S&P global speculative-grade default rate increases to 4.04% in August

By Caroline Salls

Pittsburgh, Oct. 4 – Standard & Poor’s 12-month trailing global corporate speculative-grade default rate increased to 4.04% in August from 3.88% in July, according to a report.

Regionally, the U.S. corporate speculative-grade default rate increased to 4.79% for the 12 months ended in August from 4.7% in July, while the European speculative-grade default rate increased to 1.89% from 1.58%. The emerging markets speculative-grade default rate increased to 3.71% from 3.46%.

S&P said that 114 issuers defaulted through Sept. 20, excluding confidential entries. These defaulted issuers have outstanding debt worth $196 billion.

In comparison, 106 issuers defaulted in 2015 with debt totaling $107.9 billion.

The agency said eight non-confidential entities defaulted since its most recent report, including International Shipholding Corp., American Gilsonite Co., Key Energy Services Inc., W&T Offshore Inc., Modular Space Corp., Golfsmith International Holdings LP, Basic Energy Services Inc. and Chesapeake Energy Corp.

Weakest links increase

According to the report, the number of global weakest links increased to 249 as of Sept. 20, up slightly from 248 as of Aug. 24. The 249 weakest links have total rated debt worth $349 billion.

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

S&P said it removed 13 weakest links from the list since its last report and added 14 others.

The following issuers were removed from the list:

• Basic Energy, Golfsmith and Key Energy were removed because they defaulted;

• American Gilsonite, Chesapeake Energy and Modular Space were removed because of selective defaults;

• Bulgarian Telecommunications Co. EAD, Bankmed, sal, Blom Bank sal, Bank Audi SAL and Tembec Inc. were removed because their outlooks were revised to stable;

• Murray Energy Corp. was removed because its ratings were upgraded and its outlook revised to stable; and

• Smile Brands Group Inc. was removed because its rating was withdrawn.

Meanwhile, S&P added the following entities to the list:

• TPC Group Inc., Ancient Technologies and Flavors Holdings Inc. were added because they were downgraded and their outlooks revised to negative;

• Neenah Enterprises Inc. was added because its downgraded and its CreditWatch status was revised to watch negative;

• Accudyne Industries Borrower SCA, Millar Western Forest Products Ltd., Golomt Bank of Mongolia and Trade and Development Bank of Mongolia LLC were added because their outlooks were revised to negative;

• Pesquera Exalmar SAA and Shelf Drilling Holdings Ltd. were added because their ratings were downgraded; and

• California Resources Corp., Bonanza Creek Energy Inc., Comstock Resources Inc. and Usinas Siderurgicas de Minas Gerais SA (Usiminas) were added because they are newly rated.

Sector breakdown

The agency said the oil and gas and financial institutions sectors have the highest potential to default as of Sept. 20.

S&P said the oil and gas sector had the greatest number of weakest links, with 58, or 23% of the total, followed by financial institutions, at 34, or 14% of the total.

The agency said U.S.-based issuers account for 67.5% of the 249 weakest links, partly because a large proportion of issuers S&P rates are based in the United States.

By volume, the 168 U.S.-based weakest links account for about $232 billion of debt, or 66.6% of the $349 billion total for all weakest links.

Leveraged loans

The 12-month-trailing default rate for U.S. leveraged loans, which is based on the number of loans, increased to 2.25% in August, S&P reported.

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