S&P global default rate up to 9.58% in September; weakest links down

By Caroline Salls

Pittsburgh, Oct. 29 - Standard & Poor's 12-month trailing global corporate speculative-grade default rate climbed to 9.58% in September from 9.33% in August, according to S&P's latest "Global Bond Markets' Weakest Links and Monthly Default Rates" report.

By region, the U.S. speculative-grade default rate increased for the 22nd consecutive month, with the U.S. rate increasing to 10.75% for the 12 months ended in September from 10.32% in August.

Meanwhile, the rate increased to 7.61% from 7.46% in Europe. The rate declined to 6.81% in the emerging markets from 6.98% in August.

The agency said it expects the U.S. corporate speculative-grade default rate to fall to 6.9% by September 2010.

To realize the baseline projection of 6.9%, S&P said that 95 issuers must default from October 2009 to September 2010, for an average of 7.9 defaults per month and 23.8 defaults per quarter.

New defaults

In the year through Oct. 13, 231 defaults were recorded, affecting debt worth $552.8 billion. In comparison, S&P said 126 defaults were recorded in all of 2008, affecting debt worth $433 billion.

The new defaulters since S&P's most recent report included Aiful Corp., Golden Nugget Inc., Realogy Corp., NewPage Corp., Merrill Corp., Appleton Papers Inc., FairPoint Communications Inc., Advanstar Inc., Coinmach Service Corp. and VAC Holding GmbH.

Alternative scenarios

Under two alternative economic scenarios, the pessimistic default scenario yields a mean default rate of 9.9%. Meanwhile, the optimistic scenario yields an average default rate of 5.5%.

In the next 12 months, 137 defaults are required to reach the pessimistic default rate forecast and 76 defaults to reach the optimistic forecast.

Weakest links

As of Oct. 13, 264 weakest links - defined as issuers rated B- or lower with either a negative outlook or with ratings on CreditWatch negative - were vulnerable to default on rated debt worth $288.96 billion.

The latest weakest links count declined from 278 the previous month.

S&P added that 190 of the 206 publicly rated companies that have defaulted so far in 2009 were weakest links.

Since the last report, 26 issuers were removed from the weakest links list and 12 were added.

Of the issuers removed from the list, four defaulted, four were removed because S&P withdrew their ratings, 15 were removed because of a change in their CreditWatch/outlook status, two were upgraded and one because of a downgrade along with a favorable revision to its CreditWatch/outlook status.

Of the 12 new weakest links, nine issuers were added because they were downgraded and three because of a revision of their outlook/CreditWatch status to negative.

Of the new additions to this month's list, eight were from the United States, and one each was from Mexico, Canada, Indonesia and Japan.

The media and entertainment and consumer products sectors had the biggest increases in weakest links, with six and two, respectively.

Sector breakdown

S&P said the media and entertainment sector showed the greatest vulnerability to defaults, with 53 weakest links, constituting 20% of the total, followed by forest products and building materials with 23.

Geographically, S&P said U.S.-based issuers featured disproportionately on the weakest-links list, accounting for 70%, which the agency attributed to the higher ratings penetration in the U.S. marketplace.

By volume, the 184 U.S.-based weakest links account for $223.2 billion of debt, or almost 77% of the total $288.96 billion of debt issued by all weakest links.

Leveraged loans

In the leveraged-loan segment, S&P reported that the 12-month trailing institutional loan default rate increased to an 82-month high of 7.17% in September from 6.89% in August.

The loan distress ratio decreased to 25.69% in September from 31.11% in August.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.