Bangkok--19 Oct--Standard & Poor's
Four global corporate issuers defaulted this week, bringing the 2009 year-to-date tally to 233 issuers--roughly triple the 77 defaults at this time in 2008, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (Oct. 9 - 15, 2009) (Premium)."
Three of this week's defaults were based in the U.S. and the other was based in Europe, bringing the default tallies by region to 171 issuers in the U.S., 15 in Europe, 34 in the emerging markets, and 13 in the other developed region (Australia, Canada, Japan, and New Zealand).
Three of this week's defaults were a result of distressed exchanges, which account for 81 defaults so far in 2009 and are this year's most cited reason for default. The other default was the result of missed principal and interest payments. By comparison, missed payments on interest and/or principal account for 78 defaults this year and are the second most cited reason for default in 2009.
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%.
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