Untitled

Default, Transition, and Recovery:
2013 Annual Emerging Markets Corporate Default Study And Rating Transitions
Global Fixed Income Research: Diane Vazza, Managing Director, New York (1) 212-438-2760; diane.vazza@standardandpoors.com Sarab Sekhon, CFA, Associate Director, New York (1) 212-438-6438; sarab.sekhon@standardandpoors.com Research Contributors: Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P affiliate, Mumbai Aniket Sakhare, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
Table Of Contents
Emerging Markets Corporate Defaulters Emerging Markets Ratings Performance Transition Tables And Cumulative Default Rates Gini Ratios And Lorenz Curves Appendix I: Default Methodology And Definitions Appendix II: Additional Tables Appendix III: Gini Methodology Appendix IV: Defaults In Profile Related Research
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
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Default, Transition, and Recovery:
2013 Annual Emerging Markets Corporate Default Study And Rating Transitions
Despite the high volatility in emerging markets during 2013, the region's rating stability and credit quality were relatively unchanged from 2012, and defaults decreased. In 2013, the number of defaults in the emerging markets declined to 16 from 24 in 2012. This brought the emerging markets corporate default rate for all rated entities to 1.08% in 2013, down from 1.41% in 2012. The emerging markets corporate speculative-grade default rate also fell, to 1.96% in 2013 from 2.56% in 2012. During the year, the corporate speculative-grade default rates decreased in all other regions, except Europe. The global rate declined to 2.23% from 2.52%, and the U.S. rate fell to 2.12% from 2.58%, while the European default rate spiked to 3.33% from 2.19%. Moreover, defaults in the emerging markets accounted for 20% of the global defaulters by issuer count. In our 17-year history of tracking emerging markets defaults, this share has been more than 20% in only three years: 1998, 2002, and 2012. (Watch the related CreditMatters TV segment titled, "Standard & Poors Highlights The Results Of Its Default And Ratings Transitions Study On Emerging Markets," dated April 3, 2014.) Overview The number of emerging markets defaults declined to 16 in 2013 from 24 in 2012. As a result, the trailing 12-month speculative-grade default rate in the region decreased to 1.96% from 2.56%. Of the 16 emerging markets defaults, eight were from Latin America, six from Emerging Europe, the Middle East, and Africa (EEMEA), and two from Emerging Asia. The countries contributing the most were Mexico, Israel, and Brazil. In 2013, the emerging market defaults accounted for about 20% of global defaulters by count and about 15% by affected debt. The share by count is the fourth highest in the 17 years for which we have default data in the region. Among rated corporate entities based in the emerging markets, the one-year Gini coefficient was 83.33% in 2013, which is higher than the 32-year global average of 82.27%. Moreover, the Gini ratio for emerging markets has steadily improved during the past six years. This means that a majority of emerging markets defaults in recent years have come from the lower rating categories.
Similar to our global default study, the emerging markets default data indicate that ratings are effective indicators of relative credit risk and deliver consistent value over time. Standard & Poor's found a clear negative correspondence between ratings and defaults: The higher the issuer rating, the lower the observed default frequency. We measure this correspondence with movements in Gini coefficients. Gini ratios measure the rank-ordering power of ratings over a given time horizon and show the ratio of actual rank-ordering performance to theoretically perfect rank ordering. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the Gini coefficient would be 100%. Among rated corporate entities based in the emerging markets, the one-year Gini coefficient was 83.33% in 2013,
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Default, Transition, and Recovery: 2013 Annual Emerging Markets Corporate Default Study And Rating Transitions
which is higher than the 32-year global average of 82.27%. Moreover, the Gini ratio for emerging markets has steadily improved during the past six years. This period is also associated with a larger number of defaults in the region. This means that the majority of emerging markets defaults in recent years have come from the lower rating categories. (This metric is based on ratings one year prior to default and not immediately preceding the default.) The increase in our rated universe in emerging markets will continue to make this measure more meaningful and lower the likelihood of data distortion by outliers, which still affects the region's long-term averages. Over a longer time horizon, the 1997-2013 one-year weighted-average Gini coefficient for emerging markets was 71.52%, the three-year was 53.25%, and the five-year was 44.04%. By comparison, the long-term (1981-2013) one-year weighted-average Gini coefficient for the global pool was 82.27%, three-year was 75.48%, and five-year was 71.97%. The weighted averages in this report use the issuer count at the beginning of the year as the weights. (For more details on the Gini methodology, refer to Appendix III.) Unless noted otherwise, the statistics we present in this study refer to Standard & Poor's CreditPro corporate local currency ratings universe. They include financial and nonfinancial companies in the emerging markets but exclude sovereigns and public finance issuers. For our methodology and definitions of the terms used, as well as the emerging market countries included in this study, see Appendix I. Here are our key observations: In 2013, there were 16 defaults in the emerging markets, a sharp decline from 24 in 2012 but up from only three in 2011 and nine in 2010. Of the 16 defaults, Standard & Poor's rated 14 speculative grade at the beginning of 2013 and withdrew its rating on one before Jan. 1, 2013. The remaining one started 2013 without active ratings. The global scale ratings on six of the 16 defaults were confidential. No emerging market entity rated investment grade ('BBB-' and higher) at the beginning of the year defaulted in 2013. The 16 emerging markets defaults in 2013 affected more than $14 billion of debt. OGX Petroleo e Gas Participacoes S.A. missed an interest payment in October 2013 and became the largest emerging market defaulter by debt amount affected. The Brazil-based energy company had $3.6 billion of debt obligations outstanding at the time of default. Globally, corporate defaults decreased slightly to 81 in 2013 from 83 in 2012. Companies based in the U.S. region, which includes the U.S. and the tax havens of Bermuda and the Cayman Islands, accounted for 45 (or 56%) of the defaults. The 81 global corporate defaults in 2013 affected debt worth US$97.29 billion, up from US$86.7 billion in 2012. Of the 16 emerging markets defaults, eight were from Latin America, six from Emerging Europe, the Middle East, and Africa (EEMEA), and two from Emerging Asia. The countries contributing the most to 2013 defaults were Mexico (six), Israel (four), and Brazil (two). These countries also have some of the largest shares of ratings within the emerging markets region. The six Mexican defaults include two defaults by telecommunications company Axtel S.A.B. de C.V., which defaulted twice during the year--through distressed exchanges in January and December (see table 7). By industry, the telecommunications sector had the highest default rate of 7.55%, with Mexican companies leading the default tally in the sector. Missed interest and principal payments were the most common reasons for default in the emerging markets during 2013, accounting for 75% of the total. Among nonfinancial entities, the aggregate one-year default rate in 2013 of 1.71% is significantly lower than the 1997-2013 long-term average of 2.94%. The financial sector default rate, which declined significantly from 2012 to 0.34% in 2013, is also lower than the 1997-2013 average of 1.35% and the 2.53% recorded in 2009 during the peak
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of the global financial crisis. The average time to default--the average number of years elapsed between the initial rating date and the default date--for the region's 16 rated defaults was 4.9 years, slightly lower than the global average of 5.2 years across all defaulters in 2013. Similarly, the average time to default for all defaulters in the emerging markets over the long term from 1997-2013 was 3.4 years, while the average for all global defaulters from 1981-2013 was 5.7 years. The shorter time to default may be attributable to the emerging markets' relatively smaller number of data points, as well as the higher speculative-grade bias than the global pool. Ratings stability, measured by the proportion of unchanged ratings, historically has increased as credit conditions improve. Ratings in the emerging markets were least stable in 2002, with only 56% of ratings the same at the end of the year as they were at the beginning. In 2013, about 69% of ratings were unchanged, compared to 70% in 2012. In comparison, 72% of ratings globally were unchanged in 2013, the same as the prior year. Along with a decrease in defaults in 2013, downgrades as a proportion of all rating actions also fell. In 2013, 9.2% of entities in the emerging markets had lower ratings at the end of the year than they did at the beginning. The downgrade-to-upgrade ratio in the emerging markets also declined significantly, to 67% in 2013 from 93% in 2012. This resulted partly from changes in the corporate rating criteria that were incorporated during the fourth quarter of 2013. In comparison, 8.9% of entities globally had lower ratings at the end of 2013 (excluding downgrades to 'D') than they did at the beginning, and the global downgrade-to-upgrade ratio was 80%. Standard & Poor's assigned ratings on 226 new emerging market issuers in 2013, up from 204 new issuers rated in 2012. These new ratings may include entities that came out of distressed exchanges (or default). Of the 226 new issuers, we rated 156 entities, or 69%, speculative grade (see table 4 and chart 3). Of all 1,412 actively rated emerging market issuers at the end of 2013, Standard & Poor's rated 56% speculative grade, compared with about 49% for all global issuers. In emerging markets, the share of speculative-grade entities has remained almost stable since the financial crisis and is lower than the average of 59% since 1997.
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Chart 1
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Chart 2
Table 1
Emerging Market Corporate Default Summary

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total defaults* 1 16 17 5 29 60 14 4 2 2 1 16 33 9 Investment-grade defaults 1 2 0 0 0 0 0 0 0 0 0 1 3 0 Speculative-grade defaults 0 13 16 4 17 53 13 3 1 2 1 13 29 8 Default rate (%) 0.72 5.43 4.88 1.06 4.01 11.55 2.52 0.51 0.15 0.26 0.12 1.45 3.15 0.81 Investment-grade default rate (%) 1.12 1.61 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.24 0.63 0.00 Speculative-grade default rate (%) 0.00 8.55 7.69 1.64 6.18 17.32 3.86 0.83 0.24 0.43 0.20 2.39 5.38 1.52
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Table 1
Emerging Market Corporate Default Summary (cont.)

2011 2012 2013 Average Median Standard deviation Minimum Maximum 3 24 16 15 14 15 1 60 0 0 0 0 0 1 0 3 3 17 14 12 13 13 0 53 0.26 1.41 1.08 2.32 1.08 2.91 0.12 11.55 0.00 0.00 0.00 0.21 0.00 0.47 0.00 1.61 0.46 2.56 1.96 3.60 1.96 4.45 0.00 17.32
*This column includes companies that were no longer rated at the time of default. Investment-grade (speculative-grade) defaults refer to defaulting entities within the year that were rated investment-grade (speculative-grade) in the beginning of the period. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
Table 2
Global Corporate Default Summary

Total defaults* 2 18 12 14 19 34 19 32 44 70 93 39 26 21 35 20 23 56 109 136 229 226 119 56 40 30 Investment-grade defaults 0 2 1 2 0 2 0 0 3 2 2 0 0 1 1 0 2 4 5 7 7 13 3 1 1 0 Speculative-grade Default defaults rate (%) 2 15 10 12 18 30 19 29 35 56 65 32 14 15 29 16 20 48 92 109 173 159 89 38 31 26 0.14 1.19 0.76 0.91 1.11 1.72 0.94 1.38 1.77 2.73 3.25 1.49 0.60 0.62 1.04 0.51 0.63 1.27 2.13 2.46 3.76 3.57 1.91 0.77 0.60 0.47 Investment-grade default rate (%) 0.00 0.18 0.09 0.17 0.00 0.15 0.00 0.00 0.22 0.14 0.14 0.00 0.00 0.05 0.05 0.00 0.08 0.14 0.17 0.24 0.23 0.42 0.10 0.03 0.03 0.00 Speculative-grade default rate (%) 0.62 4.41 2.94 3.27 4.32 5.67 2.79 3.85 4.67 8.12 11.05 6.10 2.50 2.10 3.52 1.80 2.00 3.65 5.55 6.17 9.78 9.41 5.00 2.00 1.49 1.18 Total debt outstanding (bil. $) 0.1 0.9 0.4 0.4 0.3 0.5 1.6 3.3 7.3 21.2 23.6 5.4 2.4 2.3 9.0 2.7 4.9 11.3 39.4 43.3 118.8 190.9 62.9 20.7 42.0 7.13
Year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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Table 2
Global Corporate Default Summary (cont.)

