PDF An Empirical Analysis of Bond Recovery Rates: Exploring a Structural An 'SD' rating is assigned when S&P Global Ratings 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. The company will not make the interest payments within the 30-day grace period. For the purposes of this study, a corporate rating may also be withdrawn as a result of mergers and acquisitions. The issuer agreed with certain majority debtholders to convert US$2.2 billion of existing debt into new equity. 2021 US Loan Default Rate In Line with 2020; HY Trending Lower Project Finance Bank Loans: Default and Recovery Rates for 1983-2020 (APAC) APAC Edition. On Oct. 9, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Brazil-based telecom operator Oi S.A. to 'SD' from 'CC' after the issuer announced that the judicial court ratified the amendment to the company's judicial reorganization plan, which was approved by the majority of its creditholders on Sept. 8, 2020. The issuer had also obtained a commitment for $1 billion in debtor-in-possession financing. On April 17, 2020, we raised the issuer credit ratings to 'CCC-' after the issuer was able to shift a huge portion of debt maturing in the second quarter of 2020 to the next quarter. The negative outlook reflects our view of a potential risk from a prolonged decline in customer's mining and drilling activity and slower-than-expected recovery, which could lead to further liquidity pressure and leverage remaining above 10x ahead of the large debt maturities in 2022, increasing the risk of another distressed transaction. On July 20, 2020, S&P Global Ratings lowered its long-term issuer credit rating on North Carolina-based sock manufacturer Renfro Corp. to 'SD' from 'CCC-' after the issuer completed a distressed exchange. Throughout the 40-year span, only eight companies initially rated 'AAA' have ever defaulted. After experiencing high downgrade and default rates in 2020, ratings were much more stable in 2021. In light of our expectation of a continued economic recovery and accommodative funding conditions in the coming year, Moody's Analytics Credit Transition Model projects the global default rate will fall to 1.7% at the end of this year. CLO Myth-Busting: The Top Three Misconceptions As 2020 wore on, default rates fell across most regions, with fourth-quarter figures generally less than half the rates in the second quarter. On Dec. 9, 2020, we raised our issuer credit rating on Revlon to 'CCC-' from 'SD' after it completed its previously announced 5.75% senior notes exchange, which we viewed as a distressed restructuring. Difference between last four quarters and weighted average, Largest corporate defaulters by outstanding debt amount, Texas Competitive Electric Holdings Co. LLC. If S&P Global Ratings' corporate ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal. Noteholders validly tendered about 69% of the total outstanding principal amount of the notes through the exchange. For both axes of the Lorenz curve, the observations are ordered from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA'). On Dec. 9, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Tennessee-based health care services provider Community Health Systems Inc. to 'SD' from 'CC'. The average amount of debt per defaulter in 2020 was the same as in 2019: $1.6 billion. On Oct. 8, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Oklahoma-based oil and gas exploration and production company Ascent Resources Utica Holdings LLC to 'SD' from 'CC' after the issuer announced the expiration of its offer to exchange its 2022 senior notes for a combination of a new second-lien term loan due 2025 and new senior notes due 2027. Emerging markets: 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. On July 9, 2020, S&P Global Ratings withdrew its issuer credit rating at the company's request. On June 23, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Doraville, Georgiabased leading U.S. bedding manufacturer Serta Simmons Bedding LLC to 'SD' from 'CC' as the company completed its distressed debt exchange, swapping $992 million first-lien debt and $300 million of second-lien debt for $851 million of super-priority second-out debt, and issued $200 million new super-priority first-out debt provided by the debt-exchange lenders. Note: Numbers in parentheses are weighted standard deviations, weighted by the issuer base. We understood that the company was making those amendments to preserve cash because customers have had to suspend their mining operations or delay their project spending due to the coronavirus pandemic. Earlier, on April 10, 2020, we lowered the rating on the issuer