S&P global speculative-grade default rate falls to 2.66% in January

By Caroline Salls

Pittsburgh, March 9 – Standard & Poor’s trailing 12-month global speculative-grade default rate decreased to 2.66% in January from 2.75% in December, according to a report released Wednesday.

S&P said the U.S. corporate speculative-grade default rate fell slightly to 2.82% in January from 2.83% in December. The European speculative-grade default rate declined significantly to 1.77% from 2.1%, and the emerging markets default rate declined to 2.83% from 3.07%.

S&P said 18 issuers had defaulted so far in 2016 through Feb. 23. These defaulted issuers accounted for outstanding debt worth $21 billion.

The ratings agency said 12 non-confidential entities have defaulted since its last report, including Murray Energy Corp., Constellation Enterprises LLC, SFX Entertainment Inc., Sheridan Investment Partners I LLC, Sheridan Investment Partners II LP, Comstock Resources Inc., Noranda Aluminum Holding Corp., A.M. Castle & Co., Paragon Offshore plc, EPL Oil & Gas, Denver Parent Corp. and PetroQuest Energy Inc.

Weakest links increase

S&P said the number of global weakest links increased to 235 as of Feb. 23 from 218 as of Jan. 27. The 235 weakest links account for a total of $334 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 27 entities from the list of weakest links and added 44.

Of the 27 issuers removed, 15 are in Argentina, eight are in the United States, including Bermuda and the Cayman Islands, two are in Canada and one each is in Europe and Eastern Europe/Middle East/Africa (EEMEA). All 44 issuers added are in the United States.

The issuers removed from the list included:

• Denver Parent, Energy XXI Ltd., SFX, Paragon Offshore and Noranda because they defaulted;

• A.M Castle, Constellation Enterprises and PetroQuest because of selective defaults;

• Centric Health Corp. because its outlook was revised to stable;

• CAPEX SA, Mastellone Hermanos SA, MetroGas SA, CLISA-Compania Latinoamericana de Infraestructura & Servicios SA, Transportadora de Gas del Sur SA, Banco Patagonia SA, Banco de la Provincia de Buenos Aires SA, IRSA Inversiones y Representaciones SA, Arauco Argentina SA, Banco Hipotecaria SA, Empresa Distribuidora Y Comercializadora Norte SA, Aeropuertos Argentina SA, Banco de Galicia y Buenos Aires SA and Petrobras Argentina SA because they were upgraded and their outlooks revised to stable;

• Bridge Holdco 4 Ltd. because its CreditWatch was revised to positive;

• Taseko Mines Ltd. because it was downgraded and its outlook revised to stable;

• Compania de Transporte de Energia Electrica en AltaTension TRANSENER SA because it was downgraded and its outlook revised to positive; and

• CB Intercommerz Ltd. because its rating was withdrawn.

The issuers added to the list included:

• Proserv Group Inc., Ultra Petroleum Corp., Breitburn Energy Partners, Erickson Inc., W/S Packaging Holdings Inc., Navios Maritime Holdings Inc., EV Energy Partners LP, Linn Energy LLC, PT Energi Mega Persada Tbk, ALBA Group plc & Co. KG, EnQuest plc, Northern Oil & Gas Inc. and Usinas Siderurgicas de Minas Gerais SA because they were downgraded;

• Memorial Production Partners LP, Arendal, S de RL de CV, Foresight Energy LP, Salem Media Group Inc., Stone Energy Corp., Cliffs Natural Resources Inc., Gibson Brands Inc., HudBay Minerals Inc., American Energy – Woodford, LLC, Midstates Petroleum Co. Inc., Extreme Reach Inc., Fieldwood Energy LLC, Gastar Exploration Inc., Approach Resources Inc., Bonanza Creek Energy Inc. and W&T Offshore Inc. because they were downgraded and their outlooks revised to negative;

• Hexion Inc., GenOn Energy Inc., P.F. Chang’s China Bistro Inc., Kuwait Energy plc and Seven Energy International Ltd. because their outlooks were revised to negative;

• Parques Reunidos Servicios Centrales, SAU, Banco Mercantil Do Brasil SA, Empire Today LLC and Homer City Generation LP because their CreditWatch statuses were revised to negative;

• Vision Solutions Inc., Prospect Holding Co. LLC, UCI Holdings Ltd. and Ocean Rig UDW Inc. because they were downgraded and their CreditWatch statuses were revised to negative; and

• Corporate Risk Holdings LLC and Edcon Holdings Ltd. 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. The oil and gas sector accounts for the greatest number of weakest links with 58 issuers, or 25%, of the total, followed by the financial institutions sector with 36 issuers, or 15.3% of the total.

The ratings agency said U.S.-based issuers account for 67% of the 235 weakest links, partially reflecting the fact that a large proportion of issuers that S&P rates are U.S.-based.

By volume, the 157 U.S.-based weakest links account for about $263 billion of debt, which is 79% of the $334 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 1.5% in January from 1.19% in December.

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