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Global Corporate Default Update

Global Corporate Default Update

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Published by: Erin Griffith on Aug 11, 2009
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Global Corporate Default Update
(July 31, 2009 – August 6, 2009)
Global Fixed Income Research
Diane Vazza, Managing Director(1) 212-438-2760diane_vazza@standardandpoors.comSudeep Kesh, Associate(1) 212-438-7982sudeep_kesh@standardandpoors.comStandard & Poor's55 Water Street33rd FloorNew York, NY 10041
Diane VazzaManaging Director
+1 212 438 2760
diane_vazza@standardandpoors.comSudeep KeshAssociate
+1 212 438 7982
Global Corporate Default Update(July 31, 2009 – August 6, 2009) (Premium)
NEW YORK (Standard & Poor's) August 7, 2009— Seven global corporate issuers defaulted thisweek, bringing the 2009 year-to-date tally to 194 issuers—nearly 4x the 52 defaults at this time in2008. This week’s defaults were largely concentrated in the U.S., where five out of seven of thedefaulters originated from, with the remaining two defaulters originating from the emergingmarkets. The default tallies by region now stand at 137 issuers in the U.S., 11 in Europe, 33 in theemerging markets, and 13 in the other developed region (Australia, Canada, Japan, and NewZealand).Distressed exchanges largely led this week’s default charge with five out of seven issuers havingtheir ratings revised to ‘SD’ as a result. Distressed exchanges have surged this year, with thecurrent tally of 60 issuers at 4x the full-year 2008 total and 15x the count of four issuers in 2007.For more information on distressed exchanges, see “
Global Credit Comment : BondholdersGet Buzzed (Premium),
” published May 1, 2009, on RatingsDirect.The remaining two defaults this week were a result of missed interest payments, which currentlyis the top reason for default this year at 67 issuers. Bankruptcy filings have also surged with 52issuers so far this year that have filed for bankruptcy-protection, which has surpassed the full-year2008 total of 49 bankruptcy-related defaults. The sharp increase in corporate bankruptcies bringswith it significant difficulties to private equity investors, particularly for those whose buyoutactivities in the past several years placed much of their risks squarely in the speculative-gradedomain. Indeed, more than half of the defaulters this year either had or continue to have privateequity involvement, which presents both challenges and opportunities to private equity investorsduring restructuring and reorganization. For more information, see “
Global Credit Comment:Exposure To Deteriorating Assets Increases Risks To Private Equity (Premium)
,” publishedMay 29, 2009.Of the global corporate defaulters so far this year, 40% of issues with available recovery ratingshad recovery ratings of ‘6’ (indicating our expectation for negligible recovery of 0%-10%), 17%of issues had recovery ratings of ‘5’ (modest recovery prospects of 10%-30%), 12% had recoveryratings of ‘4’ (average recovery prospects of 30%-50%), and 10% had recovery ratings of ‘3’(meaningful recovery prospects of 50%-70%). And for the remaining two rating categories, 12%of issues had recovery ratings of ‘2’ (substantial recovery prospects of 70%-90%) and 9% of issues had recovery ratings of ‘1’ (very high recovery prospects of 90%-100%). For more detailson recovery, see "
Bank Loan Ratings (BLRs) And Recovery Ratings (Monthly List)
,"published July 13, 2009, on RatingsDirect.The precipitous increase in defaults reflects a pronounced decline in economic fundamentals andearnings prospects, as well as the continued unfavorable environment to the lowest rungs of theratings latter, effectively halting lending to low-rated speculative-grade borrowers. A large
number of defaults likely will be concentrated in the first two or three quarters of 2009 as a resultof these factors, coupled with distressed exchange offers. Four other factors make the currentenvironment more conducive to defaults: deep recessionary conditions in the U.S., a record-highproportion of issuers with speculative-grade ratings, the highest volume of low-rated issuancesince 2003, and the seasoning of much of the debt rated 'B-' or lower issued in the past severalyears.Because of these factors, our current 12-month-trailing U.S. corporate speculative-grade defaultrate forecast is 13.9% by mid-2010, with a pessimistic scenario of 18% and an optimistic scenarioof 11.4%.For more information and analysis, please see the following reports available on RatingsDirect:
Quarterly Default Update and Rating Transitions (Premium),
” published August 5,2009.
Second-Quarter 2009 Default Synopses (Premium),
” published August 5, 2009.
U.S. Corporate Default Rate Expected To Inch Lower To 13.9% By June 2010After Peaking In First-Quarter 2010,
” published July 23, 2009.
The Devil is in the Details: Understanding The Variation In Corporate DefaultRates and Rating Transitions,
” published July 14, 2009.
Global Bond Markets Weakest Links and Monthly Default Rates
," published July27, 2009.
"U.S. High-Yield Prospects: Primary and Secondary Markets Rally In May(Premium)
," published June 11, 2009.
Global Credit Comment: Nearly 300 Global Corporate Entities Are Vulnerable ToDefault (Premium)
," published Mar. 26, 2009.
U.S. Distressed Debt Monitor: Distress Ratio Holds Steady Into The Summer(Premium)
," published July 27, 2009.
U.S. Recovery Study: Swollen Recovery Rates Conceal Underlying Trauma
,"published Nov. 25, 2008.
Table 1. Global Corporate Default Summary
Region12-Month TrailingSpeculative-GradeDefault Rate (%)2008 Full-Year2008 YTD2009 YTD2009 MTDWeakest Links
U.S.9.2596491375198Europe5.17111027Emerging Market6.4916033242Other Developed8.847213018Global8.25126521947285
YTD - Year To Date; MTD - Month To Date. Data as of Aug. 6, 2009. 12-Month Trailing Default  Rates from June 30, 2008 to June 30, 2009. Other Developed region includes Australia, Canada, Japan, and New Zealand. Default counts may include confidentially-rated issuers.Source : Standard & Poor's Global Fixed Income Research; Standard & Poor's CreditPro®.

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