Broadly speaking, the average and median times to default for each rating category are longer when based on the initial rating than when based on subsequent ratings, particularly for speculative-grade ratings. Includes investment-grade and speculative-grade entities. Ratings The global corporate default tally has increased to 17 after two issuers defaulted since our last report. On May 11, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Chinese furniture maker Yihua Enterprise (Group) Co. Ltd. to 'SD' from 'CCC' after the issuer failed to make interest payment on its domestic medium-term notes due 2022. A ratio of 1 would indicate that the percentages of upgrades and downgrades were equal. The U.S. has the largest number of rated corporate issuers, accounting for roughly 45.9% of the global total at the start of 2020. The issuer was engaged in discussions with creditors for a debt restructuring. The issuer missed the aggregate interest payments on first-, second-, and 1.5-lien term loans due in 2021 and 2022, which was unlikely to be paid in the 30-day grace period. On May 21, 2020, S&P Global Ratings lowered the issuer credit rating on Colorado-based oil and gas exploration and production company Centennial Resource Development Inc. to 'SD' from 'CC' after the issuer announced the exchange of a portion of its 2026 and 2027 senior secured notes for new second-lien secured notes due 2025 at 50% of par value. The share of management teams citing labor shortages, now at less than a third of the peak in 3Q 2021, indicates loosening in the jobs market. On Oct. 13, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Ireland-based manufacturer and distributer of specialty pharmaceutical products Mallinckrodt PLC to 'D' from 'CCC' after the issuer announced that it voluntarily initiated Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware to modify its capital structure, including to restructure portions of its debt and resolve several billion dollars of potential legal liabilities. It shows the ratio of actual rank-ordering performance to theoretically perfect rank ordering. For example, 10 companies rated 'A' at any point in their lifetimes (excluding initial ratings) defaulted within one year of receiving this rating. We consider companies reemerging from prior defaults to be separate entities, and their rating histories begin with the post-default rating. Default activity in 2020 did increase, but to a lesser extent than recent recessions (see chart 1 and table 1). For the most part, the speculative-grade share of every sector has grown over the past decade, with the exception of the real estate sector. Moody's Default and Ratings Analytics team publishes Moody's default studies, ratings transitions and ratings performance studies for corporates, financial institutions, sovereign and sub-sovereign, public finance and infrastructure sectors. In this case, we compared the rating at the beginning of the multiyear period with the rating at the end. Seven others also had default rates in 2020 that exceeded their long-term averages--leisure time/media, transportation, telecommunications, health care/chemicals, real estate, utilities, and high technology/computers/office equipment. However, reported average ultimate recoveries [2] included in our data set of unrated project finance bank loans remained stable at 76.8% (Moody's) for the period 1983-2020. On Sept. 9, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Missouri-based printing equipment designer and manufacturer MAI Holdings Inc. to 'SD' from 'CCC-' after the issuer completed the partial exchange of its senior secured notes. On Dec. 16, 2020, S&P Global Ratings withdrew the issuer credit ratings at the issuer's request. We understood that the company was making those amendments to preserve cash because customers have had to suspend their mining operations or delay their project spending due to the coronavirus pandemic. Initial ratings, or those as of Dec. 31, 1980. On Nov. 4, 2020, S&P Global Ratings withdrew its ratings on the issuer. The issuer announced that it voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code. On July 8, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Indonesia-based property developer PT Modernland Realty Tbk. On Aug. 6, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC-' from 'SD'. On Aug. 19, 2020, we raised our issuer credit rating on Forum to 'CCC+' from 'SD' following the completion of its debt exchange for the majority of its 6.25% senior unsecured notes due 2021. Defaulted issuers initially rated 'BB' show a similar pattern but peak a little later, in the fourth year. The shareholder made an offer to