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Credit Trends: Risky Credits: European Debt Surged To €80 Billion In Q1 2024

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Credit Trends: Risky Credits: European Debt Surged To €80 Billion In Q1 2024

(Editor's Note: Our "Risky Credits" series focuses on European corporate issuers rated 'CCC+' and lower. Because many defaults are of companies in those categories, ratings with negative outlooks or on CreditWatch negative are even more important to monitor.)

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The Number Of Risky Credits Has Declined Marginally

There were 48 risky credit issuers at the end of the first quarter of 2024, down from 51 as of year-end 2023 (see chart 1). Changes in the number of risky credits mostly reflect downward migration within the 'CCC+' and below rating category rather than upgrades from this category. This continues the trend that started at year-end 2023.

Close to 67% of removals from the risky credits category were due to defaults--primarily reflecting companies' need to restructure their debt--and rating withdrawals, rather than improvements in operating performance (see chart 2). Europe is the only region in which the number of year-to-date defaults is above the 2023 year-to-date tally. Defaults in the region remain at their highest since 2008 (see "Global Defaults Are Still High Despite Dipping In March," published April 16, 2024).

Chart 1

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Chart 2

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Debt Surged In The First Quarter Of 2024

Debt increased to €80.1 billion as of March 31, 2024, from €55.1 billion as of Dec. 31, 2023, soaring by 45%. The rise was mainly due to the downgrade of French telecoms company Altice France S.A. to 'CCC+' with a developing outlook. Altice France alone added close to €23.8 billion to the risky credits' total debt. Management has guided for weaker earnings and cash flow prospects for 2024 than it expected. This has increased the likelihood of tender offers, as well as the risk of a distressed exchange, and--in the absence of a distressed exchange--the risk that the company will not deleverage sufficiently to achieve a sustainable leverage profile.

In total, three telecoms companies contributed about €25.8 billion of the total debt amount (see chart 3). The next largest contributors were the chemicals, packaging, and environmental services sector, with debt of €10.7 billion across four issuers, and the oil and gas sector, with €8.3 billion across two issuers. These three sectors account for 55% of risky credits' outstanding debt.

The risky credits also remain concentrated geographically, with the U.K. and France accounting for 55% of the total debt outstanding as of March 31, 2024.

Chart 3

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The Negative Bias Rose To 63% As Of The End Of First-Quarter 2024

This compares to 58.3% as of Dec. 31, 2023. Most of the downward transitions to the risky credits category were of highly leveraged companies with negative free operating cash flow or liquidity or refinancing issues because of lower demand or production (see chart 4).

Weaker consumer sentiment and inflation also continue to weigh on operating conditions in some sectors, and the combination of the two is likely to mean further downward rating transitions and subsequent defaults for some risky credits (see chart 5). We expect a modest increase of the European trailing-12-month speculative-grade corporate default rate over the summer, before it stabilizes by year-end 2024 (see "European Speculative-Grade Default Rate To Stabilize At 3.5% By December 2024," published Feb. 15, 2024).

Chart 4

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Chart 5

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Speculative-Grade Bond Issuance More Than Doubled To Above €45 Billion In First-Quarter 2024

This was thanks to constructive market conditions (see chart 6). A combination of stable interest rates, tighter spreads, and investor demand allowed many companies to address their upcoming maturities well ahead of time. This included the first 'CCC' rated bond issuances by two U.K.-based nonbank financial institutions in the past four years. The trends for speculative-grade issuance diverge as bond issuances lag leveraged loan issuances and focus on the higher end of the speculative-grade rating spectrum.

Primary activity may slow in the second quarter of 2024. A sharp pullback in U.S rate-cut expectations and increasing tensions in the Middle East have recently weakened investor sentiment and financing costs and could staunch primary market activity in the second quarter of 2024.

Chart 6

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Risky Credits Have Addressed Their Near-Term Debt Maturities, But Keep A Close Eye On 2026 And Beyond

Even though risky credits' annual debt maturities rise through to 2026, we have started to see some reductions in riskier, near-term speculative-grade debt maturities. This has alleviated some near-term refinancing concerns. Telecoms, health care, and chemicals, packaging, and environmental services are the three sectors with the highest amount of speculative-grade nonfinancial corporate debt maturing in 2025 and 2026.

