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Default, Transition, and Recovery: Weakest Links Reach A 10-Year High


Default, Transition, and Recovery: Weakest Links Reach A 10-Year High

The number of weakest links (issuers rated 'B-' or lower by S&P Global Ratings with negative outlooks or ratings on CreditWatch with negative implications) grew to 263 in September from 243 in August, reaching its highest since November 2009, when the global speculative-grade default rate was at a record high of 10.5% amid the financial crisis. The default rate of weakest links is nearly eight times greater than that of the broader speculative-grade (rated 'BB+' or lower) segment, and the rise in the weakest links tally may signify higher default rates ahead.

The consumer products sector leads the tally with 52 weakest links (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.

Chart 1

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Consumer Product Weakest Links Rise

In the consumer products sector, downgrades 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 (see "Industry Top Trends 2019: Consumer Products," Nov. 13, 2018).

In our base case, we currently forecast the U.S. default rate will reach 3.4% by June 30, 2020. We expect the consumer products and retail and restaurants sectors to have higher percentages of defaults than other sectors over the next 12 months, given their sector-specific stressors (see "The Expansion Of The 'B-' Segment Is Feeding Growing Vulnerabilities," Sept. 25, 2019).

Trends in U.S. consumer products
  • For U.S. consumer products, downgrades outpaced upgrades in 2019 through Sept. 23, with 52 downgrades and five upgrades (see chart 3).
  • In the U.S., the consumer products, auto, and retail and restaurants sectors lead in negative bias (the proportion of issuers with negative outlooks or ratings on CreditWatch with negative implications) (see chart 4).
  • Issuance in the U.S. consumer products sector remains low, at nearly half of its year-to-date 2018 total. The only two consumer product issuers that have issued debt this year are U.S.-based Getty Images Inc. and KeHE Distributors LLC (see chart 5).
  • Among the weakest links listed in the top 250 corporate obligors in outstanding rated U.S. cash flow CLOs, the U.S. consumer products sector leads with six (see table 2).

Chart 2

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Chart 3

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Chart 4

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Chart 5

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Table 1

Weakest Links Exceed Five-Year And 10-Year Averages In All Regions Except EEMEA And Canada
Weakest links by region
Number of weakest links Five-year average 10-year average
U.S. 177 138 114
Europe 36 22 20
Latin America 28 13 14
Asia-Pacific 14 7 7
EEMEA 5 15 11
Canada 3 8 7
EEMEA--Eastern Europe, Middle East, and Africa. Data as of Sept. 23, 2019. Source: S&P Global Ratings Research.

Table 2

Consumer Products Lead Weakest Links Listed In The Top 250 Corporate Obligors In Outstanding Rated U.S. Cash Flow CLOs
Organization Rank in U.S. CLO transactions Outlook/CreditWatch Applied rating Sector/subsector

Advantage Sales & Marketing Inc.

33 Negative B- Consumer products

Riverbed Parent Inc.

101 Negative CCC+ High technology

Harland Clarke Holdings Corp.

117 Negative CCC+ Media and entertainment

Petco Holdings Inc.

118 Negative CCC+ Retail/restaurants

Mallinckrodt PLC

130 Negative CCC Health care

Serta Simmons Bedding LLC

143 Negative CCC+ Consumer products

Bright Bidco B.V.

149 Negative CCC+ Automotive

Alphabet Holding Co. Inc.

162 Negative B- Consumer products

Revlon Inc.

191 Negative CCC+ Consumer products

Ascena Retail Group Inc.

198 Negative CCC+ Consumer products

Idemia France SAS

209 Negative B- High technology

DTI Holdco Inc.

213 Negative B- Media and entertainment

New Academy Holding Co. LLC

232 Negative CCC+ Retail/restaurants

Varsity Brands Holding Co. Inc.

247 Negative B- Consumer products
CLO--Collateralized loan obligation. Data as of Sept. 23, 2019. Source: S&P Global Ratings Research.

Table 3

Weakest Link Additions
Entity Outlook or CreditWatch Rating Debt (mil. US$) Sector Region

Bright Bidco B.V.

Negative CCC+ 1,683 Automotive Europe

Optimas OE Solutions Holding LLC

Negative CCC+ 450 Capital goods U.S.

Strategic Materials Holding Corp.

Negative CCC+ 315 Chemicals, packaging, and environmental services U.S.

Shandong Ruyi Technology Group Co. Ltd.

Watch Neg B- 645 Consumer products Asia-Pacific

KNB Holdings Corp.

Negative B- 295 Consumer products U.S.

Renfro Corp.

Negative CCC+ 220 Consumer products U.S.

Anastasia Holdings LLC

Negative B- 650 Consumer products U.S.

Blue Ribbon Intermediate Holdings LLC

Negative B- 0 Consumer products U.S.

Varsity Brands Holding Co. Inc.

Negative B- 2,800 Consumer products U.S.

Rayonier Advanced Materials Inc.

Watch Neg B- 550 Forest products and building materials U.S.

Alvogen Pharma US Inc.

Negative B- 2,119 Health care U.S.

Mallinckrodt PLC

Negative CCC 11,624 Health care Europe

Navico Group AS

Negative CCC+ 260 High technology Europe

Deliver Buyer Inc.

Negative B- 630 Media and entertainment U.S.

Monitronics International Inc.

Negative B- 1,923 Media and entertainment U.S.

Imagine Group LLC (The)

Negative CCC+ 499 Media and entertainment U.S.

Harland Clarke Holdings Corp.

Negative CCC+ 1,842 Media and entertainment U.S.

Zhongrong Xinda Group Co. Ltd.

