit As We Approach Year-End?, Oct. 3, 2024

• With the onset of the global rate-easing cycle, global credit conditions look set to improve toward the end of the year.
• However, this outcome is not guaranteed, given the risks posed by disparities in growth prospects among major economies, heightened geopolitical strife, and still-elevated borrowing costs.
• An increasingly tense geopolitical landscape, the prospect that interest rates won't fall as quickly as markets expect, and slower-than-forecast growth in the world's biggest economies are among the top risks that could derail our base case for global credit conditions.

3. Credit Conditions Asia-Pacific Q4 2024: Mixed Signals: Growth And Rates, Sept. 25, 2024

• Between a rock and a hard place. Pains from China's property crisis persist despite government stimulus. The outlook for households and businesses is somber. Consequently, we have lowered the country's GDP growth to 4.6% this year and 4.3% in 2025. While more stimulus may be needed to restore confidence, authorities are holding back to avoid exacerbating China's already high indebtedness. We view risks around China's slowdown as high and worsening.
• Shifting gears. While most Asia-Pacific central banks will gradually follow the Fed in cutting rates, domestic factors will vary the pace of monetary easing across the region. We expect sharper rate cuts through 2025 and anticipate refinancing conditions will improve, with issuers able to tap offshore markets. We have therefore lowered our assessment of financing risk to elevated from high.
• Walking a fine line. Still strong global demand and diversification of manufacturing to outside China generate growth opportunities for export-centric Asia-Pacific countries. With the U.S. and Europe poised for a soft landing, we expect Asia-Pacific's growth to stay at 4.4% over 2024-2025. Meanwhile, the risk of worsening geopolitical tensions could stifle the region's growth momentum through supply chain disruptions and costlier commodities. We have raised the geopolitical risk level to high.
• Volatility on the rise. An unexpected global hard landing could spur risk-off sentiment and capital outflows, particularly in emerging Asia. Trade barriers and climate adaptation could raise costs for businesses and undo disinflationary trends. Japan's exit from near-zero rates could risk the abrupt unwinding of carry trades and longer-term shifts in asset allocation. The divide among industries and households may widen, while evolving risks could cause lenders to turn selective. The region's net rating outlook bias remains at negative 2%.

4. Credit Conditions Emerging Markets Q4 2024: Risks Loom Amid A Fragile Stability, Sept. 25, 2024

• Credit conditions will likely remain supportive for emerging market (EM) issuers as long as a soft landing continues in the U.S. The Fed's interest rate cuts and the prospects for quicker monetary easing down the road will likely lead to continued improvement in financing conditions for EMs. Moreover, a moderate slowdown in the U.S. economy should support global trade volumes.
• Nevertheless, several evolving trends could derail the favorable conditions. Increasing protectionism could disrupt global trade and interrupt monetary easing as inflationary pressures resume. Chinese economic growth could slow further upon continued real estate weakness and growing trade tensions. The Middle East conflict has escalated to a dangerous phase that could further disrupt supply chains and weigh on energy prices.
• In our baseline, rated EM issuers should benefit from ongoing favorable financing conditions and economic activity, despite the expected slowdown. Overall, we expect rating activity to remain in positive territory and the default rate to fall.

5. Credit Conditions Europe Q4 2024: Turn In Credit Cycle Won't Be Plain Sailing, Sept. 25, 2024

• Overall: We continue to expect that EU growth will pick up gradually as higher real incomes spur consumption and employment remains high. Due to declining inflation, we expect the European Central Bank (ECB) will ease interest rates gradually by 25 basis points (bps) per quarter until the deposit rate will bottom out at about 2.5% in the third quarter of 2025.
• Risks: Geopolitical risk remains high because of potential escalations in Ukraine and the Middle East, as well as challenges that could arise if the U.S. election results in policy changes. Additionally, Europe's risk management increasingly focuses on ensuring economic security and a free and fair single market. Principal macro risks include a protracted period of subpar growth, wage pressures that prevent a further decline in inflation, and bouts of volatility if markets overestimate the pace of rate cuts.
• Ratings: Our ratings outlooks across banks, non-financial corporates, structured finance, and insurance appear stable for the most part, with issuers benefiting from easing financing conditions. More vulnerable segments include commercial real estate (CRE), with some arrears building in European commercial mortgage-backed securities (CMBS), and U.K. non-conforming and legacy buy-to-let (BTL). European sovereigns remain challenged by high debt levels, while corporates increasingly focus on strengthening the resilience of supply chains and improving their competitiveness.

6. Credit Conditions North America Q4 2024: Set For Improvement – With Eyes On The Election, Sept. 25, 2024

• Overall: Credit conditions look set to steadily improve, but the forthcoming U.S. elections could create some financial market volatility and policy uncertainty.
• Risks: Financing costs could remain overly burdensome for some borrowers, especially those at the lower end of the ratings spectrum, if monetary-policy easing is derailed or risk aversion increases. Cost pressures could persist, threatening to hurt credit.
• Ratings: The region's net outlook bias, indicating potential ratings trends, has improved to negative 9.2%. We expect the U.S. trailing-12-month speculative-grade corporate default rate to fall to 3.75% by June 2025.

