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Default, Transition, and Recovery: 2019 Annual Latin American Corporate Default And Rating Transition Study

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Default, Transition, and Recovery: 2019 Annual Latin American Corporate Default And Rating Transition Study

The number of corporate defaults in Latin America remained steady at six in 2019 as underwhelming levels of investment and uncertain domestic political dynamics continued to weigh on the region. The region's trailing-12-month speculative-grade default rate decreased slightly in 2019, to 1.21% from 1.51%, while the global speculative-grade default rate increased to 2.54% from 2.10%. Meanwhile, the Latin American downgrade ratio (defined as the total number of downgrades divided by upgrades) decreased to 1.96% in 2019 from 2.68% in 2018 (the highest downgrade ratio since the great financial crisis).

S&P Global Ratings assigned new ratings to 46 Latin American companies in 2019, up from 44 in 2018. Of the 46 newly rated companies, 42 (91%) were rated speculative grade ('BB+' or lower), adding to the already high number of lower-rated issuers in the region. The majority of the newly rated speculative-grade issuers were previously rated entities that had emerged from default.

The number of speculative-grade companies, particularly in the 'B' and 'CCC' rating categories, has risen in Latin America and elsewhere in the past decade, which has been characterized by low interest rates and more aggressive financial policies among many borrowers (see "Historically Low Ratings In The Run-Up To 2020 Increase Vulnerability To The COVID-19 Crisis," May 28, 2020). As of Dec. 31, 2019, 66% of Latin American corporate issuers were rated 'BB+' or lower, compared with just 57% globally. The largest percentage of rated Latin American companies are in the 'BB' rating category.

So far in 2020, the COVID-19 pandemic and resulting sudden shock to global economic growth have led to an increase in defaults both globally and in Latin America. Due to the region's higher number of speculative-grade issuers, it remains highly vulnerable to a prolonged economic shock and market weakness. We expect the pace of defaults to accelerate, possibly climbing above 11% of rated issuers, if a second wave of COVID-19 extends lockdowns or if the economic contraction in South America is deeper than we expect (see "Corporate Defaults In Latin America Could Exceed 10% By Year-End," June 30, 2020).

Chart 1

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Latin America Faced Numerous Challenges To Creditworthiness In 2019

Several important developments emerged in Latin America in 2019, particularly for the region's largest economies. An election year in Argentina, resulting in a new administration led by President-elect Alberto Fernandez; key reforms in Brazil, including pension changes to address the country's rising debt ratios; and policy uncertainty in the energy sector in Mexico, along with ongoing global trade disputes and weak economic prospects, strained already fragile investor confidence.

Political uncertainty and social unrest hampered economic growth

For many Latin American countries, political uncertainty played a major role in slowing economic growth in 2019:

  • In Brazil, long-awaited pension reform was approved, but more needed to be done to address the government's rapidly rising debt ratios.
  • The political situation in Argentina remained challenging, and pressure on the currency and government debt were expected to trigger more drastic policy measures that could result in a protracted downturn in domestic demand.
  • In Chile, social unrest reflecting dissatisfaction with social security and education policies, accompanied by disruptions to ports, transportation, and mining operations, caused a slowdown in economic growth and opened a process to rewrite the constitution.
  • Political paralysis in Peru following President Martín Vizcarra's dissolution of the legislature and call for a parliamentary election disrupted public investment.

For more information, please see "Latin America In 2020: Low Growth, Low Interest Rates, High Risk," published Dec. 2, 2019.

Ongoing trade disputes and rising debt

The prolonged trade dispute between the U.S. and China has contributed to episodes of higher risk aversion and a lower appetite for emerging markets assets, resulting in periods of capital outflows from Latin America. Furthermore, sustained protests in Hong Kong in 2019 and responses by the U.S. Congress complicated ongoing U.S.-China trade negotiations. However, the U.S. government passed the United States-Mexico-Canada Agreement (USMCA) at the end of 2019 after a yearlong delay, removing a layer of uncertainty around trade and investment in North America.

Financing conditions remained accommodative for higher-rated issuers

Financing conditions in Latin America were largely supportive throughout 2019 as interest rates remained low in the U.S. and other advanced economies. These low rates, driven by loose monetary policy, continued to benefit debt servicing costs for higher-quality borrowers. Speculative-grade issuers were not as lucky as investors remained highly risk averse toward the bottom end of the credit spectrum due to uncertainty around slow-growth economies in the region. After a slow first half of the year, refinancing needs spurred issuance to rebound in the second half of 2019. Nonetheless, new bond issuance in 2019 was the lowest since 2016 in Latin America.

For more information, please see "Credit Conditions Latin America: Political Challenges Will Prevail In 2020," published Dec. 3, 2019.

Regional Default Trends

Despite both political and economic instability across the region, the number of Latin American corporate defaults remained stable in 2019 at six, making up just 5% of the 118 global defaults (3.7% by affected total debt). Of the six defaults in the region, two each were from Brazil, Mexico, and Panama. By debt amount, the default of Panama-based McDermott International Inc. on Dec. 3, 2019, was the largest corporate default in the region, with $4.8 billion of rated debt outstanding at the time of default (see "McDermott International Inc. Rating Lowered To 'SD' From 'CC' On Missed Interest Payment," Dec. 3, 2019).

By sector, the telecommunications, aerospace/auto/capital goods/metals, transportation, and consumer/service sectors had the highest default rates in Latin America in 2019, at 6.67%, 3.33%, 3.13%, and 1.56%, respectively. Telecommunications company Maxcom Telecomunicaciones S.A.B. de C.V. defaulted twice, as did consumer/service company USJ Acucar e Alcool S/A. The other two defaults were from the transportation and aerospace/auto/capital goods/metals sectors.

Table 1

Itemized 2019 Latin American Corporate Defaults
Company name Reason for default Country Industry Debt amount (mil.$) Default date Next-to-last rating Date of next-to-last rating Rating one year prior to default Rating three years prior to default First rating Date of first rating

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

Distressed exchange Mexico Telecommunications 180 4/3/2019 CCC+ 5/26/2017 CCC+ - CCC+ 5/26/2017

USJ Acucar e Alcool S.A.

Distressed exchange Brazil Consumer/service 275 5/22/2019 CC 3/27/2019 CCC+ CCC- CCC- 5/17/2016

Avianca Holdings S.A.

Missed principal Panama Transportation 1,045 7/23/2019 CCC+ 5/13/2019 B B B+ 4/25/2013

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

Distressed exchange Mexico Telecommunications 180 8/21/2019 CC 6/19/2019 - - CCC 4/5/2019

USJ Acucar e Alcool S.A.

Missed principal/interest Brazil Consumer/service 275 11/28/2019 CCC+ 5/27/2019 - - CCC+ 5/27/2019

McDermott International Inc.

Missed interest Panama Aerospace/automotive/capital goods/metal 4,860 12/3/2019 CC 10/28/2019 B+ B+ B+ 11/26/2014
Total 6,816
Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Chart 2

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Table 2

Latin American Corporate Default Summary
Year Total defaults* Investment-grade defaults Speculative-grade defaults Default rate (%) Investment-grade default rate (%) Speculative-grade default rate (%)
1997 0 0 0 0.00 0.00 0.00
1998 1 0 0 0.00 0.00 0.00
1999 9 0 9 5.06 0.00 8.33
2000 2 0 2 1.05 0.00 1.64
2001 21 0 12 5.53 0.00 8.63
2002 56 0 52 22.32 0.00 31.52
2003 13 0 12 5.85 0.00 8.51
2004 2 0 2 0.90 0.00 1.38
2005 1 0 1 0.41 0.00 0.63
2006 1 0 1 0.36 0.00 0.52
2007 0 0 0 0.00 0.00 0.00
2008 3 1 2 0.84 0.93 0.80
2009 14 0 13 3.45 0.00 5.06
2010 5 0 4 1.06 0.00 1.53
2011 0 0 0 0.00 0.00 0.00
2012 11 0 9 2.13 0.00 3.33
2013 8 0 6 1.30 0.00 2.07
2014 5 0 4 0.79 0.00 1.28
2015 9 0 8 1.51 0.00 2.54
2016 15 1 14 2.92 0.55 4.22
2017 3 0 3 0.60 0.00 0.90
2018 6 0 5 0.99 0.00 1.51
2019 6 0 4 0.80 0.00 1.21
Average 8 0 7 2.52 0.06 3.72
Median 5 0 4 0.99 0.00 1.51
Standard deviation 12 0 11 4.66 0.22 6.64
Minimum 0 0 0 0.00 0.00 0.00
Maximum 56 1 52 22.32 0.93 31.52
Note: Investment-grade/speculative-grade defaults include defaulting entities within the year that were rated investment grade/speculative grade at the beginning of the period. *This column includes companies that were no longer rated at the time of default. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 3

Global Corporate Default Summary
Year Total defaults* Investment-grade defaults Speculative-grade defaults Default rate (%) Investment-grade default rate (%) Speculative-grade default rate (%) Total debt defaulting (bil. $)
1981 2 2 0.15 0.00 0.63 0.1
1982 18 2 15 1.22 0.19 4.46 0.9
1983 12 1 10 0.77 0.09 2.98 0.4
1984 14 2 12 0.93 0.17 3.31 0.4
1985 19 18 1.13 0.00 4.37 0.3
1986 34 2 30 1.74 0.15 5.75 0.5
1987 19 19 0.95 0.00 2.83 1.6
1988 32 29 1.39 0.00 3.88 3.3
1989 44 3 35 1.79 0.22 4.70 7.3
1990 70 2 56 2.74 0.14 8.12 21.2
1991 93 2 65 3.26 0.14 11.05 23.7
1992 39 32 1.50 0.00 6.12 5.4
1993 26 14 0.60 0.00 2.51 2.4
1994 21 1 15 0.63 0.05 2.12 2.3
1995 35 1 29 1.05 0.05 3.54 9.0
1996 20 16 0.51 0.00 1.81 2.7
1997 23 2 20 0.63 0.08 2.01 4.9
1998 56 4 48 1.28 0.14 3.67 11.3
1999 109 5 92 2.15 0.17 5.57 39.4
2000 136 7 109 2.48 0.24 6.24 43.3
2001 229 7 173 3.79 0.23 9.90 118.8
2002 226 13 159 3.60 0.42 9.50 190.9
2003 119 3 89 1.93 0.10 5.07 62.9
2004 56 1 38 0.78 0.03 2.03 20.7
2005 40 1 31 0.60 0.03 1.51 42.0
2006 30 26 0.48 0.00 1.19 7.13
2007 24 21 0.37 0.00 0.91 8.15
2008 127 14 89 1.80 0.42 3.71 429.63
2009 268 11 224 4.19 0.33 9.95 627.70
2010 83 64 1.21 0.00 3.02 97.48
2011 53 1 44 0.80 0.03 1.85 84.30
2012 83 66 1.14 0.00 2.59 86.70
2013 81 64 1.06 0.00 2.31 97.29
2014 60 45 0.69 0.00 1.44 91.55
2015 113 94 1.36 0.00 2.78 110.31
2016 163 1 143 2.09 0.03 4.24 239.79
2017 95 83 1.21 0.00 2.46 104.57
2018 82 72 1.03 0.00 2.10 131.65
2019 118 2 92 1.30 0.06 2.54 183.21
Average 74 4 59 1.44 0.09 3.97 74.74
Median 56 2 44 1.21 0.03 3.02 21.15
Standard deviation 64 4 50 0.97 0.12 2.65 125.22
Minimum 2 1 2 0.15 0.00 0.63 0.06
Maximum 268 14 224 4.19 0.42 11.05 627.70
Note: Investment-grade/speculative-grade defaults include defaulting entities within the year that were rated investment grade/speculative grade at the beginning of the period. *This column includes companies that were no longer rated at the time of default. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 4

