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S&P Global Ratings

2018 Annual U.S. Corporate Default And Rating Transition Study

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2018 Annual U.S. Corporate Default And Rating Transition Study

Highlights

- In 2018, there were 47 defaults from U.S. companies, accounting for rated outstanding debt of $101.6 billion. By comparison, 64 U.S. companies defaulted with $65.4 billion of outstanding debt in 2017.

- The U.S. speculative-grade corporate default rate tightened to 2.42% in 2018 from 3.09% in 2017.

- More than two-thirds of the companies that defaulted in 2018 were rated in the 'CCC' rating category as of the beginning of the year.

- The consumer services sector led with 15 defaults in 2018, followed by the energy and natural resources sector with 14. However, energy and natural resources had the highest default rate, at 5.16%, while the consumer services default rate was 3.04%.

- The one-year Gini ratio for S&P Global Ratings' corporate ratings increased to 94.2% in 2018 from 90.1% in 2017. This is the highest Gini ratio for one year since 2014 and the third highest ever.

May. 07 2019 — S&P Global Ratings' U.S. corporate ratings experienced one of their most positive years in recent memory in 2018, perhaps benefiting from a more nurturing business climate. Of particular relevance to U.S. corporations was the Tax Cuts and Jobs Act (TCJA), which Congress passed and President Donald Trump signed into law in December 2017. The expressed and emphasized purpose of tax reform was to encourage investment and job growth. While the effect of the TCJA on corporate ratings is not easily discernible, improvements in profitability and economic activity, which the legislation purports to have generated, could only improve credit profiles generally. S&P Global economists believe the tax package may have boosted U.S. GDP by 0.3 percentage point in 2018.

The improved business conditions countered various emerging complications in 2018, such as trade disputes, political tensions, and volatile equity markets. Corporate ratings in the U.S. nearly experienced as many positive rating actions as negative in 2018--a threshold not achieved since 2014. Not including defaults, there were more upgrades than downgrades among U.S. corporate issuers.

Furthermore, the number of defaults declined for the second consecutive year, to 47, the lowest figure since 2014 (see chart 1 and table 1). The U.S. corporate default tally had dropped to 64 defaults in 2017 from 106 defaults in 2016 (the highest since 2010). Much of the decrease stemmed from the energy and natural resources sector due to stable hydrocarbon prices. Defaults in the consumer services sector surpassed those in the energy and natural resources sector last year, with consumer services at 15 (from 18 in 2017), while the energy sector saw a fall in defaults to 14 (from 19 in 2017).

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