S&P global speculative-grade default rate increases to 3.29% in April

By Caroline Salls

Pittsburgh, June 10 – Standard & Poor’s trailing 12-month global speculative-grade default rate increased to 3.29% in April from 3.07% in March, according to a report released Friday.

S&P said the U.S. corporate speculative-grade default rate rose to 3.94% in April from 3.79% in March. The European speculative-grade default rate increased to 1.58% from 1.44%, and the emerging markets default rate climbed to 3.15% from 2.88%.

S&P said 70 issuers had defaulted so far in 2016 through May 23, excluding confidential companies. These defaulted issuers accounted for outstanding debt worth $148 billion.

The ratings agency said 20 non-confidential entities have defaulted since its last report, excluding sovereigns, including White Star Petroleum LLC, Perpetual Energy Inc., ION Geophysical Corp., Fairway Group Holdings Corp., Fairmount Santrol Inc., RGL Reservoir Management Inc., Claire’s Stores Inc., Atlas Iron Ltd., USJ Açúcar e Álcool S/A, Denbury Resources Inc., Intelsat SA, Chesapeake Energy Corp., Permian Resources LLC, SandRidge Energy Inc., Breitburn Energy Partners LP, Stone Energy Corp., Constellation Enterprises LLC, Seventy Seven Energy Inc., Tervita Corp. and Arendal S de RL de CV.

Weakest links steady

S&P said the number of global weakest links steadied at 242 as of May 23, compared with 243 as of April 27. The 242 weakest links account for a total of $330 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 26 entities from the list of weakest links and added 25.

The issuers removed from the list included:

• Seventy Seven Energy, Stone Energy, SandRidge, Fairway, Arendal and Breitburn were removed because they defaulted;

• Acucar e Alcool, Intelsat, Atlas Iron, ION Geophysical, Perpetual Energy, Permian, White Star and RGL Reservoir Management were removed because of selective defaults;

• BCS Holding International Ltd., Turkiston Bank and Advanced Micro Devices Inc. were removed because their outlooks were revised to stable;

• Parques Reunidos Servicios Centrales SAU and Trilogy International Partners LLC were removed because they were upgraded and their outlooks revised to stable;

• Seitel Inc. was removed because it was downgraded and its outlook revised to stable;

• Empire Today LLC was removed because it was downgraded and its outlook revised to developing;

• NGPL PipeCo LLC was removed because it was upgraded and its outlook revised to positive;

• Vision Solutions Inc. was removed because its CreditWatch status was revised to developing;

• PJSC Kredobank was removed because its outlook was revised to positive; and

• PT Energi Mega Persada Tbk. and Truvo NV were removed because their ratings were withdrawn.

The issuers added to the list included:

• Ameriforge Group Inc., Lion of Africa Insurance Co. Ltd., Pinnacle Holdco Sarl, Curo Group Holdings Corp. and Aria Energy Operating LLC were added because they were downgraded;

• Key Energy Services Inc., Grupo Embotellador Atic, SA, Charlotte Russe Inc., Optimas OE Solutions Holding LLC, IronGate Energy Services LLC, NCSG Crane & Heavy Haul Corp., LTR Holdco Inc. and Hovnaian Enterprises Inc. were added because they were downgraded and their outlooks revised to negative;

• Associated Materials LLC, CompuCom Systems Inc., Southern States Cooperative Inc., Aurora Diagnostic Holdings LLC, Commercial International Bank (Egypt) SAE, Excelitas Technologies Corp. and Titan International Inc. were added because their outlooks were revised to negative;

• Far-Eastern Shipping Co. plc was added because its CreditWatch status was revised to negative; and

• Community Choice Financial Inc., Murray Energy Corp., Fairmount Santrol and Gogo 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. The oil and gas sector accounts for the greatest number of weakest links with 55 issuers, or 22.7% of the total, followed by the financial institutions sector with 29 issuers, or 12% of the total.

The ratings agency said U.S.-based issuers account for 68% of the 242 weakest links, partially reflecting the fact that a large proportion of issuers that S&P rates are U.S.-based.

By volume, the 164 U.S.-based weakest links account for about $238 billion of debt, which is 72% of the $330 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, decreased to 1.93% in April from 2.03% in March.

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