moody's corporate default and recovery rates 2020 pdf moody's corporate default and recovery rates 2020 pdf

On July 20, 2020, we raised the issuer credit rating to 'CCC+' from 'SD' after the issuer announced an improvement in leverage, which brought the borrowing base down to US$215 million from US$250 million. If the rating on the issuer was withdrawn in the middle of 1991, it would be included in the column representing transitions to NR in the 1991 transition matrix. An issuer that remained rated for more than one year was counted as many times as the number of years it was rated. On March 19, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Singapore-based Geo Energy Resources Ltd. to 'SD' from 'B-' after the issuer completed debt buybacks. The median rating for all recently defaulted entities was solidly in the speculative-grade category in the seven years preceding default, and for all of that period, it was at least one notch below that of the long-term equivalent. However, the data was gathered for 40 years, and all calculations are based on the rating experience of that period. Of these new issuers, 78% were rated speculative grade. The sovereign downgrades of China in 2017, the U.K. in 2016, France in 2012, and the U.S. in 2011 have factored into the downgrades of many higher-rated financial services companies. On June 18, SMLP announced it repurchased approximately $90 million of its 2022 senior unsecured notes and 2025 senior unsecured notes for approximately $50 million in cash. Tables 30, 31, and 32 are broken out by the broadest rating classifications (all rated, investment grade, and speculative grade). The company issued new money debt of about US$155 million and released another US$492 million of preferred stock to lenders who contributed new money. We view the nonpayment of interest as akin to default on the senior secured notes. All of the 198 defaulters that were rated by S&P Global Ratings at the beginning of the year had speculative-grade ratings at that time. On March 16, 2020, S&P Global Ratings raised its rating on the issuer to 'CCC-' from 'SD'. This was the second-largest default since 2014, when Texas Competitive Electric Holdings Co. LLC defaulted with $28.7 billion in associated debt (see table 5). The issuer also amended the terms of its first- and second-lien credit agreements to extend the maturity of revolving credit and temporary allow itself to make partial PIK interest payments. This scheme was expected to save about 7.6 million per year in cash, but the company was still facing an interest payment of about 35 million and huge rent payments. With its highly developed financing markets, the U.S. also has a considerably higher share of speculative-grade companies than other regions--it accounted for 52.6% of speculative-grade companies globally at the beginning of 2020. The issuer amended its lender group, which allowed it to make payment-in-kind (PIK) interest payments for three quarters on second-lien term debt. On May 27, 2020, we withdrew the ratings on the issuer. Speculative-grade-rated issuers account for more than 60% of total issuers in eight of the 13 industries we track. We subsequently withdrew the issuer credit ratings at the issuer's request. On May 27, 2020, Texas-based retailer Tuesday Morning Corp. defaulted as the company filed for Chapter 11. On Oct. 9, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Brazil-based telecom operator Oi S.A. to 'SD' from 'CC' after the issuer announced that the judicial court ratified the amendment to the company's judicial reorganization plan, which was approved by the majority of its creditholders on Sept. 8, 2020. In turn, this can result in a relatively fast descent into default (see chart 11). On April 20, 2020, we raised the rating to 'CCC+' on account of liquidity the company maintained. On Feb. 18, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based home dcor and furniture retailer Pier 1 Imports Inc. to 'D' from 'CCC-' after the issuer filed for Chapter 11 bankruptcy. On March 12, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Illinois-based engineered fastener distributor Optimas OE Solutions Holding LLC to 'SD' from 'CCC+'. Following Acharya et al. Earlier, on Feb. 27, 2020, we revised our outlook on the issuer to negative from stable because of high refinancing risks given the high leverage and significant portion of debt maturing in 2022. In return, the issuer agreed to a small increase in overall interest (cash interest plus PIK) for the first quarter. As an example, if 'CCC'/'C' rated entities made up 10% of the total population of issuers at the start of the time frame examined (x-axis) and 50% of the defaulters (y-axis), then the coordinate (10, 50) would be the first point on the curve. On May 6, 2020, Techniplas LLC filed for Chapter 11 protection under the U.S. Bankruptcy Code with a bondholders' offer of US$105 million, which involves exchanging equity for debt. Throughout the 40-year span, only eight companies initially rated 'AAA' have ever defaulted. On Oct. 9, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Florida-based glass packaging producer company Anchor Glass Container Corp. to 'SD' from 'CC' after the issuer closed its previously announced exchange offer for its second-lien term loan at a discount to par, which was considered to be distressed and tantamount to default. On July 1, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Mexican lodging company Grupo Posadas S.A.B. In this study, the insurance industry includes life insurance, health insurance, property/casualty insurance, reinsurance, bond insurance, mortgage insurance, and title insurance. