Clarity in Credit

From Hub to Hazard - War in Iran and the Shifting Map of Middle East Aviation and Sovereigns

Thu, 19 Mar 2026 16:42:39 +0000

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Eric Chan, Vice President of Global Non-Bank Financial Institutions, discuss the repercussions of the war in Iran on sovereigns and airlines with Adriana Alvarado, Senior Vice President of Global Financial Institution and Sovereign Ratings and Rohit Kumar, Vice President of Corporate Ratings.

The recent escalation of conflict in the Middle East, including widespread airspace closures and disruptions around the Strait of Hormuz, is reshaping sovereign and corporate risk across the region. Our analysts look at the immediate and longer‑term implications for regional economies and global aviation and discuss how the different sectors are navigating this evolving landscape.

KEY HIGHLIGHTS

Gulf sovereigns face heightened geopolitical and economic uncertainty, with impacts differing across oil‑dependent and more diversified economies.
Airspace closures across Iran, Iraq, the Gulf states, and Israel triggered severe aviation disruptions, particularly for Middle Eastern carriers whose operations temporarily came to a halt.
Airlines outside the region have been more resilient, as Middle Eastern routes represent a smaller share of their networks, though rerouting challenges persist.
With Russian airspace already restricted, additional Middle Eastern closures create a “double bottleneck,” leading to longer flight times, higher fuel burn, and rising operating costs.
Fuel prices represent the biggest global risk: sustained increases in oil and jet fuel costs could pressure profitability, especially for airlines with limited hedging.
Longer‑term credit implications vary, with Gulf sovereigns relying on substantial financial buffers while airlines’ resilience depends on hedging strategies, liquidity strength, and revenue diversification.

RELATED RESEARCH

Most Global Airlines Can Withstand Direct Impact From Middle East Airspace Closure, but Fuel Price Poses Risk, (March 2, 2026), https://dbrs.morningstar.com/research/475508
Conflict in the Middle East Brings Economic Disruptions for the Gulf Countries and Beyond (March 2, 2026), https://dbrs.morningstar.com/research/475494

Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/475929.

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BDC Turbulence: Diverging Credit Implications

Wed, 18 Feb 2026 12:59:22 +0000

In the latest episode of our “Clarity in Credit” podcast series, Chloe Blais, Vice President, European Corporate Ratings, Diversified Industries & Energy, and Eric Chan, Vice President, Global Non-Bank Financial Institutions, discuss business development companies (BDCs) with Watson Tanlamai, Vice President, Global Non-Bank Financial Institutions.

The story of private credit has been years in the making, with this faction of the market experiencing a phenomenal surge in growth over the past several years. The BDC sector--as a subset of private credit--has recently garnered more than its fair share of attention from the press. In this episode, we discuss the ins and outs of this particular investment vehicle, the current industry landscape, and our outlook for this sector.

KEY HIGHLIGHTS

BDCs are vehicles that invest in a diversified portfolio of debt of both sponsor-backed and non-sponsored-backed U.S. companies, often with expertise in a certain area of the market. BDCs may be traded on public stock exchanges or non-traded.
Despite broad macroeconomic challenges, BDC portfolio credit performance has been relatively strong over the past few years with notable growth in the sector’s assets under management.
Expectations for lower interest rates in 2026 may adversely affect the sector’s earnings; however, this may be balanced by floating-rate funding costs and the rationalizing of dividend payments to BDC shareholders.
BDCs generally maintain diversified portfolios with smaller individual position sizes, which should insulate larger players from industry-specific risks, such as credit risk exposure to the software industry because of ongoing artificial intelligence shocks.
The prevalence of payment-in-kind (PIK) interest deferral mechanisms offered by BDCs is discussed, including how the structure and relative quantum on PIK features may affect asset quality.
Overall, a divergence in the credit profiles of BDCs is expected. Well-performing, large BDCs are expected to exhibit more resilience relative to smaller BDCs, which may be more susceptible to macroeconomic headwinds because of their comparatively lower operational flexibility.

RELATED RESEARCH

“2026 BDC Sector Outlook Neutral: Naughty or Nice List Lengthens,” https://dbrs.morningstar.com/research/469393

Venezuela - What’s Next for the Oil Industry?

Tue, 20 Jan 2026 07:00:00 +0000

In the latest episode of our “Clarity in Credit” podcast series, Jason Graffam, Senior Vice President, Sector Lead of Global Sovereign Ratings and Chloe Blais, Vice President of European Corporate Ratings, Diversified Industries & Energy, are joined by Andrew O'Conor, Senior Vice President of Energy & Natural Resources Ratings to discuss the impact U.S. involvement in Venezuelan politics on the global oil industry.