2007 2008 2009 2010 2011 2012 2013 Average Median Standard deviation Minimum Maximum 24 127 268 83 53 83 81 68 40 66 2 268 0 14 11 0 1 0 0 3 1 4 0 14 21 89 224 64 44 66 64 53 32 51 2 224 0.37 1.78 4.14 1.19 0.79 1.11 1.04 1.46 1.11 1.03 0.14 4.14 0.00 0.42 0.32 0.00 0.03 0.00 0.00 0.10 0.05 0.12 0.00 0.42 0.90 3.65 9.75 2.94 1.80 2.52 2.23 4.17 3.52 2.77 0.62 11.05 8.15 429.63 627.70 97.48 84.30 86.70 97.29 62.23 8.97 130.62 0.06 627.70
*This column includes companies that were no longer rated at the time of default. Investment-grade (speculative-grade) defaults refer to defaulting entities within the year that were rated investment-grade (speculative-grade) in the beginning of the period. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
Table 3
Summary Of Emerging Market Net Annual Rating Activity (%)*

Issuers as of Jan. 1 138 276 328 376 424 459 516 583 676 772 841 966 1,016 986 1,147 1,203 1,292 Upgrades (%) 5.07 2.90 2.44 10.11 7.31 9.59 13.37 15.95 25.30 18.65 20.21 11.18 5.22 16.43 16.91 10.56 13.70 13.37 12.05 11.18 6.40 Downgrades (%) 17.39 27.54 15.85 9.31 17.22 15.69 5.81 2.06 2.22 2.85 3.92 8.70 17.72 4.56 8.89 9.81 9.21 9.10 10.51 9.21 7.07 Defaults (%) 0.72 5.43 4.88 1.06 4.01 11.55 2.52 0.51 0.15 0.26 0.12 1.45 3.15 0.81 0.26 1.41 1.08 1.78 2.32 1.08 2.91 Withdrawn ratings (%) 5.80 5.07 9.15 5.59 9.67 7.84 9.50 6.17 8.14 15.28 9.27 9.21 9.74 8.72 9.50 7.90 7.43 8.83 8.47 8.72 2.34 Changed ratings (%) 28.99 40.94 32.32 26.06 38.21 44.66 31.20 24.70 35.80 37.05 33.53 30.54 35.83 30.53 35.57 29.68 31.42 33.09 33.35 32.32 5.16 Unchanged ratings (%) 71.01 59.06 67.68 73.94 61.79 55.34 68.80 75.30 64.20 62.95 66.47 69.46 64.17 69.47 64.43 70.32 68.58 66.91 66.65 67.68 5.16 Downgrade-to-upgrade ratio 3.43 9.50 6.50 0.92 2.35 1.64 0.43 0.13 0.09 0.15 0.19 0.78 3.40 0.28 0.53 0.93 0.67 1.25 1.88 0.78 2.59
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Weighted average Average Median Standard deviation
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Table 3
Summary Of Emerging Market Net Annual Rating Activity (%)* (cont.)

Minimum Maximum 2.44 25.30 2.06 27.54 0.12 11.55 5.07 15.28 24.70 44.66 55.34 75.30 0.09 9.50
*This table compares the net change in ratings from the first to the last day of each year. All intermediate ratings are disregarded. Excludes downgrades to 'D', shown separately in the default column. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
Table 4
Rating Classification Of New Corporate Issuers* In Emerging Markets

--First rating-Investment grade (%) 34.0 32.1 22.6 20.8 28.4 25.5 32.3 31.5 29.5 26.0 34.2 41.9 26.5 18.4 31.7 25.5 31.0 28.9 Speculative grade (%) 66.0 67.9 77.4 79.2 71.6 74.5 67.7 68.5 70.5 74.0 65.8 58.1 73.5 81.6 68.3 74.5 69.0 71.1
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
AAA
AA 2 2 2
A 3 6 4 3
BBB 45 18 15 10 20 32 30 26 30 35 41 43 19 40 42 40 52 538
BB 53 30 41 25 30 47 31 45 45 59 47 44 32 67 42 66 72 776
B 44 25 28 27 32 58 39 30 55 71 78 38 33 125 63 75 77 898
CCC/C
Total 147 81
3 5 11 12 18 12 5 12 8 8 10 16 9 11 7 147
93 72 102 157 130 127 149 192 202 155 102 255 167 204 226 2561
2 4 2 1 1 1
5 6 10 13 14
2 1 1 1 2 1 2 3 6 24
13 27 21 7 5 10 10 15 172
*Includes issuers that are assigned a new rating after default as well as those companies that receive a rating for the first time. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
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Chart 3
Table 5
Annual Emerging Market Corporate Default Rates By Industry (%)

Aerospace/automotive /capital goods/metal 0.00 4.35 22.22 0.00 14.81 6.90 0.00 0.00 0.00 2.04 1.72 0.00 9.52 1.75 Energy and natural resources 0.00 6.25 0.00 5.88 0.00 19.23 0.00 3.13 2.50 0.00 0.00 4.29 2.82 3.13 Financial institutions 2.08 7.95 1.12 0.00 3.90 3.01 0.00 0.41 0.00 0.00 0.00 0.58 3.17 0.80 Forest and building products/homebuilders 0.00 4.76 4.55 0.00 15.00 10.53 5.26 5.26 0.00 0.00 0.00 2.70 5.26 0.00
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Consumer/service sector 0.00 4.17 8.82 2.94 5.26 5.13 0.00 0.00 0.00 1.79 0.00 5.19 6.56 0.00
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Table 5
Annual Emerging Market Corporate Default Rates By Industry (%) (cont.)

2011 2012 2013 Weighted average Average Median Standard deviation Minimum Maximum 0.00 2.94 0.00 3.27 3.90 1.72 6.28 0.00 22.22 0.00 1.27 1.12 2.28 2.49 1.27 2.84 0.00 8.82 High technology/computers/office equipment 0.00 0.00 0.00 0.00 25.00 0.00 7.14 0.00 0.00 0.00 0.00 5.56 0.00 0.00 0.00 0.00 0.00 1.39 2.22 0.00 6.24 0.00 25.00 Transportation 0.00 6.67 5.88 0.00 0.00 2.50 1.12 2.47 2.99 2.50 4.68 0.00 19.23 0.25 1.17 0.43 1.05 1.46 0.58 2.08 0.00 7.95 0.00 2.33 4.65 3.19 3.55 2.70 4.20 0.00 15.00
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Weighted average Average Median Standard deviation Minimum Maximum Year 1997 1998 1999 2000
Health care/chemicals 0.00 11.11 10.00 10.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 7.41 0.00 0.00 2.08 2.00 2.62 3.68 0.00 5.90 0.00 20.00 Telecommunications 0.00 0.00 0.00 3.45
Insurance 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Utility 0.00 0.00 0.00 0.00
Leisure time/media 0.00 6.25 13.04 0.00 0.00 50.00 9.09 0.00 0.00 0.00 0.00 4.76 5.00 0.00 0.00 0.00 0.00 5.48 5.19 0.00 12.20 0.00 50.00
Real estate 0.00 12.50 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.67 0.00 2.27 1.23 1.61 0.00 3.74 0.00 12.50
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Table 5
Annual Emerging Market Corporate Default Rates By Industry (%) (cont.)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Weighted average Average Median Standard deviation Minimum Maximum 3.33 16.22 14.29 0.00 0.00 0.00 0.00 3.45 1.64 0.00 0.00 0.00 7.55 2.82 2.94 0.00 5.09 0.00 16.22 0.00 0.00 4.76 0.00 0.00 0.00 0.00 0.00 2.33 2.33 0.00 1.85 1.61 1.25 1.50 0.00 2.24 0.00 6.67 0.00 27.14 5.36 0.00 0.00 0.00 0.00 0.00 0.98 0.93 0.00 3.33 0.00 2.15 2.22 0.00 6.59 0.00 27.14
Note: Includes investment-grade and speculative-grade entities. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
Table 6
Cumulative Emerging Market Corporate Default Rates By Sector (%)

--All financials-Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 One-year 2.00 7.69 1.06 0.00 3.73 2.91 0.00 0.38 0.00 0.00 0.00 0.48 2.53 0.64 0.20 Three-year N/A N/A 4.00 8.79 7.45 5.63 4.97 2.91 0.45 0.38 0.00 0.00 2.20 3.33 3.38 10-year N/A N/A N/A N/A N/A N/A N/A N/A N/A 10.00 16.48 11.70 5.63 6.21 4.07 One-year 0.00 4.32 6.41 1.71 4.18 16.72 4.44 0.63 0.27 0.46 0.21 2.20 3.69 0.97 0.31 --All nonfinancials-Three-year N/A N/A 10.23 10.81 12.82 22.65 24.71 21.60 5.46 0.94 0.53 1.39 3.56 6.59 4.61 10-year N/A N/A N/A N/A N/A N/A N/A N/A N/A 22.73 30.27 31.62 29.06 27.00 23.34
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Table 6
Cumulative Emerging Market Corporate Default Rates By Sector (%) (cont.)

2012 2013 Average Median Standard deviation Minimum Maximum 0.92 0.34 1.35 0.48 2.00 0.00 7.69 1.06 1.98 3.10 2.91 2.70 0.00 8.79 1.35 1.13 7.07 5.92 5.32 1.13 16.48 1.81 1.71 2.94 1.71 4.02 0.00 16.72 2.71 3.89 8.83 5.46 8.19 0.53 24.71 7.17 4.09 21.91 25.17 10.55 4.09 31.62
Note: All financials refers to financial institutions and insurance combined. N/A--Not applicable. Sources: Standard & Poors Global Fixed Income Research and Standard & Poor's CreditPro.
Emerging Markets Corporate Defaulters

Of the 16 emerging market defaults in 2013, six were rated confidentially (see table 7). For details on the defaulted companies, including their rating histories, see Appendix IV.
Table 7
Itemized 2013 Emerging Market Corporate Defaults

--Next-to-last rtg-Rtg 1 yr. prior to default Rtg 3 yrs. prior to First Date of default rtg first rtg BBB+ B BB 12/9/2003 4/4/2006
Company name Axtel S.A.B. de C.V. Urbi Desarrollos Urbanos S.A.B.de C.V. Corporacion GEO S.A.B. de C.V. Desarrolladora Homex S.A.B. de C.V. Maxcom Telecomunicaciones S.A.B. de C.V. Agroton Public Ltd. Banco Rural S.A. OGX Petroleo e Gas Participacoes S.A. PT Bakrie Telecom Tbk. Axtel S.A.B. de C.V.
Reason for default Distressed exchange Missed interest Missed interest Missed interest Missed interest Missed interest
Country Mexico Mexico
Industry Telecoms FP&BM
Debt amount Default (mil. $) date 765 1/29/2013 150 4/19/2013
Rtg CC CCC-
Date
Sub region Lat Am Lat Am
12/28/2012 B 4/18/2013 B+
Mexico Mexico
FP&BM Real estate Telecoms
900 4/29/2013 250 6/11/2013
CCC+ 4/12/2013 NR 2/8/2012
BBNR
BBBB-
BB BB-
7/18/2001 9/15/2005
Lat Am Lat Am
Mexico
200 6/19/2013
CC
2/21/2013
CCC+
11/27/2006 Lat Am
Ukraine
Consumer Fin. inst. E&NR
50 7/19/2013 0 8/5/2013 3,626 10/1/2013 380 11/8/2013
CCC BCCCCC
4/12/2013
CCC+
BB -
BBB B B-
5/6/2011 6/30/2008 5/20/2011 4/21/2010 1/31/2013
EEMEA Lat Am Lat Am Emerging Asia Lat Am
Receivership Brazil Missed interest Missed interest Distressed exchange Total Brazil
12/11/2012 B 8/15/2013 11/5/2013 B B-
Indonesia Telecoms Mexico Telecoms
1,036 12/24/2013 CC 7,357*
11/25/2013 -
FP&BM--Forest products and building materials. Consumer--Consumer/service sector. Fin. inst.--Financial institutions. E&NR--Energy and natural resources. Lat Am--Latin America. *This total excludes confidentially rated defaults. Initial rating for the company is the one immediately following a prior default in 2013. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
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Emerging Markets Ratings Performance

Standard & Poor's annual study of corporate defaults in the emerging markets identified a clear negative correspondence between ratings and defaults: The higher the issuer rating, the lower the observed default frequency (see chart 4).
Chart 4
From 1997 to 2013, corporate defaults in the emerging markets totaled 252, a small fraction of the 1,743 recorded globally during the same period. The small sample size introduces some challenges in the analysis. The average time to default for the 16 emerging market defaults in 2013 was 3.4 years, which is significantly lower than global trends. By and large, higher ratings generally take a longer time to default, though this is less evident in the emerging markets because of the paucity of investment-grade defaults (see chart 5). For example, emerging market entities rated 'B' took an average of 2.6 years to default, less than the 4.4 years for 'BB' rated entities. The time to default for 'A' rated entities is an anomaly because there is just one default from this rating category. Note that the average times to default from original rating for emerging markets entities are shorter across all rating categories than they are for the global pool. This is true regardless of whether the times to default are calculated from original rating (see table 8) or from any successive ratings (see table 9). This difference in the average timing (and the associated standard deviation) results
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partly from the significantly smaller volume of defaults in every rating category in the emerging markets. For example, of the global pool of issuers in the 'BB' category, 547 defaulted during the 33 years ended in 2013, whereas the comparable number for emerging markets was only 81 defaults in the past 17 years.
Chart 5
Table 8
Time To Default From Original Rating Among Corporate Defaulters (Emerging Markets Versus Global)
Original rating Emerging markets (1997-2013) AAA AA A BBB BB B CCC/C Total N/A N/A 1 33 81 111 26 252 N/A N/A 1.6 4.2 4.4 2.6 2.4 3.4 N/A N/A 1.6 4.3 4.1 2.1 1.4 2.9 N/A N/A N/A 1.8 2.7 2.0 2.5 2.4 Defaults Average years from original rating Median years from original rating Standard deviation of years from original rating
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Table 8
Time To Default From Original Rating Among Corporate Defaulters (Emerging Markets Versus Global) (cont.)
Global (1981-2012) AAA AA A BBB BB B CCC/C Total 8 30 90 190 547 1,209 167 2,241 18.0 14.9 12.7 8.2 6.4 4.7 2.4 5.7 18.5 12.8 10.8 6.7 5.0 3.5 1.4 4.0 11.4 8.5 7.7 5.7 4.9 3.9 2.8 5.2
N/A--Not available. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
Table 9
Time To Default From All Ratings Among Corporate Defaulters (Emerging Markets Versus Global)
Rating path to default Average years from rating category Median years from rating category Standard deviation of years from rating category
Emerging markets (1997-2012) AAA AA A BBB BB B CCC/C Total Global (1981-2012) AAA AA A BBB BB B CCC/C Total 18.3 14.0 10.9 7.7 5.6 3.4 0.9 3.7 19.5 14.4 9.8 6.1 4.2 2.3 0.3 1.9 10.2 8.3 7.4 6.2 5.0 3.7 1.7 4.8 N/A N/A 1.1 4.1 3.0 1.6 0.6 1.7 N/A N/A 1.1 4.2 2.5 0.9 0.2 0.8 N/A N/A 0.6 1.9 2.5 1.7 1.0 2.0
N/A--Not available. Source: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
The breakout of default rates by modifier shows that historically, lower rating categories experience higher default rates, on average, though variability is possible in any given year (see table 10). Nevertheless, the data from past default cycles indicate that most of the defaults stemmed from the lowest ratings.
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Table 10
Emerging Market Corporate Default Rates By Rating Modifier (%)

