Bangkok--28 Sep--Standard & Poor's
One global corporate issuer defaulted this week, bringing the 2009 year-to-date tally to 216 issuers--nearly 4x the 62 defaults at this time in 2008, said an article published today by Standard & Poor's.
This week's defaulter was based in Japan, bringing the default tallies by region to 155 issuers in the U.S., 13 in Europe, 34 in the emerging markets, and 14 in the other developed region (Australia, Canada, Japan, and New Zealand), according to the article, titled "Global Corporate Default Update (Sept. 18 - 24, 2009) (Premium)."
This week's default resulted from a payment suspension after the issuer, Aiful Corp., successfully applied for alternative dispute resolution (ADR) procedures. We view this as a selective default ('SD').
"Selective defaults have accounted for 75 defaults this year, the majority of which were distressed exchanges," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Missed interest payments come in second, accounting for 74 defaults in 2009." 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.
"Despite unprecedented turbulence in the credit markets and record-high default volume since 2008, the ability of corporate credit ratings to serve as an effective measure of relative default risk remains intact," said Ms. Vazza.
This is evidenced by several factors, such as 87% of the issuers that have defaulted this year were rated speculative grade ('BB+' and lower) prior to default, investment-grade-rated issuers ('BBB-' and above) have a 99% survival rate within a one-year time horizon, and the majority of defaults this year stem from the lowest rungs of the credit spectrum, known as weakest links. Globally, 278 issuers are weakest links (entities rated 'B-' and lower with a negative outlook or ratings on CreditWatch negative), and the regional distribution of weakest links closely mirrors the default experience so far this year.
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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