Summary Of Latin American Net Annual Rating Activity
Year Issuers Upgrades (%) Downgrades (%)* Defaults (%) Withdrawn ratings (%) Changed ratings (%) Unchanged ratings (%) Downgrade/upgrade ratio
1997 67 5.97 5.97 0.00 7.46 19.40 80.60 1.00
1998 126 3.17 11.11 0.00 1.59 15.87 84.13 3.50
1999 178 0.56 21.91 5.06 3.93 31.46 68.54 39.00
2000 190 10.53 12.11 1.05 4.74 28.42 71.58 1.15
2001 217 4.15 27.65 5.53 11.52 48.85 51.15 6.67
2002 233 3.00 18.45 22.32 7.30 51.07 48.93 6.14
2003 205 7.80 6.83 5.85 12.68 33.17 66.83 0.88
2004 222 13.06 1.35 0.90 9.46 24.77 75.23 0.10
2005 245 12.24 1.63 0.41 10.61 24.90 75.10 0.13
2006 281 21.00 3.20 0.36 10.32 34.88 65.12 0.15
2007 323 26.32 3.10 0.00 11.76 41.18 58.82 0.12
2008 358 15.08 8.66 0.84 7.54 32.12 67.88 0.57
2009 377 5.84 21.22 3.45 9.02 39.52 60.48 3.64
2010 378 17.72 5.82 1.06 11.11 35.71 64.29 0.33
2011 385 21.82 5.97 0.00 8.57 36.36 63.64 0.27
2012 422 13.03 11.61 2.13 7.11 33.89 66.11 0.89
2013 463 18.79 11.23 1.30 9.29 40.60 59.40 0.60
2014 507 6.11 17.16 0.79 8.88 32.94 67.06 2.81
2015 531 7.53 19.59 1.51 9.98 38.61 61.39 2.60
2016 513 9.36 23.20 2.92 8.77 44.25 55.75 2.48
2017 502 9.96 12.15 0.60 10.36 33.07 66.93 1.22
2018 506 7.11 20.36 0.99 8.89 37.35 62.65 2.86
2019 501 5.39 10.58 0.80 7.78 24.55 75.45 1.96
Weighted average 11.19 13.03 2.13 8.97 35.32 64.68 2.64
Average 10.68 12.21 2.52 8.64 34.04 65.96 3.44
Median 9.36 11.23 0.99 8.89 33.89 66.11 1.15
Standard deviation 6.78 7.62 4.66 2.59 8.60 8.60 7.97
Minimum 0.56 1.35 0.00 1.59 15.87 48.93 0.10
Maximum 26.32 27.65 22.32 12.68 51.07 84.13 39.00
Note: This table compares the net change in ratings from the first to the last day of each year. All intermediate ratings are disregarded. *Excludes downgrades to 'D', shown separately in the defaults column. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 5

Rating Classification of New Corporate Issuers In Latin America
--First rating--
Year AAA AA A BBB BB B CCC/C Total % IG % SG
1997 1 21 31 11 64 34.4 65.6
1998 1 2 10 23 18 54 24.1 75.9
1999 5 14 8 27 18.5 81.5
2000 1 7 19 10 37 21.6 78.4
2001 1 1 10 23 24 2 61 19.7 80.3
2002 7 21 11 4 43 16.3 83.7
2003 2 11 19 17 7 56 23.2 76.8
2004 9 19 11 6 45 20.0 80.0
2005 6 20 30 4 60 10.0 90.0
2006 1 8 28 31 5 73 12.3 87.7
2007 1 9 29 31 2 72 13.9 86.1
2008 2 11 22 16 2 53 24.5 75.5
2009 1 4 23 16 5 49 10.2 89.8
2010 1 1 10 16 21 4 53 22.6 77.4
2011 4 16 19 26 3 68 29.4 70.6
2012 2 17 36 24 3 82 23.2 76.8
2013 4 19 34 31 4 92 25.0 75.0
2014 2 31 23 13 2 71 46.5 53.5
2015 3 16 15 7 5 46 41.3 58.7
2016 1 9 17 13 5 45 22.2 77.8
2017 2 8 19 24 1 54 18.5 81.5
2018 3 5 17 15 4 44 18.2 81.8
2019 4 14 25 3 46 8.7 91.3
Total 1 7 29 253 501 433 71 1,295 22.4 77.6
Includes issuers that are assigned new ratings after default as well as those that receive ratings for the first time. IG--Investment grade. SG--Speculative grade. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Chart 3

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Table 6

Annual Latin American Corporate Default Rates By Industry
(%)
Year Aerospace/auto/capital goods/metals Consumer/service Energy and natural resources Financial institutions Forest and building products/homebuilders Health care/chemicals High tech/computers/office equipment Insurance
1997 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a
1998 0.00 0.00 0.00 0.00 0.00 0.00 n/a n/a
1999 23.53 6.67 0.00 0.00 0.00 0.00 0.00 0.00
2000 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00
2001 23.53 2.78 0.00 14.63 0.00 0.00 100.00 0.00
2002 13.33 7.69 33.33 6.52 12.50 25.00 n/a 0.00
2003 0.00 0.00 0.00 0.00 6.25 0.00 n/a 0.00
2004 0.00 0.00 0.00 1.41 6.25 0.00 n/a 0.00
2005 0.00 0.00 6.67 0.00 0.00 0.00 n/a 0.00
2006 0.00 2.63 0.00 0.00 0.00 0.00 n/a 0.00
2007 0.00 0.00 0.00 0.00 0.00 0.00 n/a 0.00
2008 0.00 2.17 0.00 0.00 4.00 0.00 n/a 0.00
2009 8.00 8.57 0.00 2.22 7.69 10.00 0.00 0.00
2010 0.00 0.00 9.09 0.70 0.00 0.00 n/a 0.00
2011 0.00 0.00 0.00 0.00 0.00 0.00 n/a 0.00
2012 4.76 0.00 4.17 1.26 3.85 0.00 n/a 0.00
2013 0.00 0.00 4.17 0.58 6.90 0.00 0.00 0.00
2014 3.33 1.52 0.00 0.56 0.00 0.00 0.00 0.00
2015 9.09 4.55 3.23 0.00 3.45 0.00 0.00 0.00
2016 13.79 4.92 10.71 0.00 0.00 0.00 0.00 3.13
2017 0.00 0.00 3.85 0.00 0.00 0.00 0.00 0.00
2018 6.67 3.33 0.00 0.00 0.00 0.00 0.00 0.00
2019 3.33 1.56 0.00 0.00 0.00 0.00 0.00 0.00
Weighted average 4.87 2.14 3.62 0.71 2.22 1.16 4.55 0.39
Average 4.76 2.02 3.70 1.21 2.21 1.52 8.33 0.15
Median 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Standard deviation 7.36 2.73 7.38 3.25 3.51 5.53 28.87 0.68
Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Maximum 23.53 8.57 33.33 14.63 12.50 25.00 100.00 3.13
Leisure time/media Real estate Telecom Transportation Utility
1997 0.00 n/a 0.00 0.00 0.00
1998 0.00 n/a 0.00 0.00 0.00
1999 15.00 0.00 0.00 0.00 0.00
2000 0.00 0.00 5.00 0.00 0.00
2001 0.00 0.00 0.00 0.00 0.00
2002 52.94 100.00 27.27 0.00 42.22
2003 11.11 0.00 31.58 12.50 11.54
2004 0.00 0.00 0.00 0.00 0.00
2005 0.00 0.00 0.00 0.00 0.00
2006 0.00 0.00 0.00 0.00 0.00
2007 0.00 0.00 0.00 0.00 0.00
2008 0.00 0.00 5.88 0.00 0.00
2009 10.00 0.00 0.00 0.00 1.85
2010 0.00 0.00 0.00 0.00 1.72
2011 0.00 0.00 0.00 0.00 0.00
2012 0.00 0.00 0.00 0.00 6.45
2013 0.00 0.00 14.29 0.00 0.00
2014 7.14 0.00 0.00 0.00 0.00
2015 0.00 0.00 0.00 0.00 0.00
2016 0.00 7.14 6.67 6.06 0.00
2017 0.00 0.00 7.69 0.00 1.64
2018 0.00 0.00 0.00 2.86 0.00
2019 0.00 0.00 6.67 3.13 0.00
Weighted average 5.51 1.10 5.29 1.26 2.79
Average 4.18 5.10 4.57 1.07 2.84
Median 0.00 0.00 0.00 0.00 0.00
Standard deviation 11.48 21.80 8.72 2.90 9.00
Minimum 0.00 0.00 0.00 0.00 0.00
Maximum 52.94 100.00 31.58 12.50 42.22
Includes investment-grade- and speculative-grade-rated entities. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 7

Cumulative Latin American Corporate Default Rates By Sector
(%) --All financials-- --All nonfinancials--
Year One-year Three-year 10-year One-year Three-year 10-year
1997 0.00 N/A N/A 0.00 N/A N/A
1998 0.00 N/A N/A 0.00 N/A N/A
1999 0.00 0.00 N/A 6.04 7.84 N/A
2000 0.00 0.00 N/A 1.32 5.94 N/A
2001 14.29 17.24 N/A 3.43 12.08 N/A
2002 6.38 15.38 N/A 26.34 31.79 N/A
2003 0.00 16.67 N/A 7.95 35.43 N/A
2004 1.35 6.38 N/A 0.68 32.80 N/A
2005 0.00 1.85 N/A 0.60 9.27 N/A
2006 0.00 1.35 18.75 0.54 1.35 29.41
2007 0.00 0.00 20.00 0.00 0.60 37.62
2008 0.00 0.00 20.69 1.32 1.61 42.28
2009 2.03 2.48 15.38 4.37 3.96 41.06
2010 0.66 3.05 16.67 1.33 7.05 37.71
2011 0.00 2.70 6.38 0.00 5.68 34.95
2012 1.16 1.32 1.85 2.81 3.98 11.92
2013 0.52 2.67 1.35 1.84 5.11 6.08
2014 0.51 2.31 1.28 0.97 5.62 5.99
2015 0.00 1.05 2.11 2.46 4.41 8.60
2016 0.48 1.02 4.13 4.59 7.42 10.40
2017 0.00 0.49 4.58 1.01 7.38 13.66
2018 0.00 0.48 5.41 1.66 6.56 13.54
2019 0.00 0.00 3.29 1.35 3.36 10.18
Average 1.19 3.64 8.71 3.07 9.49 21.67
Median 0.00 1.35 4.99 1.33 5.94 13.60
Standard deviation 3.17 5.56 7.66 5.47 10.34 14.39
Minimum 0.00 0.00 1.28 0.00 0.60 5.99
Maximum 14.29 17.24 20.69 26.34 35.43 42.28
"All financials" refers to financial institutions and insurance combined. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Sovereign Stress Influenced Corporate Defaults

S&P Global Ratings lowered its ratings or revised outlooks to negative on a number of sovereigns in 2019, including Argentina, Trinidad and Tobago, and Curacao.

