S&P global corporate junk default rate slides to 1.42% in December

By Caroline Salls

Pittsburgh, Feb. 9 – Standard & Poor’s global trailing-12-month global corporate default rate declined to 1.42% in December from 1.56% in November, according to a report titled “Global Weakest Links and Default Rates: Default Risk Becoming More Pronounced Among Ukrainian Corporate Issuers.”

S&P said the U.S. corporate speculative-grade default rate decreased marginally to 1.59% from 1.60%, the European speculative-grade default rate decreased to 0.96% from 1.57%, and the emerging markets default rate declined to 1.05% from 1.18%.

S&P said that seven issuers have defaulted so far in 2015 through Jan. 28, including confidential entities. The defaulted issuers have outstanding debt worth $6.6 billion.

According to the report, defaults from Ukraine-based entities jumped to six from zero in the most recent reporting cycle.

The ratings agency said the seven defaults recorded since its last report came from LBI Media Holdings Inc. and LBI Media Inc., Southern Pacific Resources Corp., Kaisa Group Holdings Ltd., OAS SA, Verso Paper Holdings LLC, Renhe Commercial Holdings Co. Ltd. and Virgolino de Oliveira SA - Acucar e Alcool.

S&P noted that the number of global weakest links increased to 148 as of Jan. 28, with 21 additions and nine removals. The 148 weakest links have total rated debt worth $201 billion.

Weakest links are issuers rated B- and lower with either negative rating outlooks or ratings on CreditWatch with negative implications.

Of the nine entities removed from the weakest links list, S&P said four are from the United States, two each are from Europe and Eastern Europe/Middle East/Africa (EEMEA), and one is from Latin America.

Meanwhile, of the 21 added, eight are from the EEMEA, seven are from the United States, including Bermuda and the Cayman Islands, and two each are in Canada, Europe and Latin America.

Removals and additions

Those removed from the weakest links list were as follows:

• HMS Hydraulic Machines & Systems Group plc, InterProgressBank, Breboro Holdings Co. Ltd. Group and Black Elk Energy Offshore Operations LLC were removed because their ratings were withdrawn;

• Virgolino, Verso and LBI were removed as a result of defaults;

• Songa Offshore SE was removed because its outlook was revised to stable; and

• Martin Midstream Finance Corp. was removed because its CreditWatch status was revised.

Those added to the weakest links list were as follows:

• Afren plc was added because its rating was downgraded;

• Caesars Growth Properties Parent LLC, Breitburn Finance Corp. and RSG International Ltd. were added because their CreditWatch statuses were revised to negative;

• American Eagle Energy Corp., Ferrexpo plc and PJSC Commercial Bank PrivatBank were added because their outlooks were revised to negative;

• PJSC Kredobank, Patriot Coal Corp., Rooster Energy Ltd., Cimento Tupi SA, Midstates Petroleum Co., Inc., Creativ Group OJSC, UkrLandFarming plc, Ukrainian Agrarian Investments SA, MHP SA and Taseko Mines Ltd. were added because their ratings were downgraded and their outlooks revised to negative;

• Commercial Bank Sudostroitelny Bank LLC, Mendes Junior Trading e Engenharia SA and Samson Resources Corp. were added because their ratings were downgraded and their CreditWatch statuses revised to negative; and

• HCR HealthCare LLC was added because its rating was downgraded and its outlook and CreditWatch statuses were revised to negative.

Sector breakdown

Based on the number of weakest links, S&P said the media and entertainment, financial institutions and oil and gas sectors are the most vulnerable to default,

The agency said the media and entertainment sector has the most weakest links, with 23, or15.5% of the total, followed by the financial institutions sector at 19, or 12.8% of the total.

S&P said U.S.-based issuers account for 58% of the 148 weakest links, According to the report, this preponderance partly reflects the fact that a large proportion of issuers S&P rates are based in the United States.

By volume, the 83 U.S.-based weakest links account for about $153 billion of debt, or 76% of the $201 billion total for all weakest links.

In the leveraged loan segment, S&P reported that the trailing-12-month institutional loan default rate, which is based on the number of loans, declined to 0.62% in December from 0.75% in November.

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