S&P global corporate junk default rate climbs to 9.71% in October

By Caroline Salls

Pittsburgh, Nov. 16 - Standard & Poor's 12-month trailing global corporate speculative-grade default rate climbed to 9.71% in October from 9.59% in September, according to S&P's latest "Global Bond Markets' Weakest Links and Monthly Default Rates" report.

By region, the U.S. speculative-grade default rate increased for the 23rd consecutive month, with the U.S. rate increasing to 11.11% for the 12 months ended in October from 10.75% in September.

Meanwhile, the rate increased to 8.61% from 8.5% in Europe. The rate declined to 5.71% in the emerging markets from 6.12% in September.

The agency said it expects the U.S. corporate speculative-grade default rate to fall to 6.9% by September 2010.

To realize the baseline projection of 6.9%, S&P said that 95 issuers must default from October 2009 to September 2010, for an average of 7.9 defaults per month and 23.8 defaults per quarter.

New defaults

In the year through Nov. 11, 243 defaults were recorded, affecting debt worth $573 billion. In comparison, S&P said 126 defaults were recorded in all of 2008, affecting debt worth $433 billion.

The new defaulters since S&P's most recent report included Champion Enterprises Inc., Quality Distribution Inc., NCI Building Systems, NIS Group Co. Ltd., NTK Holdings Inc., Capmark Financial Group Inc., Centaur LLC, CIT Group Inc., Invitel Holdings A/S, Delance Ltd., and Libbey Inc.

Alternative scenarios

Under two alternative economic scenarios, the pessimistic default scenario yields a mean default rate of 9.9%. Meanwhile, the optimistic scenario yields an average default rate of 5.5%.

In the next 12 months, 137 defaults are required to reach the pessimistic default rate forecast and 76 defaults to reach the optimistic forecast.

Weakest links

As of Nov. 11, 251 weakest links - defined as issuers rated B- or lower with either a negative outlook or with ratings on CreditWatch negative - were vulnerable to default on rated debt worth $268.44 billion.

The latest weakest links count declined from 264 the previous month.

S&P added that 199 of the 217 publicly rated companies that have defaulted so far in 2009 were weakest links.

Since the last report, 22 issuers were removed from the weakest links list and nine were added.

Of the issuers removed from the list, 10 defaulted, 11 were removed because of a change in their CreditWatch/outlook status, and one was removed because S&P withdrew its rating.

Of the nine new weakest links, five issuers were added because they were downgraded, three because of a revision of their outlook/CreditWatch status to negative, and one was a newly rated entity.

Of the new additions to this month's list, four were from the United States, two each were from Europe and Canada, and one was from Japan.

The media and entertainment sector had the biggest increase in weakest links, with three.

Sector breakdown

S&P said the media and entertainment sector showed the greatest vulnerability to defaults, with 55 weakest links, constituting 22% of the total, followed by forest products and building materials with 20.

Geographically, S&P said U.S.-based issuers featured disproportionately on the weakest-links list, accounting for 69%, which the agency attributed to the higher ratings penetration in the U.S. marketplace.

By volume, the 172 U.S.-based weakest links account for $205.75 billion of debt, or almost 77% of the total $268.44 billion of debt issued by all weakest links.

Leveraged loans

In the leveraged-loan segment, S&P reported that the 12-month trailing institutional loan default rate increased to an 83-month high of 8.22% in October from 7.17% in September.

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