S&P global speculative-grade default rate climbs to 3.06% in December

By Caroline Salls

Pittsburgh, Feb. 4 – Standard & Poor’s trailing 12-month global speculative-grade default rate increased to 3.06% in December from 2.92% in November, according to a report released Thursday.

S&P said the U.S. corporate speculative-grade default rate increased to 2.91% in December from 2.85% in November. The European speculative-grade default rate increased substantially to 2.32% from 1.78%, and the emerging markets default rate increased significantly to 4.4% from 4.13%.

S&P said 106 issuers had defaulted in 2015. These defaulted issuers accounted for outstanding debt worth $107.85 billion.

The ratings agency said 13 non-confidential entities have defaulted since its last report, including Magnum Hunter Resources Corp., Abengoa SA, Empresas ICA SAB de CV, Foreign Economic Industrial Bank (Vneshprombank), Arch Coal Inc., Heckler & Koch GmbH, Cognor SA, RCS Capital Corp., Ultrapetrol (Bahamas) Ltd., Horsehead Holding Corp., Slap Shot Holdings Corp., Pacific Exploration and Production Corp. and Verso Paper Holdings LLC.

Weakest links increase

S&P said the number of global weakest links increased to 218 as of Jan. 27, up from 195 as of Dec. 14. The 218 weakest links account for a total of $282 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 12 entities from the list of weakest links and added 35.

Of the nine issuers removed, nine are in the United States, including Bermuda and the Cayman Islands, two are in Latin America, and one is in Europe. Of the 35 issuers added this month, 33 are in the United States and one each in Canada and Eastern Europe/Middle East/Africa (EEMEA).

The issuers removed from the list included:

• Empresas ICA, RCS Capital, Slap Shot Holdings, Verso Paper Finance, Verso Paper Holdings, Ultrapetrol and Magnum Hunter because they defaulted;

• Abengoa and Arch Coal because of selective defaults;

• Cannery Casino Resorts LLC because its outlook was revised to stable;

• Prospect Holding Co. LLC because its outlook was revised to developing; and

• Caribbean Restaurants LLC because its rating was withdrawn.

The issuers added to the list included:

• Sheridan Production Partners II-A, LP, Sheridan Investment Partners I, LLC, Sheridan Production Partners II-M, LP, Sheridan Production Partners I-A, LP, Sheridan Investment Partners II, LP, Sheridan Investment Partners I-M, LP, TerraForm Power Inc., MIE Holdings Corp., SourceHOV LLC, California Resources Corp., Bioplan USA Inc. and Chesapeake Energy Corp. because they were downgraded;

• Eclipse Resources Corp., American Gilsonite Co., Imperial Metals Corp., Peabody Energy Corp., Vanguard Natural Resources LLC, Chaparral Energy Inc., PetroQuest Energy Inc., Seventy Seven Energy Inc., Talos Energy LLC, Transtar Holding Co., Goodman Networks Inc., Rex Energy Corp. and True Religion Apparel Inc. because they were downgraded and their outlooks revised to negative;

• Federal-Mogul Holdings Corp., Atlas Resource Partners LP, Muganbank OJSC, NCP Finance Ohio LLC, Gymboree Corp. because their outlooks were revised to negative;

• Charming Charlie LLC and ICON Health & Fitness Inc. because their CreditWatch statuses were revised to negative;

• Trilogy International Partners LLC because it was downgraded and its CreditWatch status was revised to negative; and

• BKH Acquisition Corp. and Getty Images Inc. 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 43 issuers, or 19.7%, of the total, followed by the financial institutions sector with 39 issuers, or 17.9% of the total.

The ratings agency said U.S.-based issuers account for 61.5% of the 218 weakest links, partially reflecting the fact that a large proportion of issuers S&P rates are U.S.-based.

By volume, the 134 U.S.-based weakest links account for about $220 billion of debt, which is 78% of the $282 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 1.19% in December from 1.09% in November.

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