The steep depreciation in the British pound since the UK "Brexit" vote is unlikely to lead to near-term changes to corporate ratings, but another 10% decline for a sustained period would create pressure, Fitch Ratings said Monday. UK retailers and airlines are especially exposed, the ratings agency said in a statement. A 10% decline from pre-vote levels, which has already occurred, would lead to an average increase of 0.5 times unhedged leverage. A 20% depreciation to $1.18 or 1.06 euros would result in an average 2.7 times increase in leverage. "Under this stress case, ratings would be affected if companies were unable to rebalance capital structures or limit FX impacts on the cost of imported goods following the expiry of existing hedging arrangements," said the statement. Retailers New Look and Tesco are most exposed to a weaker pound, as Tesco generates three quarters of its revenue in pounds, while nearly half its debt and costs are in other currencies. UK airlines face a similar currency mismatch, as they have costs and debt related to aircraft finance in dollars.
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