purchase the remaining 2023 notes. However, given that machine learning currently receives a lot of attention in the credit risk community, further reviews and benchmark studies would certainly be welcome. On Sept. 15, 2020, we raised the issuer credit rating to 'CC' from 'SD' after its subsidiary, Town Sports International LLC, filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, while the parent was not included in it. This study limits the reporting of default rates to the 15-year time horizon. Later, on Dec. 10, 2020, we raised the issuer credit rating to 'CCC+' from 'SD' after the company completed debt repurchases on favorable terms. Such rating categories with smaller populations will experience high rating transition rates when even a small number of issuers are upgraded or downgraded. S&P assumes no obligation to update the Content following publication in any form or format. 1Great Financial Crisis 2008/2009. The majority (94%) began the year rated in the 'B' or 'CCC'/'C' category (57% 'CCC'/'C' and 37% 'B'). On Dec. 8, 2020, we raised our rating on Outerstuff to 'CCC' from 'SD', reflecting its restructured debt and licensing agreements, though it still has high leverage and less than adequate liquidity. In large part, this reflects the private nature of the leveraged finance market before the financial crisis in 2008. Earlier, on April 14, 2020, we lowered the issuer credit ratings on the company to 'CCC-' from 'CCC' as it was contending with the disruption and recessionary conditions stemming from the coronavirus pandemic, the challenging trends facing department stores, and an unsustainable capital structure. On July 1, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Mexican commercial aviation services provider Grupo Aeromexico S.A.B. Subsequently, on May 29, 2020, the issuer obtained an amendment for extending the grace period until June 12 for the payment of interest of around US$4.1 million. Other sectors, such as consumer services, have had more frequent default cycles, both during and between economic cycles. On Jan. 30, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Pinnacle Operating Corp. to 'SD' from 'CCC'. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. Our analysis is conducted at the bond level with RAD as the recovery rate measure. On Jan. 29, 2020, S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based engineered components manufacturer and marketer Doncasters Group Ltd. after the issuer received lender support for financial restructuring. Kathrin was a lead analyst in Moody's EMEA Corporate Finance Group in Frankfurt, Germany, covering a diverse set of heavy industrial corporations across Europe. On Nov. 23, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Oklahoma-based exploration and production company Gulfport Energy Corp. to 'D' from 'CCC-' after the issuer elected to skip its interest payment on its 6% senior unsecured notes maturing Oct. 15, 2024, and enter into a 30-day grace period. On May 22, 2020, S&P Global Ratings lowered its issuer credit rating on Illinois-based generic pharmaceutical manufacturer company Akorn Inc. to 'D' from 'CC' after the issuer petitioned for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On April 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based oilfield services company KCA DEUTAG Alpha Ltd. to 'SD' from 'CCC+' after the issuer announced it would use the grace period for interest payments. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. The negative outlook reflects our view of the company's unsustainable capital structure and heavy debt service burden, and our belief that Revlon could default on its debt obligations in the upcoming quarters. Emerging markets: S&P Global Ratings does not require all issuers with rated debt to have an issuer credit rating. On Aug. 7, 2020, we lowered the issuer credit ratings to 'D' from 'SD' following GFamsa's bankruptcy filing in both Mexico and the U.S. On Dec. 12, 2020, we withdrew the issuer credit ratings on the company at its request. The issuer borrowed a US$20.2 million new term loan, including US$10.1 million of priming new money and rolling up an existing US$10.1 million term loan. We calculated conditional default rates by dividing the number of issuers in a static pool that default at a specific time horizon by the number of issuers that survived (did not default) to that point in time. Issuer credit ratings can be either long-term or short-term. We held over 13,000 customer engagement meetings, a 12% increase over 2020. We calculated all default rates on an issuer-weighted basis. PGS was also in talks with lenders to secure a new capital structure. We