In 2025, refinancing risk will affect 16% of the total outstanding debt rated 'CCC+' and below, jumping to 23% in 2026 and 26% in 2027 (see chart 7). This suggests a gradual rise in refinancing risk, as issuers generally seek to refinance debt at least 12-24 months before the maturity date.

Chart 7

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Table 1

European issuers rated 'CCC' and below as of March 31, 2024
Company Sector Debt amount (mil. €) Rating Outlook/CreditWatch Outlook or CreditWatch Country New to list Date of addition to 'CCC/C'

Altice France S.A.

Telecommunications 23,840.5 CCC+ Developing Outlook France New Mar. 28, 2024

Transocean Ltd.

Oil and gas 7,230.6 CCC+ Stable Outlook Switzerland Oct. 10, 2022

Trinseo PLC

CP&ES 5,429.7 CCC+ Negative Outlook Ireland May 26, 2023

Samhallsbyggnadsbolaget i Norden AB (publ)

Home/RE 4,690.6 CCC Negative Outlook Sweden Mar. 28, 2024

SK Mohawk Holdings S.a.r.l.

CP&ES 3,283.7 CCC Negative Outlook Germany Apr. 21, 2023

Vedanta Resources Ltd.

Metals, mining, and steel 2,749.1 CCC+ Stable Outlook U.K. New Jan. 15, 2024

Castle Intermediate Holding V Ltd.

Media and entertainment 2,158.9 CCC+ Negative Outlook U.K. Dec. 8, 2022

Mitel Networks (International) Ltd.

High technology 2,069.2 CCC Negative Outlook U.K. Nov. 28, 2022

PHM Netherlands Bidco B.V.

Forest 1,972.1 CCC+ Negative Outlook Netherlands Oct. 27, 2023

Atos SE

High technology 1,896.2 CCC Negative Outlook France New Feb. 9, 2024

Toro Private Holdings I Ltd.

Transportation 1,716.8 CCC+ Stable Outlook U.K. Jan. 24, 2024

Metinvest B.V.

Metals, mining, and steel 1,668.7 CCC+ Negative Outlook Netherlands Aug. 4, 2023

Hurtigruten Newco AS

Media and entertainment 1,515.1 CCC Negative Outlook Norway New Mar. 22, 2024

Flint Group Topco Ltd.

CP&ES 1,462.4 CCC+ Stable Outlook Jersey Oct. 30, 2023

Carestream Dental Technology Parent Ltd.

Health care 1,258.0 CCC- Negative Outlook U.K. Sep. 5, 2023

Keter Group B.V.

Consumer products 1,172.9 CC Negative Outlook Netherlands Mar. 15, 2023

Selecta Group B.V.

Consumer products 1,085.9 CCC+ Stable Outlook Netherlands Oct. 30, 2020

CGG

Oil and gas 1,046.2 CCC+ Positive Outlook France Mar. 15, 2021

F-Brasile SpA

Aerospace and defense 934.2 CCC+ Positive Outlook Italy Jun. 3, 2022

Vue Entertainment International Ltd.

Media and entertainment 932.4 CCC+ Negative Outlook U.K. Feb. 23, 2024

CD&R Vialto UK Intermediate 3 Ltd.

Media and entertainment 896.3 CCC+ Negative Outlook U.K. Dec. 13, 2023

Aston Midco Ltd.

High technology 872.3 CCC+ Stable Outlook U.K. Nov. 17, 2023

Biscuit Holding S.A.S.

Consumer products 803.8 CCC+ Stable Outlook France Oct. 4, 2022

Tosca IoM Ltd.

Telecommunications 800.1 CCC+ Developing CreditWatch U.K. New Feb. 26, 2024

Oriflame Investment Holding Plc

Consumer products 758.5 CCC Negative Outlook Jersey Sep. 8, 2023

Sprint HoldCo B.V.