There were two sovereign upgrades as well, of Panama and Jamaica, along with one outlook revision to positive, on Brazil.

S&P Global Ratings has reviewed most of its Latin American sovereign ratings in 2020, which has led to a number of rating actions amid the COVID-19 pandemic and resulting global economic recession. Many of these sovereigns' economic and fiscal profiles were already quite weak prior to the pandemic. Limited fiscal and monetary flexibility, dependence on tourism, remittances, and commodity exports will suffer this year (see "How The COVID-19 Pandemic Has Affected Sovereign Creditworthiness In Latin America And The Caribbean," May 21, 2020).

S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Past periods of sovereign stress

From 1997-2019, the Latin American corporate speculative-grade default rate exceeded the global default rate in only four years: 1999, 2002, 2003, and 2012. The spike in the Latin American corporate speculative-grade default rate to 8.33% in 1999 was related to the Asian financial crisis and the sovereign crisis in Russia. In 2002, the Latin American corporate speculative-grade default rate spiked to 31.52%--the only time it rose to 10% or higher from 1997-2019. Argentina, which was in the midst of a depression, accounted for the majority of the defaults that year.

Periods of stress in the emerging markets region have been marked by political instability, high external debt, unsustainable financial policies (such as high interest rates to maintain currency pegs), heavy dependence on exports, and unstable financial markets. These factors led to financial uncertainty, a loss of consumer confidence, and the collapse of asset bubbles, which hurt private consumption and investments and caused spikes in corporate defaults.

These trends were evident during the late 1990s and early 2000s. In Argentina, economic growth was strong during most of the 1990s, but a period of political uncertainty and GDP contraction followed from 1999-2002. Moreover, the Russian crisis and the devaluation of the Brazilian real resulted in a decline in Argentine exports and a further weakening of confidence and domestic consumption.

S&P Global Ratings lowered its sovereign credit rating on Argentina seven times from 2000-2001, and the country selectively defaulted in 2001, taking a heavy toll on corporations based in Argentina. Argentina's currency was steeply devalued as the country eliminated its peso-to-dollar peg, instituted price controls, froze local bank deposits, and legally mandated the conversion of local debt contracts from dollar to peso terms at government-specified exchange rates. Argentine corporate defaults totaled 18 in 2001 and 43 in 2002. These defaults were primarily in the financial institutions, utilities, and energy sectors.

Latin American Rating Performance

Our annual studies of corporate defaults in Latin America have identified a clear negative correspondence between ratings and defaults: The higher the issuer credit rating, the lower the observed default frequency (see chart 4).

Chart 4

image

The one-year weighted average Gini coefficient for rated Latin America-based corporate issuers from 1997-2019 was 75.94%, the three-year was 51.89%, and the five-year was 41.71%. (For details on the Gini methodology, see Appendix II.) Meanwhile, the one-year weighted average Gini coefficient for all global corporate issuers (since 1981) was 82.52%, the three-year was 75.19%, and the five-year was 71.38%. The Gini ratios for Latin America are lower than their global counterparts because of the region's smaller number of rated issuers, which leads to a higher likelihood that outliers could be distorting the data.

From 1997-2019, 191 companies defaulted in Latin America--a small portion of the 2,872 defaults recorded globally during the same period. Latin America's small sample size introduces some challenges in our analysis. The average time to default for Latin American defaults in 2019 was 2.84 years. Entities with higher ratings generally take a longer time to default, though this is less evident in Latin America because of the paucity of investment-grade (rated 'BBB-' or higher) defaults (see chart 5).

For example, Latin American issuers rated 'B' took an average of 3.28 years to default, while 'BB' rated issuers took 5.21 years. The average times to default from original rating for Latin American issuers are shorter across all rating categories than they are for the global pool. This is true regardless of whether the times to default are calculated from the original rating (see table 8) or from any subsequent ratings (see table 9).

This difference in the average timing (and the associated standard deviation) results partly from Latin America's significantly smaller volume of defaults in every rating category. For example, 623 issuers in the 'BB' category defaulted globally during the 39 years ended 2019, whereas the comparable number for Latin America was only 74 defaults in the past 23 years (which is the extent of our data on the region).

Chart 5

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Table 8

Time To Default From Original Rating Among Corporate Defaulters (Latin America Versus Global)
Original rating Defaults Average years from original rating Median years from original rating Standard deviation of years from original rating
Latin America (1997-2019)
AAA N.A. N.A. N.A. N.A.
AA N.A. N.A. N.A. N.A.
A N.A. N.A. N.A. N.A.
BBB 25 5.7 4.8 3.8
BB 74 5.2 4.5 3.5
B 72 3.3 3.1 2.3
CCC/C 20 1.8 1.2 2.0
Total 191 4.2 3.8 3.2
Global (1981-2019)
AAA 8 18.0 18.5 11.4
AA 30 16.0 16.8 9.2
A 99 13.8 10.8 8.8
BBB 215 9.1 7.2 6.7
BB 623 6.9 5.3 5.6
B 1,593 4.9 3.6 4.2
CCC/C 304 2.2 1.3 2.8
Total 2,872 5.8 4.0 5.6
N.A.--Not available. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 9

Time To Default From Subsequent Ratings Among Corporate Defaulters (Latin America Versus Global)
Rating path to default Average years from rating category Median years from rating category Standard deviation of years from rating category
Latin America (1997-2019)
AAA N.A. N.A. N.A.
AA N.A. N.A. N.A.
A N.A. N.A. N.A.
BBB 4.6 4.4 2.3
BB 2.5 1.2 2.8
B 1.6 0.7 2.3
CCC/C 0.5 0.2 1.0
Total 1.4 0.6 2.2
Global (1981-2019)
AAA 23.7 23.3 8.2
AA 14.1 15.5 8.9
A 11.2 9.6 8.2
BBB 8.2 6.4 6.9
BB 5.9 4.0 5.7
B 3.1 1.8 3.8
CCC/C 0.9 0.3 1.6
Total 3.3 1.3 4.8
N.A.--Not available. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Looking at default rates by modifier (the plus or minus after the rating) shows that lower rating categories have historically experienced higher default rates on average, though variability is possible in any given year (see table 10). Nevertheless, the data from past default cycles indicates that most of the defaults came from the lowest rating categories.

Table 10

Latin American Corporate Default Rates By Rating Modifier
(%) AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C
1997 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A
1998 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A
1999 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.70 16.67 30.00 12.50 100.00
2000 N/A N/A N/A 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 16.67 0.00 50.00
2001 N/A N/A N/A 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 2.56 19.44 10.34 11.11 0.00 0.00
2002 N/A N/A N/A 0.00 N/A 0.00 0.00 0.00 0.00 0.00 7.69 6.25 16.67 3.70 42.11 38.46 83.78
2003 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.06 28.57 10.00 30.43
2004 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.85 0.00 0.00 6.25
2005 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.55 0.00 0.00
2006 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 16.67
2007 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2008 0.00 N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 2.33 0.00 0.00 0.00 2.38 0.00 4.35 0.00
2009 0.00 N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.18 5.71 9.68 12.00 50.00
2010 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.28 0.00 0.00 0.00 23.08
2011 N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2012 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.79 2.94 0.00 16.00 27.27
2013 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.72 0.00 5.71 2.17 16.67
2014 N/A N/A 0.00 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.13 2.17 0.00 5.41
2015 N/A N/A 0.00 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 1.22 0.00 5.00 8.11 0.00 5.71
2016 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 1.79 0.00 1.18 0.00 1.82 2.63 5.56 21.74 16.13
2017 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15.79
2018 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.33 6.67 20.00
2019 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.03 2.13 0.00 20.00
Average 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.08 0.10 0.39 0.44 2.07 2.85 7.38 5.39 23.20
Median 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.38 2.17 0.00 16.67
Standard deviation 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.37 0.48 1.61 1.39 5.15 4.05 11.49 9.56 27.28
Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Maximum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.79 2.33 7.69 6.25 19.44 16.67 42.11 38.46 100.00
Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Transition Tables And Cumulative Default Rates

Our analysis of rating transitions in 2019 suggests that ratings behavior in Latin America is consistent with global trends, which have shown a negative correspondence between credit ratings and default probability. Investment-grade issuers in Latin America tend to exhibit greater credit stability (as measured by the frequency of rating transitions) than their speculative-grade counterparts (see table 11).

For instance, about 87.50% of corporate issuers in Latin America rated 'A' as of Jan. 1, 2019, were still rated 'A' at the end of the year, whereas the comparable metric for corporate issuers rated 'B' was only 77.88%. Caution must be used in interpreting the low stability rates associated with the 'CCC'/'C' rating category because of its small sample size.

Table 11

One-Year 2019 Corporate Transition Rates: Latin America Versus Global
(%)
From/to AAA AA A BBB BB B CCC/C D NR
Latin America
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
AA 0.00 66.67 33.33 0.00 0.00 0.00 0.00 0.00 0.00
A 0.00 0.00 87.50 12.50 0.00 0.00 0.00 0.00 0.00
BBB 0.00 0.00 0.00 95.80 1.40 0.00 0.00 0.00 2.80
BB 0.00 0.00 0.00 1.84 88.48 1.84 0.46 0.00 7.37
B 0.00 0.00 0.00 0.00 0.96 77.88 2.88 1.92 16.35
CCC/C 0.00 0.00 0.00 0.00 0.00 10.00 50.00 20.00 20.00
Global
AAA 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
AA 0.00 93.27 2.14 0.00 0.00 0.00 0.00 0.00 4.59
A 0.00 0.71 93.72 1.93 0.00 0.00 0.00 0.00 3.64
BBB 0.00 0.00 2.68 91.44 1.23 0.05 0.00 0.11 4.49
BB 0.00 0.00 0.07 2.62 83.10 5.01 0.30 0.00 8.90
B 0.00 0.00 0.00 0.00 2.21 78.56 5.10 1.49 12.64
CCC/C 0.00 0.00 0.00 0.00 0.48 8.21 46.86 29.47 14.98
D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

This pattern is similar to the long-term trend of ratings behavior for all global rated issuers. Of all the Latin American companies rated 'AA' from 1997-2019, about 82.35% retained this rating after one year, whereas only 69.53% of companies rated 'B' maintained that rating during the same period (see table 12). The difference between table 11 and table 12 is that table 11 shows rating transitions only for 2019, while table 12 shows the long-term average from 1997-2019.

The transition rates for Latin America are also generally consistent with global patterns. Based on the transition analysis for a two-year time horizon--rather than a one-year horizon--lower ratings also tend to display less stability than higher ratings (see table 13).

Rating transitions by modifier also display the same general relationship, though differences in sample size occasionally create slight variations between adjacent rating categories (see table 14).

