Bangkok--12 Oct--Standard & Poor's
Two global corporate issuers defaulted this week, bringing the 2009 year-to-date tally to 229 issuers--nearly 4x the 67 defaults at this time in 2008, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (Oct. 2 - 8, 2009) (Premium)."
One of this week's defaults was based in the U.S. and the other was based in Europe, bringing the default tallies by region to 168 issuers in the U.S., 14 in Europe, 34 in the emerging markets, and 13 in the other developed region (Australia, Canada, Japan, and New Zealand). Please note that these tallies have been revised to include issuers that have defaulted recently but that were no longer rated by Standard & Poor's at the time of default.
"One of this week's defaults was the result of a distressed exchange," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Distressed exchanges account for 78 defaults so far in 2009 and are the most cited reason for default this year. The other defaulted issuer was confidential."
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%), 15% 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 10% had recovery ratings of '3' (meaningful recovery prospects of 50%-70%). And for the remaining two rating categories, 12% 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 unfavorable environment for the lowest rungs of the ratings ladder, effectively halting lending to low-rated speculative-grade borrowers. A large number of defaults were concentrated in the first 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 13.9% by mid-2010, with a pessimistic scenario of 18% and an optimistic scenario of 11.4%.
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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