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Credit Trends: European Corporate Credit Quality Stabilizes

S&P Global Ratings downgraded just 22 European companies in the first quarter of 2021--just more than half the number of downgrades in the fourth quarter of 2020 and down from a peak of 149 in second-quarter 2020, when the economic fallout from the COVID-19 pandemic brought swift credit deterioration. Meanwhile, we upgraded 21 European companies in the first quarter, up from 15 in the final quarter of 2020 and a significant increase from just two upgrades in the second quarter of 2020. The downgrade ratio (the proportion of downgrades among all rating actions) fell to 51% in the first quarter (see table 1), down significantly from the peak of 99% in second-quarter 2020.

However, the number of defaults remained elevated at eight in the first quarter--nevertheless an improvement from a high of 13 in both the third and fourth quarters of 2020. One of these defaults came from an investment-grade (rated 'BBB-' or higher) entity in the oil and gas sector, due to a missed principal payment. The remaining defaults were all from speculative-grade (rated 'BB+' or lower) entities and concentrated in the automotive, airline, and consumer goods sectors. Distressed exchanges were the most common reason for defaults in the first quarter.

Chart 1


The European 12-month trailing speculative-grade default rate rose to 6.1% as of March 31, 2021 (see chart 2). Meanwhile, weakest links (issuers rated 'B-' or lower with negative outlooks or ratings on CreditWatch with negative implications) in Europe have steadily fallen, dropping to 72 in the first quarter after peaking in the second quarter of 2020 at 106, though they remain well above pre-pandemic levels.

Chart 2


The negative bias (the proportion of issuers with negative rating outlooks or ratings on CreditWatch with negative implications) in Europe improved to 29% in the first quarter of 2021 from 35% in the fourth quarter of 2020. Negative bias has been higher among lower-rated issuers: European corporate speculative-grade issuers had a negative bias of 34% in the first quarter, well above the historical average of 23%. Among investment-grade-rated companies, the negative bias was about 23% in the first quarter, just above the historical average of 20%.

Table 1

European Corporate Rating Statistics (First-Quarter 2021)
Overall Investment-grade Speculative-grade Financial Nonfinancial
Number of issuers 22 8 14 3 19
Debt volume (bil. $) 234 214 20 4 230
Number of issuers 21 4 17 1 20
Debt volume (bil. $) 95 33 62 16 80
Total rating actions
Number of issuers 43 12 31 4 39
Debt volume (bil. $) 329 247 83 20 310
Downgrade ratio (%) 51 67 45 75 49
Historical average* 66 65 60 58 68
High, quarter 100, 1995 Q1 100, 2003 Q1 100, 2002 Q1 100, 2020 Q4 100, 1997 Q1
Low, quarter 27, 2014 Q2 13, 2017 Q4 0, 1998 Q1 0, 2019 Q1 25, 1996 Q4
Negative bias (%) 29 23 34 26 29
Historical average* 22 20 23 22 22
High, quarter 41, 2009 Q2 36, 2009 Q2 56, 2009 Q2 49, 2012 Q4 41, 2020 Q2
Low, quarter 11, 1997 Q4 10, 2017 Q4 0, 1995 Q2 3, 2007 Q1 11, 2014 Q2
Positive bias (%) 5 3 7 4 6
Historical average* 8 7 14 8 9
High, quarter 14, 1998 Q3 12, 2018 Q1 56, 1995 Q4 19, 2018 Q1 18, 1998 Q3
Low, quarter 3, 2009 Q1 2, 2009 Q1 4, 2020 Q2 1, 2009 Q1 3, 2020 Q2
Note: Rating actions and bias figures exclude issuers with no rated debt outstanding. *From first-quarter 1995 to first-quarter 2021. Source: S&P Global Ratings Research.

Rating Actions: A Shift In Sector Performance

The concentration of downgrades by sector has shifted since the peak of the pandemic. The oil and gas sector accounted for the greatest portion in the first quarter of 2021, at 23% (see chart 3).

In the second quarter of 2020, the media and entertainment sector accounted for 18% of the 149 total downgrades. The consumer products sector followed with 9% of the total.

Chart 3


Ratings Bias: Credit Outlooks Remain Negative

The net ratings bias (the positive bias, or the proportion of issuers with positive rating outlooks or ratings on CreditWatch positive, minus the negative bias) for European corporate entities narrowed to negative 23.4% in the first quarter of 2021, an improvement from negative 36.1% in the second quarter of 2020 (see chart 4). However, the measure remains weaker than pre-pandemic levels. The net bias has improved for both financial and nonfinancial sectors since the second quarter of 2020, but the credit outlooks for many sectors remain highly negative based on net bias--at most, perhaps showing a budding recovery.