Aerospace and defense

7. Most Boeing Co. Suppliers Have Rating Cushion To Absorb Continuing Strike, Oct. 5, 2024

• Boeing Co. (BBB-/Negative/A-3) is approaching the fourth week of a strike by approximately 33,000 machinists. It's uncertain when an agreement will be reached and ratified.
• A protracted strike, which began Sept. 12, 2024, would have negative implications for Boeing and our ratings on the company. Less clear are potential ramifications on its extensive supplier network.
• Among the over 40 aerospace and defense companies that we rate in North America, we believe only a handful could face negative rating implications related to the Boeing strike.

Corporates

8. Your Three Minutes In China's Patient Capital: Will It Pay Off?, Sept. 24, 2024

• Some of China's state-owned enterprises will likely allot more of their investments to long-term, high-end and technologically sophisticated projects.
• This "patient capital" is inherently risky, given earlier stage investments and extended payback periods.

9. China’s Investment Holding Companies: Scale And Strong Support Underpin Creditworthiness, Sept. 23, 2024

• We expect China's central and local government-owned investment holding companies, or IHCs, will prioritize investment in strategic sectors that the government promotes.
• Finding good investment targets will remain difficult in the soft economic environment. These companies will be willing to play the long game for certain types of strategic investments that could bring longer-term productivity or competitive advantages to China.
• The IHCs' large scale, diversified exposure and favorable onshore funding environment could help navigate macro headwinds and pressure on their investees' performance.
• We anticipate the sector's credit profiles will be stable over the next 12 months. Most rated China IHCs also have adequate leverage buffers to absorb capital market volatility and ongoing investment.
• In addition, we expect extraordinary government support to continue underpin credit profiles of rated IHCs that are government-related entities.
• Rating actions in the past three years on Fosun International, the only private enterprise IHC we rate, were due to evolving funding access and liquidity amid a volatile capital market and macro uncertainties.

10. CreditWeek: What Can U.S. Corporate Borrowers Expect From The Fed's Policy Shift?, Sept. 26, 2024

• The Fed's first rate cut since 2020 marked a turning point in the U.S. central bank's battle against persistent inflation, with policymakers shifting their focus to stabilizing a softening labor market.
• Corporate borrowers that have faced overly burdensome costs of debt service and/or refinancing can now, expect a steady series of rate cuts through the end of next year, at least.
• We believe that falling interest rates are more likely to benefit U.S. borrowers in their regular course of business than to be a lifeline for those that would have otherwise failed to refinance.

11. U.S. 2024 Elections: How Dueling Tax Plans Could Matter For Corporates Post Election, Sept.24, 2024

• The fate of some of the Tax Cuts and Jobs Act's (TCJA) corporate tax provisions, such as interest deductibility, bonus depreciation, and deductions for research and development (R&D) expense, will be a key topic in 2025, regardless of the U.S. election outcomes this November. An extension of the deductions beyond 2025, particularly if done retroactively, would be a benefit for post-tax corporate cash flow and potentially stimulate more capital expenditure and R&D expense.
• While it's too early to determine the direction of corporate tax rates or the possible extension of the pertinent TCJA tax provisions, a higher corporate tax rate would add to a company's tax cash outflow, and thus reduce our funds from operations (FFO) calculation. The effects on credit ratios would appear most directly from changes to FFO and, thus, to FFO-to-debt ratios and FFO-to-interest coverage.
• The corporate alternate minimum tax (CAMT) and Share Buyback Excise Tax have limited reach and are unlikely to deter corporations from moving forward with their financial plans. Although the 4% Share Buyback Excise Tax may be somewhat punitive, most companies plan for such tax changes, in our view.
• The U.S. has not yet enacted the Economic Cooperation and Development (OECD) agreement. Instead, it enacted its own minimum tax rules on foreign earnings. The outcome of the U.S. elections will provide direction on whether the U.S. will adopt a minimum tax consistent with the OECD.

Credit trends and market liquidity

12. Credit Trends: Global State Of Play: Strong Issuance Fuels Debt Growth, Oct. 4, 2024

• The amount of global corporate debt rated by S&P Global Ratings rose by 3.3% in the 12 months to July 1, 2024, largely driven by 4% growth in investment-grade-rated debt while growth in speculative-grade stood at 1.1%.
• Financial services drove roughly 60% of the increase in debt. By region, debt grew nearly evenly across the U.S. and Europe, at 3.7% and 3.9%, respectively.
• Favorable financing conditions led to strong primary issuance, especially speculative-grade debt issuance, which jumped as borrowers took advantage of strong investor demand.
• Loans and revolving credit facilities account for 55% of speculative-grade nonfinancial corporate debt in the U.S. and 49% in Europe.

