Margin Pressure at Risk of Intensifying for Global Middle-Market Issuers

DBRS Morningstar released a commentary titled “Margin Pressure at Risk of Intensifying for Global Middle-Market Issuers.” DBRS Morningstar expects downgrades across middle-market issuers to remain more likely than upgrades given uncertainty about the trajectory of interest rates and the threat to revenue growth and operating margins posed by a broad economic slowdown in the North American and European/UK regions.

We believe issuers with a high proportion of long-term contractual revenue, a focus on nondiscretionary products and services, and a sticky customer base are best positioned to produce financial performance commensurate with stable rating profiles. In contrast, we expect the ratings of cyclical companies that manufacture commodity-like products, focus on discretionary consumer-focused products and services, or rely on new project wins to support current capital structures to remain vulnerable to adverse economic conditions.