Bangkok--30 Sep--Standard & Poor's
Global corporate defaults total 29 so far in 2011, and no corporate issuers defaulted this week, said an article published today by Standard & Poor's Global Fixed Income Research, titled "Global Corporate Default Update (Sept. 22 - 28, 2011)."
Regionally, 20 of the defaulters were based in the U.S., three were based in New Zealand, two were based in Canada, and one each was based in the Czech Republic, France, Israel, and Russia. Of the total defaulters by this time in 2010, 46 were U.S.-based issuers, nine were from other developed regions (Australia, Canada, Japan, and New Zealand), seven were from the emerging markets, and two were European issuers.
Twelve of this year's defaults were due to missed interest or principal payments and six were due to distressed exchanges--which were also two of the top reasons for defaults in 2010. Bankruptcy filings followed with five defaults and regulatory actions accounted for three. Of the remaining defaults, one issuer had its banking license revoked by its country's central bank, another was appointed a receiver, and the third was confidential. Of the defaults in 2010, 28 resulted from missed interest or principal payments, 25 were from Chapter 11 and foreign bankruptcy filings, 23 were from distressed exchanges, three were from receiverships, one was from regulatory directives, and one was 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 with an investment-grade rating. The debt amount affected by these defaults fell to $95.7 billion, which was also considerably lower than in 2009.
Standard & Poor's expects the U.S. corporate trailing 12-month speculative-grade default rate to decline to 1.6% by June 2012. A total of 25 issuers would need to default from July 2011 to June 2012 to reach this forecast. By comparison, the default rate was 2.25% in June 2011. In the 12 months ended June 2011, 32 speculative-grade issuers defaulted. Less than one-third of those defaults occurred in the first half of 2011. Improved lending conditions and greater availability of capital, even for low-rated issuers, continue to temper our default expectations in the short term. In addition, stronger credit quality, as reflected by fewer downgrades and lower negative bias, should help companies mitigate the effects of lackluster economic growth and uncertainty about domestic and international sovereign funding.
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, and, 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 4% (62 defaults) by June 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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