articles Ratings /ratings/en/research/articles/210310-credit-trends-the-u-s-distress-ratio-is-down-nearly-90-since-march-11867899 content esgSubNav
Log in to other products

 /


Looking for more?

In This List
COMMENTS

Credit Trends: The U.S. Distress Ratio Is Down Nearly 90% Since March

COMMENTS

Default, Transition, and Recovery: Distressed Exchanges Account For Over Half Of 2021 Defaults

COMMENTS

Credit Trends: U.S. Corporate Bond Yields As Of April 7, 2021

COMMENTS

Default, Transition, and Recovery: 2020 Annual Global Corporate Default And Rating Transition Study

COMMENTS

Default, Transition, and Recovery: Avation PLC's Default Brings The European Tally For 2021 To Eight


Credit Trends: The U.S. Distress Ratio Is Down Nearly 90% Since March

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 relative to U.S. Treasuries--continued to trend downward in February, reaching 4.0% after peaking at 35.2% just 11 months prior. The ratio has now dropped to its lowest level since May 2011, when the distress ratio reached 3.6%. Meanwhile, the U.S. speculative-grade default rate is finally showing signs of slowing, falling to 6.6% in January 2021 from 6.7% as of December 2020 and U.S. composite spreads tightened overall and for issuers rated 'CCC' and below.

image

What's Pushing Down The Distress Ratio?

Continued support from U.S. monetary and fiscal policy has stabilized borrowing conditions, pushing down the overall distress ratio. U.S. composite spreads have compressed across all rating categories, but are steeper among issuers rated 'BB' and below. Over the past 11 months, the average option-adjusted spread among issues rated 'CCC+' and below has tightened significantly. Issuance activity in the U.S. has remained high through February, even for lower-rated issuers.

We expect the U.S. distress ratio to remain relatively stable in the near term, although risks remain, including the possibility of further waves in the COVID-19 virus, which may lead to additional economic lockdowns. Additionally, Treasury yields have been steadily rising, which so far has had little effect on credit markets but may put additional liquidity pressure on speculative-grade issuers.

The number of distressed issues has moved dramatically over the last seven months. In March 2020, we had 736 issues trading at distressed levels as COVID-19's spread raised credit risks across sectors. Since then, there have been 666 removals, almost 76% of which were due to spreads narrowing to pre-pandemic levels. Many issuers that had issues trading at distressed levels in March have defaulted over the past 11 months as the U.S. speculative-grade default rate reached a peak of 6.7% in December. Only 70 issues of the 736 remain on this month's distressed list, and only 19 issues have been added since March.

Chart 2

image

The Distress Ratio Has Improved Across Most Sectors

As borrowing conditions remain largely favorable, many sectors' distress ratios are lower than they were at this point in 2020 (see chart 3). The oil and gas sector has the highest distress ratio, at 14.3%, but has recovered substantially from its March high of 93%. Meanwhile, supply chains are limiting recoveries in the automotive and homebuilders and real estate sectors, which have higher distress ratios than they did at this point in 2020, even as end-market demand stabilizes.

Chart 3

image

Table 1

Oil And Gas, Media And Entertainment, And Utilities Account For Two-Thirds Of Distressed Debt
Distressed ratio (%)* Debt-based distressed ratio (%) Number of distressed issues Total debt affected (mil. $) Percent change of distressed credits by sector
Aerospace & defense 2.70 1.86 1.00 525.00 -
Automotive 2.86 3.51 2.00 1,550.00 (33.33)
Banks and brokers 0.00 0.00 0.00 0.00
Capital goods 3.28 3.36 2.00 1,065.00 -
Chemicals, packaging & environmental services 0.91 1.58 1.00 930.00 -
Consumer products 2.40 1.31 4.00 1,390.00 (20.00)
Financial institutions 0.90 1.19 3.00 835.00 -
Forest products & building materials 0.00 0.00 0.00 0.00
Health care 1.00 1.28 1.00 1,026.45 (50.00)
High technology 1.98 0.63 2.00 384.46 -
Homebuilders/real estate co. 6.32 4.33 6.00 1,569.76 20.00
Insurance 8.33 3.08 3.00 552.68 -
Media & entertainment 3.65 4.79 11.00 9,562.44 (8.33)
Metals, mining & steel 4.76 2.35 3.00 727.46 (40.00)
Oil & gas 14.29 12.34 29.00 12,009.65 16.00
Retail/restaurants 2.59 1.31 3.00 682.92 (25.00)
Telecommunications 3.67 1.70 4.00 1,925.00 -
Transportation 0.00 0.00 0.00 0.00 (100.00)
Utility 6.25 4.43 14.00 5,638.56 (22.22)
Total 3.95 3.31 89.00 40,374.39 (7.29)
Data as of Feb. 22, 2021. *The S&P Global distress ratio is defined as the number of speculative-grade issues with option-adjusted spreads above 1,000 basis points to the total number of speculative-grade issues. Source: S&P Global Ratings Research.