considered the transaction to be a distressed exchange and tantamount to a default on the notes because the noteholders were not adequately compensated and received less than they were originally promised under the securities. The company was continuing discussions with its debtholders, and we believed these would result in a comprehensive debt restructuring or a bankruptcy filing. Posted on . It is expected that North American and international markets are likely to contract up to 50% and 20%, respectively. Static pool methodology. The speculative-grade default rate rose in the U.S. (to 6.6%), Europe (5.3%), emerging markets (3.1%), and other developed countries (5.9%). On Nov. 23, 2020, S&P Global Ratings withdrew its rating on the issuer. The two upgrades are U.S.-based Noble Energy Inc. and Infor Inc. Companies that experience large downgrades are often outliers, especially in years of high credit stability. We subsequently withdrew the issuer credit ratings at the issuer's request. FORM 8-K. CURRENT REPORT Pursuant To Section 13 or 15 (d) of The Securities Exchange Act of 1934. The rating action followed the issuer's exchange of its senior secured notes due 2027 for the new notes, including the PIK of the four quarterly principal and interest payments in the next 12 months, which are repaid pro rata during the remaining term of the notes. On June 8, 2020, we lowered our issuer credit rating to 'D' from 'SD' after the issuer's announcement of a reorganization petition filed under Chapter 11 of the Bankruptcy Code. Second Party Opinions & Transaction Evaluations, U.S. Local Governments Credit Scenario Builder, Annual Global Trends: Defaults Reach Their Highest Level Since 2009, Lower Ratings Are Much More Vulnerable To Default, Industry Variations: Energy And Consumer Services Lead Again, But Defaults Were Widespread In 2020, Speculative-Grade Ratings Represent About Half Of Corporate Issuers, Transition And Cumulative Default Rates Demonstrate Ratings Performance, Criteria For Assigning CCC+, CCC, CCC-, And CC Ratings, U.S. Recovery Study: Clouds Loom As Defaults Rise. On Aug. 6, 2020, S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based pizza restaurants operator PizzaExpress Financing 1 PLC to 'D' from 'CC' after the issuer opted for nonpayment of interests on it secured and unsecured notes. The company finalized a tender offer to repurchase $213 million of its outstanding $255 million 12% senior secured notes due 2022. As . On June 2, 2020, S&P Global Ratings lowered its issuer credit rating on U.K.-based offshore drilling contractor Noble Corp. PLC to 'SD' from 'CCC-'as the company paid off 85% of its two seller loans (unrated) in exchange for a discount to the outstanding balance, effectively repurchasing both loans at about 85% of par value. The proportion of defaulters with confidential ratings in 2020 (11.5%) held steady relative to 11% in 2019. Later, on May 15, 2020, S&P Global Ratings withdrew its ratings at the issuer's request. On May 14, 2020, we withdrew the ratings on the issuer. We considered the transaction as distressed given the company's weak operating performance, negative cash flow generation, and near-term debt maturities. Cross-Sector: The . The links between transition matrices and average cumulative default rates are best illustrated through tables 30-32. On May 29, 2020, we raised the issuer credit rating on DDA to 'CCC' from 'SD' based on DDA's reliance on favorable market conditions to generate sufficient cash flow to meet its near-term debt obligations following its reopening. Sources: StepStone Group, CS HY Index, Barclays US IG, Moody's, Cliffwater, Refinitiv LPC as of December 2022. NPC is the largest franchisee of Pizza Hut and Wendy's restaurants operating nearly 1,600 locations in the U.S. On July 1, 2020, S&P Global Ratings lowered the ratings on the issuer to 'D' from 'SD' following its Chapter 11 bankruptcy filing, following which, on Aug. 5, 2020, the ratings on the issuer were withdrawn. On Aug. 17, 2020, S&P Global Ratings withdrew its ratings on the issuer. We also include the defaulting instruments for each company that S&P Global Ratings rates. On Dec. 23, 2020, S&P Global Ratings raised its issuer credit rating to 'CCC+' from 'SD' based on the company's recent operating performance, improved cash flow, and financial transactions, which helped in improving its maturity profile and lowering interest rates. This was especially evident during the global financial crisis, when many highly rated banks defaulted within a short amount of time after initial downgrades. Issuer-weighted default rates. On Jan. 9, 2019, S&P Global Ratings lowered its issuer credit rating on Missouri-based retailer Moran Foods LLC (SAL Acquisition Corp.) to 'SD' from 'CCC' after the company elected not to make an interest payment due Dec. 31, 2019, while entering into a forbearance agreement. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subjects of separate default and transition studies, and we exclude them from this study. Finally, PD estimates should also be compared across banks (EBA 2020). As laid out in the American Recovery and Reinvestment Act, the plan would cost $825 billion Therefore, every update revises results back to the same starting date of Dec. 31, 1980, so as to avoid continuity problems. For the purposes of this study, we form static pools by grouping issuers (for example, by rating category) at the beginning of each year, quarter, or month that the database covers. We treat this transaction as distressed since the investors did not receive the originally promised amount. On March 9, 2020, Bluestem Brands Inc. defaulted, having filed for Chapter 11 bankruptcy to restructure its debt. On July 2, 2020, we raised the issuer credit rating to 'B-' from 'D' after RGIS completed its debt restructuring and eliminated over US$ 230 million of debt, which, in turn, improved leverage. Consistent with the increase in the number of defaults in 2020, the volume of debt affected by defaults almost doubled to $353.4 billion. All four major regions also saw their 2020 speculative-grade default rates rise above their long-term annual averages (see table 7 and chart 21). On May 12, 2020, S&P Global Ratings lowered the issuer credit rating on Texas-based oil and gas exploration and production company Fieldwood Energy LLC to 'D' from 'CCC' after the issuer failed to make the interest payments on its first- and second-lien term loans. On April 22, 2020, we lowered our issuer credit rating on Serta Simmons to 'CCC-' from 'CCC' as the spread of the COVID-19 pandemic and stay-at-home orders forced retail store closures, which resulted in a severe drop in mattress sales and minimal production. In turn, this can result in a relatively fast descent into default (see chart 11). Investment-grade ratings are proportionately more prevalent among financial services companies as well (relative to nonfinancials). We consider the exchange distressed and tantamount to default because, in our view, the transaction offers less than the original promise for the security. The transaction was approved by 100% of lenders, and it provided the issuer with additional liquidity. According to S&P, at the end of 2020, their 12-month trailing default rates amounted to 6.6% for U.S. speculative-grade. KIS Research and revenue from providing ESG research, data and assessments. The issuer is still under high execution risk after its Chapter 11 filing in 2019. In contrast, the issuer with the shortest time to default (36 days) was a confidentially rated U.S.-based leisure/media company. On Feb. 28, 2020, S&P Global Ratings raised the long-term issuer ratings on Calfrac to 'CCC-' from 'SD' after it completed a debt exchange, which reduced the debt by US$98 million. On Feb. 26, 2020, S&P Global Ratings withdrew its ratings on the issuer. On Feb. 12, 2020, S&P Global Ratings lowered its long-term issuer credit rating on RentPath LLC to 'D' after the issuer defaulted and filed for Chapter 11 bankruptcy. This is not surprising at the three- and 10-year horizons, considering the relative stress of the financial crisis has now passed beyond the 10-year time frame. A default is assumed to take place on the earliest of: When an issuer defaults, it is not uncommon for S&P Global Ratings to subsequently withdraw the 'D' rating. On April 24, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based contract drilling services Diamond Offshore Drilling Inc. to 'D' from 'CC' after a review of market conditions for contract drilling services. On June 18, 2020, we raised the issuer credit rating on Forum to 'CCC-' from 'SD', reflecting our forward-looking opinion on its creditworthiness. On Sept. 15, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Spain-based food products retailer Distribuidora Internacional de Alimentacion S.A. to 'SD' from 'CC' after the issuer completed a distressed exchange. 2 Annualized volatility and return based on the period between 2005 and 2022. Note: Numbers in parentheses are standard deviations. For both broad categories over the past three years, all of these defaulters were rated in the lowest rating categories several years ahead of their eventual default. *Fallen angels that survived to Jan. 1 of the year after they were downgraded.
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