Bangkok--3 May--Standard & Poor's
The 2011 global corporate default tally remains at 13 after no issuers defaulted this week, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (April 22 - 28, 2011) (Premium)."
Eight of this year's defaulters are based in the U.S., two are based in New Zealand, and one each is based in Canada, the Czech Republic, and Russia. By comparison, 32 global corporate issuers had defaulted by this time in 2010. Of these defaulters, 23 were from the U.S., one was from Europe, two issuers were from the emerging markets, and six were in the other developed region (Australia, Canada, Japan, and New Zealand).
Five of this year's defaults were due to missed interest or principal payments, and another five were due to distressed exchange offers--both among the top reasons for default in 2010. Of the remaining three, one issuer defaulted after it filed for bankruptcy, another had its banking license revoked by its country's central bank, and the third was forced into liquidation as a result of regulatory action. Of the defaults in 2010, 28 defaults resulted from missed interest or principal payments, 25 resulted from Chapter 11 and foreign bankruptcy filings, 23 from distressed exchanges, three from receiverships, one from regulatory directives, and one from administration.
Following a year of record-setting highs in terms of global corporate default statistics, 2010 provided the markets with a noticeable reversal. In 2010, 81 global corporate issuers defaulted, down from the record high of 265 in 2009. None of the 81 defaulters began the year rated investment grade. The debt amount affected by these defaults fell to $95.7 billion, also considerably lower than in 2009.
Standard & Poor's baseline projection for the U.S. corporate trailing 12-month speculative-grade default rate for March 2012 is 1.6%. A total of 24 issuers would need to default from April 2011 to March 2012 to reach the forecast. The projection of 1.6% is another 0.86-percentage-point (or another 35%) decline from the 2.46% default rate in March 2011. This rate of decline would be sharp, but slower than the decline over the past 16 months. Improved lending conditions and a lower cost of capital are keeping our default expectations relatively upbeat in the next 12 months. We are seeing stronger credit quality, as reflected in fewer downgrades and lower negative bias.
In addition to our baseline projection, we forecast the default rate in our optimistic and pessimistic scenarios. In our optimistic default rate forecast scenario, the economy and the financial markets improve more than expected. As a result, we would expect the default rate to be 1.2% (18 defaults in the next 12 months).
On the other hand, if the economic recovery stalls and the financial markets deteriorate--which is our pessimistic scenario--we expect the default rate to be 3.3% (50 defaults) by March 2012. We base our forecasts on quantitative and qualitative factors that we consider, including, but not limited to, Standard & Poor's proprietary default model for the U.S. corporate speculative-grade bond market. We update our outlook for the U.S. issuer-based corporate speculative-grade default rate each quarter after analyzing the latest economic data and expectations.
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