Bangkok--11 Nov--Standard & Poor's
Defaults are historically rare events that can cause significant destruction by substantially diminishing a company's value. Nevertheless, we have seen numerous examples of issuers that have defaulted more than once, according to an article published today by Standard & Poor's Global Fixed Income Research, titled "'Til Debt Do Us Part: A Study Of Serial Defaulters."
In the article, we outline the results of our study of repeat defaulters. "We found that 99 issuers, both financial and nonfinancial, were repeat defaulters from 1981 to 2009," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research.
"To put this in perspective, 1,831 issuers defaulted in this period, meaning the 99 repeat defaulters accounted for about 5.4% of the total pool of defaulted issuers," said Ms. Vazza. "Of these 99 entities, 90 defaulted twice and nine recorded three defaults."
We define serial--or repeat--defaulters as companies that experienced two or more defaults during the time they were rated by Standard & Poor's between 1981 and 2009. We define a default as a rating revision to 'D' or 'SD'. In addition, the scope of our study was global, but the companies meeting our criteria were largely U.S. based.
We identified a few common factors among companies that have defaulted multiples times. Aggressive financial policies that resulted in overleveraging--typically as a result of multiple acquisitions--were a frequent feature of the serial defaulters in our data set. By industry, we observed a preponderance of nonfinancial companies on our list of serial defaulters, typically in the consumer discretionary, materials, and industrial segments--three sectors that we often identify as mature or cyclical, or, both. Other factors seemed to have little to no effect on whether a company defaulted more than once--including size and geographical footprint.
Examining the characteristics of repeat defaulters can help to inform the expectations that we have for the hundreds of companies that defaulted in 2008 and 2009.
"So far in 2010, the number of recorded defaults has declined substantially, largely because issuers have extended their maturities or negotiated with lenders for more financial headroom against their covenants," said Ms. Vazza. "However, we remain cautious about latent longer-term risks, particularly for the surviving low-rated issuers that have benefited from a temporary reprieve but that could find themselves facing challenges again in a few years."
For more details, see Standard & Poor's Webcast, titled "What Most Serial Defaulters Have In Common," on RatingsDirect or click here.
The report is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contact:
Diane Vazza, New York (1) 212-438-2760