13. This Month In Credit: Positive Momentum Requires Close Inspection, Sept. 26, 2024

• High technology saw the most downgrades in August and largely cited weaker than expected operating performance through the first half.
• The number of weakest links ('B-' and lower) has fallen every month this year, bringing August's tally to its lowest in nearly two years.
• Negative bias for issuers rated 'B-' or below fell nearly 2 percentage points in August, though largely owing to withdrawals and defaults. Meanwhile, defaults increased in August and remain elevated compared to the five-year average. Year-to-date, defaults have largely been due to distressed exchanges--which remain at their highest level since 2009.
• Many major central banks have begun to lower rates, but the pace and timing of future moves remain uncertain. Improvement in regional and sectoral rating performance won't be universal.

Cross sector

14. Industry Credit Outlook: Asia-Pacific Sector Roundup Q4 2024: The Great Divide, Sept. 29, 2024

• Mixed signals. Amid a complicated macro landscape, we see diverging prospects across economies and sectors in Asia-Pacific. We anticipate China's growth will slow further in 2024-2025. On the other hand, the region's emerging markets are riding a still-solid export recovery. Easing policy rates should improve financing for the region's borrowers.
• Confidence crisis. China's sticky property downturn and slower consumption are compounding drags on confidence. These are spilling over to downstream sectors and producers reliant on Chinese demand (e.g., building materials, chemicals and consumer related segments). While the latest round of monetary stimulus could support liquidity in the system, cautious lending appetite and household spending might limit uplift.
• Geopolitical tensions stoke uncertainty. Deepening geopolitical dissonance and more trade restrictions are compounding credit obstacles. Some sectors are more vulnerable to this, including metals and mining, technology, and transportation cyclicals. The need to diversify supply chains to manage rising uncertainty, could pressure earnings and disrupt operations for businesses.
• Some bright spots ahead. As the Fed kicks off its policy rate easing cycle, the region's central banks will gradually follow suit. Potentially lower offshore borrowing costs could reopen access for borrowers and improve overall financing conditions. An increasingly likely global soft landing benefits Asia-Pacific's manufacturing exporters.
• Steady net outlook bias. The net rating outlook bias for Asia-Pacific issuers is steady at negative 2% as of end-August, but sector prospects remain skewed. The chemicals, transportation cyclical, building materials and real estate sectors have the largest negative outlook percentages. Gaming continues to outperform.

15. Your Three Minutes In AI: Financial Systems Will Face New Systemic Risks, Oct. 4, 2024

• AI's rapid adoption across the financial sector exacerbates the risk of operational disruption leading to systemic instability.
• Regulators have recognized this challenge, and are considering novel solutions to ensure the threats are effectively managed.

16. AI And Crypto Will Shape The Future Of The Internet, Oct. 1, 2024

• AI's adoption is aligned to a rapid expansion of online information that will facilitate significant technological opportunities but also comes with risks relating to centralization around big technology firms, information traceability, identity management, cyber security, and energy consumption.
• Blockchain and cryptographic technologies (collectively referred to as crypto) provide decentralized network solutions, and information ownership and security tools that could mitigate some of those risks.
• The combination of AI and crypto is nascent and rapidly evolving, yet even modest applications should offer important power and network optimization opportunities, while accelerated adoption over the longer term could lead to a crypto-supported decentralized internet.

17. Credit Cycle Indicator Q4 2024: Credit Recovery Prospects Are Mixed Across Markets, Oct. 1, 2024

• Our forward-looking credit cycle indicators (CCIs) continue to signal a potential credit recovery in 2025.
• The divergence across sectors persists. Recovering earnings and improving market conditions keep momentum positive for corporates, while household credit in most markets is still riding a correction and house prices are soft .
• Credit recovery prospects could also differ across geographies as they navigate macroeconomic and geopolitical uncertainties.

18. Japan's Rate Hikes Could Stabilize Sovereign Support, Sept. 26, 2024

• The end of Japan's negative interest rate policy could help to stabilize the country's economic and financial conditions, better supporting the sovereign rating.
• Banks are key beneficiaries of the rate hikes. The central bank will also have more tools at its disposal to manage volatility.
• But the new era also carries new risks. Higher interest rates require government revenue growth to keep pace. In addition, some borrowers may struggle to meet higher payments and yen-funded foreign investments may rapidly unwind.

Cyber

19. Your Three Minutes In Cyber Security: Cyber Hygiene Can Affect Creditworthiness, Sept. 24, 2024

• Establishing and embedding good cyber hygiene practices is essential to manage organizational cyber risk.
• Routinely ensuring the security of systems and data can significantly reduce organizations' exposure to cyber-attacks.
• In its latest Digital Defense Report from October 2023, Microsoft stated that good cyber hygiene can protect against 99% of cyber-attacks.

Economics

20. Economic Outlook Asia-Pacific Q4 2024: Central Banks To Remain Cautious Despite U.S. Rate Relief, Sept. 24, 2024

• We have reduced our 2024 China GDP growth forecast to 4.6% from 4.8%. This reflects the country's sluggish property sector, weak domestic demand generally, and reluctance among policymakers to ease fiscal policy. We project 4.3% growth in 2025.
• Growth elsewhere is largely tracking our expectations. We continue to see mostly solid expansion, particularly in the emerging markets of Asia. We anticipate 4.4% GDP growth in Asia-Pacific, this year and next, slightly down on three months ago.
• Central banks will only gradually reduce policy rates, in our view. Interest rates are low compared with the U.S., and currencies cheap. In certain economies, rising house prices and household debt contribute to a cautious approach to rate cuts.