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro. Document Information click to expand document information . Moody's Investors Service (MIS) First Quarter Revenue Down 20%. Broadly speaking, the average and median times to default for each rating category are longer when based on the initial rating than when based on subsequent ratings, particularly for speculative-grade ratings. Issuers rated 'AAA' were still rated 'AAA' one year later 87.1% of the time, while issuers rated in the 'CCC'/'C' category retained those ratings just 43.1% of the time. Some countries can be included in multiple regions, and S&P Global Ratings does not have corporate ratings within every country. On Aug. 10, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New York-based oil field service and drilling service provider UTEX Industries Inc. to 'D' from 'CCC' after the issuer opted for missing interest payments on its first-lien and second-lien notes. Transition studies have repeatedly confirmed that higher ratings tend to be more stable and that speculative-grade ratings ('BB+' or lower) generally experience more volatility over a given time frame. DB's 'Core Bank' reported an adjusted net return on tangible equity (ROTE) of 7.3% in Q3 following a strong 9.1% and 11.9% in Q2 and Q1, respectively, close to the bank's 8% target set for 2022. *This total does not match table 1 because it excludes confidentially rated defaults. If the rank ordering of ratings had little predictive value, the cumulative share of defaulting corporate entities and the cumulative share of all entities at each rating would be nearly the same, producing a Gini ratio of zero. On Nov. 20, 2020, S&P Global Ratings withdrew its ratings on the issuer. The estimated cross section of recovery rates is plausible, with an average recovery rate of 54% and substantial cross-sectional variation. On Feb. 14, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Kansas-based Pizza Hut restaurants franchise operator NPC International Inc. to 'SD' from 'CCC-' after the company decided not to make interest payments due Jan. 31, 2020. On April 28, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Delaware-based physician staffing and ambulatory services company Envision Healthcare Corp. to 'SD' from 'CC' after the settlement of its debt exchange offer on the notes due in 2026 and offering on 53-55 cents on the dollar for the new secured term debt. Affected debt amounts also rose (see chart 15). The shareholder made an offer to purchase the remaining 2023 notes. On July 20, 2020, S&P Global Ratings withdrew its ratings at the issuer's request. The largest default in 2020 was from U.S.-based telecommunications provider Frontier Communications Corp., with $22.5 billion (6.3%) of the outstanding debt for the year. This restructuring was viewed as a distressed exchange because it would delay the interest payments. On April 22, 2020, we lowered our issuer credit rating on Serta Simmons to 'CCC-' from 'CCC' as the spread of the COVID-19 pandemic and stay-at-home orders forced retail store closures, which resulted in a severe drop in mattress sales and minimal production. Many practitioners use statistics from this default study to estimate the "probability of default" and "probability of rating transition." On May 25, 2020, S&P Global Ratings lowered the issuer credit rating on U.K.-based foreign-exchange service provider Travelex Holdings Ltd. to 'D' from 'CCC' after the issuer failed to make the interest payments on its senior secured notes. On July 1, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based oil and gas exploration and production company California Resources Corp. to 'D' from 'CC'. In addition to these subsectors, this study groups insurance service providers (such as insurance brokers and third-party administrators that are rated according to corporate criteria) with the insurance industry. We study the effect of industry distress on recovery rates by using 5334 debt and loan instruments from Moody's Default and Recovery Database for the period from 1990 to 2017. On April 29, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Kansas-based consumer products supplier CSM Bakery Solutions LLC to 'SD' from 'CCC' after the issuer executed an amendment to extend the maturity of its US$105 million asset-based lending and has not completed refinancing of its first-lien term loan due July 2020. In the one-year global Lorenz curve, for example, 96.6% of defaults occurred in the speculative-grade category, while these ratings constituted only 39.9% of all corporate ratings (see chart 26). Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro. The two upgrades are U.S.-based Noble Energy Inc. and Infor Inc. Companies that experience large downgrades are often outliers, especially in years of high credit stability. The negative outlook reflects our view of a potential risk from a prolonged decline in customer's mining and drilling activity and slower-than-expected recovery, which could lead to further liquidity pressure and leverage remaining above 10x ahead of the large debt maturities in 2022, increasing the risk of another distressed transaction. The 30-day grace period ended on Oct. 15, 2020. In addition, the company exchanged US$307.5 million of its existing first-lien term loan for a new super-priority second out term loan. On May 4, 2020, we raised the credit ratings to 'CCC' from 'SD' after the reduction of debt by approximately US$329 million. On June 25, 2020, we raised our long-term issuer credit rating on Jo-Ann to 'CCC' from 'SD', reflecting the ongoing risk of a conventional default. Its rating history after the default event is included in all calculations as entirely separate from its experience leading up to its earlier default. 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. On May 15, 2020, S&P Global Ratings lowered the issuer credit rating on Texas-based oilfield products and services provider Forum Energy Technologies Inc. to 'SD' from 'CC'. On May 22, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based Guitar Center Inc. to 'SD' from 'CCC'. Historically, a growing concentration of speculative-grade ratings often precedes a period of increased defaults. Moody's | Better decisions 3Q 2021 Investor Presentation 2 . The transactions announced represented about 23% of total first- and second-lien term loans. Forest and building products/homebuilders. Low demand, weak macroeconomic performance, and the pandemic led to weakening liquidity and performance. On July 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based oil and gas exploration and production company Denbury Resources Inc. to 'D' from 'CCC+'. The company had a $135 million interest payment due in mid-July and a $208 million debt maturity in August 2020, and its bonds traded at less than $0.10 on the dollar. The local currency senior unsecured rating is the preferred debt rating used for the proxy because it is usually consistent with the issuer credit rating. S&P reserves the right to disseminate its opinions and analyses. Annual corporate bond issuance reached an all-time high in 2020, largely after the Fed and European Central Bank both created massive liquidity facilities in March, in response to the pandemic. On Aug. 14, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based midstream energy company Martin Midstream Partners L.P. to 'SD' from 'CC' after the issuer announced the completion of the distressed exchange of US$364.5 million senior unsecured notes due in 2021. On Oct. 9, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC-' from 'SD'. On April 14, 2020, S&P Global Ratings lowered its long-term issuer credit rating on United Arab Emirates-based health care service provider NMC Health PLC to 'D' from 'CCC-' after the issuer missed interest payments on its bank loans. Note: The totals included may differ from the counts in table 1 because defaults that are not rated at the beginning of the pool year are excluded. In connection with the filing, the company entered into a restructuring support agreement with the holders of approximately 92% of the principal amount of its tranche B-2 term loan and approximately 87% of the principal amount of its asset-based lending FILO term loan. The issuer agreed with certain majority debtholders to convert US$2.2 billion of existing debt into new equity. Earlier, on June 10, 2020, we lowered our issuer credit rating on Serta Simmons to 'CC' from 'CCC-' following the company's announcement that it entered into a transaction support agreement with a majority of its first- and second-lien term loan lenders to recapitalize the company. On Sept. 14, 2020, we withdrew the issuer credit ratings on the company at its request. Throughout most of the year, the U.S. accounted for the majority of the debt (see chart 14). Over the long term (1981-2020), heightened ratings stability is broadly consistent with higher ratings (see table 21). On Oct. 30, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' following the completion of the distressed exchange. On June 5, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based fitness service provider 24 Hour Fitness Worldwide Inc. to 'D' from 'CCC+' after the issuer missed interest payments on its senior notes due 2022 and entered into the grace period. Earlier, on April 4, 2020, we lowered our issuer credit rating on Covia to 'CCC+' from 'BB-' after customers were dealing with a sudden and dramatic collapse in prices for the oil and gas they produce. A missed or delayed disbursement of a contractually-obligated interest or principal payment (excluding missed payments cured within a contractually allowed grace period), as defined in credit agreements and indentures; 2. 