Bangkok--27 Jun--Standard & Poor's
This week, French pharmaceutical services company Novasep Holding S.A.S. opted to use its 30-day grace period for the interest payment on its senior secured notes due in 2016. Under Standard & Poor's Ratings Services' criteria, we view this payment deferral as tantamount to a selective default. This raises the 2011 global corporate default tally to 17, said an article published today by Standard & Poor's Global Fixed Income Research, titled "Global Corporate Default Update (June 17 - 23, 2011) (Premium)."
Ten of this year's defaults were based in the U.S., two were based in Canada, another two were based in New Zealand, and one each was based in the Czech Republic, France, and Russia. By comparison, 45 global corporate issuers had defaulted by this time in 2010. Of these defaulters, 32 were U.S.-based issuers, two were European issuers, four were from the emerging markets, and seven were in the other developed region (Australia, Canada, Japan, and New Zealand).
Seven of this year's defaults were due to missed interest or principal payments and six were due to distressed exchanges--both among the top reasons for default in 2010. Of the remaining four, two issuers defaulted after they filed for bankruptcy, another had its banking license revoked by its country's central bank, and the fourth 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.
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.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. 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.
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