AAA AA+ 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Average Median Standard deviation Minimum Maximum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A N/A N/A AA AAA+ A A- BBB+ BBB BBB- BB+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.14 0.00 0.00 0.00 0.00 0.07 0.00 0.28 0.00 1.14 6.67 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.39 0.00 1.62 0.00 6.67 0.00 3.92 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.01 0.93 0.00 0.00 0.00 0.00 0.34 0.00 0.98 0.00 3.92 BB BB0.00 B+ 0.00 B 0.00 B- CCC/C 0.00 N/A N/A 22.73 10.00 20.00 59.26 17.78 2.56 0.00 4.55 4.17 10.53 40.00 16.67 4.17 18.75 17.65 16.59 16.67 15.65 0.00 59.26
n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 3.85 3.70 0.00 0.00 0.00 0.00
0.00 12.82 22.22 20.00 2.27 11.76 23.81 0.00 2.27 5.45 5.26 4.17 6.67 0.00 4.55
N/A N/A 0.00 0.00 0.00 0.00 N/A N/A 0.00 0.00 0.00 0.00 N/A N/A 0.00 0.00 0.00 0.00 0.00 N/A 0.00 0.00 0.00 0.00 N/A N/A 0.00 0.00 0.00 0.00 N/A N/A N/A 0.00 0.00 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.78 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.16 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.67 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.78 0.00 0.00
0.00 1.72 11.67 3.03 3.33 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.18 0.00 1.03 1.28 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.48 0.65 0.00 0.00 1.16 1.20 0.00 0.00 8.70 0.00 1.49 0.00 1.05 0.00 0.75 0.69 1.52 0.00 0.88 0.78 1.75 0.75 3.29 0.00
2.27 20.51 16.67 3.23 1.61 0.00 0.00 0.00 2.88 9.72 0.00 0.00 1.87 1.01 3.23 1.87 4.23 0.00 5.56 0.00 1.69 0.00 0.00 4.76 8.00 0.00 0.00 1.71 1.75 5.85 1.75 8.18 0.00 2.56 0.00 0.00 0.00 0.00 4.00 9.23 0.00 2.17 6.98 3.64 4.50 2.56 5.99 0.00
3.85 3.70 11.67 12.82 23.81 20.00
N/A--Not applicable. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
Transition Tables And Cumulative Default Rates

The analysis of rating transitions in 2013 suggests that ratings behavior in the emerging markets exhibits consistency with global trends, which have shown a negative correspondence between credit rating and default probability. Investment-grade-rated issuers in the emerging markets tend to exhibit greater credit stability (as measured by the frequency of rating transitions) than their speculative-grade counterparts (see table 11). For instance, about 93.7% of issuers in the emerging markets rated 'A' as of Jan. 1, 2013, were still rated 'A' at the end of 2013, whereas the comparable metric for issuers rated 'BB' was only 82.7%. Caution must be used in interpreting the low stability rates associated with the 'CCC'/'C' rating category in light of the small sample size.
Table 11
One-Year 2013 Corporate Transition Rates: Emerging Markets Versus Global (%)
From/to AAA AA A BBB BB B CCC/C D NR
Emerging markets AAA AA 100.00 0.00 0.00 96.15 0.00 3.85 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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Table 11
One-Year 2013 Corporate Transition Rates: Emerging Markets Versus Global (%) (cont.)
A BBB BB B CCC/C Global AAA AA A BBB BB B CCC/C 90.48 0.00 0.00 0.00 0.00 0.00 0.00 9.52 94.08 1.17 0.06 0.00 0.00 0.00 0.00 2.49 91.91 3.79 0.00 0.00 0.00 0.00 0.00 3.58 89.76 5.10 0.18 0.00 0.00 0.00 0.08 2.37 82.00 5.65 0.00 0.00 0.00 0.08 0.12 4.64 77.96 10.13 0.00 0.00 0.00 0.00 0.00 4.36 46.20 0.00 0.00 0.00 0.00 0.09 1.60 23.42 0.00 3.43 3.19 3.91 8.16 10.25 20.25 0.00 0.00 0.00 0.00 0.00 0.63 0.00 0.00 0.00 0.00 93.71 3.13 0.00 0.00 0.00 3.14 88.54 4.18 0.00 0.00 0.00 3.13 82.73 4.02 0.00 0.63 0.00 5.01 75.54 0.00 0.00 0.00 0.00 8.36 44.12 0.00 0.00 0.28 2.17 17.65 1.89 5.21 7.80 9.91 38.24
Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
This pattern is similar to the long-term trend of ratings behavior among all global rated issuers. Of all global issuers rated 'AAA' from 1997-2013, 90.5% retained this rating after one year, whereas only 82% of issuers rated 'BB' maintained that rating (see table 12). The transition rates for the emerging markets are generally consistent with global patterns. Based on the transition analysis for a time horizon of two years rather than one year, lower ratings also tend to display less stability than higher ratings do (see table 13). Rating transitions by modifier (plus or minus after the rating) also display the same relationship by and large, though differences in sample size occasionally create slight variations between adjacent rating categories (see table 14).
Table 12
Average One-Year Corporate Transition Rates (%)

Emerging markets (1997-2013) AAA 92.45 (18.45) AA 1.96 (6.70) A 0.00 (0.00) BBB 0.00 (0.00) BB 0.00 (0.00) B 0.00 (0.00) CCC/C 0.00 3.77 (10.89) 87.25 (14.64) 1.74 (1.55) 0.03 (0.12) 0.00 (0.00) 0.00 (0.00) 0.00 0.00 (0.00) 7.35 (9.82) 90.30 (6.49) 2.97 (2.79) 0.00 (0.00) 0.00 (0.00) 0.00 0.00 (0.00) 0.49 (2.50) 4.75 (5.01) 86.56 (5.64) 5.31 (2.71) 0.07 (0.29) 0.00 0.00 (0.00) 0.00 (0.00) 0.33 (0.88) 3.52 (3.65) 78.97 (5.03) 7.53 (4.00) 0.45 0.00 (0.00) 0.00 (0.00) 0.54 (1.45) 0.61 (1.64) 4.36 (2.57) 71.57 (6.21) 18.82 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.30 (1.38) 1.00 (2.73) 3.54 (3.55) 45.12 0.00 (0.00) 0.00 (0.00) 0.07 (0.19) 0.18 (0.47) 0.81 (1.40) 3.30 (4.20) 18.59 3.77 (10.89) 2.94 (4.20) 2.27 (1.27) 5.82 (2.32) 9.56 (4.13) 13.99 (3.39) 17.01
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Table 12
Average One-Year Corporate Transition Rates (%) (cont.)

(0.00) Global (1981-2013) AAA 87.10 (7.09) AA 0.55 (0.52) A 0.03 (0.10) BBB 0.01 (0.04) BB 0.02 (0.06) B 0.00 (0.00) CCC/C 0.00 (0.00) 8.88 (7.10) 86.39 (5.15) 1.87 (1.05) 0.12 (0.17) 0.04 (0.10) 0.03 (0.10) 0.00 (0.00) 0.53 (0.82) 8.26 (4.30) 87.33 (3.45) 3.59 (1.76) 0.15 (0.28) 0.11 (0.23) 0.15 (0.49) 0.05 (0.25) 0.56 (0.69) 5.48 (2.15) 85.22 (3.79) 5.20 (1.94) 0.22 (0.23) 0.23 (0.75) 0.08 (0.25) 0.06 (0.20) 0.35 (0.40) 3.82 (1.59) 76.28 (4.20) 5.48 (2.13) 0.69 (1.03) 0.03 (0.17) 0.07 (0.21) 0.14 (0.28) 0.59 (0.73) 7.09 (3.32) 73.89 (4.42) 13.49 (8.25) 0.05 (0.34) 0.02 (0.07) 0.02 (0.07) 0.13 (0.24) 0.69 (0.80) 4.46 (2.40) 43.81 (9.49) 0.00 (0.00) 0.02 (0.08) 0.07 (0.11) 0.21 (0.27) 0.80 (0.89) 4.11 (3.49) 26.87 (12.22) 3.27 (2.51) 4.07 (1.87) 4.70 (1.82) 6.31 (1.61) 9.74 (2.49) 11.70 (2.41) 14.76 (5.14) (0.00) (0.00) (0.00) (0.97) (12.85) (14.55) (18.35) (11.42)
Note: The emerging market figures are for the time period 1997-2013. Numbers in parentheses are weighted standard deviations. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
Table 13
Average Two-Year Corporate Transition Rates (%)

Emerging markets (1997-2012) AAA 82.61 (24.60) AA 4.49 (9.55) A 0.00 (0.00) BBB 0.00 (0.00) BB 0.00 (0.00) B 0.00 (0.00) CCC/C 0.00 (0.00) Global (1981-2012) AAA 75.77 (10.08) AA 0.96 (0.66) 15.81 (10.48) 74.61 (7.58) 1.44 (1.45) 14.68 (5.90) 0.11 (0.30) 1.41 (1.05) 0.19 (0.39) 0.21 (0.35) 0.05 (0.23) 0.16 (0.30) 0.11 (0.41) 0.02 (0.07) 0.03 (0.17) 0.07 (0.12) 6.50 (4.39) 7.89 (2.98) 8.70 (15.12) 74.72 (20.29) 3.22 (2.09) 0.03 (0.13) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 14.04 (15.20) 81.74 (8.43) 5.84 (4.45) 0.03 (0.10) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 1.12 (3.28) 7.93 (5.17) 75.35 (7.81) 9.87 (3.42) 0.19 (0.48) 0.49 (1.57) 0.00 (0.00) 0.00 (0.00) 1.35 (3.91) 5.49 (4.50) 62.33 (6.30) 12.99 (6.49) 0.49 (1.28) 0.00 (0.00) 0.00 (0.00) 0.75 (1.18) 1.03 (1.97) 6.33 (3.41) 52.86 (7.07) 28.01 (11.43) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.55 (1.83) 1.27 (2.56) 3.79 (2.91) 21.38 (9.95) 0.00 (0.00) 0.00 (0.00) 0.07 (0.20) 0.89 (2.75) 2.41 (4.18) 6.84 (6.68) 22.85 (18.88) 8.70 (15.12) 5.62 (5.57) 4.94 (1.25) 10.81 (3.41) 17.77 (4.90) 23.32 (4.19) 26.78 (12.05)
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Table 13
Average Two-Year Corporate Transition Rates (%) (cont.)