Table 12

Average One-Year Corporate Transition Rates
(%)
From/to AAA AA A BBB BB B CCC/C D NR
Latin America (1997-2019)
AAA 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 50.00
(70.71) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (70.71)
AA 0.00 82.35 13.73 0.00 0.00 0.00 0.00 0.00 3.92
(0.00) (23.87) (23.33) (0.00) (0.00) (0.00) (0.00) (0.00) (11.73)
A 0.00 0.59 86.73 8.85 1.18 0.00 0.00 0.00 2.65
(0.00) (1.72) (8.60) (6.62) (3.77) (0.00) (0.00) (0.00) (4.56)
BBB 0.00 0.04 0.83 87.65 4.70 0.61 0.39 0.09 5.70
(0.00) (0.23) (0.99) (8.31) (5.48) (2.15) (2.08) (0.26) (3.04)
BB 0.00 0.00 0.00 3.81 81.85 4.47 0.79 0.76 8.31
(0.00) (0.00) (0.00) (3.19) (6.86) (2.79) (2.46) (2.13) (2.80)
B 0.00 0.00 0.00 0.06 6.45 69.53 5.29 4.07 14.59
(0.00) (0.00) (0.00) (0.31) (4.37) (8.07) (6.23) (5.44) (3.26)
CCC/C 0.00 0.00 0.00 0.00 1.01 19.46 39.93 23.49 16.11
(0.00) (0.00) (0.00) (0.00) (1.95) (21.19) (22.55) (26.24) (11.33)
Global (1981-2019)
AAA 87.03 9.08 0.53 0.05 0.11 0.03 0.05 0.00 3.12
(7.17) (7.22) (0.83) (0.25) (0.28) (0.17) (0.34) (0.00) (2.42)
AA 0.49 87.22 7.74 0.48 0.05 0.06 0.02 0.02 3.91
(0.53) (5.22) (4.17) (0.68) (0.19) (0.20) (0.07) (0.08) (1.82)
A 0.03 1.66 88.42 5.04 0.27 0.11 0.02 0.05 4.40
(0.09) (1.03) (3.72) (2.18) (0.38) (0.24) (0.06) (0.11) (1.69)
BBB 0.01 0.09 3.37 86.32 3.52 0.44 0.10 0.16 5.99
(0.04) (0.15) (1.55) (3.90) (1.60) (0.66) (0.21) (0.25) (1.55)
BB 0.01 0.03 0.11 4.73 77.78 6.58 0.54 0.61 9.60
(0.05) (0.08) (0.24) (1.87) (4.47) (2.98) (0.72) (0.83) (2.18)
B 0.00 0.02 0.07 0.16 4.76 74.77 4.48 3.33 12.41
(0.00) (0.08) (0.20) (0.21) (2.07) (4.04) (2.00) (3.13) (2.20)
CCC/C 0.00 0.00 0.11 0.19 0.58 12.94 43.70 27.04 15.45
(0.00) (0.00) (0.41) (0.63) (0.90) (7.51) (8.44) (10.47) (5.07)
The Latin America figures are for the period 1997-2019. Numbers in parentheses are weighted standard deviations. D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 13

Average Two-Year Corporate Transition Rates
(%)
From/to AAA AA A BBB BB B CCC/C D NR
Latin America (1997-2019)
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
AA 0.00 75.00 18.75 0.00 0.00 0.00 0.00 0.00 6.25
(0.00) (23.12) (24.18) (0.00) (0.00) (0.00) (0.00) (0.00) (13.98)
A 0.00 1.27 76.51 15.56 1.27 0.00 0.00 0.00 5.40
(0.00) (3.06) (10.88) (8.16) (3.90) (0.00) (0.00) (0.00) (5.90)
BBB 0.00 0.05 1.58 77.01 8.30 1.11 0.60 0.93 10.43
(0.00) (0.25) (1.66) (11.19) (7.80) (2.82) (2.66) (3.99) (3.84)
BB 0.00 0.00 0.04 6.96 66.82 6.74 1.11 2.50 15.84
(0.00) (0.00) (0.15) (4.96) (9.83) (3.07) (2.58) (6.07) (3.42)
B 0.00 0.00 0.00 0.06 10.89 49.94 6.81 8.60 23.70
(0.00) (0.00) (0.00) (0.32) (6.71) (7.33) (7.29) (8.56) (4.19)
CCC/C 0.00 0.00 0.00 0.35 1.04 29.51 16.67 28.47 23.96
(0.00) (0.00) (0.00) (1.47) (2.27) (24.82) (14.96) (27.42) (13.58)
Global (1981-2019)
AAA 75.65 16.22 1.43 0.11 0.24 0.05 0.11 0.03 6.17
(10.10) (10.59) (1.47) (0.30) (0.46) (0.23) (0.41) (0.17) (4.24)
AA 0.87 76.16 13.79 1.23 0.18 0.14 0.02 0.06 7.56
(0.70) (8.19) (5.95) (1.10) (0.33) (0.29) (0.06) (0.12) (2.93)
A 0.04 2.98 78.30 8.81 0.71 0.25 0.04 0.14 8.74
(0.07) (1.67) (5.75) (2.89) (0.78) (0.41) (0.10) (0.19) (2.68)
BBB 0.02 0.17 6.17 74.91 5.66 1.01 0.20 0.45 11.41
(0.08) (0.23) (2.43) (6.10) (2.03) (1.08) (0.30) (0.63) (2.49)
BB 0.01 0.04 0.27 8.46 60.75 9.83 1.00 1.96 17.69
(0.06) (0.10) (0.49) (2.76) (6.44) (2.72) (0.90) (2.19) (3.04)
B 0.00 0.03 0.13 0.38 8.08 55.79 5.24 7.83 22.52
(0.00) (0.11) (0.29) (0.44) (3.09) (5.08) (1.86) (5.69) (3.68)
CCC/C 0.00 0.00 0.14 0.48 1.04 17.18 20.77 36.47 23.93
(0.00) (0.00) (0.47) (1.14) (1.13) (7.39) (7.48) (11.82) (7.04)
The Latin America figures are for the period 1997-2019. Numbers in parentheses are weighted standard deviations. D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 14

Average One-Year Transition Rates For Latin American Corporates By Rating Modifier (1997-2019)
(%)
From/to AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC D NR
AAA 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 50.00
(70.71) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (70.71)
AA+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A) (N/A)
AA 0.00 0.00 33.33 66.67 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(0.00) (0.00) (57.74) (57.74) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
AA- 0.00 0.00 2.08 79.17 14.58 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.17
(0.00) (0.00) (8.25) (24.47) (24.01) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (12.78)
A+ 0.00 0.00 0.00 4.44 77.78 11.11 0.00 0.00 4.44 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.22
(0.00) (0.00) (0.00) (17.11) (30.98) (23.98) (0.00) (0.00) (8.08) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (6.47)
A 0.00 0.00 0.00 0.00 4.30 76.34 13.98 1.08 1.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.23
(0.00) (0.00) (0.00) (0.00) (12.75) (27.01) (24.37) (7.42) (6.02) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (7.66)
A- 0.00 0.00 0.00 0.00 0.00 7.46 75.12 10.45 1.49 1.00 0.00 1.99 0.00 0.00 0.00 0.00 0.00 0.00 2.49
(0.00) (0.00) (0.00) (0.00) (0.00) (9.67) (12.90) (9.03) (4.25) (3.55) (0.00) (6.17) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (4.11)
BBB+ 0.00 0.00 0.00 0.00 0.00 0.00 3.06 83.81 8.09 1.26 0.00 0.00 0.36 0.00 0.00 0.00 0.00 0.00 3.42
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (4.34) (13.47) (9.93) (2.46) (0.00) (0.00) (1.15) (0.00) (0.00) (0.00) (0.00) (0.00) (4.94)
BBB 0.00 0.00 0.00 0.13 0.00 0.00 0.13 8.63 75.96 9.43 0.80 0.53 0.13 0.00 0.00 0.13 0.00 0.13 3.98
(0.00) (0.00) (0.00) (0.84) (0.00) (0.00) (0.55) (11.63) (12.82) (9.14) (2.06) (2.07) (0.84) (0.00) (0.00) (0.92) (0.00) (0.48) (5.34)
BBB- 0.00 0.00 0.00 0.00 0.00 0.00 0.10 0.50 8.07 71.14 8.27 1.11 0.20 0.30 0.61 0.40 0.91 0.10 8.27
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.38) (1.19) (7.63) (16.05) (10.11) (2.32) (0.49) (0.89) (2.22) (1.57) (4.10) (0.48) (4.91)
BB+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.14 0.56 13.18 60.17 13.18 2.24 0.42 0.70 0.56 0.42 0.28 8.13
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.98) (1.19) (12.38) (16.18) (16.08) (4.86) (1.09) (3.02) (1.33) (2.07) (1.10) (5.36)
BB 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.09 0.00 0.79 9.52 66.67 11.55 1.41 0.35 0.18 1.23 0.35 7.85
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.53) (0.00) (1.51) (9.54) (14.91) (14.32) (2.60) (0.76) (0.96) (4.30) (1.17) (4.60)
BB- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.17 0.34 0.94 9.63 69.39 6.65 1.71 0.26 0.60 1.45 8.87
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.98) (1.93) (1.91) (7.12) (11.27) (4.23) (1.83) (0.58) (1.56) (4.11) (5.20)
B+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.28 1.28 12.48 55.60 8.94 4.11 2.13 2.70 12.48
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (1.66) (2.29) (9.75) (12.90) (9.61) (4.48) (4.69) (3.55) (6.06)
B 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.18 0.18 1.43 10.75 49.64 15.41 4.48 5.02 12.90
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (1.19) (0.77) (2.48) (8.79) (16.17) (15.26) (5.49) (9.22) (6.11)
B- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.22 0.00 0.22 0.22 5.03 12.69 45.51 11.16 5.03 19.91
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (1.31) (0.00) (0.97) (0.78) (9.55) (11.22) (15.78) (15.24) (8.66) (9.62)
CCC/C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.01 0.67 3.02 15.77 39.93 23.49 16.11
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (1.95) (2.85) (5.00) (19.87) (22.55) (26.24) (11.33)
Numbers in parentheses are weighted standard deviations. D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 15

Comparison Of Corporate Cumulative Average Default Rates
(%) --Time horizon (years)--
From/to 1 2 3 4 5 6 7 8 9 10
Latin America (1997-2019)
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.00)
AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
BBB 0.09 0.92 1.97 3.20 4.32 5.05 5.27 5.53 5.72 5.72
BB 0.76 2.44 4.30 6.05 7.47 8.46 9.15 9.61 10.26 10.82
B 4.07 8.47 11.86 14.50 16.31 17.52 18.39 18.87 19.20 19.68
CCC/C 23.49 28.36 31.22 31.22 31.67 32.24 33.04 33.94 33.94 33.94
Investment grade 0.07 0.79 1.68 2.74 3.69 4.31 4.51 4.72 4.88 4.88
Speculative grade 3.24 6.04 8.50 10.45 11.95 13.01 13.77 14.26 14.75 15.26
All rated 2.13 4.21 6.12 7.76 9.07 9.97 10.54 10.93 11.31 11.65
Global (1981-2019)
AAA 0.00 0.03 0.13 0.24 0.35 0.45 0.51 0.59 0.64 0.70
AA 0.02 0.06 0.12 0.21 0.31 0.42 0.50 0.58 0.65 0.72
A 0.05 0.14 0.23 0.35 0.47 0.62 0.79 0.93 1.08 1.24
BBB 0.16 0.45 0.78 1.17 1.58 1.98 2.33 2.67 3.00 3.32
BB 0.61 1.93 3.48 5.05 6.52 7.85 9.01 10.05 10.97 11.78
B 3.33 7.71 11.55 14.58 16.93 18.83 20.36 21.60 22.70 23.74
CCC/C 27.04 36.59 41.36 44.06 46.15 47.05 48.22 49.01 49.72 50.34
Investment grade 0.09 0.24 0.42 0.65 0.88 1.11 1.32 1.52 1.72 1.91
Speculative grade 3.61 7.00 9.93 12.31 14.27 15.86 17.20 18.32 19.31 20.22
All rated 1.48 2.89 4.13 5.17 6.04 6.76 7.38 7.90 8.37 8.80
The Latin America figures are for the period 1997-2019. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 16