Media and entertainment 703.9 CCC+ Negative Outlook Netherlands Dec. 21, 2023

BVI Holdings Mayfair Ltd.

Health care 604.0 CCC+ Negative Outlook U.K. Dec. 10, 2021

McLaren Group Ltd.

Automotive 573.5 CCC Negative Outlook U.K. Apr. 16, 2020

Farfetch Ltd.

Retail 555.0 CC Negative Outlook U.K. Dec. 4, 2023

Mangrove Luxco III

Capital goods 544.8 CCC+ Negative Outlook Luxembourg Dec. 23, 2020

Mavenir Private Holdings II Ltd.

Telecommunications 541.1 CCC Negative Outlook U.K. Jan. 27, 2023

Venator Materials PLC

CP&ES 508.7 CCC+ Negative Outlook U.K. New Jan. 26, 2024

Pro.Gest SpA

Forest 498.6 CCC Negative Outlook Italy Jun. 9, 2020

Ecotone HoldCo III SAS

Consumer products 489.3 CCC+ Stable Outlook Netherlands Apr. 21, 2023

Financiere Labeyrie Fine Foods

Consumer products 454.2 CCC+ Stable Outlook France Dec. 9, 2022

GHD Verwaltung GesundHeits GmbH Deutschland GmbH

Health care 439.4 CCC+ Stable Outlook Germany Oct. 6, 2022

Branicks Group AG

Home/RE 399.6 CCC Negative Outlook Germany New Jan. 24, 2024

AFE S.A.

Financial institutions 324.7 CCC+ Stable Outlook U.K. Feb. 21, 2024

Compact Bidco B.V.

Forest 299.7 CCC+ Negative Outlook Netherlands Sep. 1, 2023

Bright Bidco B.V.

Automotive 277.5 CCC+ Negative Outlook Netherlands Apr. 25, 2023

Standard Profil Automotive GmbH

Automotive 274.7 CCC+ Stable Outlook Germany May 5, 2022

Altisource Portfolio Solutions S.A.

Financial institutions 210.0 CCC+ Stable Outlook Luxembourg Feb. 24, 2023

Bahia de las Isletas, S.L.

Transportation 194.2 CCC+ Stable Outlook Spain New Mar. 20, 2024

Ferrexpo PLC

Metals, mining, and steel 0.0 CCC Negative Outlook U.K. Dec. 19, 2023

gategroup Holding AG

Transportation 0.0 CCC+ Stable Outlook Switzerland May 19, 2021

Arvos LuxCo S.a.r.l.

Capital goods 0.0 CC Negative Outlook Luxembourg Feb. 24, 2021

DTEK Renewables B.V.

Utilities 0.0 CCC- Negative Outlook Netherlands Jul. 25, 2023

NOVIS Insurance Co.

Insurance 0.0 CCC Negative CreditWatch Slovakia Jun. 12, 2023
Data as of March 31, 2024. Exchange rate as of March 29, 2024. CP&ES--Chemicals, packaging, and environmental services. Forest--Forest products and building materials. Home/RE--Homebuilders/real estate companies. Retail--Retail and restaurants. Source: S&P Global Ratings Credit Research And Insights.

Our Approach

  • Charts and tables include issuers rated 'CCC', 'CC', and 'C' with an outlook/CreditWatch status of negative, stable, positive, or developing.
  • Data represents rating actions on financial and nonfinancial corporate issuers in Europe.
  • We base our calculations on the country of incorporation and the ratings on the parent, and we only use public ratings unless stated differently in the report.
  • Risky credits are corporate issuers rated in the 'CCC+' and below rating category.
  • Negative bias is the share of issuers with ratings that either have negative outlooks or are on CreditWatch with negative implications.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Ekaterina Tolstova, Frankfurt +49 173 6591385;
ekaterina.tolstova@spglobal.com
Secondary Contact:Patrick Drury Byrne, Dublin (00353) 1 568 0605;
patrick.drurybyrne@spglobal.com
Research Contributor:Amol Nakashe, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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