Bangkok--1 Feb--Standard & Poor's
Two global corporate issuers defaulted this week, bringing the 2010 year-to-date tally to 10 defaults, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (Jan. 22 - 28, 2010) (Premium)."
This week's defaults, Builders FirstSource Inc. and Jacuzzi Brands Corp., are based in the U.S., bringing the year-to-date default tallies by region to seven defaults in the U.S., two in the emerging markets, and one in the other developed region (Australia, Canada, Japan, and New Zealand).
Both of this week's defaults resulted from distressed exchanges. So far this year, distressed exchanges account for five defaults, and missed interest or principal payments are responsible for three defaults. The remaining two issuers were confidential.
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 defaulted in 2009 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 2009's defaults stemmed from the weakest end of the credit spectrum, known as weakest links. Globally, 226 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 in 2009.
Of the global corporate defaulters in 2010, 38% of issues with available recovery ratings had recovery ratings of '6' (indicating our expectation for negligible recovery of 0%-10%), 13% of the issues had recovery ratings of '5' (modest recovery prospects of 10%-30%), 13% had recovery ratings of '4' (average recovery prospects of 30%-50%), and 25% had recovery ratings of '3' (meaningful recovery prospects of 50%-70%). And for the remaining two rating categories, none of the issues had recovery ratings of '2' (substantial recovery prospects of 70%-90%) and 13% 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 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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