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Credit Trends: The U.S. Distress Ratio Eases As Downgrade Potential Remains Elevated


Default, Transition, and Recovery: Global Corporate Default Tally Remains At Four


Credit Trends: U.S. Corporate Bond Yields As Of Jan. 20, 2021


Default, Transition, and Recovery: The Elevated Weakest Links Tally May Signal Sustained Default Pressure In 2021


Default, Transition, and Recovery: Distressed Exchanges Lead Corporate Defaults So Far In 2021

Credit Trends: The U.S. Distress Ratio Eases As Downgrade Potential Remains Elevated

The U.S. distress ratio--the proportion of speculative-grade (rated 'BB+' or lower) issues with option-adjusted composite spreads of more than 1,000 basis points (bps) relative to U.S. Treasuries--continued to decrease in October, falling to 9.4% as of Oct. 21 from 9.5% as of Sept. 19. This was significantly lower than the March 2020 peak, when the proportion of speculative-grade issues trading over 1,000 bps jumped to 36%.

The Federal Reserve's quick and sizable actions earlier in the year allowed financing conditions and market appetite to remain favorable as direct purchases freed up balance sheets, lower yields decreased capital costs, and improved investor sentiment tightened spreads. Although more limited than for higher-rated issuers, bond issuance in the third quarter remained strong for issuers rated 'B-' or lower, rising to a three-year quarterly high (see chart 1). Most speculative-grade issuance so far in 2020 has come from companies looking to push out short-term maturities, with nearly 70% of issuance in 2020 due to refinancing activities (see chart 2).

Chart 1


Chart 2


Despite more favorable credit conditions, the speculative-grade negative bias (an indicator of downgrade potential, measured as the proportion of issuers with negative outlooks or ratings on CreditWatch with negative implications) remains well above its long-term average, signaling further credit deterioration for lower-rated issuers (see table 1).

By industry, the oil and gas sector shows the highest distress ratio, at 27.1%, with $21.8 billion in distressed debt outstanding--representing 21.9% of the total distressed debt. The highest tallies of distressed credits are in oil and gas (54) and media and entertainment (32) (see table 2).

As COVID-19 cases resurge in the U.S. and across Europe, with no signs of a new U.S. stimulus package in sight, volatility has begun to pick up in equity markets, which could affect short-term financing conditions (see "Bond Issuance Is Expected To Finish 2020 Up 16% And Decline In 2021," Oct. 26, 2020).

Table 1

Oil And Gas And Retail Lead With Distress Ratios At 27% And 23%, Respectively
Distress ratio (%)* Debt-based distress ratio (%) Number of distressed issues Total debt affected (mil. $)§ Percentage change in distressed credits by sector
Aerospace and defense 14.3 10.5 5 2,875.0 (28.6)
Automotive 8.5 6.2 6 2,800.0 0.0
Capital goods 6.5 5.2 4 1,684.7 0.0
Chemicals, packaging, and environmental services 1.8 2.9 2 1,705.0 100.0
Consumer products 4.3 2.4 7 2,522.0 40.0
Financial institutions 2.4 4.3 8 2,891.5 0.0
Forest products and building materials 4.9 4.4 3 1,095.6 50.0
Health care 7.1 8.8 7 7,296.3 (12.5)
High technology 2.0 1.3 2 767.4 (50.0)
Homebuilders/real estate companies 4.4 2.9 4 1,016.5 (20.0)
Insurance 6.1 1.9 2 302.7 (33.3)
Media and entertainment 11.1 9.7 32 18,591.2 14.3
Metals, mining, and steel 11.5 10.7 7 3,237.5 (22.2)
Oil and gas 27.1 21.9 54 21,763.1 (15.6)
Retail/restaurants 22.8 12.4 26 6,332.5 8.3
Telecommunications 6.4 2.9 7 3,178.0 0.0
Transportation 14.0 15.3 6 4,370.0 0.0
Midstream and merchant power 11.5 9.0 22 9,609.9 15.8
Total 9.4 7.8 204 92,038.9 (2.9)
Notes: The distress ratio indicates the level of risk the market has priced into bonds. A rising distress ratio reflects an increased need for capital and often precedes increased defaults when accompanied by a severe and sustained market disruption. *S&P Global Ratings' distress ratio is defined as the number of speculative-grade issues with option-adjusted spreads above 1,000 basis points divided by the total number of speculative-grade issues. §Outstanding debt amount associated with distressed issues divided by the total debt outstanding of speculative-grade issues. Data as of Oct. 21, 2020. Source: S&P Global Ratings Research.