21. Economic Outlook Canada Q4 2024: Further Rate Cuts Will Accelerate Growth, Sept. 24, 2024

• Canada's economy is performing slightly better than we forecast a quarter ago but remains subdued. We expect GDP growth of 1.2% in 2024 before accelerating to 2.0% in 2025.
• The unemployment rate is likely to rise through the fourth quarter before reversing course next year when growth picks up, while we expect core inflation will fall to 2% by mid-2025.
• We forecast the Bank of Canada (BoC) will cut interest rates to 3.75% by year-end 2024 and 2.50% in 2025, from the current 4.25%, but there is the risk of front-loaded cuts by 50 basis points (bps) at upcoming meetings until they return to a neutral range.

22. Economic Outlook Emerging Markets Q4 2024: Lower Interest Rates Help As Pockets Of Risk Rise, Sept. 24, 2024

• Monetary policy easing by the U.S. Federal Reserve, as long as it is accompanied by an orderly softening of the U.S. economy, is a positive for emerging markets (EMs)--especially ones with strong economic fundamentals, such as those in Southeast Asia.
• In several major EMs, particularly in Latin America, policy uncertainty could keep risk premiums elevated, which in turn could reduce the magnitude of capital flows those economies receive relative to past Fed easing cycles.
• Key downside risks for our EM growth outlook include the implications of the U.S. election on trade and fiscal policy, a more rapid-than-expected slowdown in the U.S., ongoing economic weakness in China, a further escalation of the Middle East conflict, and persistent uncertainty over domestic policies in several EMs.

23. Economic Outlook Eurozone Q4 2024: Consumer Spending To The Rescue, Sept. 24, 2024

• We forecast that economic growth in the eurozone will strengthen, reaching the potential in 2025. Inflation will moderate, reaching 2.0% in the second half of 2025.
• Against this backdrop, the European Central Bank (ECB) is likely to keep cutting rates once per quarter until the deposit rate reaches 2.5% in the third quarter of next year.
• Consumers should become more cognizant of disinflation, and lower interest rates should make saving less appealing. Consumer spending should therefore pick up and align more closely with purchasing power, driving GDP growth.
• Private-sector loan demand is showing signs of life about six months earlier than previous interest rate cycles would have suggested. That said, the credit impulse--the change in new credit as a percentage of GDP--is likely to remain modest as long as monetary policy remains restrictive, which should be the case until late 2025.
• Visibility on the economic outlook is relatively poor, with a downturn in the labor market, more restrictive fiscal policy, and less supportive foreign trade all still possible.

24. Global Economic Outlook Q4 2024: So Far, So Smooth--Can It Last?, Sept. 26, 2024

• The global policy rate easing cycle is now in full swing following a 50 basis point cut by the U.S. Federal Reserve in mid-September; this creates space for a swath of central banks to follow suit, particularly in emerging markets.
• Economies remain more resilient than we had expected, but outcomes are diverging across the main regions. The U.S. is slowing, the eurozone is recovering, and China faces property-related headwinds.
• Global GDP growth remains subdued. We are forecasting 3.2 expansion in 2024, and 3.1% in 2025. The bright spots are economies with strong domestic demand or exposure to the global tech cycle.
• The risks to our baseline remain on the downside. These include sharply lower labor demand and a spike in bond yields and geopolitical risks; terminal policy rates (and r*'s) remain key unknowns.

25. U.K. Economic Outlook Q4 2024: Disinflation And Rate Cuts Will Stimulate Growth, Sept. 23, 2024

• The U.K. economy has outperformed our projections this year as inflation declined, financing conditions eased, and companies rebuilt their stocks, leading us to revise our GDP growth forecast slightly upward to 1.0% in 2024 and 1.3% in 2025.
• Lower financing costs will continue to boost investment; the housing market has resumed growth and we expect interest rate cuts will add another 1.0 percentage point (ppt) to 1.5 ppts to growth by the end of 2026.
• Nonetheless, inflationary pressures remain high, due to a tight labor market, implying gradual easing of monetary policy, with the next rate cut penciled in for November 2024.

26. Economic Outlook U.S. Q4 2024: Growth And Rates Start Shifting To Neutral, Sept. 24, 2024

• We continue to expect real GDP growth to slow from above-trend growth this year to below-trend in 2025, accompanied by a further rise in unemployment rate and lower inflation.
• The Fed looks set to embark on a steady series of interest-rate cuts--we have penciled in policy rates to reach the terminal rate of 3.00%-3.25% by the end of 2025, with risks in both directions.
• We view the upcoming gradual easing period as more of a preventative measure for growth from slipping too far below potential than instantly juicing the real economy.
• We kept our probability of recession starting over the next 12 months unchanged at 25%. With consumption still healthy, for now, near-term recession fears appear overblown.

