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2018 Annual Global Corporate Default & Rating Transition

Highlights

- Despite escalating market volatility and political uncertainty in 2018, funding conditions remained accommodative, and the global speculative-grade corporate default rate fell to 2.1% in 2018 from 2.5% at the end of 2017. The number of corporate defaults globally fell to 82. More companies were upgraded than downgraded, and 73% of companies retained the same ratings by year-end.

- All companies that defaulted in 2018 that were rated at the start of the year were speculative grade (rated 'BB+' or lower), and 74% of these were in the 'CCC'/'C' rating category. As a result, the one-year global Gini ratio rose to 93% in 2018 from 92.7% in 2017, reaching its highest since 2014.

- Emerging markets experienced the largest increases in the number of downgrades in 2018. Corporate downgrades in Brazil, Argentina, and Turkey more than doubled, mostly as a result of sovereign downgrades for each of these countries during the year.

- For the first time in the 38-year history of the ratings covered in our global corporate default and transition studies, speculative-grade issuers represented the majority of global ratings as of year-end. In large part, this resulted from the growing number of newly rated speculative-grade issuers over the past several years.

Apr. 09 2019 — Despite greater market volatility and political uncertainty in 2018, funding conditions for companies remained accommodative for much of the year, and the global corporate default rate declined. By many measures, 2018 showed improved performance for S&P Global Ratings' corporate credit globally. Even amid rising trade tensions, populism's growing political influence, and Brexit, companies were largely able to brush aside the noise and benefit from the continued growth of the global economy. Against this backdrop, many of S&P Global Ratings' measures for rating performance and rating stability, as well as the proportion of upgrades, rose to their highest levels since 2014. Meanwhile, the number of defaults fell to 82, its lowest level since that year (see chart 1 and table 1).

Over half of all defaults in 2018 came from two sectors: the consumer services sector and energy and natural resources (with 22 defaults each). These were the only two sectors with default rates in 2018 that exceeded their long-term weighted averages (see chart 2). Residual stress has continued to weigh on energy and natural resources, and brick-and-mortar retailers in consumer services are facing structural changes. Even though both sectors exhibited above-average default rates in 2018, these default rates (and the number of defaults for each sector) modestly declined from 2017.

This study includes industrials, utilities, financial institutions (banks, brokerages, asset managers, and other financial entities), and insurance companies globally with long-term local currency ratings from S&P Global Ratings. We calculated all default rates on an issuer-weighted basis. The default rates that we refer to as weighted averages in this study use the number of issuers at the beginning of each year as the basis for each year's weight. (For a detailed explanation of our data sources and methodology, see Appendix I.)

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