Following the U.S. military’s action in early January 2026 to oust Venezuelan President Nicolás Maduro on the global oil industry, it appears the U.S. government’s objective in Venezuela--among other stated reasons--is to revitalize the country's vast oil resources with the help of and investment by American energy companies. In this episode of “Clarity in Credit”, we discuss the medium-term implications of the U.S. intervention in Venezuela on the country's energy sector, the prospects for greater investment in the country, and the global oil industry.

KEY HIGHLIGHTS

The U.S. military action in Venezuela that toppled Maduro has little immediate impact on the current global balance between crude oil supply and demand and, therefore, on oil prices.
It will likely take several years and large investments to meaningfully resuscitate the Venezuelan oil industry. In addition, the country’s current political stability, its legal framework, and the current low oil price environment are unfavorable conditions for most western companies and do not incentivize the large investments required.
The arrest of Maduro has no immediate credit rating impact on the oil and gas producers that we rate. However, in the unlikely scenario that the oil price significantly declines for six to 12 months because of a severe weakening in the economic environment, most of our rated issuers would be well positioned, financially and operationally, to weather such a downturn.

RELATED RESEARCH

“Maduro's Ouster Unlikely to Have Significant Near-Term Impact on Oil Prices,” https://dbrs.morningstar.com/research/471154
“The Promise and Peril of U.S. Intervention in Venezuela,” https://dbrs.morningstar.com/research/471477
“Venezuela and the Shifting Map of Insurance Risks in the Caribbean,” https://dbrs.morningstar.com/research/471250
“Maduro's Exit: Very Limited Direct Exposures for International Banks With Potential Opportunities in the Long Term,” https://dbrs.morningstar.com/research/471183

European Banks 2026 Outlook

Wed, 17 Dec 2025 18:24:49 +0000

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Jason Graffam, Senior Vice President, Sector Lead, Global Sovereign Ratings are joined by Sonja Forster, Senior Vice President, European Financial Institution Ratings to discuss the European banking sector.

The results for European banks over the last few years have been very good. This is in large part thanks to the higher interest rate environment, which has helped to support bank earnings. At the same time, higher rates have not resulted in a deterioration in asset quality. The year 2025 looks set to close for European banks as another year with strong profits, even though banks have faced some earnings pressure as interest rates gradually decline and from additional capital requirements. The open question for 2026 is how the European banking sector performs as earnings retreat from their recent peak.

KEY HIGHLIGHTS

European banks’ profitability has declined from recent highs but remains strong. Interest rates appear to have settled, and along with the favorable operating environment in many European countries, bank earnings should stabilize in 2026.
The benefits to bank earnings from the decline in the cost of risk in recent years are set to decline, but broadly speaking, asset quality for recent vintages has remained remarkably strong in most European countries. We expect no major deterioration in asset quality.
European banks remain well capitalized, despite the noticeable impact on individual banks’ capital ratios from the introduction of CRR3.
Many banks have started to tap their capital buffers by paying out higher dividends and increasing investments. Many large banks are making significant investments in Artificial Intelligence, primarily to keep costs down.
M&A activity has also gained momentum, principally from bolt-on acquisitions. Larger-scale acquisitions are more complicated and have encountered political opposition.
There is still a positive bias in credit ratings for European banks, although less than in the last few years.

Power Hungry -- North American Utilities Invest for AI Boom

Mon, 24 Nov 2025 17:09:04 +0000

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Chloe Blais, Vice President of European Corporate Ratings, Diversified Industries & Energy, are joined by Bukola Folashakin, Assistant Vice President of Energy & Natural Resources Ratings to discuss data centers.

With more data centers becoming operational, electric utility companies are experiencing an unprecedented surge in demand across many North American service areas. Investment in electricity infrastructure is projected to be $1.4 trillion from 2025 to 2030, double the amount invested in the prior 10 years.

KEY HIGHLIGHTS:

The U.S. is projected to lead data center electricity consumption until 2030, and demand growth will be led by states that have emerged as data center hubs. Utility companies in Virginia, Ohio, Arizona, and California are ahead of others in planning for the additional demand for power.
However, data centers aren’t the only disruptors in the sector. Demand for power is also increasing from electric vehicles and charging stations, public transit systems, heating and cooling infrastructures, as well as manufacturing and agricultural industries. Growing demand raises concerns around supply adequacy in extreme weather scenarios.
Regulated utility companies have a dedicated franchise area of operation. Regulators use several mechanisms to ensure the reliable supply of electricity at a fair rate for all consumers. Among others, these mechanisms include setting the allowed return that utility companies can earn on the equity portion of their investments and ensuring recovery of their capital expenditures.
Uncertainty about the extent of the demand for power poses several challenges to utility companies, including potential infrastructure overdevelopment and delays in cost recovery. Further, funding gaps could increase as traditional funding sources are inadequate to meet future investment needs. In addition, regulatory lags in approvals for rate increases could exacerbate pressure on the overall financial and credit resiliency of these companies.
Managing capital expenditure is critical from a credit risk perspective. Capital investment on a large scale could have an adverse impact on the credit profiles of utility companies if such investments are not supported by adequate equity injections to maintain regulator approved capital structure or if the capital program is prolonged and large relative to the size of these companies

