S&P global corporate junk default rate declines to 1.65% in September

By Caroline Salls

Pittsburgh, Nov. 8 - Standard & Poor's 12-month-trailing global corporate speculative-grade default rate fell to 1.65% in September from 1.79% in August, according to a report entitled "Global Weakest Links And Default Rates: Weakest Links Continue To Edge Higher As Eurozone Anxiety Persists."

Regionally, the U.S. speculative-grade corporate default rate decreased to 1.94% in September from 2.09% in August. In Europe, the rate fell slightly to 0.86% from 0.88% in August, and the emerging markets default rate held steady at 0.52% in September, the same as in August.

S&P said 35 issuers had defaulted this year through Oct. 22. Together, these 35 issuers have affected debt worth $54.9 billion.

Issuers defaulting since S&P's most recent report included Real Mex Restaurants Inc., General Maritime Corp., Travelport Holdings Ltd., Yioula Glassworks SA, William Lyon Homes and Wastequip Inc.

The agency's baseline projection for the U.S. corporate speculative-grade default rate in the 12 months ending in September 2012 is 3.1%. S&P said this forecast has a 60% probability.

A total of 48 speculative-grade issuers would need to default in the next 12 months to realize the mean baseline projection for an average of about four defaults per month.

The agency said its pessimistic alternative default rate forecast projects a 5.1% rate, and the optimistic scenario would mean a 1.6% rate.

From October to September 2012, 79 issuers would have to default to reach the pessimistic default rate forecast, and 25 issuers would have to default to reach the optimistic forecast.

Weakest links increase

The agency said the number of global weakest links increased marginally to 124 as of Oct. 21 from 123 on Sept. 19. The 124 weakest links have combined rated debt worth $185.9 billion.

Weakest links are issuers rated B- or lower with a negative outlook or ratings on CreditWatch negative.

Since its most recent report, S&P removed 10 entities from the list of weakest links and added 11 others.

Of those removed from the list

• Black Elk Energy Offshore Operations LLC was removed after S&P revised its outlook to stable;

• Pregis Corp. and Tensar Corp. were removed after their ratings were placed on CreditWatch developing;

• Liz Claiborne Inc. and Golden Nugget Inc. were placed on CreditWatch positive;

• Real Mex Restaurants' corporate credit rating was revised to D;

• Travelport Holdings, General Maritime and Wastequip were removed after S&P placed them on selective default; and

• Geokinetics Holdings Inc.'s outlook was revised to developing following rating changes.

Meanwhile, among those added to the weakest link list

• Educate Inc. was downgraded to CCC+ and its outlook revised to negative;

• GITI Tire Pte. Ltd., O'Charley's Inc., OJSC Belvnesheconombank and Belarusian National Reinsurance Organization each had their corporate credit rating changed to B- and their outlook to negative;

• Trailer Bridge Inc. and Norske Skogindustrier ASA were placed on CreditWatch negative;

• Lupatech SA's outlook was revised to negative; and

• Jill Holdings LLC and ProQuest LLC were added after S&P lowered their corporate credit ratings and maintained their negative outlooks.

Of the 11 new weakest links, S&P said five are from the U.S. region, three are from the Eastern Europe region, and one each is from the Asia-Pacific, Europe and Latin America regions.

Sector breakdown

Based on the number of weakest links, the agency said the media and entertainment, forest products and building materials and banks sectors are most vulnerable to default.

S&P said the media and entertainment sector is the most vulnerable with 32 weakest links, or 25.8% of the total, while forest products and building materials had 13 and banks had 12.

S&P said U.S.-based issuers account for 64.5% of weakest links, partially because a large proportion of S&P-rated issuers are in the United States.

By volume, the 80 U.S.-based weakest links account for $110.9 billion of debt, which is about 59.7% of the total $185.9 billion of debt issued by all weakest links.

Leveraged loans

The 12-month-trailing default rate for U.S. leveraged loans was 0.90% in September, down from 1.05% in August, S&P said.

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