Standard and Poor’s Release European Corporate Rating Default Report

 

 The ratings agency says that its latest study demonstrates that credit
ratings continue to serve as effective indicators of relative credit
risk. Findings from the report include.

  • 16 corporates defaulted in 2013, up from nine in 2012 and the highest since 2009 – all but two of these defaulters were initially rated BB+ or lower. Norske Skogindustrier ASA was initially rated BBB in 2001 and downgraded to B+ over three years prior to default. Irish Bank Resolution Corp was initially rated A in 2007 and downgraded to CCC+ over a year prior to default.
  • Higher-rated companies generally take a longer time to default than their lower-rated counterparts. S&P bases this assessment on examining the data for European issuers using their original ratings as the reference point. For example, B rated European entities took an average of about three years to default, less than the average of 5.7 years to default for A rated entities.
  • Upgrade and downgrade activity varied widely between nonfinancial and financial sectors. While 13% of the nonfinancial companies were downgraded at the end of the year, 12% had higher ratings. On the other hand, 16% of financial companies were downgraded in 2013, while only 4% were upgraded.
  • As of year-end 2013, issuers rated BB+ or lower by S&P accounted for 38.0% of all ratings in Europe, compared with 31.4% as of year-end 2012.
  • European credit stability improved in 2013. The percentage of unchanged ratings increased to 72.04% from 62.08% in 2012 and 64.46% in 2011. The downgrade-to-upgrade ratio for all European companies in 2013 was 1.47%, markedly lower than the 3.25% ratio in 2012.
  • Overall, the volume of debt affected by European defaults in 2013 was US$17.8bn, compared with US$19.7bn in 2012, US$5.0bn in 2011, US$9.3bn in 2010, and US$38.7bn in 2009. The 81 global defaulters accounted for a total of US$100.5bn.

 

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