'Carte Blanche' Comes Due – Fiscal Costs to Political Gridlock in France

Mon, 20 Oct 2025 16:19:43 +0000

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Jason Graffam, Senior Vice President of Global Sovereign & Financial Institution Ratings, joined Mehdi Fadli, Senior Vice President and Sector Lead of Global Sovereign Ratings to discuss developments regarding the Republic of France.

Government instability in France has resurfaced, marked by the resignation of Prime Minister Lecornu on 6 October 2025, though he was reappointed later that week. This latest government collapse is the third since the snap legislative elections in July 2024, highlighting the ongoing instability that France has faced over the past year. On 19 September 2025, we downgraded France’s sovereign credit rating to AA with a Stable trend from AA (high).

Key Highlights

-- The political turmoil also accentuates the uncertainty over France's policy and fiscal outlook. The downgrade of France’s sovereign credit ratings reflects our expectation that the fiscal consolidation path will be more gradual than anticipated in the government’s medium-term fiscal plan amid ongoing domestic political fragmentation and reduced policy consensus.

-- Despite the prevailing headwinds, France’s economy remains resilient. The country’s real GDP growth outpaced the euro area average in 2023–24, underpinned by foreign trade and public spending. Furthermore, labour reforms enacted in recent years have bolstered employment, with the national unemployment rate currently at historically low levels. Even with the potential suspension of pensions reform until 2028, the near-term fiscal impact of the potential suspension seems relatively contained.

-- In the near term, we anticipate two potential scenarios unfolding in France’s domestic political landscape. The second Lecornu government could continue negotiating with some parties in the National Assembly, possibly making new budget concessions to avert a vote of confidence. Alternatively, the government might opt for new snap legislative elections, which could potentially result in more seats for the far-right National Rally party.

-- In the current geopolitical context, the absence of a strong and stable government in France also poses a challenge for Europe, particularly in light of the ongoing war in Ukraine and the increasing military spending among NATO members. The French presidential election slated for 2027, if won by the National Rally, could have significant implications for European Union (EU) member states’ cohesion, their commitments towards the EU, and the EU’s funding and policy objectives.

See our 6 October 2025 commentary, “France: Another Government Collapses, Accentuating Uncertainty on the Fiscal Outlook” at https://dbrs.morningstar.com/research/464260 for additional insight on France from our analysts.

-- Credit Rating Report: Morningstar DBRS Downgrades the Republic of France to AA, Trend Changed to Stable: https://dbrs.morningstar.com/research/462894

Crypto & Stablecoins: Reshaping Banks and Corporates

Mon, 29 Sep 2025 16:52:03 +0000

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Chloe Blais, Vice President of European Corporate Ratings, Diversified Industries & Energy, are joined by Maureen Levelis, Vice President of North American Financial Institution Ratings and Scott Rattee, Senior Vice President and Sector Lead of Corporate Ratings to discuss digital currencies.

Digital currencies have been catalysts for how we define and use money. In this episode, Morningstar DBRS analysts discuss two examples, cryptocurrencies and stablecoins, and how their growing prevalence affects both Financial Institutions and Corporates.

Key Highlights

Stablecoins, digital tokens pegged to assets like the U.S. dollar, have demonstrated rapid growth with increasing integration into payment systems as a quick and low-cost means of sending money across borders with 24/7 settlement, global accessibility, and efficiency. However, they lack the safety of deposit insurance and rely on the issuers’ management of reserves.
In the U.S., the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law in July 2025, sets a regulatory foundation for stablecoins. Major U.S. banks are now exploring their own stablecoins or forming a consortium to compete with private players and stay relevant in the digital finance space. While stablecoins offer efficiency and innovation in the financial system, they pose both opportunities and risks for banks, potentially disrupting deposit bases and payment fees.
The use of cryptocurrencies has started to move beyond simply being transactional in nature to being used for operational purposes such as treasury functions. Cryptocurrency treasury companies are using cryptocurrencies such as bitcoin as their primary corporate reserve currency.
Given the inherent volatility in cryptocurrency values, when a cryptocurrency represents most of a company's available on-balance-sheet capital, there can be issues with it as a reliable store of value and a unit of account, particularly in periods of either company-specific or macroeconomic stress.
In addition, some of the other primary credit risk considerations include factors such as a lack of clear regulatory oversight, liquidity risk, counterparty and security-level risks, and custodial considerations.

