S&P global corporate junk default rate increases to 2.61% in November

By Caroline Salls

Pittsburgh, Jan. 10 – Standard & Poor’s global trailing-12-month speculative-grade corporate default rate increased to 2.61% in November from 2.46% in October, according to a report released Wednesday.

S&P said all regions except the U.S. region have experienced a rise in their default rates.

The U.S. speculative-grade corporate default rate contracted to 3.09% in November from 3.11% in October. The European speculative-grade default rate increased to 2.23% in November from 2.08% in October, while the emerging markets default rate widened to 1.56% from 1.1%.

As of Dec. 26, S&P said there were 86 global corporate defaults, excluding nine confidential issuers, in 2017, accounting for $92.9 billion in debt, and 59 of the defaulted issuers are from the U.S. region.

Since its last report, S&P said 10 publicly rated issuers defaulted, including Pacific Drilling SA, Sterling Mid-Holdings Ltd., Bibby Offshore Holdings Ltd., Walter Investment Management Corp., Denbury Resources Inc., Charming Charlie LLC, Elli Investments Ltd., Bon-Ton Stores Inc., EP Energy LLC and EXCO Resources Inc.

S&P said it expects the U.S. trailing-12-month speculative-grade corporate default rate to decrease to 2.7% by September 2018 from 3.1% in September 2017.

Weakest links down

The ratings agency said the global weakest links tally declined to 198 issuers as of Dec. 26, its lowest level in two years. The 198 global weakest links have total rated debt worth about $225 billion.

Weakest links are issuers rated B- or lower with negative outlooks or ratings on CreditWatch with negative implications.

S&P said 14 weakest links were added and 16 were removed since Nov. 22.

Of those removed, five each were removed after an outlook/CreditWatch revision and a selective default, three defaulted, two were upgraded and had an outlook/CreditWatch revision and one had its rating withdrawn.

Of the 14 additions, seven were downgraded, four were downgraded and had an outlook/CreditWatch revision, two had an outlook/CreditWatch revision, and one was newly rated.

Based on the number of weakest links, S&P said the consumer products sector, with 34 issuers, now displays the highest potential for defaults, outpacing the oil and gas sector, which had 29 issuers. The media and entertainment sector followed with 24 issuers.

Together, S&P said these three sectors accounted for 43.9% of weakest links.

According to the report, the U.S. region held 74% of weakest links, accounting for 147, as of Dec. 26. By volume, the 147 U.S.-based weakest links have $185 billion of debt.

S&P said Europe has the second-highest concentration of weakest links, with 21, or 10.6% of the total, and total debt of $20 billion.

Leveraged loans

In the leveraged loan segment, S&P said the trailing-12-month institutional loan default rate, based on the number of loans, grew to 1.72% in November from 1.41% in October.

The loan distress ratio, which is the percentage of loans trading below 80 cents on the dollar, expanded to 3.15% in November from 3.07% in October, S&P reported.

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