Financial institutions

27. Your Three Minutes In China Banks: Stimulus To Squeeze Interest Margins, Sept. 25, 2024

• The stimulus announced yesterday by China's central bank will likely squeeze Chinese banks. We believe the measures could strain lenders' net interest margins (NIMs) and mortgage quality.
• The steps will test banks' management of funding costs and their underwriting ability, with some institutions likely to show lower profitability and diminished asset quality.
• This should be particularly apparent for regional banks in lower-tier cities due to their exposure to some of the country's weaker property markets.

28. FI Brief: Europe's Electronic Market Makers Cast A Wider Net To Pursue Growth, Oct. 8, 2024

• Europe's leading electronic market makers (EMMs) have cemented their presence in global markets and are now chasing new growth opportunities.
• Sophisticated algorithms and low-latency execution capabilities have given Europe's EMMs a solid position in global capital markets--generating strong returns on the back of high volume, low-margin trading models.
• Recent bouts of high market volatility, notably the pandemic, have turbocharged Europe EMMs' capital bases and solidified their global franchises. In their next growth phase, we expect them to expand their lit, high-frequency cores while deploying capital into new asset classes and less liquid products in over-the-counter (OTC) markets.

29. European Banks' Resolution Story Moves To The Next Chapter, Sept. 25, 2024

• We continue to expect that resolution planning and subordinated loss-absorbing capacity make taxpayer-funded solvency support an uncertain prospect for failing systemic banks in Europe and the U.S.
• Further changes in European crisis management frameworks are likely, though evolutionary in nature and unlikely to lead to rating changes.
• Regulators consider European banks are substantially resolvable, although ongoing efforts aim to bolster resolvability in key areas, such as liquidity and the operationalization of the bail-in tool.
• Although the pace has slowed, we continue to upgrade European banks whose resolution strategy and expanded subordinated bail-in buffers are likely to reduce the default risk for senior preferred liabilities, in our view.

30. Your Three Minutes In Banking: HFSF's Exit From NBG Is A Milestone In Greece's Post-Crisis Restructuring Saga, Oct. 3, 2024

• The Greek government launched the HFSF in 2010 to stabilize the Greek banking sector during the country's government-debt crisis.
• The government-related Hellenic Financial Stability Fund's (HFSF's) sale of its stake in National Bank of Greece (NBG, BB+/Positive/B) marks a milestone in the restructuring and consolidation of the Greek banking system.

31. Indian Fincos’ Balancing Act: Will The Regulatory Burden Crimp High Credit Growth?, Sept. 24, 2024

• Rated and unrated finance companies have strong capital levels to support high loan growth.
• We expect retail loans in India to triple by 2030, driving household leverage to 34%.
• Regulatory actions by the Reserve Bank of India will enhance compliance and safeguard customers.
• Increased compliance costs may limit the ability of smaller companies to compete in the sector.

32. Your Three Minutes In U.S. Banking: What To Watch Regarding Regulation In The Upcoming Election, Sept. 27, 2024

• We think material changes to prudential bank regulation are unlikely, but supervisory approach could vary.
• In S&P Global Ratings' view, the outcome of the U.S. elections won't result in any material weakening of current prudential bank regulation.
• However, it could affect to what degree regulation is strengthened and set the tone for future supervision and enforcement.

33. Your Three Minutes In Vietnamese Banking: Typhoon Debt Relief Measures Could Crimp Profitability, Sept. 25, 2024

• We believe Vietnamese banks' profitability will be squeezed after providing debt relief to support borrowers affected by a recent typhoon.
• The strain adds to the sector's intensifying competition for good quality borrowers and loans, which have driven down asset yields and margins.

Health care and pharmaceuticals

34. AI In Pharmaceuticals Promises Innovation, Speed, And Savings, Oct. 1, 2024

• Generative AI will transform pharmaceutical research and development by strengthening innovation, offering cost efficiencies, and speeding the traditionally ponderous research-to-market cycle.
• Large pharmaceuticals companies' significant investments in AI could establish enduring competitive advantages over smaller rivals.
• The benefits of AI will likely take years to filter through to treatments (and pharmaceutical company revenues) and remain dependent on further investment, regulatory evolution, and effective change management.

Infrastructure

35. China IPPs: Stable Coal Margins Will Help Pay For The Renewables Rollout, Sept. 24, 2024

• China's power producers face high spending needs to meet national renewables targets by end-2025.
• Recent margin recovery for coal-fired segments will help soften growing debt burdens.
• Better profitability and lower interest rates should keep cash flow ratios stable despite higher average spending for rated power producers.

36. North American Utility Regulatory Jurisdictions Update: Some Notable Developments, Sept. 24, 2024

• Since S&P Global Ratings last reported on North American utility regulatory jurisdictions in March 2024 there have been numerous developments that could have credit implications for rated utilities.
• Developments in California show promise for the recovery of wildfire claims and an undergrounding initiative.
• Several states may move forward to limit natural gas consumption while encouraging further electrification.
• Legislation in Utah will help mitigate the financial impact of wildfire claims.
• Virginia and Wyoming passed credit-supportive legislation regarding nuclear and coal generation, respectively.

