S&P global corporate junk default rate increases to 2.13% in January

By Caroline Salls

Pittsburgh, Feb. 29 - Standard & Poor's 12-month-trailing global corporate speculative-grade default rate increased to 2.13% in January from 1.71% in December, according to a report titled "Global Weakest Links And Default Rates: Global Default Rate Continues To Increase."

Regionally, S&P said the U.S. corporate speculative-grade corporate default rate also increased to 2.43% from 1.98%, and the European default rate grew to 2% from 1.6%.

The default rate in the emerging markets increased to 0.88% from 0.59%, S&P reported.

S&P said 17 issuers had defaulted through Feb. 17. Together, these 17 issuers have affected debt worth $13.2 billion.

Issuers defaulting since S&P's most recent report include Petroplus Holdings AG, Republic Mortgage Insurance Co., China Medical Technologies Inc., Tensar Corp., Global Aviation Holdings Inc., PT Berlian Laju Tanker Tbk., DirectBuy Holdings Inc. and Reichhold Industries Inc.

The agency's baseline projection for the U.S. corporate speculative-grade default rate in the 12 months ending in December 2012 is 3.3%.

A total of 51 speculative-grade issuers would need to default to realize the mean baseline projection, for an average of about 4.25 defaults per month.

The agency said its pessimistic alternative default rate forecast projects a 5.3% rate, and the optimistic scenario would mean a 1.8% rate.

From January to December 2012, 81 issuers would have to default to reach the pessimistic default rate forecast, and 28 issuers would have to default to reach the optimistic forecast.

Weakest links decrease

The agency said the number of global weakest links decreased to 123 as of Feb. 17 from 131 at Jan. 20. The 123 weakest links have combined rated debt worth $206.4 billion.

Weakest links are issuers rated B- or lower with a negative outlook or ratings on CreditWatch negative.

Since its most recent report, S&P removed 14 entities from the list of weakest links and added six others.

Of those removed from the list,

• AmerCable Inc. was removed after S&P assigned it to CreditWatch with positive outlook;

• Circus and Eldorado Joint Venture was removed after the agency assigned it to CreditWatch with developing outlook;

• Spanish Broadcasting System Inc., CityCenter Holdings LLC and Phibro Animal Health Corp. were removed after S&P revised the outlooks to stable;

• Global Aviation Holdings Inc., PT Berlian Laju Tanker Tbk., Reichhold Industries Inc., DirectBuy Holdings Inc., Petroplus Holdings AG and Republic Mortgage Insurance Co. were removed after they defaulted; and

• Wastequip Inc. and Chaoda Modern Agriculture (Holdings) Ltd. were removed when their rating were withdrawn.

Meanwhile, among those added to the weakest link list,

• PaperWorks Industries Holding Corp. was added after S&P downgraded the entity to B- and placed it on CreditWatch negative;

• Tembec Inc. was added after S&P assigned it a negative outlook;

• Yellow Media Inc. was added after S&P downgraded it to B-;

• IAP Worldwide Services Inc. was added after the agency downgraded the company to CCC+ from B;

• Springleaf Finance Corp. was added after S&P downgraded the company to CCC; and

• Yell Group plc was added after S&P assigned it a B- rating as a newly rated entity after selective default.

Of the six new weakest links, S&P said three are from the United States, two are from Canada, and one is from Europe.

Sector breakdown

Based on the number of weakest links, the agency said the media and entertainment, forest products and building materials, banks and consumer products sectors are most vulnerable to default.

S&P said the media and entertainment sector is the most vulnerable with 30 weakest links, or 24.4% of the total, while the bank sector had 12 weakest links, followed by the forest products and building materials sector, which had 10 entities in weakest links.

S&P said U.S.-based issuers account for 62% of the 123 weakest links, partially because a large proportion of S&P-rated issuers are in the United States.

By volume, the 76 U.S.-based weakest links account for $133.9 billion of debt, which is 64.9% of the total $206.4 billion of debt issued by all weakest links.

Leveraged loans

The 12-month-trailing default rate for U.S. leveraged loans declined slightly to 0.61% in January from 0.62% in December, S&P said.

© 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.