Latin American Corporate Cumulative Average Default Rates By Rating Modifier (1997-2019)
(%) --Time horizon (years)--
Rating 1 2 3 4 5 6 7 8 9 10
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
AA+ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A
AA- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
BBB+ 0.00 0.00 0.00 0.00 0.28 0.60 0.60 0.60 0.60 0.60
BBB 0.13 0.27 0.73 1.72 2.27 2.67 2.67 2.67 2.67 2.67
BBB- 0.10 1.90 3.92 5.91 7.80 8.94 9.42 9.96 10.36 10.36
BB+ 0.28 1.92 3.81 5.51 6.50 6.73 7.00 7.00 7.36 8.19
BB 0.35 2.11 3.66 4.96 6.02 6.31 7.14 7.71 8.34 9.05
BB- 1.45 3.07 5.22 7.41 9.40 11.39 12.18 12.76 13.55 13.90
B+ 2.70 6.56 9.29 11.53 13.01 14.21 14.85 15.54 15.54 15.81
B 5.02 9.92 14.10 17.14 18.73 19.95 21.31 21.61 22.29 23.50
B- 5.03 9.67 13.16 15.92 18.53 19.74 20.38 20.77 21.20 21.20
CCC/C 23.49 28.36 31.22 31.22 31.67 32.24 33.04 33.94 33.94 33.94
Investment grade 0.07 0.79 1.68 2.74 3.69 4.31 4.51 4.72 4.88 4.88
Speculative grade 3.24 6.04 8.50 10.45 11.95 13.01 13.77 14.26 14.75 15.26
All rated 2.13 4.21 6.12 7.76 9.07 9.97 10.54 10.93 11.31 11.65
Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Chart 6

image

Gini Ratios And Lorenz Curves

Like our global corporate default and transition study, this study illustrates that ratings are effective indicators of relative default risk. S&P Global Ratings has found a clear negative correspondence between ratings and defaults: The higher the issuer credit rating, the lower the observed default frequency. We use Gini coefficients to measure the correspondence between ratings and defaults.

Gini ratios measure the rank-ordering power of ratings over a given time horizon and compare the ratio of actual rank-ordering performance with theoretically perfect rank ordering. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated issuers, the Gini coefficient would be 100%. If corporate ratings only randomly approximated default risk, the Gini coefficient would be zero. Our calculations indicate that for Latin American corporate issuers in 2019, the weighted average one-year Gini coefficient was 75.94%, the weighted average three-year was 51.89%, and the weighted average five-year was 41.71%. (For definitions and methodology, see Appendix II.)

We also examined the variations in Gini coefficients globally by region (see table 17). As expected, the Gini coefficients decline as the time horizon lengthens because longer time horizons allow for more credit degradation among higher-rated issuers. In the one-year Latin American Lorenz curve, for example, 98.78% of defaults occurred in the speculative-grade category, while speculative-grade ratings constituted only 65.17% of all Latin American corporate issuers (see chart 7). The five-year Lorenz curve shows that speculative-grade issuers constituted 85.84% of defaulters and only 64.96% of the entire sample (see chart 9). If the rank ordering of ratings had little predictive value, the cumulative share of defaulting corporate issuers and the cumulative share of all issuers would be nearly the same.

Table 17

Corporate Gini Coefficients By Region
(%) --Time horizon--
Region One-year Three-year Five-year Seven-year
Global 82.52 75.19 71.38 69.27
U.S. 80.70 72.84 69.01 66.79
Europe 90.28 85.17 82.57 80.01
Emerging markets 75.44 60.40 51.95 48.73
Latin America 75.94 51.89 41.71 38.92
Latin America and emerging market figures are for the period 1997-2019. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Chart 7

image

Chart 8

image

Chart 9

image

Additional Tables

Table 18

Static Pool Cumulative Corporate Default Rates Among All Latin American Ratings (1997-2019)
Rating: All rated
(%) --Time horizon (years)--
Year Issuers 1 2 3 4 5 6 7 8 9 10
1997 67 0.00 1.49 5.97 5.97 10.45 23.88 26.87 26.87 26.87 26.87
1998 126 0.00 3.97 4.76 10.32 27.78 34.13 34.13 34.13 34.13 34.13
1999 178 5.06 6.18 12.92 32.58 38.20 38.20 38.20 38.20 38.20 38.76
2000 190 1.05 6.84 28.42 34.21 34.21 34.21 34.21 34.21 34.74 35.79
2001 217 5.53 27.19 31.80 31.80 32.26 32.26 32.26 32.72 33.64 33.64
2002 233 22.32 27.04 27.47 27.90 27.90 27.90 28.33 29.18 29.18 29.18
2003 205 5.85 6.83 7.32 7.32 7.32 7.80 8.78 9.27 9.27 9.27
2004 222 0.90 1.35 1.35 1.35 1.80 2.70 3.15 3.15 3.60 4.50
2005 245 0.41 0.41 0.41 0.82 2.45 3.27 3.27 3.67 4.49 4.49
2006 281 0.36 0.36 1.07 2.85 3.56 3.56 4.98 6.05 6.05 6.41
2007 323 0.00 0.62 3.41 4.33 4.33 5.57 7.12 7.12 7.43 8.05
2008 358 0.84 4.47 5.59 5.59 7.26 8.66 8.94 9.22 10.34 10.34
2009 377 3.45 4.51 4.51 6.10 7.69 8.22 8.49 9.55 9.55 10.34
2010 378 1.06 1.06 2.91 4.50 5.03 5.29 6.61 6.61 7.41 7.41
2011 385 0.00 2.60 4.16 4.68 5.19 7.01 7.01 7.79 7.79
2012 422 2.13 3.79 4.27 5.21 7.11 7.11 8.06 8.06
2013 463 1.30 1.73 3.02 5.83 6.05 6.91 6.91
2014 507 0.79 2.17 4.93 5.13 5.92 6.11
2015 531 1.51 4.33 4.71 5.46 5.84
2016 513 2.92 3.31 4.09 4.48
2017 502 0.60 1.39 1.99
2018 506 0.99 1.78
2019 501 0.80
Summary statistics
Marginal average 2.13 2.12 1.99 1.74 1.42 0.99 0.63 0.44 0.43 0.38
Cumulative average 2.13 4.21 6.12 7.76 9.07 9.97 10.54 10.93 11.31 11.65
Standard deviation 4.66 7.38 9.33 11.15 12.26 12.89 12.96 13.08 13.26 13.46
Median 0.99 2.96 4.51 5.52 7.11 7.46 8.49 9.24 9.55 10.34
Minimum 0.00 0.36 0.41 0.82 1.80 2.70 3.15 3.15 3.60 4.49
Maximum 22.32 27.19 31.80 34.21 38.20 38.20 38.20 38.20 38.20 38.76
Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 19

Static Pool Cumulative Corporate Default Rates Among Investment-Grade Latin American Ratings (1997-2019)
Rating: Investment grade
(%) --Time horizon (years)--
Year Issuers 1 2 3 4 5 6 7 8 9 10
1997 38 0.00 0.00 0.00 0.00 2.63 18.42 18.42 18.42 18.42 18.42
1998 61 0.00 0.00 0.00 3.28 21.31 22.95 22.95 22.95 22.95 22.95
1999 70 0.00 0.00 1.43 21.43 22.86 22.86 22.86 22.86 22.86 22.86
2000 68 0.00 0.00 22.06 23.53 23.53 23.53 23.53 23.53 23.53 23.53
2001 78 0.00 19.23 19.23 19.23 20.51 20.51 20.51 21.79 21.79 21.79
2002 68 0.00 0.00 0.00 1.47 1.47 1.47 2.94 2.94 2.94 2.94
2003 64 0.00 0.00 0.00 0.00 0.00 1.56 1.56 1.56 1.56 1.56
2004 77 0.00 0.00 0.00 0.00 1.30 1.30 1.30 1.30 1.30 1.30
2005 85 0.00 0.00 0.00 1.18 1.18 1.18 1.18 1.18 1.18 1.18
2006 88 0.00 0.00 1.14 1.14 1.14 1.14 1.14 1.14 1.14 1.14
2007 93 0.00 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08
2008 107 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 2.80 2.80
2009 120 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.67 1.67 1.67
2010 117 0.00 0.00 0.00 0.00 0.00 0.00 1.71 1.71 1.71 1.71
2011 130 0.00 0.00 0.00 0.00 0.00 1.54 1.54 1.54 1.54
2012 152 0.00 0.00 0.00 0.00 1.97 1.97 1.97 1.97
2013 173 0.00 0.00 0.00 1.73 1.73 2.31 2.31
2014 195 0.00 0.00 1.54 1.54 2.05 2.05
2015 216 0.00 0.93 0.93 1.39 1.39
2016 181 0.55 0.55 1.10 1.10
2017 167 0.00 0.00 0.00
2018 174 0.00 0.00
2019 170 0.00
Summary statistics
Marginal average 0.07 0.71 0.90 1.07 0.98 0.64 0.20 0.23 0.17 0.00
Cumulative average 0.07 0.79 1.68 2.74 3.69 4.31 4.51 4.72 4.88 4.88
Standard deviation 0.22 4.08 6.12 7.60 8.81 9.47 9.56 9.82 9.94 10.12
Median 0.00 0.00 0.00 1.12 1.39 1.55 1.71 1.69 1.71 2.26
Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.93 1.08 1.08
Maximum 0.93 19.23 22.06 23.53 23.53 23.53 23.53 23.53 23.53 23.53
Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 20

