Bangkok--16 Apr--Standard & Poor's
The trailing 12-month default rate among European speculative-grade public bond and private loan issuers has fallen from the cycle high recorded in the third quarter of 2009, says a report published by Standard & Poor's Ratings Services titled "Year-End 2009 European Speculative-Grade Default Rate Falls From Third-Quarter 2009 Peak." What's more, we think the default rate among this issuer group will continue to drop through 2010 and possibly beyond.
"In our base-case scenario for year-end 2010, we anticipate that the default rate for speculative-grade companies will continue to decline, toward 8.7%, by the end of 2010," said Standard & Poor's credit analyst Paul Watters. "We don't expect the economic recovery to be strong enough to enable many vintage leveraged buyouts from 2005-2008 to grow organically out of their existing capital structures, and so, as financial covenants tighten, the risk of balance sheet restructurings and selective defaults will persist. Consequently, we expect that over the next couple of years, the default rate will remain higher than the 4% average that we have seen over the course of this cycle in the leveraged finance market in Europe."
The default rate among these industrial companies fell to 12.8% at the end of the fourth quarter of 2009, from 14.2% at the end of the third quarter of 2009, marking a turning point in this default cycle. As we see it, this reflects several factors, including greater leniency from lenders prepared to amend covenants given a more favorable economic climate, and the improvement in secondary loan market prices.
Breaking the default rate down by country, of the seven largest countries in Europe, Spain and Italy had the highest default rates in 2009, at 22.7% and 18.8%, respectively, while the U.K. had the lowest default rate, at 9.4%.
On an industry sector basis, the consumer discretionary and manufacturing sectors contributed significantly to the overall default rate in 2009, as the early and severe impact of the recession on the highly cyclical real estate and development, chemicals, and autos sectors in 2008 spread more broadly.
The report reviews the full-year 2009 default pattern based on our portfolio of over 700 European speculative-grade industrial companies that we either rate publicly or review privately through our credit estimates.
The report is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected]. 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. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.
Media Contact:
Mark Tierney, London, (44) 20-7176-3504,
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Analyst Contacts:
Paul Watters, CFA, London (44) 20-7176-3542
Blaise Ganguin, Paris (33) 1-4420-6698
Alexandra Krief, Paris (33) 1-4420-7308
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