Moody's publishes the 30th annual default study; forecasts a lower However, defaults from most other sectors increased as well. These include industrials, utilities, financial institutions, and insurance companies around the world with long-term local currency ratings. On May 5, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Luxembourg-based e-learning/training content software provider Evergreen Skills Lux S.ar.l. This influx of new speculative-grade issuers has contributed to the growing share of speculative-grade ratings globally, with the U.S. and European regions accounting for roughly two-thirds of the total since 2010. On July 9, 2020, S&P Global Ratings withdrew its issuer credit rating at the company's request. If, however, S&P Global Ratings withdrew the rating prior to Jan. 1 of the year of default, we do not include the issuer in the default rate calculation in that year. It had other coupon payments of US$8 million each in August and October. On Dec. 7, 2020, S&P Global Ratings raised the issuer credit rating to 'B-' from 'SD' on improved liquidity with constraints from high leverage. The majority (94%) began the year rated in the 'B' or 'CCC'/'C' category (57% 'CCC'/'C' and 37% 'B'). This is due to the company's interest in preserving the liquidity and financial flexibility to continue operations. The safeguard procedure, which we considered tantamount to default, implies that the debt of the protected companies is frozen, allowing for a reorganization of liabilities and a grace period. On Nov. 12, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Argentina-based diversified real estate company IRSA Inversiones y Representaciones S.A. to 'SD' from 'CC' following the settlement of a distressed exchange offer for 98.3% of its outstanding US$181.5 million series I 10.00% senior unsecured notes due Nov. 14, 2020. In turn, this can result in a relatively fast descent into default (see chart 11). Note: The totals included may differ from the counts in table 1 because defaults that are not rated at the beginning of the pool year are excluded. The transactions announced represented about 23% of total first- and second-lien term loans. Financial services had some defaults, but at a lower rate than in 2019 (see table 16). S&P Global Ratings had previously withdrawn the issuer credit ratings at the issuer's request. The decision to miss interest payments of about US$15.5 million was based on prioritization of liquidity toward its operations. On Feb. 26, 2020, S&P Global Ratings withdrew its ratings on the issuer. The issuer also conveyed that it entered into a lock-up agreement with its senior secured lenders and was in talks on a restructuring plan. Of these new issuers, 78% were rated speculative grade. On June 4, 2020, S&P Global Ratings lowered its issuer credit rating on Los Angeles-based restaurant operator California Pizza Kitchen Inc. (CPK) to 'D' from 'CCC-' because the company missed its interest payments due at the end of May 2020 and entered into a forbearance agreement with its lenders. The company was to pay 12.0% and 14.5% PIK interest in June and December, respectively, rather than the previous 10.0% rate. PDF Deutsche Bank AG Moody's Seasoned Baa Corporate Bond Yield-Moody's Seasoned Aaa Corporate Bond Yield. On Oct. 19, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based health care provider Alliance HealthCare Services to 'SD' from 'B-' after the issuer completed a distressed exchange of its second-lien debt. As an example, the two-year column of table 32 shows the two-year default rates (not conditional on survival) for each static pool. The company entered a "stalking horse" asset purchase agreement with private equity firm KPS Capital Partners L.P. As part of the agreement, KPS will purchase a substantial part of Garrett's assets and liabilities for US$2.1 billion in cash. On April 16, 2020, S&P Global Ratings lowered the issuer credit ratings on Cyprus-based real estate market investor O1 Properties Ltd. to 'D' from 'CC' after the issuer missed a coupon payment on US$350 million Eurobonds. PDF Moody's Analytics Default & Recovery Database (DRD): Frequently Asked articles Normally, recessions include, or are followed shortly by, marked increases in corporate defaults. As a result, the noteholders received less than the original promise. If the rating on the issuer was withdrawn in the middle of 1991, it would be included in the column representing transitions to NR in the 1991 transition matrix. The company filed for Chapter 11 bankruptcy with a prepackaged plan to equitize around US$300 million of unsecured notes. In both cases, the standard deviation of the times to default generally shrinks progressively as the rating gets lower. The 2021 corporate default tally of 72 is the lowest since 2014--down nearly 70% from the previous year's total . Earlier, on May 5, 2020 we lowered the issuer credit rating on Avianca to 'CCC-' from 'CCC' and kept the ratings on CreditWatch with negative implications. On Sept. 4, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New York-based apparel designer and manufacturer Premier Brands Group Holdings LLC to 'SD' from 'B-' after the issuer announced that it received a waiver for reducing excess cash flow payment of about US$11 million, which was due in April 2020. On June 16, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Missouri-based propane distributor Ferrellgas Partners L.P. to 'SD' from 'CC' after the issuer decided to not make the final maturity payment on its US$357 million unsecured notes and entered into a forbearance agreement with its debtholders until July 31, 2020. As a result, certain business units of S&P may have information that is not available to other S&P business units. A total of 3,098 defaults have been recorded globally since 1981. The only exceptions