Chart 4


While the overall negative bias for European corporate entities has improved since hitting a high of 36.1% in the second quarter of 2020, the measure remains well above pre-pandemic levels. Conversely, the positive bias has widened since the second quarter of 2020, to 5.2% from 3.1%.

Chart 5


Chart 6


Chart 7


Performance Continues To Diverge Among Sectors And Countries

Performance continued to diverge between financial and nonfinancial issuers across Europe in the first quarter. The financial institutions sector's negative bias remains relatively elevated at 33% (see chart 8), but negative bias is even higher in some nonfinancial sectors. The media and entertainment sector reported the highest negative bias, at 55%, followed closely by transportation at 54%. A handful of sectors that currently have some of the highest negative biases--specifically, shipping within the transportation sector, the technology sector, and the automotive sector--are expected to recover pre-pandemic credit metrics in 2022.

Chart 8


Among European countries with five or more rated corporate issuers, Spain had the highest corporate negative bias, at 45%, at the end of the first quarter of 2021 (see chart 9). Spain experienced a wave of COVID-19 infections at the beginning of the year, coupled with a slow rollout of the vaccine. Some recovery is expected for the country in the second half of the year. Meanwhile the U.K., which accounts for almost 20% of all rated European corporate issuers, also maintained elevated negative bias due to a wave of new COVID-19 variants and subsequent economic lockdown throughout the quarter.

Apart from Spain and the U.K., the European countries with 50 or more rated corporate issuers exhibited elevated stability rates (the share of ratings that did not change rating categories) in the first quarter as recovery continues to diverge across Europe.

Chart 9


Negative bias has historically remained high among lower-rated issuers. Among investment-grade rating categories, negative bias in the first quarter of 2021 remained below 40% (see chart 10). Speculative-grade rating categories have historically exhibited higher negative bias, and the same was true in the opening quarter of 2021: Among issuers rated 'B-' to 'BB+', negative bias held below 50%. However, issuers rated 'CCC+' and below maintained negative ratings bias of 60% and above. The 'CCC-' and 'CC' ratings reported 100% negative bias.

Chart 10



Table 2

Trends In European Corporate Ratings
Defaulted issuers Weakest links Fallen angels Rising stars
2011 Q1 1 12 7 2
2011 Q2 1 16 1 4
2011 Q3 0 16 2 0
2011 Q4 2 20 8 2
2012 Q1 3 18 6 1
2012 Q2 3 19 8 0
2012 Q3 1 25 7 0
2012 Q4 2 30 5 2
2013 Q1 5 28 3 2
2013 Q2 3 23 1 1
2013 Q3 2 24 2 1
2013 Q4 6 26 2 4
2014 Q1 1 25 1 2
2014 Q2 0 18 1 2
2014 Q3 4 14 1 1
2014 Q4 1 15 1 7
2015 Q1 4 20 2 1
2015 Q2 7 16 2 2
2015 Q3 1 18 0 4
2015 Q4 4 22 0 3
2016 Q1 1 33 2 3
2016 Q2 7 32 1 3
2016 Q3 3 35 1 0
2016 Q4 4 31 3 1
2017 Q1 4 31 0 2
2017 Q2 4 24 1 4
2017 Q3 3 24 2 5
2017 Q4 6 20 1 2
2018 Q1 2 20 0 4
2018 Q2 2 21 1 2
2018 Q3 5 25 0 2
2018 Q4 4 26 1 4
2019 Q1 3 24 0 1
2019 Q2 4 30 1 1
2019 Q3 3 38 0 1
2019 Q4 5 44 0 3
2020 Q1 4 72 4 0
2020 Q2 12 106 6 0
2020 Q3 13 97 3 0
2020 Q4 13 86 1 1
2021 Q1 8 72 1 2
Fallen angels and rising stars exclude issuers with no rated debt outstanding. Defaulted issuers include confidentially rated entities. Source: S&P Global Ratings Research.

Table 3

European Corporate Rating Actions (First-Quarter 2021)
Date Issuer Sector Country Rating action To From
January 8, 2021 Fiat Chrysler Automobiles N.V. Automotive Netherlands Upgrade BBB- BB+
January 25, 2021

Horizon Therapeutics plc

Health care Ireland Upgrade BB BB-
January 26, 2021

TalkTalk Telecom Group PLC

Telecommunications U.K. Downgrade B+ BB-
January 27, 2021

Kleopatra Holdings 1 S.C.A.

Chemicals, packaging, and environmental services Luxembourg Upgrade B B-
January 29, 2021

Atotech UK Topco Ltd.