Static Pool Cumulative Corporate Default Rates Among Speculative-Grade Latin American Ratings (1997-2019)
Rating: Speculative grade
(%) --Time horizon (years)--
Year Issuers 1 2 3 4 5 6 7 8 9 10
1997 29 0.00 3.45 13.79 13.79 20.69 31.03 37.93 37.93 37.93 37.93
1998 65 0.00 7.69 9.23 16.92 33.85 44.62 44.62 44.62 44.62 44.62
1999 108 8.33 10.19 20.37 39.81 48.15 48.15 48.15 48.15 48.15 49.07
2000 122 1.64 10.66 31.97 40.16 40.16 40.16 40.16 40.16 40.98 42.62
2001 139 8.63 31.65 38.85 38.85 38.85 38.85 38.85 38.85 40.29 40.29
2002 165 31.52 38.18 38.79 38.79 38.79 38.79 38.79 40.00 40.00 40.00
2003 141 8.51 9.93 10.64 10.64 10.64 10.64 12.06 12.77 12.77 12.77
2004 145 1.38 2.07 2.07 2.07 2.07 3.45 4.14 4.14 4.83 6.21
2005 160 0.63 0.63 0.63 0.63 3.13 4.38 4.38 5.00 6.25 6.25
2006 193 0.52 0.52 1.04 3.63 4.66 4.66 6.74 8.29 8.29 8.81
2007 230 0.00 0.43 4.35 5.65 5.65 7.39 9.57 9.57 10.00 10.87
2008 251 0.80 5.98 7.57 7.57 9.96 11.95 12.35 12.75 13.55 13.55
2009 257 5.06 6.61 6.61 8.95 11.28 12.06 12.45 13.23 13.23 14.40
2010 261 1.53 1.53 4.21 6.51 7.28 7.66 8.81 8.81 9.96 9.96
2011 255 0.00 3.92 6.27 7.06 7.84 9.80 9.80 10.98 10.98
2012 270 3.33 5.93 6.67 8.15 10.00 10.00 11.48 11.48
2013 290 2.07 2.76 4.83 8.28 8.62 9.66 9.66
2014 312 1.28 3.53 7.05 7.37 8.33 8.65
2015 315 2.54 6.67 7.30 8.25 8.89
2016 332 4.22 4.82 5.72 6.33
2017 335 0.90 2.09 2.99
2018 332 1.51 2.71
2019 331 1.21
Summary statistics
Marginal average 3.24 2.90 2.61 2.13 1.68 1.19 0.88 0.56 0.58 0.60
Cumulative average 3.24 6.04 8.50 10.45 11.95 13.01 13.77 14.26 14.75 15.26
Standard deviation 6.64 9.49 11.61 13.52 14.93 15.97 16.20 16.31 16.55 16.81
Median 1.51 4.37 6.67 8.20 9.96 10.32 12.06 12.76 13.23 13.97
Minimum 0.00 0.43 0.63 0.63 2.07 3.45 4.14 4.14 4.83 6.21
Maximum 31.52 38.18 38.85 40.16 48.15 48.15 48.15 48.15 48.15 49.07
Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 21

Average Two-Year Latin American Corporate Transition Matrix (1997-2019)
From/to AAA AA A BBB BB B CCC/C D NR
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
AA 0.00 75.00 18.75 0.00 0.00 0.00 0.00 0.00 6.25
(0.00) (23.12) (24.18) (0.00) (0.00) (0.00) (0.00) (0.00) (13.98)
A 0.00 1.27 76.51 15.56 1.27 0.00 0.00 0.00 5.40
(0.00) (3.06) (10.88) (8.16) (3.90) (0.00) (0.00) (0.00) (5.90)
BBB 0.00 0.05 1.58 77.01 8.30 1.11 0.60 0.93 10.43
(0.00) (0.25) (1.66) (11.19) (7.80) (2.82) (2.66) (3.99) (3.84)
BB 0.00 0.00 0.04 6.96 66.82 6.74 1.11 2.50 15.84
(0.00) (0.00) (0.15) (4.96) (9.83) (3.07) (2.58) (6.07) (3.42)
B 0.00 0.00 0.00 0.06 10.89 49.94 6.81 8.60 23.70
(0.00) (0.00) (0.00) (0.32) (6.71) (7.33) (7.29) (8.56) (4.19)
CCC/C 0.00 0.00 0.00 0.35 1.04 29.51 16.67 28.47 23.96
(0.00) (0.00) (0.00) (1.47) (2.27) (24.82) (14.96) (27.42) (13.58)
Numbers in parentheses are weighted standard deviations, weighted by the issuer base. D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 22

Average Three-Year Latin American Corporate Transition Matrix (1997-2019)
From/to AAA AA A BBB BB B CCC/C D NR
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
AA 0.00 66.67 24.44 0.00 0.00 0.00 0.00 0.00 8.89
(0.00) (23.99) (27.30) (0.00) (0.00) (0.00) (0.00) (0.00) (16.93)
A 0.00 2.06 67.35 19.59 2.06 0.00 0.00 0.00 8.93
(0.00) (4.19) (14.05) (9.79) (6.34) (0.00) (0.00) (0.00) (6.93)
BBB 0.00 0.05 2.29 67.86 10.60 1.59 0.75 2.04 14.83
(0.00) (0.26) (2.09) (11.46) (8.49) (2.81) (2.52) (5.94) (4.25)
BB 0.00 0.00 0.04 9.39 55.43 7.42 1.39 4.56 21.76
(0.00) (0.00) (0.16) (6.28) (10.74) (3.36) (2.80) (8.83) (4.16)
B 0.00 0.00 0.00 0.33 12.91 36.82 6.95 12.25 30.73
(0.00) (0.00) (0.00) (1.03) (7.20) (7.01) (7.26) (9.93) (5.18)
CCC/C 0.00 0.00 0.00 0.36 2.52 33.45 4.32 30.94 28.42
(0.00) (0.00) (0.00) (1.50) (4.00) (26.30) (7.18) (29.28) (14.38)
Numbers in parentheses are weighted standard deviations, weighted by the issuer base. D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 23

Average Five-Year Latin American Corporate Transition Matrix (1997-2019)
From/to AAA AA A BBB BB B CCC/C D NR
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
AA 0.00 51.35 32.43 2.70 0.00 0.00 0.00 0.00 13.51
(0.00) (25.11) (30.80) (11.62) (0.00) (0.00) (0.00) (0.00) (20.04)
A 0.00 4.02 52.61 24.90 2.81 0.00 0.00 0.00 15.66
(0.00) (5.81) (11.83) (9.44) (5.60) (0.00) (0.00) (0.00) (6.83)
BBB 0.00 0.00 3.27 55.08 12.97 2.04 0.70 4.73 21.20
(0.00) (0.00) (2.48) (7.63) (8.64) (2.05) (1.76) (8.91) (3.86)
BB 0.00 0.00 0.09 12.04 39.40 7.28 0.98 8.68 31.51
(0.00) (0.00) (0.25) (6.01) (10.04) (2.70) (2.07) (12.54) (5.99)
B 0.00 0.00 0.00 0.90 14.42 21.82 5.01 17.12 40.73
(0.00) (0.00) (0.00) (1.15) (6.81) (5.15) (5.54) (11.80) (6.50)
CCC/C 0.00 0.00 0.00 0.44 5.26 25.00 1.32 33.33 34.65
(0.00) (0.00) (0.00) (1.65) (9.29) (20.41) (3.61) (31.63) (15.95)
Numbers in parentheses are weighted standard deviations, weighted by the issuer base. D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 24

Latin American Initial-To-Last Transition Rates By Rating Modifier For Nonfinancials (1981-2019)
(%)
From/to AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C D NR Issuers
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0
AA+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0
AA 0.00 0.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1
AA- 0.00 0.00 0.00 0.00 20.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 60.00 5
A+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00 1
A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 50.00 2
A- 0.00 0.00 0.00 0.00 0.00 7.14 0.00 7.14 14.29 14.29 0.00 0.00 14.29 0.00 0.00 0.00 0.00 0.00 42.86 14
BBB+ 0.00 0.00 0.00 0.00 0.00 0.00 18.18 18.18 27.27 9.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.55 22.73 22
BBB 0.00 0.00 0.00 0.00 0.00 0.00 5.66 7.55 18.87 11.32 0.00 0.00 3.77 0.00 0.00 0.00 0.00 7.55 45.28 54
BBB- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.05 7.37 14.74 5.26 3.16 5.26 0.00 0.00 1.05 0.00 16.84 45.26 97
BB+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.39 1.39 8.33 9.72 5.56 9.72 0.00 0.00 1.39 0.00 18.06 44.44 73
BB 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.87 0.00 1.74 3.48 13.04 14.78 0.00 4.35 0.87 1.74 15.65 43.48 115
BB- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.64 0.64 3.82 3.18 18.47 1.27 0.64 0.64 1.27 20.38 49.04 160
B+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.95 0.00 0.00 7.62 11.43 1.90 0.95 0.00 18.10 59.05 110
B 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.85 0.93 2.78 1.85 4.63 3.70 0.00 25.93 58.33 113
B- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.14 0.00 0.00 2.27 0.00 0.00 0.00 11.36 1.14 17.05 67.05 90
CCC/C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.79 0.00 0.00 0.00 0.00 1.79 3.57 3.57 7.14 1.79 28.57 51.79 59
D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Table 25

Latin American Initial-To-Last Transition Rates By Rating Modifier For Financials (1981-2019)
(%)
From/to AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C D NR Issuers
AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00 1
AA+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0
AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00 1
AA- 0.00 0.00 0.00 66.67 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 33.33 3
A+ 0.00 0.00 0.00 0.00 50.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2
A 0.00 0.00 0.00 0.00 20.00 20.00 20.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 20.00 5
A- 0.00 0.00 0.00 0.00 0.00 28.57 7.14 21.43 0.00 0.00 0.00 0.00 7.14 0.00 0.00 0.00 0.00 0.00 35.71 14
BBB+ 0.00 0.00 0.00 0.00 0.00 4.17 0.00 54.17 12.50 0.00 0.00 0.00 4.17 0.00 0.00 0.00 0.00 0.00 25.00 24
BBB 0.00 0.00 0.00 0.00 0.00 2.70 0.00 27.03 16.22 5.41 2.70 0.00 8.11 0.00 0.00 0.00 0.00 0.00 37.84 37
BBB- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 11.54 7.69 11.54 3.85 0.00 19.23 0.00 1.92 0.00 0.00 7.69 36.54 52
BB+ 0.00 0.00 0.00 0.00 0.00 0.00 2.63 13.16 2.63 7.89 5.26 0.00 10.53 0.00 2.63 0.00 0.00 2.63 52.63 38
BB 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.08 1.69 0.00 5.08 11.86 5.08 3.39 0.00 1.69 1.69 3.39 61.02 59
BB- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.30 0.00 3.90 9.09 24.68 1.30 0.00 0.00 0.00 10.39 49.35 77
B+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.96 3.92 0.00 1.96 15.69 11.76 5.88 5.88 0.00 1.96 50.98 51
B 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.04 2.04 8.16 14.29 12.24 0.00 12.24 48.98 49
B- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.90 31.03 0.00 6.90 55.17 29
CCC/C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8.33 0.00 0.00 25.00 66.67 12
D--Default. NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®.

Appendix I: Default Methodology And Definitions

This long-term corporate default and rating transition study uses S&P Global Market Intelligence's CreditPro® database of long-term local currency issuer credit ratings. Most exhibits in this study are the direct output of the CreditPro® interface, while others reflect manipulation of the underlying database. We created charts 4 and 6-9 and tables 1-17 by manipulating the CreditPro® data.

An issuer credit rating reflects S&P Global Ratings' forward-looking opinion of a company's overall creditworthiness. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation because it does not take into account the nature and provisions of the obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and enforceability of the obligation.

It is not necessary for a company to have rated debt to have an issuer credit rating. While an issue credit rating is an assessment of default risk, it may also incorporate an assessment of the relative seniority or ultimate recovery of the issue in the event of default. The junior obligations of a company are typically rated lower than the senior obligations to reflect their lower priority in bankruptcy and ultimate recovery expectations. Alternatively, secured debt may be rated higher than the issuer credit rating. Notching also applies to the structural subordination of debt issued by operating subsidiaries or holding companies that are part of an enterprise that we view as a single economic entity.

Our ongoing enhancement of the CreditPro® database used to generate this study could lead to outcomes that differ to some degree from those reported in previous studies. However, this poses no continuity problem because each study reports statistics going back to Jan 1, 1997. Therefore, each annual default study is self-contained and effectively supersedes all previous versions.

