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Quick take: Global default rates rise to highest levels since 2009

Capital Markets View – February 2021


LCD Monthly: Demand for US loans puts borrowers in the driver's seat

Capital Markets View – January 2021

2021 Leveraged Loan Survey: Defaults edge higher; credit quality a concern

Quick take: Global default rates rise to highest levels since 2009

The global corporate default tally has risen to 200 so far in 2020 amid the spread of the COVID-19 pandemic, according to S&P Global Ratings — the highest this measure has been since 2009, when 266 issuers defaulted globally. The U.S. leads with 129 defaults, followed by 35 in Europe, says S&P Global Ratings in a report titled The Global Corporate Default Tally Reaches 200 For The First Time Since 2009. The 35 defaults in Europe have surpassed the 22 recorded in 2009.

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These numbers translate into a 12-month-trailing speculative-grade default rate of 5.1% globally, 6.3% in the U.S. and 4.9% in Europe, including both high-yield bond and loan borrowers that S&P Global rates.

Loan defaults

In loans only, the lagging 12-month default rate based on issuer count in the S&P European Leveraged Loan Index, or ELLI, shows a monthly increase to 4.84% at the end of October, from 4.61% in September and 3.63% in the two months prior to that.

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While this latest figure is the highest monthly default rate since August 2014, restructuring advisers in Europe say that even though they are busy and running their teams at full capacity, they have not been as busy as they initially expected earlier this year.

In the U.S., the lagging 12-month default rate based on issuer count in the S&P/LSTA Leveraged Loan Index, or LLI, stood at 4.48% at the end of October, slightly lower than 4.64% in September, which was the highest monthly default rate this year. The default rate rose above 4% in July this year, having not previously exceeded that level since September 2010.

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Support schemes

Restructuring advisers note that swift government support schemes — especially in Europe — have kept the default rate in check this year. "Governments in this crisis have reacted very quickly, but there will be a time when these bills will need to be paid, and the can that’s been kicked down the road needs to be picked up," said one adviser in London last week, adding that it will take a few years for some businesses to emerge from this crisis if they went into it structurally weak.

In terms of the outlook, S&P Global Ratings expects the S&P/LSTA Leveraged Loan Index lagging 12-month default rate (by number of issuers) to increase to 8% by June 2021, the agency said on Nov. 2 in its first default forecast for the index. Meanwhile, the European trailing-12-month speculative-grade corporate default rate could rise to 8.5% by June 2021, S&P Ratings estimated in August.