A 0.05 (0.08) BBB 0.02 (0.09) BB 0.01 (0.07) B 0.00 (0.00) CCC/C 0.00 (0.00) 3.37 (1.67) 0.23 (0.25) 0.05 (0.11) 0.04 (0.13) 0.00 (0.00) 76.34 (4.99) 6.48 (2.79) 0.36 (0.55) 0.19 (0.33) 0.20 (0.55) 9.47 (2.82) 72.95 (5.84) 9.06 (2.92) 0.52 (0.47) 0.65 (1.34) 0.90 (0.78) 5.99 (2.03) 58.19 (5.43) 9.11 (3.22) 1.18 (1.28) 0.33 (0.46) 1.29 (1.15) 10.58 (2.76) 54.47 (5.60) 17.17 (8.00) 0.05 (0.12) 0.25 (0.34) 1.20 (0.96) 5.00 (2.25) 21.85 (8.00) 0.17 (0.21) 0.61 (0.67) 2.50 (2.32) 9.46 (6.27) 36.25 (13.84) 9.32 (2.79) 12.17 (2.45) 18.06 (3.47) 21.20 (3.98) 22.70 (7.56)
Note: The emerging market figures are for the time period 1997-2013. Numbers in parentheses are weighted standard deviations. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
Table 14
Average One-Year Transition Rates For Emerging Market Corporates By Rating Modifier (1997-2013) (%)
--Rating-From/to AAA AAA 92.5 (18.5) AA+ 36.4 AA+ 1.9 (7.9) 36.4 AA 1.9 (7.9) 9.1 AA0.0 (0.0) 18.2 A+ 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 7.6 (8.8) 80.7 A 0.0 (0.0) 0.0 (0.0) 0.0 A- BBB+ BBB BBB- BB+ 0.0 (0.0) 0.0 (0.0) 2.8 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.6 (2.8) 0.3 (2.3) 0.6 (2.0) 6.3 (5.8) 77.4 (7.8) 10.9 (7.7) 1.2 (1.5) 0.4 (0.9) 0.1 (0.4) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.6 (1.1) 1.0 (2.5) 1.0 (1.9) 7.2 (5.9) 75.3 (7.4) 8.9 (5.4) 1.4 (2.6) 0.2 (0.5) 0.2 (0.8) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.4 (1.9) 1.2 (4.5) 0.8 (1.2) 5.0 (3.3) 73.5 (8.6) 15.7 (9.1) 1.2 (1.1) 0.3 (1.6) 0.0 BB 0.0 BB0.0 B+ 0.0 B 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.1 (0.5) 0.1 (1.0) 0.0 (0.0) 0.4 (1.4) 0.5 (1.7) 0.6 (0.9) 2.1 (1.8) B0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.1 (0.6) 0.2 (1.0) 0.1 (0.4) 0.2 (0.8) 0.1 (0.3) CCC 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.1 (0.6) 0.7 (2.8) 0.9 (3.4) 1.3 (3.6) 0.8 (2.3) D 0.0 NR 3.8
(0.0) (0.0) (0.0) (0.0) 0.0 0.0 0.0 0.0
(0.0) (10.9) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.3 (0.9) 0.0 (0.0) 0.0 (0.0) 0.1 (0.4) 0.1 (0.8) 0.3 (0.8) 0.3 (0.9) 0.5 (1.0) 1.4 (2.7) 0.0 (0.0) 0.0 (0.0) 3.8 (6.5) 2.1 (2.5) 2.9 (2.8) 1.9 (1.7) 4.2 (3.1) 5.6 (4.4) 7.0 (3.2) 9.1 (6.9) 8.7 (4.2) 10.6 (4.4)
(55.5) (55.5) (33.2) (44.5) AA 0.0 8.3 75.0 13.9
(0.0) (0.0) (0.0) (0.0) 0.0 0.0 0.0 0.0
(0.0) (17.8) (35.5) (22.6) AA0.0 (0.0) A+ 0.0 (0.0) A 0.0 (0.0) A0.0 (0.0) BBB+ 0.0 (0.0) BBB 0.0 (0.0) BBB0.0 (0.0) BB+ 0.0 (0.0) BB 0.0 (0.0) BB0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 3.8 82.8
(0.0) (17.2) 0.6 (1.8) 6.8 (8.7) 77.5 0.6 (2.2) 0.3 (1.0) 6.7 (8.0) 79.1 (9.6) 9.5 (7.0) 0.6 (1.2) 0.2 (0.7) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0)
(0.0) (0.0) (0.0) (0.0) 0.0 0.0 0.0 0.0
(9.9) (14.3) 0.3 (0.9) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 7.1
(0.0) (0.0) (0.0) (0.0) 0.6 0.0 0.0 0.9
(6.6) (11.2) 0.2 (0.6) 0.0 (0.0) 0.0 (0.0) 0.1 (0.4) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 10.0
(1.8) (0.0) (0.0) (2.6) 0.0 0.2 0.0 0.4
(6.7) (11.2) 0.3 (0.9) 0.0 (0.0) 0.1 (0.3) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 9.4 (6.3) 0.3 (0.6) 0.0 (0.0) 0.1 (0.4) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0)
(0.0) (1.4) (0.0) (1.4) 0.1 0.1 0.0 0.3
(0.4) (1.1) (0.0) (1.1) 0.0 0.2 0.0 0.1
(0.0) (0.7) (0.0) (1.0) 0.9 0.8 0.2 0.2
(2.3) (2.1) (0.7) (0.8) 5.4 1.2 0.4 0.4
(3.5) (2.7) (0.6) (1.2) 62.7 6.6 1.8 0.4
(8.1) (4.0) (3.3) (0.9) 14.0 65.9 6.0 1.1
(7.0) (9.0) (4.7) (1.3) 1.7 11.5 64.9 6.3
(1.9) (6.7) (6.9) (3.9)
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Table 14
Average One-Year Transition Rates For Emerging Market Corporates By Rating Modifier (1997-2013) (%) (cont.)
B+ 0.0 (0.0) B 0.0 (0.0) B0.0 (0.0) CCC/C 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) 0.3 (1.0) 0.0 (0.0) 0.6 1.9 13.9 56.0 6.8 (4.3) 55.9 3.4 (2.8) 9.2 (6.7) 56.7 (7.3) 15.6 1.7 (3.0) 2.7 (4.3) 7.2 (7.2) 45.1 2.6 (3.6) 3.8 (6.1) 3.8 (4.4) 18.6 13.0 (3.9) 14.2 (6.9) 15.2 (5.9) 17.0 (1.3) (2.0) (6.6) (8.5) 0.1 0.2 2.3 11.6
(0.5) (0.6) (3.8) (8.2) (11.7) 0.0 0.3 0.3 2.8 13.7 (7.8) 1.8
(0.0) (0.7) (1.0) (5.1) 0.0 0.0 0.5 1.4
(0.0) (0.0) (1.0) (2.7)
(2.2) (10.0) (14.6) (18.3) (11.4)
Note: Numbers in parentheses are weighted standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro.
Consistent with global trends, we have seen a negative correlation between ratings and defaults in the emerging markets. This relationship remains true over time (see tables 15 and 16 and chart 6). In the emerging markets, no entities rated 'AAA' or 'AA' have defaulted, and the 'A' category has recorded only one default. On average, from 1997-2013, 'BB' rated emerging markets issuers had a 0.81% default rate in the first year after they were rated and 2.35% in the second year. Issuers rated 'B' recorded a default rate of 3.3%, on average, in the first year and 6.71% in the second. We note that the small number of issuers in the pool and the short time period of the study qualify our findings. The size of the pool of issuer ratings for emerging markets from 1997-2013 is only 2,712 issuers, compared with 16,857 issuers for the global study that covers 1981-2013. Although the study period for the emerging markets is 1997-2013, more than 50% of the total issuer ratings were assigned after 2005. Therefore, a significant portion of the pool isn't as seasoned as its global counterparts, which leads to averages that are more heavily influenced by recent pools, especially for longer time horizons.
Table 15
Comparison Of Corporate Cumulative Average Default Rates (%)

--Time horizon (years)-From/to Emerging markets (1997-2013) AAA AA A BBB BB B CCC/C Investment grade Speculative grade All rated Global (1981-2013) AAA 0.00 0.03 0.13 0.24 0.35 0.47 0.53 0.62 0.68 0.74 0.00 0.00 0.07 0.18 0.81 3.30 18.59 0.14 2.98 1.78 0.00 0.00 0.07 0.87 2.35 6.71 22.78 0.59 5.47 3.42 0.00 0.00 0.07 1.61 4.00 9.13 25.45 1.07 7.50 4.81 0.00 0.00 0.07 2.56 5.54 10.92 25.73 1.68 9.05 5.98 0.00 0.00 0.07 3.44 6.85 12.01 26.36 2.26 10.23 6.91 0.00 0.00 0.07 3.99 7.66 12.80 26.69 2.62 10.99 7.52 0.00 0.00 0.07 4.06 8.31 13.41 27.03 2.67 11.61 7.91 0.00 0.00 0.07 4.15 8.73 13.87 27.80 2.73 12.08 8.23 (0.00) 0.00 0.07 4.15 9.26 14.10 28.24 2.73 12.48 8.48 (0.00) 0.00 0.07 4.15 9.80 14.25 28.78 2.73 12.87 8.72 1 2 3 4 5 6 7 8 9 10
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Table 15
Comparison Of Corporate Cumulative Average Default Rates (%) (cont.)

AA A BBB BB B CCC/C Investment grade Speculative grade All rated 0.02 0.07 0.21 0.80 4.11 26.87 0.11 4.02 1.53 0.07 0.17 0.60 2.46 9.27 36.05 0.30 7.86 3.02 0.13 0.28 1.02 4.41 13.61 41.23 0.52 11.19 4.33 0.24 0.43 1.53 6.29 16.99 44.27 0.79 13.86 5.43 0.36 0.60 2.06 8.01 19.55 46.75 1.07 16.03 6.35 0.47 0.78 2.56 9.64 21.61 47.77 1.35 17.82 7.14 0.58 1.00 3.01 11.03 23.29 48.85 1.61 19.33 7.82 0.67 1.19 3.45 12.26 24.65 49.67 1.86 20.60 8.39 0.75 1.38 3.89 13.40 25.82 50.64 2.10 21.74 8.92 0.84 1.59 4.33 14.39 26.97 51.35 2.35 22.78 9.42
Note: The emerging market figures are for the time period 1997-2013. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
Table 16
Emerging Market Corporate Cumulative Average Default Rates By Rating Modifier (1997-2013) (%)
--Time horizon (years)-Rating AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC/C Investment grade Speculative grade All rated 1 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.11 0.09 0.30 0.32 0.49 1.39 2.59 3.78 3.76 18.59 0.14 2.98 1.78 2 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.24 0.09 1.89 1.27 2.60 2.84 6.08 6.77 7.55 22.78 0.59 5.47 3.42 3 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.24 0.22 3.62 2.61 4.56 4.43 8.92 8.58 10.04 25.45 1.07 7.50 4.81 4 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.24 0.78 5.49 3.80 6.20 6.12 10.60 10.38 11.99 25.73 1.68 9.05 5.98 5 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.43 1.62 6.87 4.64 7.63 7.62 11.38 11.32 13.83 26.36 2.26 10.23 6.91 6 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.65 2.21 7.60 4.64 7.93 9.39 12.10 11.75 15.18 26.69 2.62 10.99 7.52 7 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.65 2.21 7.77 4.64 8.62 10.46 12.44 12.28 16.42 27.03 2.67 11.61 7.91 8 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.65 2.21 7.97 4.64 9.21 11.02 13.05 12.91 16.42 27.80 2.73 12.08 8.23 9 (0.00) 0.00 0.00 0.00 0.30 0.00 0.00 0.65 2.21 7.97 4.98 9.93 11.47 13.05 13.66 16.42 28.24 2.73 12.48 8.48 10 (0.00) 0.00 0.00 0.00 0.30 0.00 0.00 0.65 2.21 7.97 5.41 10.84 11.75 13.05 14.16 16.42 28.78 2.73 12.87 8.72
Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
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Chart 6
Gini Ratios And Lorenz Curves

A quantitative measure of ratings performance indicates that the relative rank ordering of ratings in the emerging markets is consistent across various time horizons. To measure ratings performance, or ratings accuracy, we plotted the cumulative share of issuers by rating against the cumulative share of defaulters in a Lorenz curve to render the accuracy of their rank ordering (see charts 7-9). (For definitions and methodology, refer to Appendix III.) Our calculations indicate that the one-year transition to default in the emerging markets shows an average one-year Gini coefficient of 71.52%, a three-year of 53.25%, and a five-year of 44.04%. If corporate ratings only randomly approximated default risk, the Gini coefficient would be zero. On the other hand, if corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the Lorenz curve would capture all of the area on the graph above the diagonal, and its Gini coefficient would be 100%. We noted the variations in Gini coefficients by region (see table 17). As expected, the Gini coefficients decline as the time horizon lengthens because longer time horizons allow for more time for credit degradation among higher-rated entities. In the one-year emerging markets Lorenz curve, for example, 96.72% of defaults occurred in the speculative-grade category, while ratings of 'BB+' or lower constituted only 57.92% of all emerging markets corporate
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issuers (see chart 7). The five-year Lorenz curve shows that speculative-grade issuers constituted 85.54% of defaulters and only 59.62% of the entire sample (see chart 9). If the rank ordering of ratings had little predictive value, the cumulative share of defaulting corporate entities and the cumulative share of all entities would be nearly the same.
Table 17
Corporate Gini Coefficients By Region (%)

--Time horizon-Region Global U.S. Europe Emerging market One-year 82.27 80.68 91.05 71.52 Three-year 75.48 73.60 86.10 53.25 Five-year 71.97 70.30 81.65 44.04
The emerging market figures are for the period 1997-2013, other regions are for 1981-2013. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
Chart 7
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Chart 8
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Chart 9
Appendix I: Default Methodology And Definitions

This long-term corporate default and rating transition study uses Standard & Poor's CreditPro database of long-term local currency issuer credit ratings. Most exhibits in this study are the direct output of the CreditPro interface, while others reflect manual manipulation of the underlying database. We created charts 5 and 7-10 and tables 1-10 and 12-23 by manually manipulating the data. An issuer credit rating reflects Standard & Poor's forward-looking opinion of a company's overall creditworthiness to pay its financial obligations. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation because it does not take into account the nature of and provisions of the obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and enforceability of the obligation. It is not necessary for a company to have rated debt to have an issuer credit rating. While the issue credit rating is an assessment of default risk, it may also incorporate an assessment of the relative seniority or ultimate recovery of the issue in the event of default. The junior obligations of a company are typically rated lower than the senior obligations to reflect the lower priority in bankruptcy and ultimate recovery expectations. Alternatively, secured debt may be rated higher than the issuer credit rating. Notching also applies to the
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structural subordination of debt issued by operating subsidiaries or holding companies that are part of an enterprise that we view as a single economic entity. Standard & Poor's ongoing enhancement of the CreditPro database used to generate this study could lead to outcomes that differ, to some degree, from those reported in previous studies. However, this poses no continuity problem because each study reports statistics going back to Dec. 31, 1997. Therefore, each annual default study is self-contained and effectively supersedes all previous versions.
Issuers included in this study

