Covid-19, credit risk management modeling, and government support.

We investigate rating and default risk dynamics over the covid-19 crisis from a credit risk modeling perspective. We find that growth dynamics remain a stable and sufficient predictor of credit risk incidence over the pandemic period, despite its large, short-lived swings due to government intervention and lockdown. Unobserved component models as used in the recent credit risk literature appear mainly helpful for explaining the high-default wave in the early 2000s, but less so for default prediction above and beyond growth dynamics during the 2008 financial crisis or the early 2020 covid default peak. Government support variables do not reduce the impact of either growth proxies or unobserved components. Correlations between government support and credit risk are different, however, during the financial and the covid crisis. Using the empirical models in this paper as credit risk management tools, we show that growth factors also suffice to predict credit risk quantiles out-of-sample during covid times.