On Jan. 15, 2020, S&P Global Ratings withdrew its ratings at the issuer's request. Expansive Dataset: Includes more than 800,000 individual debt securities, both corporate and sovereign entities, and default history starting from 1920. . This is followed by a rating withdrawal in 1990 and a default in 1993. Defaults reached a multiyear high in 2020, but this was largely limited to nonfinancial corporates. For each rating listed in the matrix's leftmost column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entry for NR (see table 22). S&P Global Ratings then withdrew its issuer credit ratings on the company at its request. During 2020, the company increased its stake in V.E from 69.2% to 99.8%. On Dec. 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based payroll software provider Zellis Holdings Ltd. to 'SD' from 'CCC+'. PDF | On Jan 1, 2001, Edward I. Altman and others published Analyzing and Explaining Default Recovery Rates | Find, read and cite all the research you need on ResearchGate The outlook is negative, reflecting the company's unsustainable leverage and the risk that liquidity could deteriorate without an improvement in sector conditions. On March 20, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Kazakhstan-based Grain Insurance Co. JSC to 'D' from 'B' after the issuer missed payments to the counterparties. The company instructed the trustee to give a notice of optional redemption to redeem the remaining balance on Dec. 14, 2020. On April 14, 2020, S&P Global Ratings lowered its long-term issuer credit rating on United Arab Emirates-based health care service provider NMC Health PLC to 'D' from 'CCC-' after the issuer missed interest payments on its bank loans. On Sept. 25, 2020, Neiman Marcus Holding Company Inc. (formerly the Neiman Marcus Group Ltd. LLC) announced that it emerged from voluntary Chapter 11. In this proceeding, the issuer was to obtain US$80 million in debtor-in-possession, and if the prepackaged plan was approved, then the issuer would emerge with US$400 million of debt. This is roughly in line with the annual average since 2010, which is 76.7%. Export PDF Export CSV Email . Source: Moody's Investors Service, "Moody's Corporate Default & Recovery Rates Study 2019" Senior Secured Loans Equity Unsecured Debt (ie, high yield bonds) Subordinated Bonds Senior Unsecured Bonds Loans 28.0% 47.0% 80.0% Recovery Rate 100% 80% 60% 40% 20% 0% 1 Source: S&P Global Market Intelligence, Wells Fargo, March 31, 2020 On April 10, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Turkey-based household appliance manufacturer Vestel Elektronik Sanayi Ve Ticaret A.S. to 'SD' from 'CCC+' after the issuer postponed a portion of its financial obligation due in June for three to six months. On Feb. 13, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based newspaper publisher The McClatchy Co. to 'D' from 'CC' after the issuer filed for bankruptcy under Chapter 11. Consistent with the increase in the number of defaults in 2020, the volume of debt affected by defaults almost doubled to $353.4 billion. On Aug. 7, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD'. The issuer halted production at some of its plants because of the impact of the coronavirus pandemic and reached an agreement with its senior secured lenders for a financial restructuring plan. On Dec. 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on France-based car rental service provider company Europcar Mobility Group S.A. to 'SD' from 'CC' after the issuer elected not to pay the interest due on its 2024 and 2026 corporate senior notes prior to the end of the 30-day grace period. Following Acharya et al. On Jan. 22, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Spanish olive oil bottler Deoleo S.A. to 'SD' from 'CC' after a majority of shareholders agreed for restructuring of its syndicated debt. The majority (94%) began the year rated in the 'B' or 'CCC'/'C' category (57% 'CCC'/'C' and 37% 'B'). On Aug. 17, 2020, we withdrew the rating on the company at its request. On June 16, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Missouri-based propane distributor Ferrellgas Partners L.P. to 'SD' from 'CC' after the issuer decided to not make the final maturity payment on its US$357 million unsecured notes and entered into a forbearance agreement with its debtholders until July 31, 2020. Because of the extremely small size of the 'AAA' rating category, the downgrade of even one issuer will have a large effect on this segment's stability rate. Fourth quarter earnings releases have provided insight into corporate margin pressures, but labor market commentary signals that some of these headwinds may be abating. For the purposes of this study, we form static pools by grouping issuers (for example, by rating category) at the beginning of each year, quarter, or month that the database covers. In contrast, table 21 reports transition-to-default rates using the static pool methodology, which calculates movements to default from the beginning of each static pool year. The only ratings considered in these calculations are those on entities at the beginning of each static pool and those at the end. On May 12, 2020, S&P Global Ratings lowered the issuer credit rating on Texas-based oil and gas exploration and production company Fieldwood Energy LLC to 'D' from 'CCC' after the issuer failed to make the interest payments on its first- and second-lien term loans. On July 2, 2020, we raised the issuer credit rating to 'B-' from 'D' after RGIS completed its debt restructuring and eliminated over US$ 230 million of debt, which, in turn, improved leverage. On Feb. 4, 2020, S&P Global Ratings lowered its ratings on Lecta S.A. to 'D' from 'SD', on completion of restructuring of its debt obligation, and subsequently withdrew the ratings. Multiplying 96.29% by 96.39% results in a 92.81% survival rate to the end of the second year, which leads to a two-year average cumulative default rate of 7.19%. The issuer missed the interest payment on its US$450 million second-lien debt. On April 6, 2020, we raised the issuer rating to 'CCC-' from 'SD' to reflect the risk of a conventional default or restructuring, which was likely in the following six months. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. PFS also announced an agreement to merge with Animal Supply Co. On May 6, 2020, S&P Global Ratings lowered its ratings on the issuer to 'D' from 'SD' upon missed interest payments, following which, on May 14, 2020, the ratings on the issuer were withdrawn. Earlier, on April 22, 2020, we lowered our issuer credit rating on Takko to 'CCC+' from 'B-', reflecting our view that the group's ability to service its financial commitments could be further strained. As an example, if 'CCC'/'C' rated entities made up 10% of the total population of issuers at the start of the time frame examined (x-axis) and 50% of the defaulters (y-axis), then the coordinate (10, 50) would be the first point on the curve. 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. 'R' (regulatory intervention) indicates that an obligor is under regulatory supervision owing to its financial condition. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. For the full year, there were three large downgrades (and two large upgrades), compared with two downgrades in 2019 (see chart 7). In line with expectations, the Gini coefficients decline over time because longer time horizons allow for greater credit degradation among higher-rated entities. Financial services companies are more likely to be initially rated in the investment-grade category, while nonfinancial companies are much more likely to initially be rated speculative grade. For example, of all the companies that defaulted during 1981-2020, only two entities rated 'AAA' at inception defaulted within seven years. . Annual corporate bond issuance reached an all-time high in 2020, largely after the Fed and European Central Bank both created massive liquidity facilities in March, in response to the pandemic. 2 Annualized volatility and return based on the period between 2005 and 2022. On June 15, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Colorado-based oil and gas exploration and production company SM Energy Co. to 'SD' from 'CC' after the issuer announced the results of its previous exchange offer. For these counts of large downgrades, we include movements to 'D' (default) along with what we normally report as downgrades (that is, downward movements between active ratings). At the end of September, the trailing 12-month default rate for U.S. corporate issuers of speculative-grade bonds and loans was 8.5%, according to Moody's Investors Service. S&P Global Ratings lowers its rating on an obligor to 'D' or 'SD' if the obligor is conducting a distressed exchange offer. We study the effect of industry distress on recovery rates by using 5334 debt and loan instruments from Moody's Default and Recovery Database for the period from 1990 to 2017. The higher default rates for nonfinancial sectors are not surprising, given their higher concentration of speculative-grade issuers. In contrast, the relationship is slightly more discontinuous when we examine rating transitions across modifiers (the plus or minus after a rating), but these variations are likely a result of sample size considerations, and we do not consider them significant (see table 23). Since the beginning of 2020, secured debtholders had received 95% of par, on average, in the form of cash, preferred stock, and common equity for US$130 million of secured notes due 2023. On May 29, 2020, we raised the issuer credit rating to 'CCC-' from 'SD', reflecting our view of the approaching maturities that may have led to further restructuring of its capital. Our model further indicates that the global rate will . However, the speculative-grade share of both the financial and nonfinancial sectors has been growing in recent years. We believe that COVID-19-related fitness club closures have materially impaired the company's liquidity position. As part of the exchange, current owner Bain Capital made a 40 million equity contribution. On June 5, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based fitness service provider 24 Hour Fitness Worldwide Inc. to 'D' from 'CCC+' after the issuer missed interest payments on its senior notes due 2022 and entered into the grace period. The nonfinancial sector tends to have a much higher share of companies rated speculative grade, with 60.6% globally as of the beginning of 2020, compared with just 24.7% of financial services companies. The fixed rate loan and the floating rates loans were repurchased at 85% and 84.875% of the original price, respectively. Emerging markets: As an example, the standard deviation applied to the seven-year weighted average global Gini ratio in table 2 (5.3%) was calculated from the time series of all available seven-year Gini ratios by cohort. All companies included in the study are assigned to one or more static pools. 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 July 8, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Indonesia-based property developer PT Modernland Realty Tbk. The issuer is still under high execution risk after its Chapter 11 filing in 2019. Following a year marked by one of the deepest recessions in the past 100 years, 2021 proved to be a year of better-than-expected economic recovery, despite the lingering COVID-19 pandemic. For example, of the 251 companies that defaulted within 12 months of having been rated, 233 (or 92.8%) were originally in the 'B' or 'CCC'/'C' categories (see table 12). The gap becomes even wider over longer time horizons, such as three years and 10 years (see chart 19). The study introduces two kinds of models of distribution, Beta distribution estimation and kernel density distribution estimation, to simulate the distribution of recovery rates of corporate loans and bonds. The notable exception was Europe, which continued to see historically elevated defaults through the third and fourth quarters. *Fallen angels that survived to Jan. 1 of the year after they were downgraded. Ratings stability decreased in 2020, to 69.2%, largely the result of the downgrade rate of 18.5%, which was the highest since 2009. 