S&P global speculative-grade default rate narrows to 1.78% in April

By Caroline Salls

Pittsburgh, May 29 – Standard & Poor’s trailing 12-month global speculative-grade default rate narrowed marginally to 1.78% in April from 1.81% in March, according to a report released Friday.

S&P said the U.S. corporate speculative-grade default rate widened to 1.82% in April from 1.79% in March. The European speculative-grade default rate also rose to 1.65% from 1.49%, and the emerging markets default rate declined to 1.55% from 1.70%.

Through May 18, S&P said 37 issuers had defaulted so far in 2015. These defaulted issuers have outstanding debt worth $34.8 billion.

The ratings agency said five non-confidential entities have defaulted since its last report, including Xinergy Corp., American Natural Resources Co., Halcon Resources Corp., Patriot Coal Corp. and Magnetation LLC.

Weakest links increase

S&P said the number of global weakest links increased to 164 as of May 18. The 164 weakest links account for a total of $221 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 five entities from the list of weakest links and added 15. Of those removed, four are based in the United States and one in Latin America. Of the 15 entities added this month, 10 are in the United States, including Bermuda and the Cayman Islands, two are in Asia-Pacific, and one each is in Canada, Europe, and Latin America.

Those removed from the list include:

• Stockbridge/SBE Investment Co. LLC and Hidroelectrica Piedra del Aguila SA were removed because their ratings were withdrawn;

• Florida East Coast Holdings Corp. was removed because its outlook was revised to stable; and

• Patriot Coal and Halcon were removed because they defaulted.

Those added to the list include:

• American Energy – Marcellus LLC, American Energy – Woodford LLC, BIS Industries Ltd., CORE Entertainment Inc., NYDJ Apparel LLC and Smart Technologies Inc. were added because they were downgraded, and their outlooks revised to negative;

• Sound Global Ltd. and American Energy – Permian Basin LLC were added because they were downgraded;

• Vantage Drilling Co., Isola USA Corp., and Vertellus Specialties Inc. were added because their outlooks were revised to negative;

• Truvo NV and Central Puerto SA were added because they were newly rated;

• Florida East Coast Industries LLC was added because of the removal of a related entity; and

• SandRidge Energy Inc. was added because it was downgraded and its CreditWatch status revised to negative.

Sector vulnerability

Based on the number of weakest links, S&P said the financial institutions and oil and gas sectors are the most vulnerable to default. The financial institutions and oil and gas sectors have the greatest number of weakest links with 24 issuers each, or 15% of the total. The media and entertainment sector has the next largest number of weakest links, with 22, or 13% of the total.

The ratings agency said U.S.-based issuers account for 58% of the 164 weakest links, partially reflecting the fact that a large proportion of issuers S&P rates are U.S.-based.

By volume, the 95 U.S.-based weakest links account for about $165 billion of debt, which is 75% of the $221 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 0.72% in April from 0.61% in March.

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