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. Globally, speculative-grade issuers constituted 50.3% of rated corporate issuers at the end of 2020, whereas at the end of 2019, speculative-grade ratings represented 49.9% of global ratings (see chart 22). Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro. This does not necessarily indicate a default event, but during the period of regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. Among all Moody's-rated This relationship between higher ratings and higher ratings stability holds even over longer time horizons (see table 21) and when broken out by region (see table 22). The upgrade rate fell to 2.8% in 2020--the lowest annual rate since 1981. On July 2, 2020, we raised our issuer credit rating on BLY to 'CCC+' from 'SD' as the company completed amending interest payments on its senior secured notes to PIK from cash for 2020. Crew Group Inc. to 'D' from 'CCC-' following the company's announced petitions filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The company was to pay 12.0% and 14.5% PIK interest in June and December, respectively, rather than the previous 10.0% rate. 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, Korea (Republic of), Kuwait, Lebanon, Liberia, Macao Special Administrative Region of China, Malaysia, Marshall Islands, Mauritius, Mexico, 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. The company will not make the interest payments within the 30-day grace period. Our data on defaulted corporate issuers globally shows that defaults among speculative-grade entities tend to be clustered in the third year after the initial rating, particularly in the 'B' rating category (see chart 9). . On Sept. 24, 2020, we raised the issuer credit rating to 'CCC' from 'SD'. As the default rate rose globally, credit quality also showed a net decline in 2020, with many more companies downgraded than upgraded. On April 24, 2020, S&P Global Ratings withdrew its ratings at the issuer's request. Many events over the long term have contributed to the decline of global 'AAA' rated issuers. Lower-rated companies also exhibit lower survival rates over time. These factors, combined with asset managers' growing tolerance for investing in lower-rated companies, leave just a handful of the highest-rated entities. The company was continuing discussions with its debtholders, and we believed these would result in a comprehensive debt restructuring or a bankruptcy filing. Strains between the U.S. and China in their ongoing trade dispute eased at the end of the year with the signing of the "Phase 1" trade deal, which helped markets close the . Date of report (Date of earliest event reported): February 13, 2023. Later, on Sept. 16, 2020, we withdrew the issuer credit ratings on the company at its request. While these payments would have a higher interest rate, we considered this modification a selective default since investors were receiving less than they were originally promised under the security, partly because the amendment would delay the timing of the interest payments. The Default & Recovery Database provides access to the most comprehensive default dataset in the market. Nick W Kraemer, FRM, New York+ 1 (212) 438 1698; Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai, Sundaram Iyer, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, Lyndon Fernandes, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, Abinash Meher, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, Shripati Pranshu, CRISIL Global Analytical Center, an S&P affiliate, Mumbai, APAC, United States of America, Latin America, Canada, EMEA, APAC. Corporate default rate climbed in December. On Aug. 4, 2020, we lowered our issuer credit rating on Forum to 'SD' from 'CC' as the company closed on its previously announced debt exchange for the majority of its 6.25% senior unsecured notes due in October 2021. On March 26, 2020, we withdrew our issuer ratings at the company's request. The two-year default rates in table 24 are calculated in the same way as those in the cumulative average section for the two-year column in table 32, while those in the 'D' column of table 34 are equivalent to adding up all the defaults behind the two-year column's annual default rates in table 32, divided by the sum of all the issuers in table 32 for the years 1981-2020. The average number of notches for an upgrade moved to 1.19 in 2020, while downgrades remained at an average of 1.46 notches--the highest rate since 2010 (when the average was 1.52 notches) (see chart 8). But over the past three years--now that more than a decade has passed since the financial crisis of 2008-2009--financial services defaulters show a median rating in the 'B' category five years prior to default. A default is assumed to take place on the earliest of: When an issuer defaults, it is not uncommon for S&P Global Ratings to subsequently withdraw the 'D' rating. In its base case, Moody's analyzed the underlying collateral pool as having a performing par (after treating deferring securities as