Bangkok--28 Sep--Standard & Poor's
The proliferation of distressed exchanges in recent years has had a major impact on default rates but only a minor effect on ratings performance, according to an article published by Standard & Poor's Ratings Services yesterday.
"Our default studies have shown that default rates can fluctuate wildly over time, particularly in the buildup and fall from peaks in the default cycle that typically occur during and immediately after recessions," said Standard & Poor's managing director Diane Vazza. "We've examined the impact of selective defaults on the overall default rate, as well as how they affect ratings performance as measured by the Gini ratio, which is a measure of the rank-ordering power of the rating system over a given time horizon."
Distressed exchanges are one example of a selective default. "We've seen that while selective defaults have accounted for a substantial proportion of the overall speculative-grade default rate at times, this trend has been mostly limited to the past 10 years because selective defaults were relatively uncommon prior to that time," said Ms. Vazza. Also, distressed exchanges have had a more muted impact on ratings performance than on the overall default rate.
For the most part, distressed exchanges have been geographically centered in the U.S., which experienced a surge in these transactions during 2009. All other countries had at most a handful of companies within their borders that used this mechanism for payment alleviation in the past three and a half years.
The article, "Default, Transition, and Recovery: How Distressed Exchanges Affect Default Rates And Ratings Performance," is available on RatingsDirect.
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Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760
Nicholas Kraemer, New York (1) 212-438-1698