S&P global speculative-grade default rate increases to 3.88% in July

By Caroline Salls

Pittsburgh, Sept. 19 – Standard & Poor’s 12-month trailing global corporate speculative-grade default rate increased to 3.88% in July from 3.46% in June, according to a report.

Regionally, the U.S. corporate speculative-grade default rate increased to 4.69% for the 12 months ended in July from 4.32% in June, while the European speculative-grade default rate decreased to 1.58% from 1.74%. The emerging markets speculative-grade default rate increased to 3.46% from 3.16%.

S&P said that 106 issuers defaulted through Aug. 24, including confidential entries. These defaulted issuers have outstanding debt worth $176 billion.

In comparison, 106 issuers defaulted in 2015 with debt totaling $107.9 billion.

The agency said six non-confidential entities defaulted since its most recent report, including LTR Holdco Inc., Vanguard Natural Resources LLC, Bonanza Creek Energy Inc., Sterling Mid-Holdings Ltd., Sidewinder Drilling Inc. and California Resources Corp.

Weakest links decrease

According to the report, the number of global weakest links decreased to 248 as of Aug. 24, down from 251 as of Aug. 8. The 248 weakest links have total rated debt worth $354 billion.

Weakest links have either negative outlooks or ratings on CreditWatch with negative implications.

S&P said it removed 11 weakest links from the list since its last report and added eight others.

The following issuers were removed from the list:

• LTR and Bonanza Creek were removed because they defaulted;

• California Resources and Sidewinder Drilling were removed because of selective defaults;

• Salem Media Group Inc., ICON Health & Fitness Inc. and BioScrip Inc. were removed because their outlooks were revised to stable; and

• White Star Petroleum LLC, Resolute Energy Corp., Eco-Bat Technologies Ltd. and Custom Ecology Inc. were removed because their ratings were withdrawn.

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

• Armstrong Energy Inc., Dayton Superior Corp., SunOpta Inc. and Checkout Holding Corp. were added because they were downgraded and their outlooks revised to negative;

• Modular Space Corp. and Algeco Scotsman Global Sarl were added because they were downgraded and their CreditWatch statuses were revised to watch negative;

• Cobalt International Energy Inc. was added because its outlook was revised to negative; and

• CNG Holdings Inc. was added because it is newly rated.

Sector breakdown

The agency said the oil and gas and financial institutions sectors have the highest potential to default as of Aug. 24.

S&P said the oil and gas sector had the greatest number of weakest links, with 57, or 23% of the total, followed by financial institutions, at 35, or 14% of the total.

The agency said U.S.-based issuers account for 67.3% of the 248 weakest links, partly because a large proportion of issuers S&P rates are based in the United States.

By volume, the 167 U.S.-based weakest links account for about $241 billion of debt, or 68% of the $354 billion total for all weakest links.

Leveraged loans

The 12-month-trailing default rate for U.S. leveraged loans, which is based on the number of loans, remained at 2.22% in July, S&P reported.

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