Table 2

Current Negative Bias Widely Surpasses Long-Term Averages For U.S. Oil And Gas, Retail, And Aerospace And Defense
(%) Current negative bias* Long-term average of negative bias* Proportion of 'B-' and below new issues (trailing three years)§ Proportion of 'B-' and below issuer credit ratings†
Oil and gas 57.5 20.3 15 57.6
Retail/restaurants 53.8 25.4 8 42.1
Aerospace and defense 49.2 20.3 25 27.5
*Negative bias is calculated as the number of U.S. issuers with either negative outlooks or ratings on CreditWatch negative divided by the total number of U.S. issuers with either positive, negative, or stable outlooks or CreditWatch implications. The long-term average is taken from 1995 to the present. §The proportion of 'B-' and lower issues is measured relative to the total number of speculative-grade issues. The statistic is calculated for instruments issued in the U.S. during the trailing three years. †The proportion of 'B-' and lower U.S. issuers is measured relative to the total number of U.S. speculative-grade issuers. Data through Oct. 21, 2020. Source: S&P Global Ratings Research.

Chart 3


Distressed Exchanges Lead Recent Defaults

Distressed exchanges have been on the rise, taking over as the primary reason for default in the second half of 2020 (see "Three Distressed Exchanges Push The 2020 Global Default Tally To 197," Oct. 30, 2020). In October alone, distressed exchanges accounted for 86% of U.S. defaults (compared with just 17% in April) as issuers look for ways to avoid bankruptcy, improve liquidity, and reduce their debt. During the great financial crisis, distressed exchanges led with 55% of total defaults. The distressed exchanges at that time helped some issuers buy time and survive long enough to see economic recovery, while for others, it just delayed the inevitable.

Additional Exhibits

Chart 4


Chart 5


Chart 6


Table 3

List Of Distressed Credits By Issuer
Sector/company Issuer ratings are for a related entity Issue count Outstanding amount (mil. $) Rating Outlook/ CreditWatch
Aerospace and defense

Triumph Group Inc.

2 800.0 CCC+ Negative

Wesco Aircraft Holdings Inc.

3 2,075.0 CCC+ Negative

Cooper-Standard Automotive Inc.

Yes 2 650.0 B- Negative

Ford Motor Co.

2 1,550.0 BB+ Negative

Midas Intermediate Holdco II LLC

Yes 1 375.0 CCC Negative

Tenneco Inc.

1 225.0 B Negative
Capital goods

Ahern Rentals Inc.

1 550.0 CCC+ Negative

Aptim Corp.

1 515.0 CCC+ Negative
JPW Industries Holdings Corp. Yes 1 220.0 B Negative

Titan International Inc.

1 399.7 CCC+ Negative
Chemicals, packaging, and environmental services

Foxtrot Escrow Issuer, LLC

Yes 1 775.0 CCC+ Negative
TPC Group Inc. 1 930.0 B- Negative
Consumer products

American Greetings Corp.

1 282.0 B Negative

Arrow BidCo LLC

Yes 1 340.0 B Stable

Coty Inc.

1 550.0 B- Stable

Revlon Consumer Products Corp.

1 450.0 CC Negative

The GEO Group Inc.

3 900.0 BB- Negative
Financial institutions

CCF Holdings LLC

1 276.0 CCC Negative

CNG Holdings Inc.

1 259.0 B Negative

Curo Group Holdings Corp.

