S&P marks 265 defaults in 2009, 225 weakest links on $214 billion debt

By Caroline Salls

Pittsburgh, Jan. 8 - Standard & Poor's reported on Friday that it recorded 265 global corporate defaults for the year ended Dec. 31, the highest yearly tally since its series began in 1981, according to an agency news release.

By region, S&P said the Unites States led 2009 default activity with 193 defaults, followed by the emerging markets with 36, Europe with 19 and the other developed region, including Australia, Canada, Japan, and New Zealand, with 17.

S&P said that these tallies are all roughly twice their respective regional default totals recorded in 2008.

According to the report, distressed exchanges led default activity, accounting for 103 defaults. Missed interest and/or principal payments came in second with 88 defaults, followed by 69 bankruptcy-related defaults and five defaults stemming from other reasons, including regulatory and government takeovers.

So far in 2010, S&P has recorded defaults by three U.S.-based issuers and one Canadian issuer.

S&P said that two of this week's defaults resulted from distressed exchanges and two stemmed from missed interest and principal payments.

Prospect News weekly defaults

Meanwhile, Prospect News reported three bankruptcy filings, three missed payments and one distressed exchange for the week of Dec. 31 to Jan. 7.

Specifically, International Aluminum Corp., Mesa Air Group, Inc. and FirstFed Financial Corp. filed for bankruptcy this week, Coalcorp Mining Inc., Ashpol plc and Regent Communications Inc. missed interest payments, and United Site Services made a distressed exchange.

S&P's latest defaults included Regent, United Site Services, Gateway Casinos & Entertainment Inc. and YRC Worldwide Inc.

Recovery expectations

Of the global corporate defaulters in 2009, S&P said:

• 40% of issues with available recovery ratings had recovery ratings of 6, indicating the agency's expectation for negligible recovery of 0% to 10%;

• 15% of issues had recovery ratings of 5, for modest recovery prospects of 10% to 30%;

• 12% had recovery ratings of 4, for average recovery prospects of 30% to 50%;

• 11% had recovery ratings of 3, for meaningful recovery prospects of 50% to 70%;

• 12% of issues had recovery ratings of 2, indicating substantial recovery prospects of 70% to 90%; and

• 10% of issues had recovery ratings of 1, or very high recovery prospects of 90% to 100%.

Weakest links

In addition, the ratings agency reported 225 weakest links as of Dec. 31 with combined rated debt worth $214 billion.

In comparison, there were 248 weakest links in the beginning of 2009 with $422 billion in total debt outstanding.

Of these 248 weakest links, S&P said 100 issuers defaulted, and 77 remain weakest links as of Dec. 31.

Weakest links peaked in March 2009 with 300 issuers and more than $500 billion in outstanding debt.

Of the 225 weakest links recorded in 2009, S&P said 151 issuers, or about one-third, are from the United States, 20 are from Europe, and 19 are from Eastern Europe, the Middle East and Africa.

Of the remaining weakest links, Canada accounts for 15, Asia-Pacific for 12 and Latin America for eight.

S&P said more than half of the weakest links fall into five sectors, including media and entertainment, banks, forest products and building materials, chemicals, packaging, and environmental services and consumer products.

Vulnerable companies

The agency said the current list of weakest links include large U.S. airline companies AMR Corp., US Airways Group and UAL Corp., casino operator Las Vegas Sands Corp., Loehmann's Holdings, Quicksilver Inc. and Eastman Kodak.

Energy Future Holdings Corp. has the largest amount of outstanding debt out of all the weakest links at almost $40 billion.

In Europe, weakest links include NXP BV, with about $6 billion of outstanding debt, and Ineos Group Holdings plc, with almost $10 billion.

The weakest links in the emerging markets include Alfa-Bank from Ukraine, Russian bank Commercial Bank Renaissance Capital, real estate developer Neo-China Land Group (Holdings) Ltd. and Argentina's Metrogas SA.

According to S&P, credit quality is still vulnerable to market and economic risk, as reflected in low ratings and many issuers with negative outlooks or ratings on CreditWatch negative.

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