Additional Charts

Chart 4

image

Chart 5

image

Table 2

Credit Stats For The Top Three Distressed Sectors (%)
Current negative bias* Long-term average of negative bias* Proportion of 'B-' & below new issues (trailing three years)§ Proportion of 'B-' & below outstanding issuer ratings†
Oil & gas 55.1 20.8 16 55.7
Insurance 12.1 17.3 6 14.8
Homebuilders/real estate co. 16.9 13.8 18 10.3
Data as of Feb. 22, 2021. *Negative bias is calculated as the number of U.S. issuers with either a negative outlook or on CreditWatch negative, divided by the total number of U.S. issuers with either positive, negative, or stable (outlook 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. Source: S&P Global Ratings Research.

Table 3

List Of Distressed Credits By Issuers
Sector/company Issuer ratings are for a related entity Issue count Outstanding amount (mil. $) Rating Outlook/CreditWatch
Aerospace and defense
Wesco Aircraft Holdings Inc. 1 525.0 CCC+ Negative
Automotive
Ford Motor Co. 2 1550.0 BB+ Negative
Capital goods
Ahern Rentals Inc. 1 550.0 CCC+ Negative
Aptim Corp. 1 515.0 CCC+ Stable
Chemicals, packaging and environmental services
TPC Group Inc., 1 930.0 CCC Negative
Consumer products
Arrow BidCo LLC Yes 1 340.0 B Stable
GEO Group Inc. (The) 2 600.0 BB- Negative
Revlon Consumer Products Corp. 1 450.0 CCC- Negative
Financial institutions
CCF Holdings LLC 1 276.0 CCC Negative
CNG Holdings Inc. 1 259.0 B Negative
Navient Corp. 1 300.0 BB- Negative
Health care
Envision Healthcare Corp. 1 1026.4 CCC Negative
High technology
Pitney Bowes Inc. 1 375.0 BB Stable
Riverbed Technology Inc. 1 9.5 CCC+ Negative
Homebuilders/real estate companies
Diversified Healthcare Trust 2 600.0 BB- Negative
K. Hovnanian Enterprises Inc. Yes 3 248.9 CCC+ Stable
Washington Prime Group L.P. 1 720.9 CC Negative
Insurance
Assurant Inc. 1 250.0 BBB Stable
One Call Corp. 1 2.7 B- Negative
Unum Group 1 300.0 BBB Stable
Media and entertainment
AMC Entertainment Holdings Inc. 3 1646.3 CCC- Negative
AMC Entertainment Inc. Yes 1 98.3 CCC- Negative
Diamond Sports Group LLC 3 4824.8 CCC+ Negative
Exela Intermediate Co. LLC Yes 1 1000.0 CCC- Negative
Staples Inc. 1 1000.0 B Negative
Vericast Corp. 1 324.0 CCC+ Negative
WeWork Cos. LLC 1 669.0 CCC+ Negative
Metals, mining and steel
CONSOL Energy Inc. 1 167.1 B- Negative
Peabody Energy Corp. 2 560.3 CCC+ Negative
Oil and gas
Anadarko Petroleum Corp. 1 5.0 BB- Negative
Basic Energy Services Inc. 1 300.0 CCC- Negative
Callon Petroleum Co. 5 1515.0 CCC+ Negative
EnVen Energy Corp. 1 325.0 B- Negative
Forum Energy Technologies Inc., 1 315.5 CCC+ Negative
Global Marine Inc. Yes 1 261.2 CCC- Negative
Gran Tierra Energy Inc. 1 300.0 B- Stable
Gran Tierra Energy International Holdings Ltd. Yes 1 300.0 B- Stable
Great Western Petroleum LLC 1 235.0 CCC- Watch Positive
HighPoint Resources Corp. 2 625.0 CC Negative
KLX Energy Services Holdings Inc., 1 250.0 CCC+ Stable
Laredo Petroleum Inc. 2 1000.0 B- Negative
Moss Creek Resources Holdings Inc., 2 1200.0 CCC+ Negative
Nabors Industries Inc. 4 1245.5 CCC+ Negative
Talos Production Finance Inc. Yes 1 600.0 B- Stable
Vine Oil & Gas LP 2 880.0 CCC+ Negative
W&T Offshore Inc. 1 552.5 CCC+ Negative
Weatherford International LLC Yes 1 2100.0 CCC Negative
Retail/restaurants
Party City Holdings Inc. 1 22.9 CCC+ Positive
QVC Inc. 2 660.0 BB- Negative
Telecommunications
GTT Communications Inc., 1 575.0 CCC Negative
Trilogy International Partners LLC 1 350.0 B- Stable
United States Cellular Corp. 2 1000.0 BB Stable
Utilities
CSI Compressco LP 1 80.7 B- Stable
Exterran Energy Solutions L.P. 1 375.0 B+ Stable
NGL Energy Finance Corp. Yes 2 766.3 B Negative
PBF Finance Corp. Yes 4 2975.0 B+ Negative
Ruby Pipeline LLC 1 518.8 B- Watch Negative
Summit Midstream Finance Corp. Yes 1 259.5 CCC+ Negative
Talen Energy Supply LLC 4 663.3 B Negative
Data as of Feb. 22, 2021. The list excludes companies with confidential ratings. Source: S&P Global Ratings Research.

Related Research

Corporate America Not Likely To Unwind COVID-19 Debt Buildup Despite Credit Hits, Feb. 22, 2021

The U.S. Speculative-Grade Corporate Default Rate Could Reach 7% By December 2021, Feb. 19, 2021

This report does not constitute a rating action.

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

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.


Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back