to 'CC' from 'CCC-' after it was unable to obtain mezzanine debt lenders' consent to extend the loan and had insufficient liquidity. Amid the fast and robust economic rebound, the speculative-grade rating bias has rapidly recovered, but the number of upgrades has not yet matched the magnitude of downgrades seen last year. This relationship between higher ratings and higher ratings stability holds even over longer time horizons (see table 21) and when broken out by region (see table 22). This small sample size can, at times, result in historical default rates that seem counterintuitive. Europe followed with 42 defaults, emerging markets with 28, and the other developed region (Australia, Canada, Japan, and New Zealand) with 10. The new approval includes transfer of ownership to Alloy Topco Ltd. On Oct. 26, 2020, S&P Global Ratings withdrew its ratings on the issuer. One key reason is that financial services companies typically start with investment-grade ratings, while most nonfinancial issuers have speculative-grade initial ratings, particularly over the past 10 years. The transaction was viewed as distressed because the remaining US$42 million will now become subordinated, while the noteholders who agreed to the exchange will receive US$850 per US$1,000 principal amount. Includes investment-grade and speculative-grade entities. 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 24, 2020, S&P Global Ratings withdrew its issuer credit rating at the company's request. On Feb. 26, 2020, S&P Global Ratings withdrew its ratings on the issuer. In 2020, 226 companies, including 26 confidential issuers, defaulted on US$353.4 billion of debt. On Nov. 19, 2020, we lowered our issuer credit rating to 'SD' from 'CC 'as the company completed its previously announced 5.75% senior notes exchange. Default, Transition, and Recovery: 2021 Annual Global Sovereign Default For instance, the 1981 static pool consists of all companies rated as of 12:00:01 a.m. on Jan. 1, 1981. For example, 427 defaults were recorded in the five-year pool that began in January 2016, of which 414 were rated speculative grade on Jan. 1, 2016. For this study, the Lorenz curve is plotted with the x-axis showing the cumulative share of issuers, arranged by rating, while the y-axis represents the cumulative share of defaulters, also arranged by rating. *Fallen angels that survived to Jan. 1 of the year after they were downgraded. de C.V. to 'D' from 'B-' after the issuer filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. On May 29, 2020, we raised the issuer credit rating on DDA to 'CCC' from 'SD' based on DDA's reliance on favorable market conditions to generate sufficient cash flow to meet its near-term debt obligations following its reopening. On Sept. 17, 2020, S&P Global Ratings withdrew its ratings at the issuer's request. PDF Moody's Analytics Default & Recovery Database (DRD): Frequently Asked No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. Of the rated defaulters at the beginning of 2020, none began the year with an investment-grade rating. Our data on defaulted corporate issuers globally shows that defaults among speculative-grade entities tend to be clustered in the third year after the initial rating, particularly in the 'B' rating category (see chart 9). On Sept. 28, 2020, S&P Global Ratings lowered its long-term issuer credit rating on French trade show organizer Cassini SAS to 'D' from 'CCC' after the issuer entered into safeguard procedures because of losses caused by COVID-19-related show cancellations and postponements. We considered the transaction as distressed given the company's weak operating performance, negative cash flow generation, and near-term debt maturities. Earlier, on March 2, 2020, we lowered our issuer credit ratings on LSC to 'CC' from 'CCC+' after the issuer entered into a forbearance agreement for failing to comply with its consolidated leverage and interest ratio credit agreements covenants. ( 2007 ), we approximate the issuers' industry distress if the median stock returns of the firms in the same industry are less than -30%. In 2005, the speculative-grade share of European corporate ratings peaked near 21%, and once the cycle turned, the European speculative-grade default rate peaked at 9.9% in November 2009. On Dec. 22, 2020, S&P Global Ratings lowered the rating to 'D' following the debt restructuring. We calculated standard deviations for Gini ratios in this study as the standard deviations of a sample, and not those of a population. On June 5, 2020, we raised the rating on the issuer to 'CCC+' from 'D' on revised credit agreements, which reduced its annual