Douglas Peterson, S&P Global CEO, join Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss current demand of corporate debt, an increase in defaults, overall global markets and more.

Video Transcript

ALEXIS CHRISTOFOROUS: The Ratings Agency S&P Global is seeing strong demand for its research during this pandemic, led by a boom in the corporate debt market. Joining us now is S&P Global's President and CEO Doug Peterson. Doug, always good to see you.

You're coming off of a pretty stellar earnings report a few weeks ago. Your ratings revenue was up about 20%. Tell us what you're seeing now in Q2 in terms of demand for a corporate debt.

DOUGLAS PETERSON: Well, what we're seeing in the second quarter right now is that the corporations are looking for liquidity. In particular, there's been a rush of investment-grade companies and companies that are double-B rated to raise liquidity. The rates are very attractive. And so we're seeing this as a market-- it's-- it's a market that's driven by people looking for liquidity.

BRIAN SOZZI: And Doug, too, you mentioned on your latest earnings call that there are-- there are some structural challenges in the industry. Where are those?

DOUGLAS PETERSON: Well, the structural challenges that are-- first of all, there's a challenge of different companies that are going to be having credit risk. There's a-- a very risky environment out there. If you look at what's happened with growth levels, we know there's a lot of industries that are very negatively impacted by the-- the current recession that's starting to hit different markets around the world. So you've got that issue.

There's also then dislocation in different markets around the world with interest rates, supply chains, et cetera. So we expect all of these could have some sort of a credit impact on the markets. And you see companies like ours where we've put our people first, and everybody's working at home. And so you've got those challenges as well for many different companies around the world.

ALEXIS CHRISTOFOROUS: You know, Doug, we know that investors are looking for high-quality debt right now. But I'm curious how your company even begins to determine what a company should get for its bond offering, especially when you're talking about a company with such high risk during this time like a Carnival, or let's say, a Delta Airlines. How do you begin to do that?

DOUGLAS PETERSON: Well, what we do is we're only looking at the credit worthiness. Our rating is an opinion that's based off of well-tested criteria and methodology that goes back many, many years. And since 2008, we have updated it. We've taken more information into account. And for the last 10 years, we've continued to make it better all the time.

So what we're providing is an opinion about the willingness and the-- and the ability of a obligor to repay their debt in a timely manner. So we don't set the pricing. We set a rating, and then that is one piece of information that's used by investors and bankers to price the-- price the debt in the market.

BRIAN SOZZI: Doug, I think we have-- we're starting to see a lot of people and a lot of folks on the Street get worried about defaults and bankruptcies. How do you see that unfolding over the next six months?

DOUGLAS PETERSON: Well, so far this year, we're almost running at a rate of double the-- the defaults last year. It's a little bit higher than that. It's at almost 66. This is data that's about a week old so I don't know if I haven't-- updated yet. But there's information that sees the amount of defaults that are coming through.

But remember, every time there is a default, it's a restructuring. People come in this-- this economy. We have the best capital markets in the world.

It allows people to restructure, to revitalize companies to find new ways to run them again. But yeah, the defaults should probably be increasing. We think that there's gonna be an increase [INAUDIBLE] default levels up to, potentially about 10% of the high-yield debt.

ALEXIS CHRISTOFOROUS: Wow. 10%. All right. Last year, I know you launched-- because the last time we spoke, we were in Davos, and we talked about a new product you had launched, a domestic credit rating business in China-- I think one of the first to do that, if I've got that right. I'm curious how that business is going. What-- what is demand like there in China?

DOUGLAS PETERSON: Well, we were the first rating agency to get a 100% license to cover the entire market. In addition to that, we were one of the very first of all financial type companies period to get a 100% license in China. So this has been over a year now. We've had a very successful launch.

When we launched it, we hired a great group of people that are a full rating agency, including compliance and controls, as well as a large team of credit analysts. In the first quarter this year, we rated five bond issuance. And over the last year, we have a team that is meeting with the markets. We're meeting hundreds of people every week to explain what we're doing.

And then the market has actually continued to reform. The regulators have given a license to another rating agency to operate in the market-- Fitch. In addition to that, they've given licenses of up to 51%, 100% for organizations like JP Morgan. So we see the Chinese market is reforming. There's a lot of thirst for knowledge in the kind of information that we bring, which is independent. And we're still very committed to the Chinese market.

ALEXIS CHRISTOFOROUS: And I know you're busy launching some new products because you've now got this proprietary S&P Global ESG Scores. I think you just launched it this week. What can you tell us about that? How is it gonna help identify a company's sustainable practices?

DOUGLAS PETERSON: Well, we've been in the sustainability business for over 20 years when we launched the Dow Jones Sustainability Index with a partner, which was RobecoSAM. At the end of the year last year, we acquired the RobecoSAM CSA, or their ratings business for sustainability. In addition, we have a company called Trucost we bought three years ago that has the best information about environmental data. So we've just launched, this week, a new way that investors and risk managers can access the data from the RobecoSAM core foundational information so they can use it for portfolio attribution to understand the sustainability factors for their portfolio.

BRIAN SOZZI: Doug, Tesla is nearing the qualifications to be possibly included in the S&P 500, potentially big event for Elon Musk and Tesla. Have you been talking to them about that potential inclusion? And would you welcome-- welcome them to the index?

DOUGLAS PETERSON: Well, the best answer I can give you is that I absolutely have nothing to do with that. We have a team which is behind a firewall that makes all of the decisions about what's included or not included in the S&P 500 or any index. So the truth is I can't answer your question.

ALEXIS CHRISTOFOROUS: All right, we're gonna leave it there. I just want to ask quick. Last time during the earnings call, you were really not able to give guidance. Has that changed in these past few-- are things looking a little [INAUDIBLE]?

DOUGLAS PETERSON: We actually did give guidance. We adjusted our guidance by looking at the factors that would be impacting potentially our business. We used our own research from our own people, who I said are all working at home right now. We looked at our factors to come up with a set of guidance, and we gave sensitivity analysis around it of-- sort of a best case and a worst case. And so we found that the investors and the analysts appreciated that we had come out with guidance and put some guardrails around it.

ALEXIS CHRISTOFOROUS: All right. Well, thanks for clearing that up. With Doug Peterson, CEO and President of S&P Global. Good to see you, as always.

DOUGLAS PETERSON: Thank you so much.