Issuers included in this study

For the purposes of this study, the emerging markets region consists of Angola, Argentina, Armenia, Aruba, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Belize, Bhutan, Bolivia, Bosnia-Herzegovina, Brazil, Brunei Darussalam, Cambodia, Chile, China, Colombia, Costa Rica, Curacao, Dominican Republic, Ecuador, Egypt, El Salvador, Fiji, Gabon, Georgia, Ghana, Grenada, Guatemala, Honduras, Hong Kong, India, Indonesia, Israel, Jamaica, Jordan, Kazakhstan, Kenya, Republic of Korea, Kuwait, Lebanon, Liberia, Macao Special Administrative Region of China, Malaysia, Marshall Islands, Mauritius, Mexico, Moldova, Mongolia, Morocco, Namibia, Netherlands Antilles, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Singapore, South Africa, Sri Lanka, Syrian Arab Republic, Taiwan, Thailand, Togo, Trinidad and Tobago, Tunisia, Turkey, Turks and Caicos Islands, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, and Yemen.

For the purposes of this study, Latin America consists of Argentina, Aruba, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Curacao, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Honduras, Jamaica, Mexico, Netherlands Antilles, Panama, Paraguay, Peru, Trinidad and Tobago, Turks and Caicos Islands, Uruguay, and Venezuela.

This study analyzes the rating histories of 1,295 Latin American companies rated by S&P Global Ratings between Jan. 1, 1997, and Dec. 31, 2019. These include industrials, utilities, financial institutions, and insurance companies with global scale long-term local currency ratings. This analysis excludes public information (pi) ratings and ratings based on the guarantee of another company or government entity. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subjects of separate default and transition studies and are excluded from this study.

To avoid double-counting, the CreditPro® database excludes subsidiaries with debt that is fully guaranteed by a parent or with default risk that is considered identical to that of a parent. The latter are companies with obligations that are not legally guaranteed by a parent but that have operating or financing activities that are so inextricably entwined with those of the parent that it would be impossible to imagine the default of one and not the other. At times, however, some of these subsidiaries might not yet have been covered by a parent's guarantee, or the relationship that combines the default risk of parent and subsidiary might have come to an end or might not have begun. We included such subsidiaries for the period during which they had a distinct and separate risk of default.

Issuers with withdrawn ratings

S&P Global Ratings withdraws ratings when an entity's entire debt is paid off or when the program or programs rated are terminated and the relevant debt extinguished. For the purposes of this study, a rating may be withdrawn as a result of a merger or acquisition. Others are withdrawn because of a lack of cooperation, particularly when a company is experiencing financial difficulties and refuses to provide all the information needed to continue surveillance on the ratings, or at the entity's request.

Definition of default

An obligor rated 'SD' (selective default) or 'D' (default) is in payment default on one or more of its financial obligations (rated or unrated) unless S&P Global Ratings believes that such payments will be made within five business days, irrespective of any grace period. S&P Global Ratings also lowers a rating to 'D' when an issuer files for bankruptcy or takes a similar action that jeopardizes its payments on a financial obligation.

A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. S&P Global Ratings assigns an 'SD' rating when it believes the obligor has selectively defaulted on a specific issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A selective default includes the completion of a distressed exchange offer whereby one or more financial obligations are either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.

'R' (regulatory intervention) indicates that an obligor is under regulatory supervision owing to its financial condition. This does not necessarily indicate a default event, but the regulator might have the power to favor one class of obligations over another or pay some obligations and not others. Preferred stock is not considered a financial obligation, and thus a missed preferred stock dividend is not normally equated with default.

We deem 'D', 'SD', and 'R' issuer ratings to be defaults for the purposes of this study. A default is assumed to take place on the earliest of the date S&P Global revised the rating(s) to 'D', 'SD', or 'R'; the date a debt payment was missed; the date a distressed exchange offer was announced; or the date the debtor filed for or was forced into bankruptcy.

When an issuer defaults, it is not uncommon for S&P Global Ratings to subsequently withdraw the 'D' rating. For the purposes of this study, if an issuer defaults, we end its rating history at 'D'. If any defaulting entity reemerges from bankruptcy--or otherwise restructures its defaulted debt instruments, thereby reestablishing regular, timely payment of all its debts--we reenter this issuer into the database as a new entity. Its rating history after the default event is included in all calculations as separate from its experience leading up to its earlier default.

Many practitioners use statistics from this default study to estimate "probability of default" and "probability of rating transition." S&P Global Ratings' credit ratings do not imply a specific probability of default.

Calculations

Static pool methodology.  We conduct our default studies on the basis of groupings called static pools. For the purposes of this study, we form static pools by grouping issuers by rating category at the beginning of each year covered by the study. Each static pool is followed from that point forward. All companies included in the study are assigned to one or more static pools. When an issuer defaults, we assign that default back to all of the static pools to which the issuer belonged.

We use the static pool methodology to avoid certain pitfalls in estimating default rates, such as by ensuring that default rates account for rating migration and can be calculated across multiperiod time horizons. Some methods for calculating default and rating transition rates might charge defaults against only the initial rating on the issuer, ignoring more recent rating changes that supply more current information. Other methods calculate default rates using only the most recent year's default and rating data, which might yield comparatively low default rates during periods of high rating activity because they ignore prior years' default activity.

Membership in static pools remains constant. Each static pool can be interpreted as a buy-and-hold portfolio. Because errors, if any, are corrected by every new update and because the criteria for inclusion or exclusion of companies in the default study are subject to minor revisions as time goes by, it is not possible to compare static pools across different studies. Therefore, every update revises results back to the starting date so as to avoid continuity problems.

Issuers that have had ratings withdrawn--that is, revised to not rated (NR)--are surveilled with the aim of capturing a potential default. Because static pools include only issuers with active ratings as of their beginning date, we exclude companies with withdrawn ratings, as well as those that have defaulted, from subsequent static pools. If the rating on an entity is withdrawn after the start date of a particular static pool and the entity subsequently defaults, we will include it in that static pool as a default and categorize it in the rating category of which it was a member at that time.

For instance, the 2001 static pool consists of all companies rated as of 12:01 a.m. on Jan. 1, 2001. Companies first rated in 2001 and surviving members of the 2001 static pool form the 2002 static pool. All rating changes that took place are reflected in the newly formed 2002 static pool through these issuer ratings as of 12:01 a.m. on Jan. 1, 2002.

Consider the following example: An issuer is originally rated 'BB' in mid-2000, and S&P Global Ratings downgrades the company to 'B' in 2002. This is followed by a rating withdrawal in 2003 and a default in 2004. We would include this hypothetical company in the 2001 and 2002 pools with the 'BB' rating, which was the rating at the beginning of those years. Likewise, we would include it in the 2003 pool with the 'B' rating. It would not be part of the 2004 pool because it was not rated as of the first day of that year, and we would not include it in any pool after the last day of 2004 because S&P Global Ratings had withdrawn its rating on the company by then. Yet each of the three pools in which this company was included (2001-2003) would record its 2004 default at the appropriate time horizon.

Default rate.  We calculated annual default rates for each static pool, first in units and later as percentages with respect to the number of issuers in each rating category. We combined these percentages to obtain cumulative default rates for the 23 years the study covers.

Issuer-weighted default rates.  All default rates that appear in this study are based on the number of issuers rather than the dollar amounts affected by defaults or rating changes. Although dollar amounts provide information about the portion of the market that is affected by defaults or rating changes, issuer-weighted averages are a more useful measure of the performance of ratings.

Average cumulative default rate calculation.  The cumulative default rates in this study average the experience of all static pools by first calculating marginal default rates for each possible time horizon and for each static pool, weight-averaging the marginal default rates conditional on survival (survivors being nondefaulters), and accumulating the average conditional marginal default rates. We calculated conditional default rates by dividing the number of issuers in a static pool that default at a specific time horizon by the number of issuers that survived (did not default) to that point in time. Weights are based on the number of issuers in each static pool. Cumulative default rates are one minus the product of the proportion of survivors (nondefaulters).

Transition analysis

Transition rates compare issuer credit ratings at the beginning of a period with the ratings at the end of the period. To compute one-year rating transition rates by rating category, we compared the rating on each entity at the end of a particular year with the rating at the beginning of the same year. An issuer that remained rated for more than one year was counted as many times as the number of years it was rated.

For instance, an issuer continually rated from the middle of 1984 to the middle of 1991 would appear in the seven consecutive one-year transition matrices from 1985-1991. If the rating on the issuer was withdrawn in the middle of 1991, it would be included in the column representing transitions to NR in the 1991 transition matrix. Similarly, if it defaulted in the middle of 1991, it would be included in the column representing transitions to 'D' in the 1991 one-year transition matrix.

All 1981 static pool members still rated on Jan. 1, 2019, had 39 one-year transitions, while companies first rated on Jan. 1, 2019, had only one. Each one-year transition matrix displays all rating movements between letter categories from the beginning of the year through year-end. For each rating listed in the matrix's leftmost column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entry for NR.

The only ratings considered in these calculations are those on issuers at the beginning of each static pool and those at the end. All rating changes that occur in between are ignored. For example, if an entity was rated 'A' on Jan. 1, 2019, and the rating was lowered to 'BBB' in the middle of the year and later raised to 'A' (with no other subsequent rating changes), this entity would be included only in the percentage of issuers that began the year as 'A' and ended the year as 'A'. This also applies to transition matrices that span longer time horizons. If an issuer defaults or if the rating is withdrawn in the middle of the year, then the issuer would be considered not rated or rated 'D' on Dec. 31.

Multiyear transitions

Multiyear transitions were also calculated for periods of two to five years. In this case, we compared the rating at the beginning of the multiyear period with the rating at the end. For example, three-year transition matrices were the result of comparing ratings at the beginning of the years 1997-2017 with the ratings at the end of the years 1999-2019. Otherwise, the methodology was identical to that used for single-year transitions.

We calculated average transition matrices on the basis of the multiyear matrices just described. These average matrices are a true summary, the ratios of which represent the historical incidence of the ratings listed in the first column changing to the ones listed in the top row over the course of the multiyear period. Transition matrices that present averages over multiple time horizons are also calculated as issuer-weighted averages.

Rating modifiers

We use rating modifiers (plus and minus signs) to calculate upgrade and downgrade percentages, as well as the magnitude of rating changes, throughout this study. However, some transition tables may use full rating categories for practical reasons. In other words, the use of a rating category suggests that transitions to, for example, 'AA' from 'AA-' or to 'BBB+' from 'BBB-' are not considered to be rating transitions because the rating remained within the rating category.

Standard deviations

Many of the tables and charts in this study display averages of default rates, transition rates, and Gini ratios. Often these are issuer-weighted averages. Prior studies have shown that fluctuations in default rates and transitions can vary greatly depending on many circumstances specific to particular time frames, industries, and geographic regions. As a supplement to many of the averages and time series presented in this study, standard deviations are also shown to provide a gauge of the dispersion of data behind these averages.

For the transition matrices, the standard deviation for each cell in a given matrix is a weighted standard deviation, calculated using the data from each of the underlying cohort years that contribute to the averages, weighted by that cohort year's issuer base for each rating level. For example, in the average one-year transition matrix, each cell's weighted standard deviation is calculated from the series of that particular cell in each of the 23 cohorts beginning with the 1997 cohort and ending with the 2019 cohort. The squared difference between each cohort's transition rate and the weighted average--which is the data point in each cell--is multiplied by each cohort's weight. These weights are based on the contribution of each cohort's rating level to the 23-year total issuer base for each rating level. We then divide this by the ratio of the total number of nonzero weights minus one and the total number of nonzero weights.