performing if they meet certain criteria) of $260.9 million, defaulted/deferring par of $0 million, a weighted average default probability of 12.33% (implying a WARF of 1527), and a weighted average recovery rate . On Oct. 15, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC' from 'SD' following completion of the distressed exchange. The rating action followed the company's exchange of about $58.3 million in aggregate principal amount of its senior unsecured notes for $23.3 million in cash, or a 60% discount to par value. S&P Global Ratings Research conducts its default studies on the basis of groupings called static pools. On May 14, we lowered the ratings on the issuer to 'D' after it filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The holders of the existing notes will receive $750 principal amount of the new notes for every $1,000 of existing notes, and $50 of cash as a consent fee if they agree to an early tender. Combined global bond issuance for nonfinancial corporates and financial services companies hit $5.7 trillion--a 27% increase from the high in 2019. S&P Global Ratings viewed Technicolor's completed debt-to-equity swap as equivalent to a default. Default and recovery rates for sustainable project finance bank loans, 1983-2020: 16 Feb 2023 . Table 29 displays the summary of one-year transitions in the investment-grade and speculative-grade rating categories. With the strongly improved U.S. economic outlook for 2021, the speculative-grade negative . On Jan. 22, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Spanish olive oil bottler Deoleo S.A. to 'SD' from 'CC' after a majority of shareholders agreed for restructuring of its syndicated debt. . Post default, the issuer has been upgraded three times, leading to a 'B' rating on Dec. 14, 2020, with a positive outlook, due to its improved financials and liquidity. On Aug. 3, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Missouri-based motion picture exhibitor AMC Entertainment Holdings Inc. to 'SD' from 'CC' after the issuer completed the distressed exchange of its subordinated debt at 70%-75% of its par value. In Europe, by contrast, the share of speculative-grade ratings remains in the minority. In a theoretical exploration of recovery rates in a structural to 'D' from 'CCC-'. The proposed reorganization involves the company eliminating more than half of its debt and transferring up to 97% of its equity to lenders. On Oct. 15, 2020, S&P Global Ratings lowered the issuer credit rating to 'D' from 'SD' because the company remained in default on both its rated obligations. On Oct. 15, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' because the issuer had enough liquidity to pay the remainder of the bond's maturity. Over the long term (since 1981), financial services defaulters show a median rating of 'BB+' five years prior to default. As in most recovery periods, defaults fell relative to the prior year, with the S&P Global Ratings global speculative-grade corporate default rate falling below 2% for only the eighth time in the past 41 . With the region moving to promote disintermediation, this share of speculative-grade issuers could continue to grow. S&P does not act as a fiduciary or an investment advisor except where registered as such. Each issuer is likely to be captured multiple times, in line with its migration from one rating to another, so the total count in table 13 is different from that in table 12. On May 21, 2020, S&P Global Ratings lowered the issuer credit rating on Colorado-based oil and gas exploration and production company Centennial Resource Development Inc. to 'SD' from 'CC' after the issuer announced the exchange of a portion of its 2026 and 2027 senior secured notes for new second-lien secured notes due 2025 at 50% of par value. On May 12, 2020, S&P Global Ratings lowered the issuer credit rating on Texas-based oil and gas exploration and production company Fieldwood Energy LLC to 'D' from 'CCC' after the issuer failed to make the interest payments on its first- and second-lien term loans. On July 2, 2020, S&P Global Ratings withdrew its ratings on the issuer. The negative outlook reflects that we could lower the rating on Outerstuff if operating underperformance continues to pressure liquidity such that we believe a default is inevitable within the subsequent six months. The negative outlook reflects the risk of a lower rating if operating performance continues to deteriorate and the company fails to meet our expectations. This nonpayment was considered a general default, and the company was not expected to be able to pay most of its obligations. On June 2, 2020, S&P Global Ratings lowered its issuer credit rating on U.K.-based offshore drilling contractor Noble Corp. PLC to 'SD' from 'CCC-'as the company paid off 85% of its two seller loans (unrated) in exchange for a discount to the outstanding balance, effectively repurchasing both loans at about 85% of par value. This study analyzes the rating histories of 21,693 companies that S&P Global Ratings rated as of Dec. 31, 1980, or that were first rated between that date and Dec. 31, 2020.