Harvey's impact on bond issuers adding up to record
DALLAS – A week after Hurricane Harvey struck the Texas Gulf Coast, assessment of the economic impact of the disaster and its effect on credit are coming into focus.
“As Houston and its environs recover from flooding, the demands of rebuilding will present serious challenges,” S&P Global Ratings wrote in one of several reports after Harvey struck. “Although most natural disasters have a limited impact on our local government ratings and overall credit quality, an event such as Hurricane Harvey is more likely to have long-term ramifications.”
S&P identified teams of analysts who will be assessing broad sectors of the region’s issuers, including transportation, health care, power, water and sewer utilities, along with emergency services, municipalities and school districts.
S&P rates 25 of the 54 counties included in Texas' emergency declaration.
“All-told, it includes nearly 1,000 credits in our rated universe, primarily cities, towns, school districts, and municipal utility districts (MUDs),” analyst Jane Ridley wrote.
S&P said it had lowered ratings after previous disasters "because of long-lasting economic and financial damage severe enough to revise our view of the long-term viability and composition of the local economies and tax and employment bases.
“Given the extent of Hurricane Harvey's damage so far, it's likely that some areas will experience this level of impact, but only time will tell," the report said. "S&P Global Ratings will continue to monitor the effects of Hurricane Harvey as they unfold.”
Moody’s Investors Service and Fitch Ratings have also put together teams to assess the impact on their rated entities.
The best available, most recent estimate from AccuWeather indicates the damage caused by Harvey could be as high as $190 billion, making it equal to the cost from Hurricanes Katrina and superstorm Sandy combined. The estimate is still sketchy but is based on the fact that Harvey affected a more populous area than Katrina. Twelve years after Katrina flooded New Orleans and heavily damaged neighboring parishes, the region is still in recovery mode, though the economy there has rebounded significantly.
"This is the costliest and worst natural disaster in American history," said Joel Myers, founder, president and chairman of AccuWeather, in a prepared statement. "The disaster is just beginning in certain areas. Parts of Houston, the United States' fourth largest city, will be uninhabitable for weeks and possibly months due to water damage, mold, disease-ridden water and all that will follow this 1,000-year flood."
Houston, the nation’s largest port for energy, is getting port facilities back to operating order. The Port Houston Authority announced Friday that no terminals or loading equipment were damaged by the storm.
“It is our view that the area of focus post-Harvey, especially for the Houston MSA, will most likely be on drainage and flood control infrastructure,” S&P said. “The Houston area is a massive collection of reservoirs and bayous that provide temporary storage and a controlled manner in which to let water recede via gravity whenever possible to minimize reliance on pumping infrastructure and electric power.”
To the east of Houston, the city of Beaumont lost its water supply due to flooding.
Texas economist Ray Perryman’s organization The Perryman Group has analyzed the storm based on models built on previous events. The research indicates that economic impact from Hurricane Harvey could include losses to the US economy, which would be observed over an extended period of time of $145 billion in real gross domestic product (constant 2009 dollars), $95.9 billion in real personal income, and 1.01 million person-years of employment.
“The bulk of the impact falls on Texas and Louisiana, with Texas seeing losses of $110.3 billion in real gross state product, $73.0 billion in real personal income, and 771.6 thousand job years,” Perryman said. “The losses in Louisiana over time are estimated at $8.7 billion in real gross state product, $5.7 billion in real personal income, and 60.8 thousand job years.”
While the numbers appear large, “it should be noted that values represent about 7% of the annual output and income levels of Texas,” Perryman said. “However, these losses will be felt over an extended period. Thus, while the effect on the Texas economy is significant, it is not likely to derail its long-term pattern of growth for an extended period of time.”