Bangkok--14 Dec--Standard & Poor's
One U.S.-based corporate issuer defaulted this week, bringing the 2009 year-to-date global corporate default tally to 260 issuers--the highest default count since our series began in 1981, said an article published today by Standard & Poor's.
The previous high of 229 was reached in 2001 (the most recent recession). By comparison, the current total is more than twice the number of global corporate defaults in full-year 2008, according to the article, titled "Global Corporate Default Update (Dec. 4 - 10, 2009) (Premium)."
By region, corporate defaults total 188 in the U.S., 20 in Europe, 36 in the emerging markets, and 16 in the other developed region. Please note that we have revised these figures to include issuers that have defaulted recently but were no longer rated by Standard & Poor's at the time of default.
This week's default resulted from a Chapter 11 filing. Bankruptcy-related filings account for 70 defaults so far this year, trailing distressed exchanges, which are responsible for 101 defaults, and missed interest or principal payments, which account for 89 defaults.
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.
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