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 7, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based exploration and production (E&P) company Gavilan Resources LLC to 'D' from 'CCC-'. We considered the transaction as distressed given the company's weak operating performance, negative cash flow generation, and near-term debt maturities. However, in most of the relatively benign period since the financial crisis, the two series have diverged somewhat, as they did in 2004-2007. On Jan. 18, 2021, S&P Global Ratings withdrew its ratings at the issuer's request. Its Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. On July 23, 2020, S&P Global Ratings lowered its rating on the issuer to 'D' from 'CCC-' upon the company filing for Chapter 11 bankruptcy, following which, on Jan. 5, 2021, the ratings on the issuer were withdrawn. Earlier, on March 21, 2020, we lowered our issuer credit rating on GNC to 'CC' from 'CCC+' and placed all ratings on CreditWatch with negative implications as the company announced that it did not expect to have sufficient cash flow from operations to repay its convertible senior notes and tranche B-2 term loan due. The syndicated creditors will now acquire 49% of the capital of the operating business. These weights are based on each cohort's rating level's contribution to the 40-year total issuer base for each rating level. On Oct. 19, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Oklahoma-based home security and monitoring company Central Security Group Inc. to 'SD' from 'CCC-' after the issuer completed a distressed debt exchange on the first-lien credit facility, in which lenders will exchange about US$396 million of their respective claims for a new US$200 million first-lien term loan due 2025 and most of the reorganized equity, and the second-lien lenders will exchange 100% of their US$50 million claim for 1% of the company's reorganized equity. Moody's expects the overall default rate for commodity companies to fall sharply this year, to 3.4% from 12.6% in 2016. On Oct. 30, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' following the completion of the distressed exchange. For example, in the average one-year global transition matrix in table 33, each cell's weighted standard deviation is calculated from the series of that particular cell in each of the 40 cohorts beginning with the 1981 cohort and ending with the 2020 cohort. On Dec. 17, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC-' from 'SD', which reflects the completion of the distressed exchange and significant risks over the next few months given looming debt maturities and very high leverage. It had other coupon payments of US$8 million each in August and October. After speculative-grade ratings reached a peak of 51% of U.S. corporate ratings in 2007, the default rate hit its cyclical peak of 12% in 2009, following the Great Recession (see chart 23). The issuer entered into an agreement with the majority of its lenders for recapitalization of its funded debt. For instance, the 1981 static pool consists of all companies rated as of 12:00:01 a.m. on Jan. 1, 1981. 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 Nov. 18, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based debt issuing company Summit Midstream Partners Holdings LLC to 'D' from 'CC' after the issuer closed its sole debt restructuring transaction, at a significant discount. 16 FEB 2023. The issuer has been facing negative free cash flows and unsustainable leverage because of its high debt balance and uneven operating performance. Noteholders validly tendered about 69% of the total outstanding principal amount of the notes through the exchange. Finally, PD estimates should also be compared across banks (EBA 2020). The rating action followed the issuer's completed exchange of its unsecured notes of cash and PIK. Project Finance Bank Loans: Default and Recovery Rates for 1983-2020 (APAC) APAC Edition. In Europe, by contrast, the share of speculative-grade ratings remains in the minority. On May 14, 2020, we withdrew the ratings on the issuer. On Sept. 23, 2020, S&P Global Ratings lowered its long-term issuer credit rating on France-based media and entertainment company Technicolor S.A. to 'SD' from 'CC' after the group completed its financial restructuring plan. One key reason is that financial services companies typically start with investment-grade ratings, while most nonfinancial issuers have speculative-grade initial ratings, particularly over the past 10 years. Of the 226 corporate defaults in 2020, the majority (146) were from companies in the U.S. and associated tax havens (Bermuda and the Cayman Islands). On Aug. 10, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New York-based oil field service and drilling service provider UTEX Industries Inc. to 'D' from 'CCC' after the issuer opted for missing interest payments on its first-lien and second-lien notes. A bankruptcy filing or legal receivership by the debt issuer or obligor that will . Our analysis is conducted at the bond level with RAD as the recovery rate measure. As in most recovery periods, defaults fell relative to the prior year, with the S&P Global Ratings global speculative-grade corporate default rate falling below 2% for only the eighth time in the past 41 .
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