For the purposes of this study, emerging markets refers to Argentina, Aruba, Azerbaijan, Bahamas, Bahrain, Barbados, Belarus, Belize, Bolivia, Bosnia and Herzegovina, Brazil, Brunei Darussalam, Cambodia, Chile, China, Colombia, Costa Rica, Dominican Republic, Egypt, El Salvador, Fiji, Georgia, Guatemala, Hong Kong, India, Indonesia, Israel, Jamaica, Jordan, Kazakhstan, South Korea, Kuwait, Lebanon, Liberia, Macao Special Administrative Region of China, Malaysia, Marshall Islands, Mauritius, Mexico, Mongolia, Morocco, Netherlands Antilles, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Singapore, South Africa, Sri Lanka, Syrian Arab Republic, Taiwan, Thailand, Togo, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, and Vietnam. The study analyzes the rating histories of 2,712 emerging market companies that Standard & Poor's had ratings on starting on Jan. 1, 1997, through Dec. 31, 2013. These include industrials, utilities, financial institutions, and insurance companies with long-term local currency ratings. The analysis excludes public information ("pi") ratings and ratings based on the guarantee of another company or government entity. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subject of separate default and transition studies, and we excluded these from this study. To avoid double counting, the CreditPro database excludes subsidiaries with debt that is fully guaranteed by a parent or with default risk that is considered identical to that of their parents. The latter are companies with obligations that are not legally guaranteed by a parent but that have operating or financing activities that are so inextricably entwined with those of the parent that it would be impossible to imagine the default of one and not the other. At times, however, some of these subsidiaries might not yet have been covered by a parent's guarantee, or the relationship that combines the default risk of parent and subsidiary might have come to an end or might not have begun. We included such subsidiaries for the period during which they had a distinct and separate risk of default.
Issuers with withdrawn ratings

Standard & Poor's withdraws ratings when an entity's entire debt is paid off or when the program or programs rated are terminated and the relevant debt extinguished. For the purposes of this study, a rating may be withdrawn as a result of mergers and acquisitions. Others are withdrawn because of a lack of cooperation, particularly when a company is experiencing financial difficulties and refuses to provide all the information needed to continue surveillance on the ratings, or at the entity's request.
Definition of default
An obligor rated 'SD' (selective default) or 'D' is in payment default on one or more of its financial obligations (rated or unrated) unless Standard & Poor's believes that such payments will be made within five business days, irrespective of any grace period. Standard & Poor's also lowers a rating to 'D' upon an issuer's filing for bankruptcy or taking a similar
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action that jeopardizes payments on a financial obligation. A 'D' rating is assigned when Standard & Poor's believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. Standard & Poor's assigns an 'SD' rating when it believes that the obligor has selectively defaulted on a specific issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A selective default includes the completion of a distressed exchange offer, whereby one or more financial obligation is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par. 'R' indicates that an obligor is under regulatory supervision owing to its financial condition. This does not necessarily indicate a default event, but the regulator might have the power to favor one class of obligations over others or pay some obligations and not others. Preferred stock is not considered a financial obligation; thus, a missed preferred stock dividend is not normally equated with default. We deem 'D', 'SD', and 'R' issuer ratings as defaults for the purposes of this study. A default is assumed to take place on the earliest of: the date Standard & Poor's revised the rating(s) to 'D', 'SD', or 'R'; the date a debt payment was missed; the date a distressed exchange offer was announced; or the date the debtor filed or was forced into bankruptcy. When an issuer defaults, it is not uncommon for Standard & Poor's to subsequently withdraw the 'D' rating. For the purposes of this study, if an issuer defaults, we end its rating history at 'D'. If any defaulting entity reemerges from bankruptcy, or otherwise restructures its defaulted debt instruments thereby reestablishing regular, timely payment of all its debts, we reenter this issuer into the database as a new entity. Its rating history after the default event is included in all calculations as entirely separate from its experience leading up to its earlier default.
Calculations
Static pool methodology. Standard & Poor's conducts its default studies on the basis of groupings called static pools. For the purposes of this study, we form static pools by grouping issuers by rating category at the beginning of each year covered by the study. Each static pool is followed from that point forward. All companies included in the study are assigned to one or more static pools. When an issuer defaults, we assign that default back to all of the static pools to which the issuer belonged. Standard & Poor's uses the static pool methodology to avoid certain pitfalls in estimating default rates. This is to ensure that default rates account for rating migration and to allow for default rates to be calculated across multiperiod time horizons. Some methods for calculating default and rating transition rates might charge defaults against only the initial rating on the issuer, ignoring more recent rating changes that supply more current information. Other methods calculate default rates using only the most recent year's default and rating data; these methods might yield comparatively low default rates during periods of high rating activity because they ignore prior years' default activity. The pools are static in the sense that their membership remains constant over time. Each static pool can be interpreted as a buy-and-hold portfolio. Because errors, if any, are corrected by every new update and the criteria for inclusion or exclusion of companies in the default study are subject to minor revisions as time goes by, it is not possible to compare static pools across different studies. Therefore, every new update revises results back to the same starting date of Dec. 31, 1996, so as to avoid continuity problems. Entities that have had ratings withdrawn--that is, revised to 'NR'--are surveilled with the aim of capturing a potential default. Because static pools only include entities with active ratings as of the beginning date of a given pool, we
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exclude companies with withdrawn ratings, as well as those that have defaulted, from subsequent static pools. If an entity has its rating withdrawn after the start date of a particular static pool and subsequently defaults, we will include it in that static pool as a default and categorize it into the rating category it was a member of at that time. For instance, the 1998 static pool consists of all companies rated as of 12:01 a.m. on Jan. 1, 1998, while the 1999 static pool consists of those companies first rated in 1998 and the surviving members of the 1998 static pool. All rating changes that took place in 1998 are reflected in the newly formed 1999 static pool. We used this same method to form static pools for each year in the study. From Jan. 1, 1997, through Dec. 31, 2013, we added a total of 2,561 first-time rated organizations to form new static pools. We excluded all of the defaulted companies and companies that had last ratings of 'NR'. Consider the following example: Standard & Poor's downgraded an issuer that was originally rated 'BB' in mid-1998 to 'B' in 2000 and then withdrew the rating ('NR') in 2002; the company subsequently defaulted ('D') in 2005. This hypothetical company would be included in the 1999 and 2000 pools with the 'BB' rating, which it was rated at the beginning of those years. Likewise, the company would be included in the 2001 and 2002 pools with the 'B' rating. The company would not be part of the 1998 pool because it was not rated as of the first day of that year, and we would not include it in any pool after the last day of 2002 because Standard & Poor's had withdrawn the rating by then. Yet each of the four pools in which this company was included (1999-2002) would record its 2005 default at the appropriate time horizon. Standard & Poor's withdraws ratings when an entity's entire debt is paid off or when the rated program(s) are terminated and the relevant debt extinguished. Rating withdrawals can also occur as a result of mergers and acquisitions as well as a lack of cooperation, particularly when a company is experiencing financial difficulties and refuses to provide all the information needed to continue surveillance on the ratings. Default rate calculation. We calculated annual default rates for each static pool, first in units and then as percentages with respect to the number of issuers in each rating category. Finally, we combined these percentages to obtain cumulative default rates for the 17 years the study covers. Issuer-weighted default rates. All default rates that appear in this study are calculated based on the number of issuers rather than the dollar amounts affected by defaults or rating changes. Although dollar amounts provide information about the portion of the market that is affected by defaults or rating changes, issuer-weighted averages are a more useful measure of ratings performance. Many practitioners use statistics from this default study and CreditPro to estimate "probability of default" and "probability of rating transition." It is important to note that Standard & Poor's ratings do not imply a specific probability of default. Cumulative average default rate calculation. The cumulative default rates in this study average the experience of all static pools by first calculating marginal default rates for each possible time horizon and for each static pool, weight averaging the marginal default rates conditional on survival (survivors being nondefaulters), and accumulating the average conditional marginal default rates. We calculate 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. The weights are based on the number of issuers in each static pool. The cumulative default rate is one minus the product of the proportion of survivors (nondefaulters). For instance, the hypothetical weighted-average first-year default rate for 'B' rated companies in emerging markets for all 17 pools was 2.98%, meaning that an average of 97.02% survived one year. Similarly, the second- and third-year conditional marginal averages--shown in the summary
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statistics section at the bottom portion of table 20--were 2.57% for the first 16 pools (97.43% of those companies that did not default in the first year survived the second year) and 2.15% for the first 15 pools (97.85% of those companies that did not default by the second year survived the third year), respectively. Multiplying 97.02% by 97.43% results in a 94.53% survival rate to the end of the second year, which is a two-year cumulative average default rate of 5.47%. Multiplying 94.53% by 97.85% results in a 92.49% survival rate to the end of the third year, which is a three-year cumulative average default rate of 7.51%.
Standard deviations
Many of the exhibits in this study display averages of default rates, transition rates, and Gini ratios. As described earlier, often times these are issuer-weighted averages. Prior studies have shown that fluctuations within default rates and transitions can vary greatly depending on many circumstances specific to particular time frames, industries, and geographic regions. As a supplement to many of the averages and time series presented in this study, standard deviations indicate the dispersion of the ranges of data behind these averages. For the transition matrices in tables 12-14 and 21-23, we calculated the standard deviation for each cell in a given matrix using the data from each of the underlying cohort years that contribute to the averages. For example, in the average one-year emerging market transition matrix in table 12, each cell's standard deviation is calculated from the series of that particular cell in each of the 17 cohorts beginning with the 1997 cohort and ending with the 2013 cohort. The standard deviations for cumulative average default rates in tables 15 and 16 were calculated from the cumulative average default rate tables available by all available sequential cohort combinations that all began with the 1997 cohort for emerging markets and 1981 cohort for global issuers. For example, the emerging markets cumulative average default rates in table 15 are issuer-weighted average default rates conditional on survival, derived from the default experience of all 17 available calendar-year cohorts--from 1997 to 2013. The squared difference between each cohort's transition rate and the weighted average--which is the data point in each cell--is multiplied by each cohort's weight. These weights are based on each cohort's rating level's contribution to the 17-year total issuer base for each rating level. We then divide this by the ratio of the total number of non-zero weights minus one and the total number of non-zero weights. In this study, we applied some changes to the calculation or exclusion of standard deviations for transition matrices and cumulative default rates. For tables 15 and 16, we have removed standard deviations that were included in prior studies. For tables 12, 13, and 21-23, standard deviations in prior studies were calculated with each year's transition rates carrying equal weighting. For this study, we have updated the transition matrices to include weighted standard deviations. For details regarding their calculation, please refer to the calculations section of this appendix.
Time sample
This update limits the reporting of default rates in the emerging markets to the 17-year time horizon, and we based all calculations on the rating experience of that period. Global data are based on a 33-year time horizon. The maturities of most obligations are much shorter than 17 years. In addition, average default statistics become less reliable at longer-time horizons because the sample size becomes smaller and the cyclical nature of default rates has a bigger effect on averages. Default patterns share broad similarities across all static pools, suggesting that Standard & Poor's rating standards have
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been consistent over time. Adverse business conditions tend to coincide with default upswings for all pools. Speculative-grade issuers have been hit the hardest by these upswings, but investment-grade default rates also increase in stressful periods.
Transition analysis
Transition rates compare issuer ratings at the beginning of a time period with ratings at the end of the period. To compute one-year rating transition rates by rating category, we compared the rating on each entity at the end of a particular year with the rating at the beginning of the same year. We counted an issuer that remained rated for more than one year as many times as the number of years it was rated. For instance, an issuer continually rated from mid-1999 to mid-2006 would appear in the six consecutive one-year transition matrices from 2000 to 2005. If the rating on the issuer was withdrawn in the middle of 2006, it would be included in the column representing transitions to 'NR' in the 2006 transition matrix. Similarly, if it defaulted in the middle of 2006, it would be included in the column representing transitions to 'D' in the 2006 one-year transition matrix. All 1997 static pool members still rated on Dec. 31, 2013, had 17 one-year transitions, while companies first rated on Jan. 1, 2013, had only one. Each one-year transition matrix displays all rating movements from the beginning of the year through year-end. For each rating listed in the matrix's left-most column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entry for 'NR'. For instance, the first panel of table 11, which corresponds to the 2013 static pool, shows that out of all 'A' rated companies at the beginning of that year, 93.71% were still rated 'A' at year-end, while Standard & Poor's had upgraded 0.63% to 'AA', and so on. We calculated the average one-year transition matrices on the basis of the one-year transition matrix just described. The ratios represent the historical incidence of the ratings listed in the first column changing to the ones listed on the top row over the course of the reference period (see tables 12 and 13). We note that the only ratings considered in these calculations are those on entities at the beginning of each static pool and those at the end. All rating changes that occur in between are ignored. For example, if an entity was rated 'A' on Jan. 1, 2013, and was downgraded to 'BBB' in the middle of the year and then later upgraded to 'A' later in the year (with no other subsequent rating changes), this entity would only be included in the percentage of issuers that began the year as 'A' that ended the year as 'A'. This also applies to transition matrices that span longer time horizons. If an issuer defaults or has its rating withdrawn in the middle of the year, then either a 'D' or 'NR' would be considered its rating as of Dec. 31 of that particular year.
Multiyear transitions
We also calculated multiyear transitions for periods of two years to five years. In this case, we compared the rating at the beginning of the multiyear period with the rating at the end. For example, we calculated two-year transition matrices by comparing the ratings at the beginning of the years 1997-2012 with the ratings at the end of the years 1998-2013 (see table 13). Otherwise, the methodology was identical to that used for single-year transitions. We calculated average transition matrices on the basis of the multiyear matrices just described. These average matrices are a true summary, the ratios of which represent the historical incidence of the ratings listed on the first column, changing to the ones listed on the top row over the course of the multiyear period (see tables 21-23). Transition matrices that present averages over multiple time horizons are also calculated as issuer-weighted averages.
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Comparing transition rates with default rates

