US Credit Rating Downgrade Sparks Concerns: Whirlpool’s Recent Downgrade Offers a Template

US Credit Rating Downgrade Sparks Concerns: Whirlpool's Recent Downgrade Offers a Template

The recent downgrade of the US credit rating to Aa1 has raised concerns about the country’s financial stability. Some analysts, like Bessent, view rating actions as backward-looking, but the downgrade of Whirlpool to junk status by Moody’s on April 29 provides a relevant template.

Whirlpool’s downgrade was due to persistent weak consumer demand, a sluggish US housing market, and high debt levels. The company’s revenue has declined since peaking in 2021, pressured by rising interest rates and reduced demand for its appliances. Moody’s also assigned a negative outlook, signaling possible further downgrades.

As Bessent notes, rating actions can be seen as backward-looking. However, Whirlpool’s situation highlights the potential risks facing companies with high debt levels and reduced demand. The company’s debt-to-EBITDA ratio of 6.4x, negative free cash flow, and high dividend payouts have limited its debt reduction capacity.

The US credit rating downgrade has led to increased risk aversion, with US Treasury yields rising. The 30-year Treasury yield briefly surpassed 5.00%, and risk sentiment has worsened. However, lower energy prices, slower economic growth, and the government resuming collections on defaulted student loans may point to lower inflation and nominal yields in the future.

While S&P and Fitch still maintain Whirlpool’s investment-grade rating, Moody’s downgrade highlights the potential risks facing the company. As the US government’s debt levels continue to rise, concerns about its creditworthiness may also grow. With the US now allocating a significant portion of its spending towards interest payments, the country’s financial situation warrants close attention.#US Credit Rating Downgrade Sparks Concerns: Whirlpool’s Recent Downgrade Offers a Template#

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