Insurance

37. China Insurance: Time For Tough Medicine, Sept. 25, 2024

• Insurers in China will face greater operational burdens as they tighten risk control systems to deal with waning returns.
• We expect closer collaboration between insurers and the government to strengthen China's social safety net, including via inclusive insurance.
• Life insurers will see slower growth as they shift to floating-return policies to reduce asset-liability mismatch.
• For P/C insurers, underwriting margins could thin further as the niche rolls more catastrophe protection to meet national needs.

38. Central European Insurers' Financial Strength Is A Barrage Against Flood Damage, Sept. 24, 2024

• Early insured loss estimates of as much as about €2.2 billion from the recent floods in Central and Eastern Europe suggest they will be the most severe flood event in about a decade.
• Insurer's property and casualty performance will be affected, but the insurers we rate have sound reinsurance protection, posted strong half year results in 2024, have diversified earnings streams, and sound capital adequacy, all of which should serve to protect credit quality.
• The events could have longer-term effects on the industry. We will particularly monitor the availability and cost of reinsurance protection for rated insurers.

39. Korean Insurers And IFRS 17: Falling Rates May Squeeze Capital, Sept. 25, 2024

• The onset of interest rate declines will keep Korean insurers focused on strengthening risk management, as IFRS 17 and 9 more transparently show entities' economic risks associated with lower interest rates.
• Korean insurers could face capital pressure, if reserving requirements increase more than asset valuations as interest rates decline over the next few years.
• In our view, Korea's major rated insurers will likely be able to withstand a moderate capital squeeze through ongoing efforts to steadily reduce the mismatch in the duration of assets and liabilities.

Leveraged finance

40. Market Insights: Sector Intelligence | Leveraged Finance: European Summary Report, Oct. 1, 2024

• This year, issuers have seized the opportunity offered by lower interest margins in public debt markets to refinance private debt, reversing the refinancing patterns of recent years. Deals have resulted in a median improvement of 150 basis points in interest margins, based on a sample of 17 issuers that refinanced private debt mainly in the broad syndicated loan (BSL) market.
• Rating actions were predominantly negative in the first half of the year, reverting to positive in the last three months. Chemicals, packaging, and building materials sectors have the highest negative bias and also driving downgrades recently.
• We expect the European trailing-12-month speculative-grade corporate default rate to decline to 4.25% by June 2025, from 4.7% as of June 2024. Consistent with our previous forecasts, this represents a declining default rate, but the decline is from a higher starting point than previously expected.

41. European Refinancing Flows Have Flipped As Public Leveraged Debt Replaces Private, Sept. 23, 2024

• This year, issuers have taken advantage of tight interest rate margins in public debt markets to refinance private debt, reversing the refinancing flows of recent years.
• Deals have delivered a median 150 basis points (bps) improvement in interest margins, based on our study of 17 issuers that refinanced private debt mainly in the broadly syndicated loan (BSL) market.
• The refinancing trend should continue so long as public market credit spreads remain attractive and supported by stable economic and geopolitical conditions.

Oil and gas

42. China Natural Gas: Slip In Policy Pecking Order Will Hit Growth, Sept. 26, 2024

• Chinese gas distributors are on track for 6.5%-7% volume growth and RMB0.01-RMB0.02/cbm dollar margin improvement annually over 2024-2025.
• Government policies suggest growth in the country's natural gas consumption will decline through to 2030, as China approaches its self-imposed peak-carbon deadline.
• A surge in renewables-based power supply and the shifting role of coal power will complicate gas market dynamics.

43. S&P Global Ratings Revises Its Oil Price Assumptions; North American And Dutch Title Transfer Natural Gas Price Assumptions Unchanged, Oct. 2, 2024

• S&P Global Ratings has reviewed its hydrocarbon price decks and lowered its West Texas Intermediate (WTI) and Brent oil price assumptions.
• We have lowered our oil price assumptions by $10 per barrel (/bbl) for the remainder of 2024 and $5/bbl for 2025-2027.

Public finance

44. Sector Review: Your Three Minutes In China LGFV Financing: Offshore Bonds Are A Costly Lifeline, Sept. 23, 2024

• Liquidity pressures are pushing more of China's local government financing vehicles (LGFVs) to tap offshore renminbi debt markets.
• This is a markedly more expensive channel than domestic issuance. Going offshore therefore highlights the increasing difficulty that the LGFVs face in financing or refinancing at home.
• The cost differential is widening. Coupons in the offshore renminbi (widely known as CNH) market exceed 5% on average. In contrast, average bond coupons in the domestic market are declining, at below 3%.

45. Rebound In Property Transfer Fees Supports Ratings On French Departments, Oct. 8, 2024

• Property transfer fees (DMTOs) bottomed out in first-quarter 2024, paving the way for recovery.
• DMTOs are among French departments' main revenue sources and account for 20% of their operating revenues.
• This supports our expectation that French departments' financial performance will recover in 2025 as the rebound in DMTOs should gain traction.
• Nevertheless, downside risks remain as external shocks could impair economic activity in France, while fiscal consolidation could weigh on departments' budgets.