Rating transition rates may be compared with the marginal and cumulative default rates described in the previous sections. For example, note that the one-year default rate column (Y1) of table 15 is equivalent to column 'D' of the average one-year transition matrix in table 12 and the cumulative average in summary statistics of the year one column in table 20. However, the two-year default rate column in table 15 is not the same as column 'D' of the average two-year transition matrix in table 21. This difference results from the different methods of calculating default rates. The default rates in table 21 are calculated as not conditional on survival, while those in table 15 are average default rates conditional on survival. The two-year default rates in table 15 are calculated in the same way as those in the cumulative average section for the year two column in table 20, while those in the 'D' column of table 21 are equivalent to adding up all the defaults behind the year two column's annual default rates in table 20 divided by the sum of all the issuers in table 20 for the years 1981-2011. The links between transition matrices and average cumulative default rates can be best illustrated through tables 18-20. The default rates in the columns of these tables, associated with each static pool year, are calculated in the same way as they would be for individual years' one-year transition matrices. Tables 18, 19, and 20 are broken out by the broadest rating classifications (all rated, investment grade, and speculative grade, respectively). These tables can also be constructed for each rating category. As an example, the year two column of table 20 shows the two-year default rates (not conditional on survival) for each static pool. These are calculated in the same way as the default column in table 11, though table 11 shows the one-year default rates for each rating category for 2012 exclusively. In the summary section at the bottom of tables 18-20, the first row shows the issuer-weighted averages of the marginal default rates. These marginal averages are then used to calculate the cumulative average default rates in the row directly beneath them, as explained in the average cumulative default rate section above. These default rates are the same that appear in table 15 and are average cumulative default rates conditional on survival.
Initial-to-last transitions and default rates

These transition rates compare issuer ratings from the time of the first rating to the last rating, regardless of the time elapsed in the interim, and provide a roadmap to all of the historically observed rating states inhabited by corporate ratings during the companies' rated lifetime. We divide the initial-to-last transitions into two broad sectors: nonfinancials and financials (including insurance) (see tables 24 and 25). We calculated the initial-to-last default rates based on the initial rating on each defaulter; these default rates encompass varying time horizons. For example, a default rate of 4.95% refers to the total share of defaulting issuers from the 101 financial institutions that received a first rating of 'BBB' in the entire historical database (see table 25).
Appendix II: Additional Tables

Table 18
Static Pool Cumulative Corporate Default Rates Among All Emerging Market Ratings (1997-2013) (%)
--Time horizon (years)-Year 1997 1998 Issuers 138 276 1 0.72 5.43 2 3.62 9.42 3 7.97 10.14 4 7.97 14.13 5 10.87 22.83 6 17.39 25.36 7 18.12 25.72 8 18.12 25.72 9 18.12 25.72 10 18.12 25.72
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Table 18
Static Pool Cumulative Corporate Default Rates Among All Emerging Market Ratings (1997-2013) (%) (cont.)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Summary statistics Marginal average Cumulative average Standard deviation Median Minimum Maximum 328 376 424 459 516 583 676 772 841 966 1,016 986 1,147 1,203 1,292 4.88 1.06 4.01 11.55 2.52 0.51 0.15 0.26 0.12 1.45 3.15 0.81 0.26 1.41 1.08 6.40 5.05 15.09 14.16 3.10 0.69 0.15 0.39 0.71 4.35 3.94 0.91 2.01 2.58 11.28 16.22 17.22 14.60 3.29 0.69 0.30 0.78 2.97 5.18 4.04 1.93 3.05 22.56 18.88 17.45 14.81 3.29 0.86 0.59 2.07 3.80 5.28 5.02 2.54 25.30 19.15 17.69 14.81 3.49 1.03 1.48 2.59 3.92 6.31 5.61 25.61 19.15 17.69 15.03 3.68 1.54 2.07 2.59 4.76 6.83 25.61 19.15 17.92 15.25 4.26 2.06 2.07 3.37 5.35 25.61 19.41 18.16 15.90 4.65 2.06 2.51 3.89 25.61 19.68 18.87 16.12 4.65 2.23 2.96 25.91 20.21 19.10 16.12 4.65 2.74
1 1.78 1.78 2.91 1.08 0.12 11.55
2 1.67 3.42 4.65 3.36 0.15 15.09
3 1.44 4.81 5.86 4.04 0.30 17.22
4 1.23 5.98 7.48 5.15 0.59 22.56
5 0.99 6.91 8.58 6.31 1.03 25.30
6 0.65 7.52 9.19 10.93 1.54 25.61
7 0.43 7.91 9.38 15.25 2.06 25.72
8 0.34 8.23 9.44 17.01 2.06 25.72
9 0.27 8.48 9.29 18.12 2.23 25.72
10 0.26 8.72 8.67 18.61 2.74 25.91
Table 19
Static Pool Cumulative Corporate Default Rates Among Investment-Grade Emerging Market Ratings (1997-2013) (%)
--Time horizon (years)-Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Issuers 89 124 120 132 149 153 179 221 259 308 343 1 1.12 1.61 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2 2.25 1.61 0.00 0.00 10.07 0.00 0.00 0.00 0.00 0.00 0.29 3 2.25 1.61 0.83 11.36 10.07 0.00 0.00 0.00 0.00 0.32 0.58 4 2.25 3.23 12.50 12.12 10.07 0.65 0.00 0.00 0.39 0.32 0.87 5 3.37 12.90 13.33 12.12 10.74 0.65 0.00 0.45 0.39 0.32 0.87 6 10.11 13.71 13.33 12.12 10.74 0.65 0.56 0.45 0.39 0.32 1.17 7 10.11 13.71 13.33 12.12 10.74 1.31 0.56 0.45 0.39 0.32 1.17 8 10.11 13.71 13.33 12.12 11.41 1.31 0.56 0.45 0.39 0.32 9 10.11 13.71 13.33 12.12 11.41 1.31 0.56 0.45 0.39 10 10.11 13.71 13.33 12.12 11.41 1.31 0.56 0.45
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Table 19
Static Pool Cumulative Corporate Default Rates Among Investment-Grade Emerging Market Ratings (1997-2013) (%) (cont.)
2008 2009 2010 2011 2012 2013 Summary statistics Marginal average Cumulative average Standard deviation Median Minimum Maximum 422 477 458 499 540 576 0.24 0.63 0.00 0.00 0.00 0.00 0.71 0.84 0.00 0.00 0.00 0.95 0.84 0.00 0.00 0.95 1.05 0.00 1.18 1.05 1.18
1 0.14 0.14 0.47 0.00 0.00 1.61
2 0.45 0.59 2.51 0.00 0.00 10.07
3 0.49 1.07 3.64 0.58 0.00 11.36
4 0.62 1.68 4.66 0.91 0.00 12.50
5 0.58 2.26 5.54 1.05 0.00 13.33
6 0.37 2.62 5.92 1.18 0.32 13.71
7 0.05 2.67 5.99 1.31 0.32 13.71
8 0.06 2.73 6.16 5.71 0.32 13.71
9 0.00 2.73 6.13 10.11 0.39 13.71
10 0.00 2.73 5.99 10.76 0.45 13.71
Table 20
Static Pool Cumulative Corporate Default Rates Among Speculative-Grade Emerging Market Ratings (1997-2013) (%)
--Time horizon (years)-Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Summary statistics Marginal average Issuers 49 152 208 244 275 306 337 362 417 464 498 544 539 528 648 663 716 1 0.00 8.55 7.69 1.64 6.18 17.32 3.86 0.83 0.24 0.43 0.20 2.39 5.38 1.52 0.46 2.56 1.96 2 6.12 15.79 10.10 7.79 17.82 21.24 4.75 1.10 0.24 0.65 1.00 7.17 6.68 1.70 3.55 4.68 3 18.37 17.11 17.31 18.85 21.09 21.90 5.04 1.10 0.48 1.08 4.62 8.46 6.86 3.60 5.40 4 18.37 23.03 28.37 22.54 21.45 21.90 5.04 1.38 0.72 3.23 5.82 8.64 8.53 4.73 5 24.49 30.92 32.21 22.95 21.45 21.90 5.34 1.38 2.16 4.09 6.02 10.29 9.65 6 30.61 34.87 32.69 22.95 21.45 22.22 5.34 2.21 3.12 4.09 7.23 11.21 7 32.65 35.53 32.69 22.95 21.82 22.22 6.23 3.04 3.12 5.39 8.23 8 32.65 35.53 32.69 23.36 21.82 23.20 6.82 3.04 3.84 6.25 9 32.65 35.53 32.69 23.77 22.91 23.53 6.82 3.31 4.56 10 32.65 35.53 33.17 24.59 23.27 23.53 6.82 4.14
1 2.98
2 2.57
3 2.15
4 1.68
5 1.29
6 0.85
7 0.69
8 0.54
9 0.46
10 0.45
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Table 20
Static Pool Cumulative Corporate Default Rates Among Speculative-Grade Emerging Market Ratings (1997-2013) (%) (cont.)
Cumulative average Standard deviation Median Minimum Maximum 2.98 4.45 1.96 0.00 17.32 5.47 6.40 5.44 0.24 21.24 7.50 7.99 6.86 0.48 21.90 9.05 9.63 8.59 0.72 28.37 10.23 11.13 10.29 1.38 32.21 10.99 12.33 16.33 2.21 34.87 11.61 12.77 21.82 3.04 35.53 12.08 12.85 22.51 3.04 35.53 12.48 12.67 23.53 3.31 35.53 12.87 11.79 24.06 4.14 35.53
Table 21
Average Multiyear (Two-Year) Emerging Market Corporate Transition Matrix (1997-2013) (%)
From/to AAA AAA 82.61 (24.60) AA 4.49 (9.55) A 0.00 (0.00) BBB 0.00 (0.00) BB 0.00 (0.00) B 0.00 (0.00) CCC/C 0.00 (0.00) AA 8.70 (15.12) 74.72 (20.29) 3.22 (2.09) 0.03 (0.13) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) A 0.00 (0.00) 14.04 (15.20) 81.74 (8.43) 5.84 (4.45) 0.03 (0.10) 0.00 (0.00) 0.00 (0.00) BBB 0.00 (0.00) 1.12 (3.28) 7.93 (5.17) 75.35 (7.81) 9.87 (3.42) 0.19 (0.48) 0.49 (1.57) BB 0.00 (0.00) 0.00 (0.00) 1.35 (3.91) 5.49 (4.50) 62.33 (6.30) 12.99 (6.49) 0.49 (1.28) B 0.00 (0.00) 0.00 (0.00) 0.75 (1.18) 1.03 (1.97) 6.33 (3.41) 52.86 (7.07) 28.01 (11.43) CCC/C 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.55 (1.83) 1.27 (2.56) 3.79 (2.91) 21.38 (9.95) D 0.00 (0.00) 0.00 (0.00) 0.07 (0.20) 0.89 (2.75) 2.41 (4.18) 6.84 (6.68) 22.85 (18.88) NR 8.70 (15.12) 5.62 (5.57) 4.94 (1.25) 10.81 (3.41) 17.77 (4.90) 23.32 (4.19) 26.78 (12.05)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
Table 22
Average Multiyear (Three-Year) Emerging Market Corporate Transition Matrix (1997-2013) (%)
From/to AAA AAA 71.79 (27.39) AA 7.05 (10.83) A 0.00 (0.00) BBB 0.00 (0.00) BB 0.00 (0.00) B 0.00 AA 15.38 (18.48) 65.38 (21.38) 4.07 (2.75) 0.04 (0.15) 0.00 (0.00) 0.00 A 0.00 (0.00) 18.59 (17.02) 74.83 (9.29) 8.52 (5.39) 0.14 (0.33) 0.00 BBB 0.00 (0.00) 1.92 (4.44) 10.51 (6.46) 65.60 (7.41) 13.49 (4.12) 0.62 BB 0.00 (0.00) 0.00 (0.00) 1.69 (3.61) 6.22 (4.37) 49.62 (5.77) 16.34 B 0.00 (0.00) 0.00 (0.00) 0.68 (0.81) 1.45 (2.00) 6.78 (3.79) 39.81 CCC/C 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.70 (1.91) 1.16 (2.25) 3.25 D 0.00 (0.00) 0.00 (0.00) 0.08 (0.21) 1.76 (4.06) 4.25 (6.06) 9.23 NR 12.82 (16.79) 7.05 (5.12) 8.14 (2.25) 15.72 (3.81) 24.55 (5.32) 30.76
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Table 22
Average Multiyear (Three-Year) Emerging Market Corporate Transition Matrix (1997-2013) (%) (cont.)
(0.00) CCC/C 0.00 (0.00) (0.00) 0.00 (0.00) (0.00) 0.00 (0.00) (0.97) 0.80 (1.71) (8.54) 1.60 (2.13) (7.89) 29.87 (13.91) (2.30) 9.60 (5.51) (7.93) 25.60 (20.13) (4.86) 32.53 (14.75)
Table 23
Average Multiyear (Five-Year) Emerging Market Corporate Transition Matrix (1997-2013) (%)
From/to AAA AAA 48.28 (35.68) AA 10.74 (12.47) A 0.00 (0.00) BBB 0.00 (0.00) BB 0.00 (0.00) B 0.00 (0.00) CCC/C 0.00 (0.00) AA 27.59 (27.06) 53.72 (20.60) 4.65 (2.42) 0.05 (0.22) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) A 0.00 (0.00) 22.31 (22.16) 65.65 (10.79) 11.42 (5.65) 0.69 (1.01) 0.06 (0.30) 0.00 (0.00) BBB 0.00 (0.00) 4.96 (6.16) 13.72 (6.97) 51.75 (6.64) 16.37 (5.11) 2.27 (1.33) 0.93 (1.82) BB 0.00 (0.00) 0.00 (0.00) 1.93 (3.14) 6.74 (3.30) 32.70 (5.70) 16.88 (8.52) 7.17 (5.37) B 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 2.16 (2.08) 6.05 (2.80) 22.91 (6.04) 27.10 (12.63) CCC/C 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.46 (1.26) 0.69 (1.53) 1.99 (2.01) 1.87 (1.83) D 0.00 (0.00) 0.00 (0.00) 0.11 (0.24) 4.27 (6.52) 7.69 (9.37) 13.30 (10.09) 26.48 (21.46) NR 24.14 (27.18) 8.26 (6.09) 13.95 (3.62) 23.15 (4.39) 35.81 (7.53) 42.58 (3.89) 36.45 (16.46)
Table 24
Emerging Markets Initial-To-Last Transition Rates By Rating Modifier For Nonfinancials (1981-2013) (%)
--Rating-From/to AAA AA+ AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BB50.0 33.3 0.0 8.3 3.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 AA AAA+ 0.0 0.0 A 0.0 A- BBB+ BBB BBB- BB+ 0.0 0.0 0.0 0.0 0.0 7.7 3.8 7.7 32.8 7.6 2.4 0.8 1.2 0.4 0.0 0.0 0.0 0.0 0.0 3.8 10.3 16.4 37.0 8.9 3.9 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.1 6.6 3.3 25.6 13.3 7.7 4.0 0.0 0.0 0.0 8.3 0.0 0.0 2.6 0.0 2.2 7.7 30.5 BB 0.0 0.0 0.0 0.0 0.0 0.0 2.6 0.0 4.3 2.4 3.1 BB0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0 3.9 6.5 B+ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0 3.1 1.2 4.4 B 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 0.0 2.7 B- CCC/C 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0 0.0 0.6 1.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 D 0.0 0.0 0.0 NR 0.0 0.0 0.0 # 4 3 5 12 26 26 39 61 92
0.0 25.0 25.0 0.0 0.0 33.3
0.0 33.3 0.0 0.0 0.0
0.0 60.0 20.0 20.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 33.3
8.3 16.7
0.0 25.0 0.0 30.8 0.0 34.6 0.0 30.8 1.6 19.7 2.2 29.3
0.0 11.5 26.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3.8 15.4 7.7
3.8 19.2 26.9 0.0 10.3 1.6 0.0 0.0 0.0 0.0 0.0 4.9 1.1 0.0 0.0 0.0 0.0
2.6 28.2 0.0 16.4 1.1 0.6 0.0 0.0 0.0 8.7 0.6 0.8 0.0 0.0
0.0 10.7 41.1 168 0.0 10.9 28.9 128 1.2 13.0 31.4 169 0.0 13.7 41.2 226
12.4 24.3 4.9
5.8 21.7
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Table 24
Emerging Markets Initial-To-Last Transition Rates By Rating Modifier For Nonfinancials (1981-2013) (%) (cont.)
B+ B BCCC/C 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.0 0.0 0.8 0.0 0.0 0.0 0.8 0.9 0.7 2.6 0.8 0.9 0.0 0.0 1.2 0.9 0.7 2.6 2.5 0.5 1.3 3.8 5.8 19.1 0.9 0.0 0.0 4.6 2.1 6.0 0.4 15.4 46.5 241 2.8 12.0 47.5 217 4.0 15.9 55.0 151 15.4 19.2 44.9 78 2.3 24.9 1.3 1.3
4.0 17.2 2.6 7.7
#Indicates number of issuers. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
Table 25
Emerging Markets Initial-To-Last Transition Rates By Rating Modifier For Financials (1981-2013) (%)
--Rating-From/to AAA AA+ AA AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC/C 25.0 0.0 0.0 11.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 AA0.0 0.0 A+ 0.0 0.0 0.0 A 0.0 0.0 0.0 A- BBB+ BBB BBB- BB+ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.6 2.6 17.7 32.8 25.2 11.2 6.9 1.1 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.6 0.0 9.0 21.4 8.4 13.9 9.0 0.8 0.9 0.8 1.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.6 1.5 5.8 30.8 13.9 9.0 0.8 0.9 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.5 0.0 4.7 18.1 BB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.9 0.9 1.4 BB0.0 0.0 0.0 0.0 0.0 0.0 6.5 0.0 1.0 0.0 2.8 3.4 B+ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.5 0.0 0.0 0.0 0.0 2.3 B 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.8 2.2 4.6 4.7 B- CCC/C 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.9 0.0 0.0 3.8 3.7 3.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.9 7.0 10.8 D NR # 4 0 1 9 18 39 62 67
0.0 75.0 0.0 0.0 0.0 0.0
0.0 100.0 0.0 0.0 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
33.3 11.1 16.7 27.8
0.0 22.2 5.6 5.6
0.0 22.2 5.6 33.3 0.0 17.9 0.0 9.7
12.8 23.1 28.2 10.3 0.0 11.3 22.6 30.6 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.0 13.4 1.0 0.0 0.0 1.1 0.8 0.0 0.0 0.0 0.0 7.8 2.8 0.0 0.0 0.0 1.9 0.0 0.0 0.0
1.5 28.4
4.9 30.1 103 5.6 33.6 107 1.4 38.9 3.4 50.6 72 89
5.6 14.6 4.6 8.4 1.6 2.7 1.4
9.9 23.7
7.6 39.7 131 7.5 35.5 107 9.4 46.1 128 5.4 37.8 74 70
5.6 11.2 17.8 1.6 1.4 0.0 3.1 0.0 1.4
7.0 18.8
5.4 10.8 24.3 5.7 8.6 2.9
11.4 15.7 52.9
#Indicates number of issuers. Sources: Standard & Poors Global Fixed Income Research and Standard & Poors CreditPro.
Appendix III: Gini Methodology

