S&P marks three new global corporate defaults in week ended July 30

By Caroline Salls

Pittsburgh, July 31 - Standard & Poor's said three global corporate issuers defaulted in the week ended July 30, bringing the 2009 year-to-date tally to 187 issuers, according to an S&P report.

S&P said the year-to-date count is nearly four times the 50 defaults seen at this time in 2008.

S&P said this week's defaulters included Headwaters Inc., Treofan Holdings GmbH and Arclin Canada Ltd.

One of this week's defaulters was based in the United States, one was based in Europe, and one was based in Canada.

By region, the year-to-date default tallies now stand at 132 issuers in the United States, 11 issuers in Europe, 31 issuers in the emerging markets and 13 issuers in the other-developed region, which includes Australia, Canada, Japan and New Zealand.

Reasons for this week's defaults were mixed, with one stemming from a distressed exchange, one interest payment deferral and one bankruptcy.

The year-to-date distressed exchange tally is up to 55, and the bankruptcy filings count is at 52 issuers.

The ratings agency said the continued increase in corporate defaults poses risks to private equity investors, as more than half of the defaulters this year either had or continue to have private equity involvement.

Of the global corporate defaulters so far this year, S&P said:

• 40% of issues with available recovery ratings had recovery ratings of 6, indicating the ratings agency's expectation for negligible recovery of 0% to 10%;

• 17% of issues had recovery ratings of 5, for modest recovery prospects of 10% to 30%;

• 12% had recovery ratings of 4, or average recovery prospects of 30% to 50%;

• 10% had recovery ratings of 3, for meaningful recovery prospects of 50% to 70%.

• 12% of issues had recovery ratings of 2, indicating substantial recovery prospects of 70% to 90%; and

• 9% of issues had recovery ratings of 1, or very high recovery prospects of 90% to 100%.

S&P said the precipitous increase in defaults reflects a pronounced decline in economic fundamentals and earnings prospects, as well as the continued credit freeze, effectively halting lending to speculative-grade borrowers.

The agency said its current 12-month trailing U.S. corporate speculative-grade default rate forecast is now 13.9% by mid-2010, changed slightly from 14.3% by the end of first-quarter 2010, with a pessimistic scenario of 18% and an optimistic scenario of 11.4%.

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