Chemicals, packaging, and environmental services U.K. Upgrade B B-
February 2, 2021

SK Invictus Intermediate II S.a r.l.

Chemicals, packaging, and environmental services Luxembourg Upgrade B B-
February 9, 2021 Cookie Acquisition S.A.S. Consumer products France Downgrade B- B
February 11, 2021

Navico Group AS

High technology Norway Upgrade CCC+ CCC
February 11, 2021


Oil and gas France Downgrade SD CC
February 15, 2021

DSV Panalpina A/S

Transportation Denmark Upgrade A- BBB+
February 15, 2021

IGT Holding IV AB

High technology Sweden Upgrade B B-
February 17, 2021

Elior Group S.A.

Media and entertainment France Downgrade BB- BB
February 17, 2021

TechnipFMC Plc

Oil and gas U.K. Downgrade BB+ BBB+
February 18, 2021

Royal Dutch Shell PLC

Oil and gas U.K. Downgrade A+ AA-
February 18, 2021

Total SE

Oil and gas France Downgrade A A+
February 19, 2021

DEPFA Bank PLC (FMS Wertmanagement Anstalt des oeffentlichen Rechts)

Financial institutions Ireland Downgrade BBB BBB+
February 22, 2021

CatLuxe Sarl (CatLuxe Acquistion Sarl)

Consumer products Luxembourg Downgrade SD CCC+
February 24, 2021

Arvos LuxCo S.a.r.l.

Capital goods Luxembourg Downgrade CCC B-
February 24, 2021

Smurfit Kappa Group PLC

Forest products and building materials Ireland Upgrade BBB- BB+
February 25, 2021

Atotech UK Topco Ltd.

Chemicals, packaging, and environmental services U.K. Upgrade B+ B
March 1, 2021

CORESTATE Capital Holding S.A.

Financial institutions Luxembourg Downgrade BB- BB
March 2, 2021

National Grid PLC

Utilities U.K. Downgrade BBB+ A-
March 4, 2021

Alstria Office REIT-AG

Homebuilders/real estate companies Germany Upgrade BBB+ BBB
March 4, 2021

CEVA Logistics AG

Transportation Switzerland Upgrade BB- B+
March 4, 2021


Transportation France Upgrade BB- B+
March 9, 2021

ACS, Actividades de Construccion y Servicios SA

Capital goods Spain Downgrade BBB- BBB
March 15, 2021


Oil and gas France Downgrade CCC+ B-
March 15, 2021

DEMIRE Deutsche Mittelstand Real Estate AG

Homebuilders/real estate companies Germany Downgrade BB- BB
March 15, 2021

Zurich Insurance Co. Ltd. (Zurich Insurance Group.)

Insurance Switzerland Upgrade AA AA-
March 16, 2021

EDP - Energias de Portugal S.A.

Utilities Portugal Upgrade BBB BBB-
March 18, 2021

Codere S.A.

Media and entertainment Spain Downgrade CC CCC
March 18, 2021

LSF10 XL Investments S.a.r.l

Forest products and building materials Luxembourg Downgrade B B+
March 19, 2021

Syncreon Intermediate BV

Consumer products Netherlands Upgrade B- CCC+
March 22, 2021

Fluidra S.A.

Consumer products Spain Upgrade BB+ BB
March 23, 2021

Al Mistral Holdco Ltd.

Transportation U.K. Downgrade SD CCC+
March 23, 2021

Belron Group S.A.

Media and entertainment Luxembourg Upgrade BB+ BB
March 23, 2021 DTZ UK Guarantor Limited Financial institutions U.K. Downgrade B+ BB-
March 23, 2021

Hapag-Lloyd AG

Transportation Germany Upgrade BB BB-
March 25, 2021

Klepierre S.A.

Homebuilders/real estate companies France Downgrade BBB+ A-
March 25, 2021

L1R HB Finance Ltd

Retail/restaurants U.K. Upgrade B- CCC+
March 29, 2021

Altarea SCA

Homebuilders/real estate companies France Downgrade BBB- BBB
March 30, 2021

Diamond (BC) B.V.

Chemicals, packaging, and environmental services Netherlands Upgrade B B-
March 31, 2021

BCP VII Jade Topco (Cayman) Ltd.

Chemicals, packaging, and environmental services U.K. Downgrade B- B
Rating changes exclude entities with no rated debt. Actions on subsidiaries show parents listed in parentheses. Source: S&P Global Ratings Research.

Related Research

This report does not constitute a rating action.

Ratings Performance Analytics:Kirsten R Mccabe, New York + 1 (212) 438 3196;
Nick W Kraemer, FRM, New York + 1 (212) 438 1698;
Research Contributor:Shripati Pranshu, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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