To measure ratings performance or ratings accuracy, we plotted the cumulative share of issuers by rating against the cumulative share of defaulters in a Lorenz curve to visually render the accuracy of their rank ordering. Max O. Lorenz developed the Lorenz curve as a graphical representation of the proportionality of a distribution. To build the Lorenz curve, we ordered the observations from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA'). If Standard & Poor's corporate ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal and their Gini coefficient--which is a summary statistic of the Lorenz curve--would be zero. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the curve would capture all of the area above the diagonal on the graph and its Gini coefficient would be 1.0 (see chart 10). We calculate the Gini coefficients (see chart 10) by dividing area B by the total area A plus B. In other words, the Gini
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coefficient captures the extent to which actual ratings accuracy diverges from the random scenario and aspires to the ideal scenario.
Chart 10
Appendix IV: Defaults In Profile

Axtel S.A.B. de C.V.
Marcela Duenas, Mexico City (52) 55-5081-4437; Luisa Vilhena, Sao Paulo (55) 11-3039-9727 US$22.12 million 7.00% secured notes due Jan. 31, 2020 US$275 million 7.625% senior notes due Feb. 1, 2017 US$490 million 9.00% notes due Sept. 22, 2019 US$60 million senior secured term loan due Nov. 17, 2015 US$40 million senior secured revolver due Nov. 17, 2015 US$275 million 7.625% senior notes due Feb. 01, 2017 US$490 million 9.00% notes due Sept. 22, 2019 US$248.7 million 7.00% notes due Jan. 31, 2020 MXN$283.5 million 7.00% convertible dollar-indexed notes due Jan. 31, 2020
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On Dec. 24, 2013, Standard & Poor's lowered its long-term corporate credit rating on Mexico-based telecommunications company Axtel S.A.B. de C.V. to 'SD' from 'CC'. The rating action followed the company's announcement that it would exchange $115.5 million of its outstanding 2017 and 2019 senior unsecured notes for senior secured notes due in 2020. The investor would receive less value than the promised sum in the original securities. We, therefore, viewed this transaction as a distressed exchange and equivalent to default, as per our criteria. On Dec. 26, 2013, Standard & Poor's raised its long-term corporate credit rating on Axtel to 'B-' from 'SD'. The upgrade followed the company's completion of the debt exchange. Additionally, the company added on $36 million to its senior secured notes due in 2020, raising additional monies for capital expenditures and working capital. Axtel also went through another default event in early 2013. On Jan. 29, 2013, Standard & Poor's lowered its long-term corporate credit rating on Axtel to 'SD' from 'CC'. The rating action followed the company's announcement that it accepted a 65% subpar exchange of its outstanding bonds due in 2017 and 2019 for senior secured bonds, senior convertible secured bonds, and cash. Although the recapitalization will reduce Axtel's debt by about $225 million and should improve the company's financial flexibility, Standard & Poor's believes that the exchange is distressed, since investors will receive less value than promised in the original securities. Also, based on its criteria, Standard & Poor's considers a debt exchange by a highly leveraged issuer as equivalent to a default. Two days later, Standard & Poor's raised its long-term corporate credit rating on Axtel to 'B-' from 'SD'. The upgrade followed Axtel's completion of the subpar exchange, which improved the company's capital structure and liquidity.
Table 26
Axtel S.A.B. de C.V.--Issuer Credit Rating History

Date 26-Dec-2013 24-Dec-2013 25-Nov-2013 31-Jan-2013 29-Jan-2013 28-Dec-2012 10-Aug-2012 15-May-2012 01-Dec-2011 28-Nov-2011 11-Jun-2010 13-Aug-2007 06-Nov-2006 19-Jun-2006 01-Nov-2005 09-Dec-2003 To B-/Stable/-SD/NM/-CC/Negative/-B-/Stable/-SD/NM/-CC/Negative/-CCC+/Negative/-B-/Negative/-B/Negative/-B/Stable/-B+/Stable/-BB-/Stable/-BB-/Negative/-BB-/Stable/-B+/Positive/-B/Stable/--
Urbi Desarrollos Urbanos S.A.B. de C.V.

Fernanda Hernandez, Mexico City (52) 55-5081-4423; Rafaela Vitoria, CFA, Sao Paulo (55) 11-3039-9761 US$500 million 9.75 senior unsecured notes due Feb. 3, 2022
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US$150 million 8.50% notes due April 19, 2016 US$300 million 9.50% senior unsecured notes due Jan. 21, 2020 MXN$600 million 8.35% senior secured notes due Dec. 9, 2014 US$70 million senior secured term loan due July 15, 2019 US$35 million senior secured term loan due July 15, 2019
On April 19, 2013, Standard & Poor's lowered its global scale ratings on Mexico-based real estate developer Urbi Desarrollos Urbanos S.A.B. de C.V. to 'D' from 'CCC-'. The downgrade followed the failure of the company to pay its $6.4 million interest expense due on April 19, 2013. The company had decided to avail itself of the 30-day grace period on the interest payment. Although Urbi is allowed to make the interest payment within a 30-day grace period, as per our criteria, if payment does not occur within five business days, it is equivalent to default. On Sept. 9, 2013, Standard & Poor's withdrew its corporate credit and issue-level ratings on Urbi on grounds of insufficient information. On July 25, 2013, Urbi announced that it would not report its quarterly results for the period ended June 31, 2013. Urbi had initiated negotiation on the restructuring of its debt. However, since the company failed to report fiscal results required by the regulator, we did not have sufficient information regarding the updates on its restructuring to conduct a thorough analysis.
Table 27
Urbi Desarrollos Urbanos S.A.B. de C.V.--Issuer Credit Rating History

Date 09-Sep-2013 19-Apr-2013 18-Apr-2013 04-Mar-2013 10-Aug-2012 25-Nov-2009 04-Nov-2009 26-Mar-2009 16-Aug-2007 18-May-2007 04-Apr-2006 To NR/--/-D/--/-CCC-/Negative/-CCC/Watch Neg/-B/Stable/-B+/Stable/-B+/Watch Neg/-BB-/Negative/-BB-/Stable/-BB/Watch Neg/-BB/Stable/--
Corporacion GEO S.A.B. de C.V.

