Bangkok--21 Oct--Standard & Poor's
One corporate issuer defaulted this week, raising the 2011 global corporate default tally to 35, said an article published today by Standard & Poor's Global Fixed Income Research, titled "Global Corporate Default Update (Oct. 13 - 19, 2011)."
The rating on U.S.-based Wastequip Inc. was revised to 'SD' from 'CCC-' after the company provided confidential information regarding its unrated mezzanine loan.
Of the total defaulters this year, 25 are based in the U.S., three are based in New Zealand, two are in Canada, and one each is in the Czech Republic, Greece, France, Israel, and Russia. Of the defaulters by this time in 2010, 49 were U.S.-based issuers, nine were from the other developed region (Australia, Canada, Japan, and New Zealand), eight were from the emerging markets, and two were European issuers.
Fourteen of this year's defaults were due to missed interest or principal payments and seven were due to distressed exchanges--both of which were among the top reasons for defaults in 2010. Bankruptcy filings followed with six defaults, and regulatory actions accounted for three. Of the remaining defaults, one issuer failed to finalize refinancing on its bank loan, one issuer had its banking license revoked by its country's central bank, another was appointed a receiver, and two were confidential.
By comparison, in 2010, 28 defaults resulted from missed interest or principal payments, 25 from Chapter 11 and foreign bankruptcy filings, 23 from distressed exchanges, three from receiverships, one from a regulatory directive, and one from administration.
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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