Bangkok--22 May--Standard & Poor's
One global corporate issuer defaulted this week, raising the year-to-date 2010 tally of global corporate defaults to 33, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (May 14 - 20, 2010) (Premium)."
"By region, the current year-to-date default tallies are 22 in the U.S., two in Europe, three in the emerging markets, and six in the other developed region," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. (The other developed region is Australia, Canada, Japan, and New Zealand.)
So far this year, Chapter 11 filings and distressed exchanges account for 10 defaults each, missed interest or principal payments are responsible for seven, regulatory directives and receiverships account for one each, and the remaining four defaulted issuers are confidential.
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%), 12% of the 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 19% had recovery ratings of '3' (meaningful recovery prospects of 50%-70%). And for the remaining two rating categories, 15% of the issues had recovery ratings of '2' (substantial recovery prospects of 70%-90%) and 4% of issues had recovery ratings of '1' (very high recovery prospects of 90%-100%).
Our baseline projection for the U.S. corporate speculative-grade default rate in the 12 months ending in March 2011 is 3.5%, with alternative scenarios of 4.9% at the pessimistic end and 3.0% at the optimistic. Our baseline forecast for year-end 2010 was 5.0%, with alternatives of 6.9% (pessimistic) and 4.3% (optimistic), compared with a long-term (1981-2009) average of 4.5%.
Nevertheless, we believe residual default risk beyond the one-year forecast horizon could increase because of the significant overhang of surviving leveraged corporate issuers. The substantial decline in risk premiums for lower-rated borrowers and the return of what we view as questionable practices and structures in some recent deals--such as raising bond funds to pay out shareholder dividends or sponsors--further raise flags that the optimism might be overdone. In the slim chance that the economy experiences a double-dip recession, many of the surviving leveraged issuers originated during 2003-2007 could face renewed default risk unless they significantly reduce their debt burdens.
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Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contact:
Diane Vazza, New York (1) 212-438-2760