to the correspondence between lower ratings and higher default rates occur when the number of defaults is low or when the underlying number of issuers is very small--such as at the rating modifier level among the higher rating categories (see table 26). Source: Moody's Investors Service, "Moody's Corporate Default & Recovery Rates Study 2019" Senior Secured Loans Equity Unsecured Debt (ie, high yield bonds) Subordinated Bonds Senior Unsecured Bonds Loans 28.0% 47.0% 80.0% Recovery Rate 100% 80% 60% 40% 20% 0% 1 Source: S&P Global Market Intelligence, Wells Fargo, March 31, 2020 On Jan. 13, 2020, S&P Global Ratings lowered its long-term issuer credit rating on paper manufacturer Lecta S.A. to 'SD' from 'CC' after failing to pay the interest of 3.8 million due November 2019 on its 225 million senior secured floating notes due 2020. On Oct. 2, 2020, S&P Global Ratings raised its issuer credit rating to 'CCC+' from 'SD'. On May 11, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Chinese furniture maker Yihua Enterprise (Group) Co. Ltd. to 'SD' from 'CCC' after the issuer failed to make interest payment on its domestic medium-term notes due 2022. In years with lower-than-average default rates, often more than 90% of defaulters were initially rated speculative grade, as reflected in the rating path observed for defaulters in the trailing 12 quarters (see chart 10). The company had a $135 million interest payment due in mid-July and a $208 million debt maturity in August 2020, and its bonds traded at less than $0.10 on the dollar. We consider this exchange as tantamount to default. We consider the exchange distressed and tantamount to default because, in our view, the transaction offers less than the original promise for the security. last several cycles haven't had Key to those discussions at pandemics and land wars in Eu-their two-day policy meeting 0 0 Units in buildings with ve units or more 0 rope in them." will be estimating how much The Fed's rate moves didn't 1980 '90 2000 '10 '20 1980 '90 2000 '10 '20 1980 '90 2000 '10 '20 their previous . On June 5, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based fitness service provider 24 Hour Fitness Worldwide Inc. to 'D' from 'CCC+' after the issuer missed interest payments on its senior notes due 2022 and entered into the grace period. Through Dec. 31, 2020, 198 defaults have come from the 2020 pool of financial and nonfinancial companies, and 94% of these were from the lowest rating categories--'B' and lower. On May 19, 2020, S&P Global Ratings lowered its issuer credit rating on German value retailer Takko Fashion S.a.r.l. Its Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. N/A--Not available. Growth during the year partially reflected temporarily heightened demand due to stay-at-home activities. Over the long term, the global weighted average Gini coefficient was 82.8% over the one-year horizon, 75.3% over three years, 71.5% over five years, and 69.2% over seven years (see table 27). (PDF) Curve fitting of the corporate recovery rates: the comparison of The principal liquidity sources for the issuer involves US$48 million cash on hand and about US$35 million to US$55 million available in revolving credits. In the seven-year Lorenz curve, speculative-grade issuers constituted 88.3% of defaulters and only 36.7% of the entire sample (see chart 29). This is an extremely high level, just surpassing 2009, when the ratio hit 56.3% amid a wave of distressed exchanges, which, once completed, often result in 'B-' ratings. On July 7, 2020, we lowered the issuer credit rating on Forum to 'CC' from 'CCC-' following the issuer's announcement to exchange its remaining $328 million of 6.25% senior unsecured notes due October 2021. PDF Relative Attractiveness of Direct Lending: Term and Credit Risk In other words, the use of a rating category suggests that transitions, for example, to 'AA' from 'AA-' or to 'BBB+' from 'BBB-', are not considered to be rating transitions because the rating remained within the rating category. An obligor rated 'SD' (selective default) or 'D' (default) is in default on one or more of its financial obligations, including rated and unrated financial obligations but excluding hybrid instruments classified as regulatory capital or in nonpayment according to terms. We viewed this transaction as tantamount to a default on the term loan because the company's operations were distressed, making it difficult for it to meet its obligations. Its rating history after the default event is included in all calculations as entirely separate from its experience leading up to its earlier default. The company finalized a tender offer to repurchase $213 million of its outstanding $255 million 12% senior secured notes due 2022. S&P reserves the right to disseminate its opinions and analyses. This study analyzes the rating histories of 21,693 companies that S&P Global Ratings rated as of Dec. 31, 1980, or that were first rated between that date and Dec. 31, 2020. Nick W Kraemer, FRM, New York+ 1 (212) 438 1698; Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai, Sundaram Iyer, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, Lyndon Fernandes, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, Abinash Meher, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, Shripati Pranshu, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, APAC, United States of America, Latin America, Canada, EMEA, APAC. The eligible holders of second-lien notes received 97.5 cents on the dollar of the principal amount, whereas first-lien notes holders received 90 cents on the dollar of the principal amount. On Dec. 7, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Louisiana-based oil field services company Superior Energy Services Inc. to 'D' from 'CC'. Default & Recovery Analytics - Moody's Investors Service