Watch Neg CCC+ 500 Metals, mining, and steel Asia-Pacific

SGL Carbon SE

Negative B- 275 Metals, mining, and steel Europe

Schmolz + Bickenbach AG

Watch Neg B- 0 Metals, mining, and steel Europe

KCA DEUTAG Alpha Ltd.

Negative CCC+ 1,685 Oil and gas Europe

Forum Energy Technologies Inc.

Negative B- 400 Oil and gas U.S.

Unit Corp.

Negative B- 650 Oil and gas U.S.

Jo-Ann Stores Holdings Inc.

Negative B- 1,130 Retail/restaurants U.S.

Telecom Argentina S.A.

Negative B- 400 Telecommunications Latin America

Transportadora de Gas del Sur S.A. (TGS)

Negative B- 500 Utility Latin America

CAPEX S.A.

Negative B- 300 Utility Latin America

Aeropuertos Argentina 2000 S.A.

Negative B- 400 Utility Latin America

Diamond (BC) B.V.

Negative B- 2,464 Chemicals, packaging, and environmental services Europe

Spring Education Group Inc.

Negative B- 866 Media and entertainment U.S.

Offshore Drilling Holding S.A.

Negative CCC- 950 Oil and gas Latin America
Data as of Sept. 23, 2019. Source: S&P Global Ratings Research.

Table 4

11 Issuers Were Removed From The Weakest Links Tally In September
Weakest link removals
Entity Country Outlook/CreditWatch Rating Debt (mil. US$) Sector/subsector Region

Sprint Industrial Holdings LLC

U.S. Negative CCC- 241 Capital goods U.S.

Alta Mesa Resources Inc.

U.S. Negative CCC- 1,000 Oil and gas U.S.

Maxcom Telecomunicaciones S.A.B. de C.V.

Mexico Watch Neg CC 180 Telecommunications Latin America

PHL Variable Insurance Co.

U.S. Negative CCC+ 0 Insurance U.S.

BioClinica Holding I L.P.

U.S. Negative B- 2,620 Health care U.S.

EP Energy LLC

U.S. Negative CC 11,300 Oil and gas U.S.

PT Delta Merlin Dunia Textile

Indonesia Negative CCC- 300 Consumer products Asia-Pacific

McDermott International Inc.

Panama Negative B- 9,380 Capital goods Latin America

Horizon Global Corp.

U.S. Negative CCC 335 Automotive U.S.

Montreign Operating Co. LLC

U.S. Negative CCC 520 Media and entertainment U.S.

Triple Point Group Holdings Inc.

U.S. Negative CCC 435 High technology U.S.
Data as of Sept. 23, 2019. Source: S&P Global Ratings Research.

Table 5

Global Corporate Defaults In Consumer Services In 2019
Company Country Debt (mil. $) Default date Weakest link

Shopko Stores Inc.

U.S. 0 1/16/2019 No

New Look Retail Group Ltd.

U.K. 1,657 1/31/2019 Yes

Charlotte Russe Inc.

U.S. 90 2/4/2019 Yes

TRM Holdings Corp.

U.S. 0 2/6/2019 No

Payless Inc.

U.S. 280 2/19/2019 Yes

CTI Foods Holding Co. LLC

U.S. 510 3/11/2019 Yes

Evergreen AcqCo1 L.P. d/b/a Savers

U.S. 775 3/28/2019 Yes

Debenhams PLC

U.K. 294 4/4/2019 Yes

CROSSMARK Holdings Inc.

U.S. 586 4/15/2019 Yes

USJ Acucar e Alcool S/A

Brazil 275 5/22/2019 Yes

FTD Inc.

U.S. 0 6/3/2019 No

Neiman Marcus Group LLC (The)

U.S. 1,698 6/11/2019 Yes

New Academy Holding Co. LLC

U.S. 1,825 6/14/2019 Yes

99 Cents Only Stores LLC

U.S. 684 7/23/2019 Yes

Barneys New York Inc.

U.S. 0 8/6/2019 No

Burger BossCo Intermediate Inc.

U.S. 193 9/3/2019 Yes

PT Delta Merlin Dunia Textile

Indonesia 300 9/13/2019 Yes
Note: Excludes confidential entities. Data as of Sept. 23, 2019. Source: S&P Global Market Intelligence's CreditPro®.

For additional information regarding weakest links, please see our most recent quarterly publication, "Weakest Links Rise Among U.S. Health Care Service Providers," published Aug. 20, 2019.

Related Research

  • EP Energy LLC Ratings Lowered To 'D' on Missed Interest Payment, Sept. 17, 2019
  • Chesapeake Energy Corp. Downgraded To 'SD' From 'B+' On Debt For Equity Exchange; Various Notes Ratings Lowered To 'D', Sept. 13, 2019
  • Alta Mesa Resources Inc. Ratings Lowered To 'D' On Chapter 11 Filing, Sept. 12, 2019
  • PT Delta Merlin Dunia Textile Rating Lowered To 'D' Following Missed Interest Payments, Sept. 13, 2019
  • Burger BossCo Intermediate Inc. Rating Lowered To 'SD' On Second-Lien Interest Payment Conversion To PIK, Sept. 3, 2019
  • Global Financing Conditions: Bond Issuance Nears $4 Trillion Through July, Aug. 29, 2019
  • The U.S. Speculative-Grade Corporate Default Rate Is Set To Rise To 3.4% By June 2020, Aug. 22, 2019
  • Maxcom Telecomunicaciones S.A.B. de C.V. Ratings Corrected To 'D' From 'CC', Aug. 21, 2019
  • ESG Industry Report Card: Consumer Products And Agribusiness, May 21, 2019

This report does not constitute a rating action.

Credit Markets Research:Nicole Serino, New York + 1 (212) 438 1396;
nicole.serino@spglobal.com
Sudeep K Kesh, New York (1) 212-438-7982;
sudeep.kesh@spglobal.com

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