cash interest payments by $10 million, which, in turn, alleviated near-term liquidity concern. The gap becomes even wider over longer time horizons, such as three years and 10 years (see chart 19). Historically, a growing concentration of speculative-grade ratings often precedes a period of increased defaults. Tunghsu also signed a letter of intent to acquire a 26%-38% stake in Alderon Iron Ore Corp., which would be conducted by its subsidiary. Annual speculative-grade default rates increased in all major regions in 2020, relative to 2019. On the same day, we withdrew the issuer ratings. Four other sectors' speculative-grade proportions are greater than 70%, and telecommunications reached nearly 68% at the end of 2020. Average and standard deviation for Europe calculated for the period 1996-2020 due to sample size considerations. On Aug. 19, 2020, we raised our issuer credit rating on Forum to 'CCC+' from 'SD' following the completion of its debt exchange for the majority of its 6.25% senior unsecured notes due 2021. Earlier, in 2004, S&P Global Ratings withdrew its ratings on the company. These two sectors, along with leisure time/media, had 2020 default rates in excess of 6%, which were much higher than other sectors and were markedly higher than their sectoral long-term weighted averages (see table 19). On Sept. 25, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' as the liquidity metrics significantly improved and debt was lower, with sources of cash exceeding uses by significantly more than 1.5x in the following 12 months. On July 16, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Ohio-based oil and gas exploration and production company Chaparral Energy Inc. to 'D' from 'CCC-' after the issuer elected not to make interest payments of US$13.1 million due on its unsecured notes due 2023. The issuer was also in talks with its lenders and noteholders for a comprehensive financial restructuring. This growth of the publicly rated speculative-grade market in Europe has resulted largely from newly assigned speculative-grade ratings (in addition to downgrades). Loan loss charges also retreated to well below management's earlier guidance to 117 million (Q3 2020: 273 million) or 10 basis NPC is the largest franchisee of Pizza Hut and Wendy's restaurants operating nearly 1,600 locations in the U.S. On July 1, 2020, S&P Global Ratings lowered the ratings on the issuer to 'D' from 'SD' following its Chapter 11 bankruptcy filing, following which, on Aug. 5, 2020, the ratings on the issuer were withdrawn. The study Default, Transition, and Recovery: 2019 Annual Global Corporate Default And Rating Transition Study April 29, 2020 Key Takeaways - The global speculative-grade corporate default rate rose to 2.5% in 2019 from 2.1% at the end of 2018, while the number of corporate defaults globally rose to 118, the first triple-digit total since 2016. Moody's optimistic scenario entails a strong recovery leading to a default rate forecast of just 2% for the year-end and maintaining around the 2% area for the initial months of 2022. (For more information on methodologies and definitions, see Appendix I.). On April 15, 2020, S&P Global Ratings lowered its rating on the issuer to 'D' from 'SD' upon the company filing for Chapter 11 bankruptcy, following which, on May 28, 2021, the ratings on the issuer were withdrawn. On Sept. 15, 2020, we raised the issuer credit rating to 'CC' from 'SD' after its subsidiary, Town Sports International LLC, filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, while the parent was not included in it. The pools are static in the sense that their membership remains constant over time. As an example, if 'CCC'/'C' rated entities made up 10% of the total population of issuers at the start of the time frame examined (x-axis) and 50% of the defaulters (y-axis), then the coordinate (10, 50) would be the first point on the curve. The regions covered in this study are: U.S. and tax havens: Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses. Multiyear transitions. Research: Rating Action: Moody's upgrades the ratings on approximately Note: Excludes confidentially rated defaults. All rating changes that took place are reflected in the newly formed 1982 static pool through the ratings on these entities as of 12:00:01 a.m. on Jan. 1, 1982. Adriana Matos Measured on a dollar volume basis, Moody's global speculative-grade Senior Associate bond default rate ended 2008 at 5.8%, up from 2007's year-end level of Richard Cantor 0.6%. The higher default rates for nonfinancial sectors are not surprising, given their higher concentration of speculative-grade issuers.