The standard deviations of Gini ratios are derived from the time series for all of their constituent annual cohorts. As an example, the standard deviation applied to the seven-year weighted average global Gini ratio was calculated from the time series of all available seven-year Gini ratios by cohort. In this case, these are the seven-year Gini ratios beginning with the 1997 cohort through the 2013 seven-year cohort. We calculated standard deviations for Gini ratios in this study as the standard deviations of a sample, not those of a population.

Time sample

This update limits the reporting of default rates to the 10-year time horizon. However, the Latin America data were gathered for 23 years, and all calculations are based on the rating experience of that period. In addition, average default statistics become less reliable at longer time horizons as the sample size becomes smaller and the cyclical nature of default rates has a bigger effect on averages.

Appendix II: Gini Methodology

To measure ratings performance, or accuracy, we plot the cumulative share of issuers by rating against the cumulative share of defaulters in a Lorenz curve to visually render the accuracy of their rank ordering. Max O. Lorenz developed the Lorenz curve as a graphical representation of the proportionality of a distribution. To build the Lorenz curve, we order the observations from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA').

If S&P Global Ratings' corporate ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal, and its Gini coefficient--which is a summary statistic of the Lorenz curve--would be zero. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated issuers, the curve would capture all of the area above the diagonal on the graph, and its Gini coefficient would be 100%. We calculate Gini coefficients by dividing area B by the total area A plus area B. In other words, the Gini coefficient captures the extent to which actual ratings accuracy diverges from the random scenario and aspires to the ideal scenario.

image

Appendix III: Defaults In Profile

In 2019, we recorded six Latin American corporate defaults, including two each from Maxcom Telecomunicaciones S.A.B. de C.V. (in April and August) and USJ Acucar e Alcool S/A (in May and November), for a total US$6.8 billion of debt from the region. This appendix provides summaries of the events leading up to each default and, in some cases, events following the default. We also list the defaulting instruments that S&P Global Ratings rates for each company.

Maxcom Telecomunicaciones S.A.B. de C.V.
  • US$180.354 million step-up senior notes due Dec. 31, 2020

On Aug. 21, 2019, S&P Global Ratings lowered its issuer credit rating on Mexico-based telecommunication services provider Maxcom Telecomunicaciones S.A.B. de C.V. to 'D' from 'CC' on account of the company's missed interest payment on June 19, 2019, on its step-up senior notes due 2020. There was no intention to honor the coupon payment within the grace period because Maxcom announced potential restructuring or filing for bankruptcy under U.S. Chapter 11.

Earlier, on April 3, 2019, we had lowered our issuer credit rating on Maxcom to 'SD' from 'CCC+' following the company's announcement on April 1 that it executed a debt repurchase for an additional $9 million of its senior secured step-up notes due 2020. Following the completion of the debt repurchase, we raised the issuer credit rating to 'CCC' and subsequently lowered it to 'CC' in June.

Later, on Dec. 10, 2019, we raised our issuer credit rating on Maxcom to 'CCC+' from 'D' after it completed its debt restructuring under the protection of U.S. Chapter 11 bankruptcy law (as announced on Nov. 28, 2019). At this point, the company exchanged in full its $103.4 million step-up senior notes due 2020 with a discount of approximately 15.6%, reducing total debt obligations by about $16.2 million. The remaining outstanding amount consisted of the exchange of $56.9 million for the new 8% senior secured notes due 2024, about $20.0 million for its junior payment-in-kind notes with no fixed final maturity date, and about $10.3 million paid in cash through a capital injection from shareholders of Mexican peso 330 million.

Table 26

Issuer Credit Rating--Maxcom Telecomunicaciones S.A.B. de C.V.
Date To
10-Dec-2019 CCC+/Stable/--
21-Aug-2019 D/--/--
19-Jun-2019 CC/Watch Neg/--
05-Apr-2019 CCC/Negative/--
03-Apr-2019 SD/NM/--
26-May-2017 CCC+/Stable/--
24-May-2017 SD/NM/--
27-Apr-2017 CC/Negative/--
17-Feb-2016 CCC+/Stable/--
01-Apr-2014 B-/Stable/--
19-Jun-2013 D/--/--
21-Feb-2013 CC/Negative/--
06-Dec-2012 CCC+/Watch Neg/--
23-Aug-2011 CCC+/Negative/--
03-Mar-2011 B-/Negative/--
22-Jun-2010 B/Negative/--
09-Mar-2009 B/Stable/--
12-Oct-2007 B/Positive/--
27-Nov-2006 B/Stable/--
USJ Acucar e Alcool S/A
  • US$275 million 9.875% notes due Dec. 31, 2019
  • US$272.78 million 10.50% payment-in-kind notes due Nov. 9, 2023
  • US$197.03 million 9.875% secured notes due Nov. 9, 2021

On Nov. 28, 2019, S&P Global Ratings lowered its issuer credit rating on Brazilian sugarcane processor USJ Acucar e Alcool S/A to 'SD' from 'CCC+' after the company missed the amortization and coupon payments of the outstanding amount of its 2019 notes, totaling $8.7 million and $400,000, respectively, due Nov. 9, 2019. It was the second time in 2019 the company had been placed on selective default.

Earlier, on May 22, 2019, we had lowered our global scale issuer credit rating on USJ to 'SD' from 'CC'. The downgrade followed bondholders' acceptance of the company's exchange offer of 69.95% and 98.10% of the original 2019 and 2021 bonds, respectively, on May 21, 2019. We considered the exchange offer to be distressed, which is tantamount to a default on USJ's obligations, because the new terms and conditions of payment differed from the original.

Then, on May 27, 2019, we had raised the global scale issuer credit rating on USJ to 'CCC+' from 'SD', reflecting relief of the company's liquidity pressures following the conclusion of the debt exchange offer.

Table 27

Issuer Credit Rating--USJ Acucar e Alcool S/A
Date To
28-Nov-19 SD/NM/--
27-May-19 CCC+/Negative/--
22-May-19 SD/NM/--
27-Mar-19 CC/Watch Neg/--
14-Jan-19 CCC-/Negative/--
11-Jul-18 CCC/Negative/--
28-Jul-17 CCC+/Stable/--
3-Mar-17 CCC+/Negative/--
27-Jul-16 CCC+/Stable/--
17-May-16 CCC-/Watch Pos/--
10-May-16 SD/NM/--
16-Mar-16 CC/Watch Neg/--
14-Jan-16 CCC-/Negative/--
24-Sep-15 B-/Negative/--
1-Jul-15 B/Watch Neg/--
5-Dec-14 B+/Negative/--
15-Jul-14 BB-/Negative/--
24-Oct-12 BB-/Stable/--
Avianca Holdings S.A.
  • US$550 million 8.375% notes due May 10, 2020
  • US$495 million floating-rate first-lien bank loan due Aug. 18, 2022

On July 23, 2019, S&P Global Ratings lowered its issuer credit rating on Colombia-based airline operator Avianca Holdings S.A. to 'SD' from 'CCC+' following the company's announcement on July 22, 2019, that it had missed payments on several long-term leases and on the principal on some loan obligations, which constituted an event of default. The company also announced an exchange offer proposal on its $550 million senior unsecured notes due May 2020, which, in our view, would not constitute a distressed exchange because the offer considered a par-value exchange with a higher interest rate and collateral promising equal or more value than the original notes, despite an extended maturity.

In early September 2019, the company announced that it tendered 86.41% of its existing notes for exchange, which would allow it to continue reprofiling its capital structure. This agreement would allow Avianca's noteholders to exchange their existing 8.375% notes due 2020 for the new notes. Avianca offered to exchange the notes at par value with a higher coupon rate (9%) due May 2023 upon the closing of an investment of up to $250 million of new equity or convertible debt from United Airlines Inc. and Kingsland Holdings. The new notes would include additional collateral consisting of certain intellectual property, including the Avianca brand, and stock representing the residual value after debt and other liabilities of the company's aircraft fleet, estimated at about $1 billion, which we believed could compensate creditors.

On Dec. 20, 2019, we raised our issuer credit rating on Avianca to 'B-' from 'SD' after it announced the completion of its liability management plan after the renegotiation of its operating and financial leases.

Table 28

Issuer Credit Rating--Avianca Holdings S.A.
Date To
20-Dec-2019 B-/Stable/--
23-Jul-2019 SD/NM/--
13-May-2019 CCC+/Watch Neg/--
13-Apr-2016 B/Stable/--
5-May-2015 B+/Stable/--
28-Mar-2014 B+/Positive/--
25-Apr-2013 B+/Stable/--
McDermott International Inc.
  • US$2.26 billion floating-rate term bank loan due May 10, 2025
  • US$1.3 billion 10.625% senior notes due May 1, 2024
  • US$1.3 billion term bank loan due Oct. 21, 2021

On Dec. 3, 2019, S&P Global Ratings lowered its issuer credit rating on Panama-based engineering and construction provider McDermott International Inc. to 'SD' from 'CC' after the company announced that it entered into a forbearance agreement with 35% of the holders of its unsecured notes due in 2024, related to a missed interest payment due Nov. 1, 2019.

Earlier, on March 6, 2019, we had lowered our issuer credit rating on the company to 'B' from 'B+' owing to greater-than-expected project losses. Subsequently, on Aug. 6, 2019, we lowered the rating to 'B-' owing to greater-than-expected cash outflows, and then, on Sept. 20, we lowered the rating to 'CCC' upon the company's hiring of external advisers to evaluate opportunities for changes to its capital structure. On Oct. 28, 2019, we lowered the rating to 'CC' on a potential distressed exchange.

Table 29

Issuer Credit Rating--McDermott International Inc.
Date To
03-Dec-2019 SD/NM/--
28-Oct-2019 CC/Negative/--
20-Sep-2019 CCC/Watch Dev/--
06-Aug-2019 B-/Negative/--
06-Mar-2019 B/Negative/--
09-Nov-2018 B+/Negative/--
14-May-2018 B+/Stable/--
19-Dec-2017 B+/Watch Neg/--
12-Jul-2017 B+/Positive/--
26-Nov-2014 B+/Stable/--
03-Apr-2014 BB-/Negative/--
17-Mar-2014 BB/Negative/--
30-Mar-2010 BB/Stable/--
09-Dec-2009 BB+/Watch Neg/--
28-May-2008 BB+/Positive/--
24-May-2007 BB/Stable/--
09-May-2006 B+/Positive/--
01-Dec-2005 B+/Stable/--
27-Sep-2005 B-/Watch Pos/--
19-Mar-2004 B-/Stable/--
17-Oct-2003 CCC+/Watch Pos/--
07-Apr-2003 CCC+/Negative/--
07-Nov-2002 B/Watch Neg/--
08-Aug-2002 B/Negative/--
10-Jun-2002 B/Developing/--
20-Dec-2000 B/Watch Neg/--
22-Feb-2000 BB+/Watch Neg/--
21-Sep-1999 BBB-/Stable/--

Related Research

This report does not constitute a rating action.

The use of the term "methodology" in this article refers to data aggregation and calculation methods used in conducting the research. It does not relate to S&P Global Ratings' methodologies, which are publicly available criteria used to determine credit ratings.

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
Research Contributor:Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai

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