S&P reports 148 global 2012 weakest links with $197.5 billion of debt

By Caroline Salls

Pittsburgh, Feb. 27 - Standard & Poor's said the number of global weakest links has dropped significantly from the record high reached in the first half of 2009, with 148 global corporate issuers with rated debt totaling $197.5 billion being classified as weakest links as of Dec. 31, according to a report titled "Weakest Links Are Nearly Ten Times More Likely To Transition To Default Than Speculative-Grade Entities."

Weakest links are defined as issuers that are rated B- or lower with either negative outlooks or on CreditWatch with negative implications.

Of all the weakest links, S&P said Texas-based utility company Texas Competitive Electric Holdings had the largest amount of outstanding debt, at $32.1 billion. In Europe, U.K.-based oil and gas company Expro Holdings U.K. 3 Ltd. had almost $3.1 billion of outstanding debt and Italy-based media and entertainment company SEAT Pagine Gialle SpA had roughly $2 billion.

S&P said the weakest links tally peaked in March 2009 at 309 entities, with more than $500 billion in outstanding debt, before dropping to 131 entities, with $197.9 billion in outstanding debt, at the beginning of 2012.

Of these 131 weakest links, S&P said 12 defaulted, and 47 were still weakest links as of Dec. 31. Of the remaining entities, six are now rated higher than B-, and the agency had revised the outlook on many of them to stable or positive.

Of the 148 weakest links as of Dec. 31, S&P said 89 entities, or about 60%, are from the U.S. region, which includes Bermuda and the Cayman Islands, 29, or about 20%, are from Europe, and 18, or roughly 12%, are from Latin America.

Of those remaining, S&P said three are from Asia-Pacific, two are from Canada, and two are from Eastern Europe, the Middle East and Africa.

S&P said about half of the weakest links fall into four sectors, including media and entertainment, forest products and building materials, oil and gas exploration and metals, mining and steel.

S&P said it expects the weakest links to continue representing a large proportion of defaults as the U.S. corporate trailing-12-month speculative-grade default rate increases to a projected 3.4% by the end of 2013.

Historically, the ratings agency said once a company becomes a weakest link, it is much more likely to default than the rest of the speculative-grade segment. Therefore, S&P said it is not surprising that weakest links accounted for 45 of the 63 defaults in 2012.

As of Dec. 31, S&P's trailing-36-month weakest links default rate was about 30.5%, compared with the speculative-grade default rate of 6.44%. Meanwhile, the trailing-12-month weakest links default rate was 24.14%, compared with the speculative-grade default rate of 2.47%, the agency reported.

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