The U.S. tax bill signed into law in December will likely lead to as many ratings downgrades as upgrades, as companies will spend most of the savings on shareholder returns or mergers and acquisitions, S&P Global Ratings said Thursday.

While corporate borrowers are still working to evaluate the full impact on their business, S&P is not expecting them to use much of the extra cash to permanently reduce debt, leaving leverage tolerance levels unchanged.

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“As a result, we believe reform-related ratings changes of more than one notch will be rare, and upgrades and downgrades are both equally likely,” said analysts led by Michael Altberg and David Tesher in a new report. “While some upgrades will stem from sustained improvements in credit metrics, downgrades could result from either the direct negative effects of tax reform or shifts in financial policy.”

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The main beneficiaries of the tax revamp are investment-grade issuers, those rated at BBB-minus or higher, and crossover credits, or those with ratings that span the investment and speculative grades. Most of those are unlikely to make significant changes to their leverage-tolerance levels in an effort to get a higher rating, said the report.

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It cited as an example Comcast Corp.’s CMCSA, -0.70% recent statement that it would keep leverage at about 2.2 times instead of lowering it. “Similarly, we expect Apple Inc.’s AAPL, -3.17% use of its roughly $163 billion of surplus cash balances to be heavily skewed toward share repurchases,” said the report.

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Companies with less optimal capital structures — such as high-yield issuers, or those rated BB-plus and lower — may pursue debt repayment and deleveraging more enthusiastically, but S&P is not expecting major changes to capital structures. “More likely, issuers will make incremental adjustments, especially when deciding how to address interest-deductibility caps,” said the report.

Still, the credit implications vary across sectors with those that have traditionally had higher effective tax rates — media and entertainment, business services and health-care companies — expected to benefit most from the drop in the statutory corporate tax rate to 21% from 35%.

For regulated utilities, the lower tax rate is a credit negative, as they will be pressured to pass the savings on to customers. Other sectors will not benefit much as they have historically made good use of deductions and deferrals that allowed them to pay way less than the 35% rate.

The provision that limits interest deductibility is a clear negative, but may have a more subdued credit impact than originally feared, said the report.

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“Within the oil and gas sector, for example, we expect tax reform to have a low impact due to the extensive net operating losses [that] many issuers have accrued over the last few years,” said the report.

The limits are expected to apply to about half of S&P’s speculative-grade universe, but many of these highly leveraged issuers, especially those that have gone through leveraged buyouts, don’t pay taxes. Those companies may more quickly exhaust net operating losses, however.

The repatriation tax and shift to a territorial tax system will mostly impact those sectors with large overseas cash balances, notably technology companies, like Apple, and companies in health-care-related businesses that used tax inversions to lower their tax bills.

Apple shares have gained 22% in the last 12 months, while the Dow Jones Industrial Average DJIA, -0.87% has gained 22.5% and the S&P 500 SPX, -1.11% has gained 15%.

S&P is expecting those companies to permanently reduce their cash position over time. Apple has already said it would seek to become net cash neutral.

“This could fundamentally alter the landscape of these sectors and lead to weaker liquidity, less-flexible balance sheets, and tighter cushions against downgrade thresholds over time,” said S&P.

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Other possible secondary affects include shifts in financial policy, if companies come under pressure from activists to return more cash to shareholders. Some issuers may seek to issue debt in high-tax foreign jurisdictions that still allow interest deductibility, a move that could have a knock-on effect on existing debt instruments, depending on how much money is raised

“Ultimately, domestic unsecured borrowings are more likely to be harmed than helped by increased foreign borrowings,” said the report.

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Moody’s Investors Service said last month that it does not expect the tax bill to have much impact on the economy, also predicting that companies would use savings to reward shareholders, while the income-tax cut for the wealthy will not trickle down.

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