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S&P 'weakest links' tally at 10-year high, suggesting more defaults

The number of "weakest links" among debt issuers jumped to 263 in September, from 243 in August, marking the highest level since November 2009, when the global speculative-grade default rate was at a record high 10.5% amid the financial crisis, S&P Global Ratings said in a report published Oct. 17.

“The default rate of weakest links is nearly eight times greater than that of the broader speculative-grade segment, and the rise in the weakest links tally may signify higher default rates ahead," said Sudeep Kesh, head of S&P Global Credit Markets Research.

Weakest links are defined as issuers rated 'B–' or lower by S&P Global Ratings with negative outlooks or ratings on CreditWatch with negative implications.

The consumer products sector leads in the number of weakest link issuers, at 52 (20% of the total), and had the most additions in September, including U.S.-based Renfro Corp., Blue Ribbon Intermediate Holdings LLC, and Anastasia Holdings LLC, as well as China-based Beijing Ruyi Fashion Investment Holding Co. Ltd.

Downgrades in the consumer products sector continue to outpace upgrades, leading to an increase in weakest links and a low median rating, in the 'B' rating category. These weakest links include producers that sell their products through their own distribution channels, like David's Bridal and J. Crew, which have faced both top-line growth and bottom-line cost pressures amid changing consumer preferences and greater price transparency due to the growing online marketplace.

S&P Global Ratings currently forecasts the U.S. default rate to be 3.4% by June 30, 2020, with the consumer products and retail and restaurants sectors expected to generate higher percentages of defaults than other sectors over the next 12 months, given their sector-specific stressors .

LCD is an offering of S&P Global Market Intelligence. S&P Global Ratings is a separately managed division of S&P Global.


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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.