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Despite ongoing economic disruptions due to Covid-19, the threat of investment-grade companies falling to junk status has dropped, Fitch Ratings says.

In a new report, the rating agency said that the resumption of public health restrictions due to the pandemic will not lead to a repeat of the spike in so-called “fallen angels” — companies being downgraded from investment- to speculative-grade — that occurred following the onset of the pandemic.

Companies have largely adapted since the disruption first started, Fitch noted.

“Most investment-grade issuers took advantage of buoyant capital markets to improve their liquidity positions,” the rating agency said.

Additionally, governments are continuing to provide supports that are alleviating some of the stress on companies affected by restrictions, Fitch noted.

For sectors that are highly exposed to pandemic-driven restrictions, including transportation, travel and non-food retail, their share of at-risk debt remains relatively low.

“Outstanding debt issued by potential fallen angels in sectors that are most sensitive to such restrictions, including transportation and lodging, represents a small share of all corporate issuers subject to fallen-angel risk,” Fitch said.

While the oil and gas sector still accounts for the largest share of potential fallen angels, the risk in that sector has been tempered by a firming in commodity prices “due to OPEC+ production cuts, reduced oil inventories and increased investor optimism, supported by the vaccine roll-out in many countries,” Fitch said.

“This is dramatically different to the situation in spring 2020 when OPEC+ countries failed to agree to output cuts and threatened to increase supply while demand reduced dramatically,” Fitch noted.

Fitch said it expects corporate sectors will continue to face challenges in 2021, but it anticipates “a recovery in 2022 and a progressive reduction in the cohort of companies exposed to fallen-angel risk.”