46. Pension Spotlight: Risk-Sharing Plans Help Manage Budgetary Stress For Five U.S. States, Oct. 3, 2024

• S&P Global Ratings typically views the sharing of risk as reducing the negative impact pension obligations might have on state or local governments' creditworthiness.
• Risk-sharing mechanisms take many forms to mitigate credit stress from pension contribution volatility due to adverse experience.
• Some credit risks associated with pension plans are spurred by management actions, such as market risks associated with discount rates that are above our 6% guideline, and contribution deferrals that could lead to budgetary stress.

47. California Utilities Enter Period Of Significant Capital Spending That May Strain Water And Sewer Rate Affordability, Oct. 3, 2024

• Rising costs and affordability risks will be increasingly meaningful to municipal utility credit quality in California, particularly as they adapt to more extreme weather patterns, bolster supply resiliency, and invest in storage, which we expect will raise debt levels but reduce operating risks.
• California utilities' capital plans and needs far exceed those of its national peers, given their outsized exposure to water contaminants, strict wastewater discharge requirements, and substantial renewal and replacement costs.
• Rating downgrades in California outpaced upgrades in 2024, a trend we expect will continue through 2025, consistent with our negative sector outlook.

48. Your Three Minutes In Water Utilities: The Water Risk And Resilience Organization, Oct. 3, 2024

• The Water Risk and Resilience Organization (WRRO), currently under deliberation in Congress, aims to enhance the resilience of the U.S. water sector against cyber security threats.
• U.S. utilities have been recent targets for nation states and cyber criminals, and S&P Global Ratings believes the WRRO would help water systems to achieve improved cyber security resilience, although there could be significant challenges associated with implementation costs, especially for smaller systems.

49. U.S. Community College District Fiscal 2023 Medians: A Reason For Optimism As A New School Year Gets Under Way, Oct. 1, 2024

• U.S. community college demand metrics are showing signs of rebounding following material declines in recent years, spurred by the impact of the pandemic.
• Despite the exhaustion of federal relief funds, community colleges posted relatively consistent margins for fiscal 2023 compared with pre-pandemic levels, while strengthening liquidity in the same year due to improved state funding and prudent management.
• Financial resource ratios have remained relatively consistent over the past three years while debt levels and leverage ratios indicated modest increases likely due to higher construction costs and market conditions over the same time horizon.

50. U.S. Not-For-Profit Transportation Infrastructure 2023 Medians: Demand And Revenue Growth Improved Financial Medians To Post-Pandemic Highs, Sept. 25, 2024

• U.S. not-for-profit transportation infrastructure enterprise (TIE) financial medians improved in fiscal 2023 across the asset classes given continued revenue and activity growth (passengers, tolled transactions, and tonnage) and a combination of management actions such as increasing rates, fees, and charges and reserves.
• S&P Global Ratings expects that stable-to-improving demand and revenue trends and proactive management practices will continue to mitigate the impact of higher debt for larger issuers and of rising operations-and-maintenance (O&M) costs to support financial medians into fiscal 2024.
• Despite 14% median growth in operating expenses attributable to inflationary pressures combined with higher debt outstanding, virtually all TIE medians improved as S&P Global Ratings-calculated median net revenue available for debt service increased, resulting in improved overall coverage, debt capacity, and cash reserves.
• Improved financial metrics contributed to overwhelmingly positive rating actions with 32 upgrades and one downgrade from Sept. 1, 2023, through Sept. 1, 2024.

51. The New "New Normal": Trends In U.S. Higher Education Post-Pandemic Versus Post-Recession, Sept. 25, 2024

• The U.S. higher education sector is struggling with student demographic pressures and affordability considerations on one hand and rising expenses on the other, though ample financial resources and brand recognition buoy the top institutions.
• In a trend reversal, inflation outpaced tuition increases in the past five years, while instruction expenses lagged even further behind as universities cut costs.
• Although interest rate trends inform debt issuance across the sector, we see the greatest correlation at the lowest-rated private schools.

Sovereigns

52. Rising Demand For Its Dollar Is A Growing Credit Strength For 'AAA' Rated Canada, Sept. 26, 2024

• We expect the share of the world's official foreign exchange reserves that is denominated in the Canadian dollar will continue to rise.
• The Canadian dollar also represents a growing percentage of global foreign exchange turnover, and this growth has been among the strongest of all currencies of 'AAA' rated sovereigns over the past decade.
• The growth in the use of the Canadian dollar is supportive of the 'AAA' sovereign rating.

Structured finance

53. China Securitization: ABS And RMBS Tracker August 2024, Sept. 26, 2024

• Coupon rates on the most senior tranches of auto ABS continued trending down in August. We expect the decline in coupon rates to continue in light of the recently announced 50-bp cut to the required reserve ratio in China.
• Auto loan ABS delinquency ratios remained elevated during the past three months, mainly driven by rising arrears of deals with distinct pool attributes.
• RMBS transactions that we rate had some increase in delinquency rates. We expect strong credit enhancement available to maintain the stability of our RMBS ratings.
• Consumer loan ABS had higher and more volatile delinquency rates than auto loan ABS. The utilization of excess spreads and high credit enhancement available provided rating stability for rated notes in the observed transactions.

