U.S. election not a concern for corporate issuers in short term

While the outcome of the upcoming U.S. presidential election isn’t likely to affect credit ratings in the short term, major changes in climate and social policy could have long-term fallout, says Fitch Ratings.

In a new report, the rating agency said it doesn’t expect the presidential election results to have immediate rating implications for U.S. corporate issuers, despite the importance of federal policy.

While all sectors are exposed to political shifts given federal control of overarching areas such as tax and anti-trust policy, in developed economies political regime changes generally don’t immediately impact corporate credit profiles, it noted.

“Rating actions directly due to federal policy changes are rare,” it said. 

Although Fitch acknowledged that federal policy can “dramatically influence” the ability of certain sectors to “generate profits and cash flow, ultimately affecting asset valuations and capital deployment decisions,” it also stressed that the legislative process is usually a lengthy one. 

Presidential policy mandates often require political compromise with Congress, and can face legal challenges and prolonged rule-making efforts to implement, it noted.

“This gives companies time to adjust their business models to mitigate the effects of negative policy outcomes on their financial profiles,” it said. 

“Geopolitics and foreign policy, financial deregulation and privatization, and restrictive immigration also affect U.S. corporate credit but usually indirectly, rather than via direct policy application,” Fitch said. 

At the same time, “significant shifts in climate and social policies could have long-term effects, particularly for the auto, energy, health-care and utility sectors,” it noted. 

If the Republicans win the White House, corporate credit profiles “would be most affected by trade protectionism, persistent fiscal pressures, climate policy rollback and social policy reform,” it said. 

Fitch said a Republican sweep of the presidency and both chambers of Congress is the scenario that “would have the greatest likelihood of material revisions to existing policies.”