Fernanda Hernandez, Mexico City (52) 55-5081-4423; Rafaela Vitoria, CFA, Sao Paulo (55) 11-3039-9761 US$400 million 8.875% notes due March 27, 2022 MXN$400 million floating senior unsecured notes due July 18, 2014 US$250 million 9.25% notes due June 30, 2020 US$250 million 8.875% senior unsecured notes due Sept. 25, 2014
On April 29, 2013, Standard & Poor's lowered its global scale ratings on Mexico-based real estate developer Corporacion Geo S.A.B. de C.V. (GEO) to 'D' from 'CCC+'. The downgrade followed the failure of the company to meet its MXN2.4 million interest payment due April 26, 2013. The company announced it would not pay the interest corresponding to its domestic debt certificate GEO11 because of its deteriorated liquidity. We believed that the
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company was going through massive financial distress and its liquidity had been completely drained. Shortly before, on April 12, 2013, Standard & Poor's lowered its global scale ratings on GEO to 'CCC+' from 'BB-' and placed it on CreditWatch with negative implications. The downgrade followed the company's announcement that it had begun a financial restructuring process. On Sept. 9, 2013, Standard & Poor's withdrew its corporate credit and issue ratings on GEO due to insufficient information. On July 25, 2013, GEO announced that it would not report its quarterly results for the period ended June 31, 2013. Since early April, GEO has undergone a financial and operating restructuring. However, because the company failed to report fiscal results required by the regulator, we did not have sufficient information regarding the developments of its restructuring activity to conduct our analysis.
Table 28
Corporacion GEO S.A.B. de C.V.--Issuer Credit Rating History

Date 09-Sep-2013 29-Apr-2013 12-Apr-2013 27-Dec-2010 16-Apr-2009 16-Aug-2007 18-Jun-2007 18-Jul-2001 To NR/--/-D/--/-CCC+/Watch Neg/-BB-/Stable/-BB-/Negative/-BB-/Stable/-BB/Watch Neg/-BB/Stable/--
Desarrolladora Homex S.A.B. de C.V.

Laura Martinez, Mexico City (52) 55-5081-4425; Fernanda Hernandez, Mexico City (52) 55-5081-4423 US$400 million senior unsecured bonds due March 25, 2020 US$400 million senior unsecured bonds due March 25, 2020 US$250 million 9.5% notes due Dec. 11, 2019 US$250 million 7.5% notes due Sept. 28, 2015
On June 11, 2013, Mexico-based homebuilder Desarrolladora Homex S.A.B. de C.V. defaulted after it missed its interest payment on its senior notes due 2019. On Feb. 8, 2012, Standard & Poor's had withdrawn its 'B+' corporate credit rating on Desarrolladora Homex at the company's request.
Table 29
Desarrolladora Homex S.A.B. de C.V.--Issuer Credit Rating History

Date 08-Feb-2012 20-Dec-2011 05-Jul-2011 01-Dec-2010 30-Nov-2009 To NR/--/-B+/Stable/-BB-/Watch Neg/-BB-/Stable/-BB-/Negative/--
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Table 29
Desarrolladora Homex S.A.B. de C.V.--Issuer Credit Rating History (cont.)

15-Sep-2005 BB-/Stable/--
Maxcom Telecomunicaciones S.A.B. de C.V.

Marcela Duenas, Mexico City (52) 55-5081-4437; Luisa Vilhena, Sao Paulo (55) 11-3039-9727 US$200 million 11.00% senior secured notes due Dec. 15, 2014 On June 19, 2013, Standard & Poor's lowered its long-term corporate credit rating on Mexico-based telecom provider Maxcom Telecomunicaciones S.A.B. de C.V. to 'D' from 'CC'. The company was downgraded following its failure to make the coupon payment on its $200 million senior secured notes by the June 15, 2013, due date. We believe its business and financial risk profiles weakened as a result of the expiration of its exchange offer for its outstanding senior secured bonds, as well as the termination of Ventura's equity tender and its tight liquidity. On July 24, 2013, Maxcom Telecomunicaciones filed for voluntary prepackaged Chapter 11 to implement a recapitalization and debt restructuring plan. On Sept. 10, 2013, Maxcom received bankruptcy court approval of a prepackaged plan of reorganization.
Table 30
Maxcom Telecomunicaciones S.A.B. de C.V.--Issuer Credit Rating History

Date 19-Jun-2013 21-Feb-2013 06-Dec-2012 23-Aug-2011 03-Mar-2011 22-Jun-2010 09-Mar-2009 12-Oct-2007 27-Nov-2006 To D/--/-CC/Negative/-CCC+/Watch Neg/-CCC+/Negative/-B-/Negative/-B/Negative/-B/Stable/-B/Positive/-B/Stable/--
Agroton Public Ltd.

Anton Geyze, Moscow (7) 495-783-4134; Nicolas Baudouin, Paris (33) 1-4420-6672; Marc Lewis, London (44) 20-7176-7069 US$50 million 12.50% notes due July 14, 2014 On July 19, 2013, Standard & Poor's lowered its long-term corporate credit rating on Ukrainian agricultural producer Agroton Public Ltd. to 'SD' from 'CCC'. The downgrade followed the failure of the company to meet its scheduled interest payments on its $50 million senior notes due on July 14, 2013. As per our criteria, nonpayment of interest within five business days is tantamount to default. Subsequently, we withdrew the ratings at the company's request.
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Table 31
Agroton Public Ltd.--Issuer Credit Rating History

Date 19-Jul-2013 19-Jul-2013 12-Apr-2013 01-Oct-2012 15-May-2012 06-May-2011 To NR/--/-SD/--/-CCC/Watch Neg/-CCC+/Stable/-CCC+/Watch Dev/-B-/Stable/--
Banco Rural S.A.

Vitor Garcia, Sao Paulo (55) 11-3039-9725; Sergio A Garibian, Buenos Aires (54) 114-891-2119 On Aug. 5, 2013, Standard & Poor's lowered its global scale issuer credit rating on Brazil-based Banco Rural S.A. to 'D' from 'B-' and its national scale issuer credit rating to 'D' from 'brB'. The rating action reflected the Central Bank of Brazil's announcement of the liquidation of Banco Rural in view of its financial weaknesses and lack of a viable recuperation plan. Following the bank's liquidation, we downgraded it to 'D', reflecting our understanding that the bank was unable to service its debt, process transactions, and fulfill its obligations, according to terms agreed with customers. Subsequently, we also withdrew our ratings.
Table 32
Banco Rural S.A.--Issuer Credit Rating History

Date 05-Aug-2013 05-Aug-2013 11-Dec-2012 05-Oct-2012 13-Dec-2011 28-Sep-2010 30-Jun-2008 To NR/--/-D/--/-B-/Negative/-B/Negative/-B/Stable/-B-/Positive/-B-/Stable/--
OGX Petroleo e Gas Participacoes S.A.

Renata Lotfi, Sao Paulo (55) 11-3039-9724; Luciano D Gremone, Buenos Aires (54) 114-891-2143 US$1.063 billion 8.375% notes due April 1, 2022 US$2.563 billion 8.50% bonds due June 1, 2018 Brazilian real (R$) 2.1 billion 10.50% senior unsecured notes due March 28, 2022 On Oct. 1, 2013, Standard & Poor's lowered its corporate credit rating on Brazil-based oil and gas producer OGX Petrleo e Gs Participaes S.A. (OGX) to 'D' from 'CCC-'. The downgrade followed the company's Oct. 1, 2013, failure to make the interest payment on its 2022 senior notes. We did not expect the company to pay the interest due within the five-business-day cure period, which is tantamount to default, as per our criteria. This was based on OGX's virtually null cash flow generation and tight liquidity position. On Aug. 15, 2013, Standard & Poor's had lowered its issuer credit rating on OGX to 'CCC-' from 'CCC'. The negative
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outlook reflected Standard & Poor's view that a distressed debt exchange or similar restructuring in the short term was plausible.
Table 33
OGX Petroleo e Gas Participacoes S.A.--Issuer Credit Rating History

Date 01-Oct-2013 15-Aug-2013 02-Jul-2013 03-Apr-2013 27-Mar-2012 20-May-2011 To D/--/-CCC-/Negative/-CCC/Negative/-B-/Negative/-B/Stable/-B/Positive/--
PT Bakrie Telecom Tbk.

Mehul P Sukkawala, CFA, Singapore (65) 6239-6337; Abhishek Dangra, FRM, Singapore +65-6216-1121 US$380 million 11.50% senior unsecured notes due May 7, 2015 Indonesian rupiah (IDR) 10 billion first-lien senior secured bank US$50 million 11.50% first-lien senior secured bank loan due March 4, 2014 On Nov. 8, 2013, Standard & Poor's lowered its long-term corporate credit rating on Indonesia-based limited mobility wireless telecommunications operator PT Bakrie Telecom Tbk. (BTEL) to 'D' from 'CC'. The downgrade followed BTEL's nonpayment of interest on its senior unsecured notes due on Nov. 7, 2013. Standard & Poor's didn't expect the company to make the interest payment on its guaranteed notes within the 30-day period allowed under the bond indenture. BTEL had informed bondholders that it would not make the payment until it finalized and implemented its debt-restructuring exercise. On Nov. 6, 2013, Standard & Poor's lowered its long-term corporate credit rating on BTEL to 'CC' from 'CCC'. The downgrade reflected Standard & Poor's expectation that the company was likely to miss an interest payment to noteholders due on Nov. 7, 2013, because of potential restructuring.
Table 34
PT Bakrie Telecom Tbk.--Issuer Credit Rating History

Date 08-Nov-2013 05-Nov-2013 06-May-2013 17-Apr-2013 05-Sep-2012 20-Mar-2012 09-Feb-2012 16-Sep-2011 21-Apr-2010 To D/--/-CC/Negative/-CCC/Negative/-B-/Watch Neg/-B-/Stable/-CCC+/Watch Dev/-CCC+/Negative/-B/Negative/-B/Stable/--
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Related Research
Top 10 Questions On Corporate Default Studies And Rating Transitions, March 31, 2014 2013 Annual U.S. Corporate Default Study And Rating Transitions, March 25, 2014 2013 Annual Global Corporate Default Study And Rating Transitions, March 19, 2014
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Default, Transition, and Recovery:

Default, Transition, and Recovery:

Emerging Market Corporate Default Summary

Emerging Market Corporate Default Summary (cont.)

Global Corporate Default Summary

Global Corporate Default Summary (cont.)

Summary Of Emerging Market Net Annual Rating Activity (%)*

Summary Of Emerging Market Net Annual Rating Activity (%)* (cont.)

Rating Classification Of New Corporate Issuers* In Emerging Markets

Annual Emerging Market Corporate Default Rates By Industry (%)

Annual Emerging Market Corporate Default Rates By Industry (%) (cont.)

Annual Emerging Market Corporate Default Rates By Industry (%) (cont.)

Cumulative Emerging Market Corporate Default Rates By Sector (%)

Cumulative Emerging Market Corporate Default Rates By Sector (%) (cont.)

Emerging Markets Corporate Defaulters

Itemized 2013 Emerging Market Corporate Defaults

Country Mexico Mexico

Industry Telecoms FP&BM

Debt amount Default (mil. $) date 765 1/29/2013 150 4/19/2013

Sub region Lat Am Lat Am

FP&BM Real estate Telecoms

900 4/29/2013 250 6/11/2013

CCC+ 4/12/2013 NR 2/8/2012

Consumer Fin. inst. E&NR

50 7/19/2013 0 8/5/2013 3,626 10/1/2013 380 11/8/2013

5/6/2011 6/30/2008 5/20/2011 4/21/2010 1/31/2013

EEMEA Lat Am Lat Am Emerging Asia Lat Am

12/11/2012 B 8/15/2013 11/5/2013 B B-

Indonesia Telecoms Mexico Telecoms

1,036 12/24/2013 CC 7,357*

Emerging Markets Ratings Performance

Emerging Market Corporate Default Rates By Rating Modifier (%)

0.00 0.00 3.85 3.70 0.00 0.00 0.00 0.00

3.85 3.70 11.67 12.82 23.81 20.00

Transition Tables And Cumulative Default Rates

Average One-Year Corporate Transition Rates (%)

Average One-Year Corporate Transition Rates (%) (cont.)

Average Two-Year Corporate Transition Rates (%)

Average Two-Year Corporate Transition Rates (%) (cont.)

(0.0) (0.0) (0.0) (0.0) 0.0 0.0 0.0 0.0

(55.5) (55.5) (33.2) (44.5) AA 0.0 8.3 75.0 13.9

(0.0) (0.0) (0.0) (0.0) 0.0 0.0 0.0 0.0

(0.0) (0.0) (0.0) (0.0) 0.0 0.0 0.0 0.0

(0.0) (0.0) (0.0) (0.0) 0.6 0.0 0.0 0.9

(1.8) (0.0) (0.0) (2.6) 0.0 0.2 0.0 0.4

(0.0) (1.4) (0.0) (1.4) 0.1 0.1 0.0 0.3

(0.4) (1.1) (0.0) (1.1) 0.0 0.2 0.0 0.1

(0.0) (0.7) (0.0) (1.0) 0.9 0.8 0.2 0.2

(2.3) (2.1) (0.7) (0.8) 5.4 1.2 0.4 0.4

(3.5) (2.7) (0.6) (1.2) 62.7 6.6 1.8 0.4

(8.1) (4.0) (3.3) (0.9) 14.0 65.9 6.0 1.1

(7.0) (9.0) (4.7) (1.3) 1.7 11.5 64.9 6.3

(1.9) (6.7) (6.9) (3.9)

(0.0) (0.7) (1.0) (5.1) 0.0 0.0 0.5 1.4

(0.0) (0.0) (1.0) (2.7)

(2.2) (10.0) (14.6) (18.3) (11.4)

Comparison Of Corporate Cumulative Average Default Rates (%)

Comparison Of Corporate Cumulative Average Default Rates (%) (cont.)

Gini Ratios And Lorenz Curves

Corporate Gini Coefficients By Region (%)

Appendix I: Default Methodology And Definitions

Issuers included in this study

Issuers with withdrawn ratings