54. European CLO Monitor Q3 2024, Oct. 7, 2024

• Rating activity for European CLOs was strong during Q3 2024, where we reviewed eight transactions managed by seven collateral managers.
• Rating transitions--mainly upgrades (57% of classes reviewed) and affirmations (43%)-- were positive, reflecting stable credit performance and higher credit enhancement spurred by deleveraging.
• Rating action severities were 2.1 notches for upgrades and 1.2 notches for all rating actions during the quarter.
• GLG accounted for the most affirmations and upgrades among the eight transactions we reviewed (with two transactions for this collateral manager).
• We reviewed 70 transactions as part of our annual review surveillance process.
• We rated 47 new transactions (including three refinanced deals and 15 resets).
• We withdrew ratings on 138 tranches in 22 transactions, mainly due to redemptions, resets, and refinancing.

55. German Covered Bond Market Insights 2024, Oct. 3, 2024

• Year-to-date German benchmark covered bond issuance is lower compared to the same period in 2023 but remained buoyant with €26 billion issued by the beginning of September.
• German households' debt servicing risks remain below historical figures despite sharply rising interest rates, which have cooled the housing market.
• There are initial signs of a stabilization of house and commercial real estate (CRE) prices as policy rates fall.
• Foreclosures on immobile real estate in Germany have increased in 2023 but remain below historical figures.

56. U.S. Auto Loan ABS Tracker: August 2024 Performance, Oct. 7, 2024

• Despite strong recovery rates in August, U.S. auto loan ABS losses rose to record-high levels. Prime losses rose to the highest August levels since 2010 and subprime losses rose to the highest August levels since 2009.
• Delinquency rates finally showed some improvement, with 60-plus-day delinquencies remaining nearly stable for prime and declining slightly month over month and year over year for subprime.
• In September, we upgraded nine classes, affirmed 46, and downgraded three (all downgrades were on subprime transactions from 2022, two of which were downgraded to 'CC (sf)').

57. SF Credit Brief: U.S. CMBS Delinquency Rate Rose 34 Bps To 5.2% In September 2024; Office Rate Surges Past 8.0%, Sept. 27, 2024

• The U.S. CMBS overall delinquency rate rose 34 bps month over month to 5.2% in September.
• By balance, DQ rates increased for retail (85 bps to 6.6%), office (55 bps to 8.2%), lodging (34 bps to 5.4%), and multifamily (19 bps to 4.2%); and decreased for industrial (8 bps to 0.3%).
• Special servicing rates rose for lodging, office, retail, multifamily, and industrial loans.
• The share of loans that were either modified or extended increased 9 bps month over month to 10.4%.

58. CLO Spotlight: Thirty Years Strong: U.S. CLO Tranche Defaults From 1994 Through Third-Quarter 2024, Sept. 27, 2024

• Since S&P Global Ratings rated its first collateralized loan obligation (CLO) transaction 30 years ago in 1994, we have rated almost 20,000 U.S. CLO tranches, totaling nearly $1.5 trillion in issuance (including CLO refinancing and reset activity).
• To date, through 30 years and several recessions (including the pandemic-related downturn in 2020), these CLO ratings have shown only a modest number of defaults, and they have outperformed most other rated asset types.

59. SF Credit Brief: CLO Insights U.S. BSL Index: A Look Back At CLO Bond Exposures; August Downgrades Weigh On CLO Metrics, Sept. 26, 2024

• Since our last update, a handful of widely held issuers have experienced downgrades into the 'CCC' category or to a the nonperforming rating ('CC', 'SD', or 'D'), resulting in a modest deterioration in certain collateralized loan obligation (CLO) metrics.
• Some loans from widely-held loan issuer Lumen Technologies are being held within broadly syndicated loan (BSL) CLO current-pay buckets in September trustee reports following a distressed exchange, particularly the senior loans, while other positions may be held as default assets.
• The average junior BSL CLO overcollateralization (O/C) test cushion has held steady at around 4% since May 2024, but may experience a slight decline in the near future due to recent corporate rating downgrades.

Technology

60. Power Is Increasingly A Credit Risk For TSMC, Oct. 2, 2024

• Sluggish growth of Taiwan's electricity supply will test TSMC's power-intensive chip production.
• Power supply stability is crucial to the semiconductor industry.
• Risks are controllable for TSMC over the next three to four years because it actively manages the stability of its power supply.
• The company's strong pricing power can more than offset any increases in electricity costs.
• In the longer term, shortfalls in electricity supply may inhibit the expansion of TSMC's chip production in Taiwan.

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The Ratings View:

We published the latest "The Ratings View", which spotlights key developments and asset class trends on a weekly basis, on Oct. 2.

This Week In Credit:

We published the latest "This Week In Credit", our data-driven research snapshot that provides forward-looking, actionable insights on weekly market-moving credit trends, on Oct. 7.