1 690.0 B- Stable

Enova International, Inc.

1 250.0 B Negative

FS Energy and Power Fund

1 500.0 B Stable
Navient Corp. 1 300.0 BB- Negative
PHH Mortgage Corp. 1 301.5 B- Negative
Populus Financial Group Inc. 1 315.0 B Negative
Forest products and building materials

Apex Tool Group LLC

1 325.0 CCC+ Negative
PrimeSource Building Products Inc. 1 275.0 B Negative

Rayonier A.M. Products Inc.

Yes 1 495.6 CCC+ Negative
Health care
Air Methods Corp. 1 500.0 B- Stable

CHS/Community Health Systems Inc.

Yes 4 5,055.4 CCC+ Negative

Envision Healthcare Corp.

1 1,026.4 CCC Negative
Tennessee Merger Sub Inc. Yes 1 714.4 B- Negative
High technology

Pitney Bowes Inc.

1 375.0 BB+ Negative

Riverbed Technology Inc.

1 392.4 CCC+ Negative
Homebuilders/real estate companies

K. Hovnanian Enterprises Inc.

Yes 3 295.6 CCC+ Stable

Washington Prime Group L.P.

1 720.9 CCC Negative

One Call Corp.

1 2.7 B- Negative

Unum Group

1 300.0 BBB Stable
Media and entertainment

Allen Media, LLC

1 300.0 B Stable

AMC Entertainment Holdings Inc.

5 2,346.3 CCC- Negative

AMC Entertainment Inc.

Yes 1 98.3 CCC- Negative

Buena Vista Gaming Authority

1 205.0 CC Negative

Cengage Learning Inc.

Yes 1 620.0 CCC+ Negative

Cinemark USA Inc.

2 1,155.0 B Negative

Clear Channel Worldwide Holdings Inc.

Yes 1 1,901.3 CCC+ Stable
Diamond Resorts International Inc. 1 600.0 CCC+ Negative

Diamond Sports Group LLC

3 4,824.8 BB- Negative

Downstream Development Authority

1 270.0 CCC Negative
Entercom Media Corp. 1 400.0 B Negative

Exela Intermediate Co. LLC

Yes 1 1,000.0 CCC- Negative

Life Time Inc.

1 450.0 CCC+ Negative

McGraw-Hill Global Education Holdings LLC

1 400.0 CCC+ Negative

National CineMedia LLC

2 630.0 B Negative

Quad/Graphics Inc.

1 238.7 B Stable

R.R. Donnelley & Sons Co.

1 69.0 B Negative

Salem Media Group Inc.

1 216.3 CCC Negative

Staples Inc.

1 1,000.0 B Negative
Townsquare Media Inc. 1 273.4 B Negative
Urban One Inc. 1 350.0 CCC Watch Negative

Vericast Corp.

1 324.0 CCC+ Negative

Viking Cruises Ltd.

1 250.0 B- Negative
WeWork Cos. LLC 1 669.0 CCC+ Negative
Metals, mining, and steel

Alliance Resource Operating Partners L.P.

Yes 1 400.0 B+ Negative

CONSOL Energy Inc.

1 178.5 B- Negative

Natural Resource Partners L.P.

1 300.0 B Negative

Peabody Energy Corp.

2 959.0 CCC+ Negative

United States Steel Corp.

2 1,400.0 B- Stable
Oil and gas

AMID Finance Corp.

Yes 1 425.0 B- Watch Negative

Anadarko Holding Co.

Yes 1 10.0 BB+ Watch Negative

Anadarko Petroleum Corp.

1 5.0 BB+ Watch Negative
Antero Resources Corp. 2 1,210.0 B- Negative

Basic Energy Services Inc.

1 265.7 CCC+ Negative
Berry Petroleum Co. LLC 1 350.0 B- Negative

Callon Petroleum Co.

5 1,900.0 CCC+ Negative

Centennial Resource Production LLC

3 772.8 CCC+ Negative
EnVen Energy Corp. 1 325.0 B- Negative
Forum Energy Technologies Inc. 1 315.0 CCC+ Negative

Global Marine Inc.

