Bangkok--1 Jun--Standard & Poor's
Three global corporate issuers defaulted this week, bringing the 2009 year-to-date total to 135 issuers--more than 4x the 32 defaults at this time in 2008, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (May 22 - 28, 2009) (Premium)."
All three of this week's defaulters were based in the U.S., bringing the corporate default tallies by region to 96 issuers in the U.S., seven issuers in Europe, 21 issuers in the emerging markets, and 11 issuers in the other developed region (Australia, Canada, Japan, and New Zealand).
Two of the three defaults this week were results of Chapter 11 filings, while the remaining one was a distressed exchange. By comparison, 38 of the defaults this year were results of bankruptcy-related filings, 51 were results of missed payments, 35 were because of distressed exchanges, and the remaining 11 defaults were due to other reasons.
The number of distressed exchanges has been surging this year, with 35 issuer ratings revised to 'SD' (selective default) as a result of distressed exchanges, compared with 15 issuers in all of 2008 and four issuers in 2007.
Of the global corporate defaulters so far this year, 43% of issues with available recovery ratings had recovery ratings of '6' (indicating our expectation for negligible recovery of 0%-10%), 15% of issues had recovery ratings of '5' (modest recovery prospects of 10%-30%), 11% had recovery ratings of '4' (average recovery prospects of 30%-50%), and 10% had recovery ratings of '3' (meaningful recovery prospects of 50%-70%). And for the remaining two rating categories, 11% of issues had recovery ratings of '2' (substantial recovery prospects of 70%-90%) and 10% of issues had recovery ratings of '1' (very high recovery prospects of 90%-100%).
The precipitous increase in defaults reflects a pronounced decline in economic fundamentals and earnings prospects, as well as the continued credit freeze, effectively halting lending to speculative-grade borrowers. A large number of defaults likely will be concentrated in the first two or three quarters of 2009 as a result of these factors, coupled with distressed exchange offers. Four other factors make the current environment more conducive to defaults: deep recessionary conditions in the U.S., a record-high proportion of issuers with speculative-grade ratings, the highest volume of low-rated issuance since 2003, and the seasoning of much of the debt rated 'B-' or lower issued in the past several years.
Because of these factors, our current 12-month-trailing U.S. corporate speculative-grade default rate forecast is 14.3% by the end of first-quarter 2010, with a pessimistic scenario of 18.5% and an optimistic scenario of 11.5%.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect, at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Ratings in the left navigation bar, select Find a Rating. Members of the media may request a copy of this report by contacting the media representative provided.
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