S&P global speculative-grade default rate climbs to 2.46% in October

By Caroline Salls

Pittsburgh, Dec. 3 – Standard & Poor’s trailing 12-month global speculative-grade default increased to 2.46% in October from 2.39% in September, according to a report released Thursday.

S&P said the U.S. corporate speculative-grade default rate increased substantially to 2.71% in October from 2.51% in September. The European speculative-grade default rate decreased to 1.65% from 1.88%, its third straight monthly decrease, and the emerging markets default rate increased to 2.44% from 2.42%.

Through Nov. 19, S&P said 92 issuers had defaulted so far in 2015. These defaulted issuers have outstanding debt worth $93.6 billion.

The ratings agency said nine non-confidential entities have defaulted since its last report, including Affirmative Insurance Holdings Inc., EXCO Resources Inc., Vantage Drilling Co., Hidili Industry International Development Ltd., Globo plc, Affinion Group Holdings Inc., Essar Steel Algoma Inc., Millennium Health LLC and China Shanshui Cement Group Ltd.

Weakest links increase

S&P said the number of global weakest links increased to 187 as of Nov. 19, the highest number is five years. The 187 weakest links account for a total of $221 billion of debt.

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

Since the most recent report, S&P said it removed 11 entities from the list of weakest links and added 20.

Of the 11 issuers removed, five are in the United States, including Bermuda and the Cayman Islands, three are in Europe, and one each is in Asia Pacific, Canada and Eastern Europe and Middle East Africa (EEMEA). Of the 20 issuers added this month, 12 are in the United States, four are in Europe, three are in Latin America, and one is in Canada.

The issuers removed from the list included:

• China Shanshui, Hidili, Essar, Vantage and Millennium Health were removed because they defaulted;

• Affinion Group was removed because of a selective default;

• Region Investment Co. ZAO was removed because its outlook was revised to stable;

• Lion/Gem Luxembourg 3 Sarl was removed because it was downgraded and its outlook revised to stable;

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

• Cooper Gay Swett & Crawford Ltd. was removed because its CreditWatch status was revised to developing; and

• Nyrstar NV was removed because its CreditWatch status was revised to positive.

The issuers added to the list included:

• Cumulus Media Inc., Prospect Holding Co., LLC, Pacific Drilling SA, RCS Capital Corp., Empresas ICA SAB de CV and Grupo Senda Autotransporte SAB de CV were added because they were downgraded;

• Camposol SA, C&J Energy Services Ltd., Verso Paper Holdings LLC, Neebo Inc., Thompson Creek Metals Co., Inc., Verso Paper Financing Holdings LLC, CGG, Elli Investments Ltd. and Kellermeyer Bergensons Services LLC were added because they were downgraded and their outlooks revised to negative;

• Sterling Mid-Holdings Ltd. and 99 Cents Only Stores were added because their outlooks were revised to negative;

• Centric Health Corp. was added because its CreditWatch status was revised to negative; and

• Logan’s Roadhouse Inc. and Hercules Offshore Inc. were added because they were newly rated.

Sector vulnerability

Based on the number of weakest links, S&P said the oil and gas and financial institutions sectors are the most vulnerable to default. Both sectors have the greatest number of weakest links with 33 issuers each, or 17.6% each of the total.

The ratings agency said U.S.-based issuers account for 56% of the 187 weakest links, partially reflecting the fact that a large proportion of issuers S&P rates are U.S.-based.

By volume, the 104 U.S.-based weakest links account for about $159 billion of debt, which is 72% of the $221 billion total for all weakest links.

Leveraged loans

In the leveraged loan segment, S&P said the trailing-12-month institutional loan default rate, which is based on the number of loans, increased to 0.88% in October from 0.77% in September.

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