Yes 1 261.2 CC Negative

Gran Tierra Energy Inc.

1 300.0 B- Stable
Gran Tierra Energy International Holdings Ltd. Yes 1 300.0 B- Stable
HighPoint Resources Corp. 2 625.0 CCC+ Negative

ION Geophysical Corp.

2 127.1 CCC+ Negative

Jonah Energy LLC

1 600.0 CCC- Negative
KLX Energy Services Holdings Inc. 1 250.0 CCC+ Stable
Kosmos Energy Ltd., 1 600.0 B Negative

Laredo Petroleum Inc.

2 1,000.0 B- Negative
Moss Creek Resources Holdings Inc. 2 1,200.0 CCC+ Negative

Nabors Industries Inc.

5 2,185.4 CCC+ Negative
Nine Energy Service Inc. 1 370.3 CCC+ Stable

Northern Oil and Gas Inc.

1 297.3 CCC+ Negative

Oceaneering International Inc.

1 300.0 B+ Negative
Par Petroleum Finance Corp. Yes 2 400.0 B+ Stable

QEP Resources Inc.

3 1,565.1 B Negative

SM Energy Co.

6 2,270.8 CCC+ Negative

Vine Oil & Gas LP

2 880.0 CCC- Negative

W&T Offshore Inc.

1 552.5 CCC+ Negative

Weatherford International LLC

Yes 1 2,100.0 CCC Negative
Beverages & More Inc. 1 190.0 CCC+ Negative

Conn's Inc.

1 227.0 B- Negative

Golden Nugget Inc.

2 2,015.0 B- Negative

Guitar Center Inc.

1 6.0 CCC- Negative

Macy's Retail Holdings Inc.

15 2,066.9 B+ Negative

Party City Holdings Inc.

2 130.2 CCC Negative

QVC Inc.

2 660.0 BB- Negative

Rite Aid Corp.

1 237.4 CCC+ Stable

The Fresh Market

1 800.0 CCC+ Negative
Flexential Intermediate Corp. 1 250.0 CCC+ Negative
GTT Communications Inc. 1 575.0 CCC+ Watch Negative

HC2 Holdings Inc.

1 342.4 B- Negative

Intrado Corp.

2 1,160.6 B- Negative

Trilogy International Partners LLC

1 350.0 B- Stable

United States Cellular Corp.

1 500.0 BB Stable

American Airlines Group Inc.

2 1,250.0 B- Negative

American Airlines Inc.

1 1,500.0 B- Negative

Azul Investments LLP

Yes 1 400.0 CCC- Negative

Navios Acquisition Finance (US) Inc.

1 670.0 B- Negative

XO Management Holding Inc.

1 550.0 B+ Stable

Calumet Specialty Products Partners L.P.

1 550.0 B- Negative

CITGO Holding Inc.

1 1,370.0 B- Stable

CSI Compressco LP

2 430.7 B- Stable
CVR Nitrogen Finance Corp. Yes 1 625.0 B+ Negative

Exterran Energy Solutions L.P.

1 375.0 BB- Stable

Ferrellgas Finance Corp.

Yes 2 975.0 CC Negative

Martin Midstream Partners L.P.

1 291.0 B- Negative

NGL Energy Finance Corp.

Yes 3 1,421.5 B+ Negative

PBF Finance Corp.

Yes 3 1,725.0 BB Negative

Ruby Pipeline LLC

1 518.8 B+ Negative

Talen Energy Supply LLC

6 1,327.9 B Negative
Excludes companies with confidential ratings. Data as of Oct. 21, 2020. Source: S&P Global Ratings Research.

Related Research

This report does not constitute a rating action.

Credit Markets Research:Nicole Serino, Associate, New York + 1 (212) 438 1396;
Sudeep K Kesh, Senior Director, New York (1) 212-438-7982;
Research Contributor:Sundaram Iyer, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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