Bangkok--7 Sep--Standard & Poor's
Two global corporate issuers defaulted this week, bringing the 2009 year-to-date tally to 213 issuers--nearly 4x the 55 defaults at this time in 2008, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (Aug. 28 - Sept. 3, 2009) (Premium)."
Both of this week's defaults were based in the U.S., bringing the default tallies by region to 153 issuers in the U.S., 13 in Europe, 34 in the emerging markets, and 13 in the other developed region (Australia, Canada, Japan, and New Zealand).
"Both defaulted issuers this week were the result of distressed exchange offers, which we consider to be tantamount to default," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Distressed exchange offers are now the top reason for default this year, accounting for 74 defaulted issuers." This is more than 5x the distressed exchange count in full-year 2008 and nearly 19x the total in 2007.
Missed interest payments trailed closely behind at 73 issuers. Bankruptcy filings also have surged, with 54 issuers so far this year having filed for bankruptcy protection, which surpasses the full-year 2008 total of 49 bankruptcy-related defaults.
The sharp increase in corporate bankruptcies brings with it significant difficulties to private equity investors, particularly for those whose buyout activities in the past several years placed much of their risks squarely in the speculative-grade domain. Indeed, more than half of the defaulters this year either had or continue to have private equity involvement, which presents both challenges and opportunities to private equity investors during restructuring and reorganization.
Of the global corporate defaulters so far this year, 40% of issues with available recovery ratings had recovery ratings of '6' (indicating our expectation for negligible recovery of 0%-10%), 16% of issues had recovery ratings of '5' (modest recovery prospects of 10%-30%), 12% had recovery ratings of '4' (average recovery prospects of 30%-50%), and 11% 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%).
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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