SWITZERLAND - Asset manager Credit Suisse has warned Swiss companies could suffer weakening of their credit ratings on bond holdings over the coming months as they may be required to tackle weighing pensions funding shortfalls.
An annual study of companies' credit profiles, entitled Swiss Corporate Credit Handbook 2009, suggests firms in the industrial, construction and chemical sectors could see most pressure on their creditworthiness over the next 12 months, as a result of several factors impacting their operating performance and cashflow.
More specifically, however, Credit Suisse noted some companies could see their bond positions affected by lower credit ratings - and in turn may face higher premiums - as they "will have to make additional payments to their pension funds, which will be an added burden for these companies, particularly, in times of reduced sales and profitability and weak cash flow generation".
The pension deficits are recognised as having a negative effect on a corporate's debt-equity ratio, so restructuring of pensions may be needed, and this will in turn require additional funding, suggested Credit Suisse.
This also means risk premiums are likely to remain high in the short-term on some Swiss fixed income offerings, according to the asset manager, as spreads will continue to stay wide and volatility will remain high for the next year.
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