Related Content:

Stablecoins and U.S. Banks: A New Chapter in Financial Disruption (August 9, 2025), https://dbrs.morningstar.com/research/460729
Risky Business: Cryptocurrency Treasury Strategy May Increase a Company's Credit Risk Profile (August 21, 2025), https://dbrs.morningstar.com/research/455943

Fire and Floods - Climate Change and the Insurance Industry

Mon, 21 Jul 2025 13:00:48 +0000

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Jason Graffam, Senior Vice President of Global Sovereign & Financial Institution Ratings, are joined by Marcos Alvarez, Managing Director of Global Financial Institution Ratings to discuss climate change and the insurance industry.

Natural disasters are becoming more severe and frequent. In fact, total losses from these disasters, including both insured and uninsured losses, reached $318 billion in 2024, which is significantly higher than the 10-year average of $254 billion.  Our analysts discuss these extreme natural disasters in North America and Europe.

Key Highlights

The global insurance industry covered between 39% and 47% of total natural disaster losses in the past five years, which translates to more than $124 billion in claims paid every year. Nevertheless, there is still a significant protection gap between total economic losses and insured losses and closing this gap remains a challenge for the industry.
The Canadian Property and Casualty (P&C) Insurance industry suffered record losses in 2024, and the industry appears to be on pace for another record year of losses in 2025. Amid volatile underwriting results, as mitigating factors, Canadian insurers may choose to limit coverage, increase deductibles, or further raise prices in high-risk areas, especially if global reinsurers reduce their willingness to take on Canadian risks.
Nevertheless, the overall financial and credit performance of the Canadian P&C industry remained resilient, supported by rate increases, reinsurance protections, and favorable investment returns during the year. Insurance issuers in Canada rated by Morningstar DBRS remain well capitalized to absorb the trajectory of natural catastrophe losses observed in 2025.
While many countries have implemented public mechanisms or public-private partnerships to address natural disasters, the Consorcio de Compensación de Seguros (CCS) in the Spanish insurance sector stands out as one of the most comprehensive public solutions available globally. As a public entity, the CCS covers damages generated by extraordinary risks in Spain, including floods, and is funded through surcharges of premiums applied to regular insurance providers.
Nevertheless, given the increasing frequency and severity of weather-related events, there is a growing need for additional government-backed facilities, alongside market-based solutions such as catastrophe bonds.

Related Content:

Line of Fire: How Wildfires Threaten Utility Credit (July 2, 2025), https://dbrs.morningstar.com/research/457577
Navigating a New Normal: 2025 Wildfires Renew Volatility of Natural Catastrophe Losses for Canadian Insurers (June 10, 2025), https://dbrs.morningstar.com/research/455943
Is It Time for an EU-Level Natural Catastrophe Insurance Scheme? (February 24, 2025) https://dbrs.morningstar.com/research/448420
Spain's Costliest Adverse Weather Event in History Anticipated to Drive Total Insured Losses Over EUR 4 Billion (November 14, 2024) https://dbrs.morningstar.com/research/442944
Morningstar DBRS Comments on the Impact of Severe Weather Events in Spain for Insurance Companies, and the Role of the Consorcio de Compensación de Seguros (October 31, 2024) https://dbrs.morningstar.com/research/442341
Could Europe Become Uninsurable Against Catastrophic Weather Events? (May 29,2024) https://dbrs.morningstar.com/research/433343
Extreme Conditions: Exploring Spain’s Drought Impact and the Need for Catastrophe Insurance Coverage (July 19, 2023) https://dbrs.morningstar.com/research/417307

Need More Ammo – How the European Corporate Defence Sector Faces Challenges, but Ultimately Benefits

Mon, 16 Jun 2025 16:15:08 +0000

In the first episode of the Morningstar DBRS “Clarity in Credit” podcast, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Jason Graffam, Senior Vice President of Global Sovereign & Financial Institution Ratings, are joined by Chloe Blais, Vice President of European Corporate Ratings, to discuss the European defense sector.

European Union defense spending is expected to increase further from all-time high levels seen in 2024 as the conflict in Ukraine has continued. While governments and financial institutions are expected to facilitate this expansion by expediting approval processes and providing financing, the corporate sector will play a critical role in the build-out of the European defense capacity. Morningstar DBRS’ analysts discuss where new military procurements will come from as well as capacity constraints and expected timelines. Journois, Graffam, and Blais also examine how governments will fund the capital required for further investments in defense, highlighting the challenges this expansion will bring and the potential effects on credit.