S&P global corporate junk default rate declines to 1.98% in January

By Caroline Salls

Pittsburgh, March 3 - Standard & Poor's 12-month trailing global corporate speculative-grade default rate declined to 1.98% in January, according to a report titled "Global Weakest Links And Default Rates: Weakest Links Count Increased To 152 In February."

Regionally, the U.S. corporate speculative-grade default rate decreased to 1.69% in January from 2.12% in December, while the European speculative-grade default rate decreased to 2.94% from 3.01%. The emerging markets speculative-grade default rate marginally declined to 1.94% from 1.96%.

S&P said that four issuers defaulted through Feb. 21, including confidential entries. These defaulted issuers have outstanding debt worth $2 billion.

In comparison, 78 issuers defaulted on debt worth $97 billion in 2013.

The agency said four non-confidential entities defaulted since its most recent report, including Cognor SA, Alliance Bank JSC, MModal Inc. and Vanadium Pty Ltd.

Weakest links increase

According to the report, the number of global weakest links increased by seven issuers to 152 as of Feb. 21. The 152 weakest links have total rated debt worth $258 billion.

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

S&P said six weakest links were removed from the list since its last report and 13 others were added.

The following issuers were removed from the list:

• MModal and Alliance Bank were removed because they defaulted;

• Cognor was removed because of a selective default

• Cenveo Inc. was removed because its outlook was revised to stable;

• AEG Power Solutions BV was removed because its outlook was revised to developing; and

• Deluxe Entertainment Services Group Inc. was removed because it was upgraded and its outlook revised to stable.

Meanwhile, S&P added the following entities to the list:

• Global A&T Electronics Ltd. was added because it was downgraded;

• Creativ Group OJSC, Alfa-Bank Ukraine, PJSC Commercial Bank PrivatBank, PJSC Kredobank, MHP SA, Ukrainian Agrarian Investments SA, Lemtrans Ltd. and Mriya Agro Holding plc were added because they were downgraded and their outlook revised to negative;

• Alliance Oil Co. Ltd. was added because it was downgraded and its CreditWatch was revised to negative;

• Caribbean Restaurants LLC and Missouri TopCo Ltd. were added because their outlooks were revised to negative; and

• Central European Media Enterprises Ltd. was added because its CreditWatch status was revised to negative.

Sector breakdown

The agency said the media and entertainment, banks and consumer products sectors are most vulnerable to default.

S&P said the media and entertainment sector has the greatest number of weakest links, with 25 entities, or 16.4% of the total. Banks has the next highest number of weakest links, at 17, or 11.2% of the total.

Default rate forecast

S&P said it expects the U.S. corporate trailing-12-month speculative-grade default rate to increase to 2.5% by December 2014 from 1.7% in January.

A total of 44 speculative-grade issuers would need to default this year to reach this projection. In comparison, 34 speculative-grade entities defaulted in the 2013.

Under its optimistic default rate forecast, the rate would decline to 1.7% through December 2014. A total of 30 defaults would be needed to reach this forecast. Meanwhile, the default rate would rise to 4.3% under the pessimistic scenario. A total of 75 defaults would be required for that forecast.

Leveraged loans

The 12-month-trailing default rate for U.S. leveraged loans, which is based on the number of loans, declined to 1.17% in January from 1.61% in December, S&P reported.

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