Bangkok--16 Nov--Standard & Poor's
Two distressed exchanges this week bring the 2009 year-to-date tally of global corporate defaults to 241, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (Nov. 6 - 12, 2009) (Premium)."
"By comparison, this total is nearly triple the 85 defaults at this time in 2008 and is the highest annual global default total since our series began in 1981," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "This total even exceeds the 229 defaulted issuers in 2001 during the previous recession."
One of this week's defaults was based in Europe and the other was based in the U.S., bringing the default tallies by region to 176 issuers in the U.S., 17 in Europe, 34 in the emerging markets, and 14 in the other developed region (Australia, Canada, Japan, and New Zealand).
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. 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 weakest end 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%), 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 11% 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 marked improvement in financial conditions has altered our expectations for corporate default rates within the one-year forecast horizon. The sharp decline in funding costs, the reopening of the bond markets (even for low-rated issuance), and the abatement of volatility are factors that will lower refinancing costs, even for low-rated issuers. As a result, our 12-month-forward baseline projection for the U.S. corporate speculative-grade default rate is now 6.9%. Our pessimistic and optimistic scenarios result in default rates of 9.9% and 5.5%, respectively. As of September 2009, the U.S. 12-month-trailing corporate speculative-grade default rate was 10.8%. Previously, we had stated our expectations for a swathe of defaults to occur in the first half of 2010. But now, we expect that many of the defaults might be postponed to later quarters beyond the 12-month forecast horizon. Our forecasts are based on quantitative and qualitative factors that we consider, including, but not limited to, Standard & Poor's proprietary default model for the U.S. corporate speculative-grade bond market.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect on the Global Credit Portal at www.globalcreditportal.com and to RatingsDirect at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
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Mimi Barker, New York (1) 212-438-5054,
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Analyst Contact:
Diane Vazza, New York (1) 212-438-2760
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