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2011 Annual U.S. Corporate Default Study And Rating Transitions

Publication date: 23-Mar-2012 10:47:09 EST

U.S. companies benefited from relatively stable and liquid credit markets in 2011 despite heightened concerns about sovereign risk and political instability around the world. U.S. corporate defaults totaled 39 in 2011, down from 58 in 2010. The number of defaults declined in the first half of the year as an economic recovery took hold in the U.S. and investors' demand for speculative-grade debt remained high. Following Standard & Poor's downgrade of the U.S. to 'AA+', we saw many 'AAA' rated U.S. entities transition to the 'AA' category. Now, the U.S. has only four companies rated 'AAA'.

In 2011, Standard & Poor's ratings continued to serve as effective indicators of relative credit risk in the U.S. region (the U.S., Bermuda, and the Cayman Islands). Our study of corporate defaults in this region (which we refer to as the U.S.) identified a clear negative correspondence between ratings and defaults: The higher the issuer rating, the lower the observed default frequency. The Gini ratio--a measure of the rank-ordering power of ratings over a given time horizon--declined to 84.7% in 2011 from 92.1% in 2010 as one investment-grade company defaulted, and the default rate for 'B+' companies increased slightly.

The statistics we present in this study refer only to the corporate ratings universe--including financial and nonfinancial entities. Our methodology and definitions of the terms we use in this study are in Appendix I. Here are our key observations:

  • In the U.S., 39 companies defaulted in 2011, compared with 58 in 2010. Strong investor demand for new issuance provided companies with ample liquidity for refinancing during the first half of the year, and the default rate declined. The speculative-grade corporate default rate was 1.98% at year-end 2011, lower than the 3.29% rate at the end of 2010 (see chart 3), though still higher than the global average of 1.71%.
  • Globally, the total number of defaults also shrank in 2011, to 53 from 81 a year earlier.
  • In 2011, 85% of the defaulters were rated speculative grade ('BB+' and lower) immediately prior to default, 13% were unrated at the time of default, and one issuer was rated investment grade, MF Global Holdings Ltd.
  • The nonfinancial sector accounted for 92% of total U.S. defaults, and the remaining 8% came from the financial sector (insurance and financial institutions).
  • The outstanding debt volume affected by defaults also fell in 2011, to $74.3 billion from $79.5 billion in 2010 (see table 1).
  • Upgrades surpassed downgrades in the U.S. for the second consecutive year. In the last decade, upgrades outnumbered downgrades in only three years--2006, 2010, and 2011. The downgrade-to-upgrade ratio in the U.S. rose to 0.83 in 2011 from 0.70 the prior year (see table 6). Upgrades outpaced downgrades in the first half of 2011, though this trend reversed in the second half.
  • After Standard & Poor's lowered its long-term sovereign credit rating on the U.S. to 'AA+' in 2011, it downgraded most of the 'AAA' rated financial companies in the U.S. Of the U.S. entities rated 'AAA' at the beginning of the year, 82% transitioned to the 'AA' category (see table 7). Only four U.S. nonfinancial companies remain rated 'AAA'. They are Automatic Data Processing Inc., ExxonMobil Corp., Johnson & Johnson, and Microsoft Corp.
  • Distressed exchanges continued to decline in the U.S. in 2011, to 10 from 18 the previous year.
  • In 2011, missed interest or principal payments surpassed Chapter 11 filings as the most common type of default--accounting for 14 of the 39 U.S. defaults, or 36% of the total.
  • Texas Competitive Electric Holdings Co. LLC's distressed exchange on April 20 was the year's single largest default by debt volume. It accounted for $32.5 billion in rated debt, which was 44% of the total debt affected by U.S. defaults. Through the "amend and extend" distressed exchange, the company extended the maturities for most of its $20 billion in senior secured credit facilities to 2016-2017 from 2013-2014.
  • The nonfinancial sector accounted for the majority of total debt affected by defaults, at 94.8%. If we subtract Texas Competitive Electric Holdings' distressed exchange, the nonfinancial sector was responsible for 90.8%.
  • U.S. default rates across all ratings levels, except 'BBB-', were below their long-term (1981-2010) averages in 2011(see table 3). The one default in this rating category raised it above its long-term average.
  • Of the 39 U.S. defaults in 2011, Standard & Poor's rated the majority (85%) of the companies speculative grade at inception. These companies took an average of 4.5 years to default from the initial ratings, while the six issuers initially rated investment grade ('BBB-' and higher) took an average of 17.4 years from inception to default.
  • The transportation and forest and building products/homebuilders sectors had the highest rates of default in 2011. The transportation sector's default rate increased to 7.50% from 2.67%, while the forest and building products/homebuilders default rate fell to 3.33% from 4.71% (see table 4).
  • The average time to default from initial rating for the region's 39 defaulting issuers in 2011 was 6.53 years, more than the global corporate average of 5.66 years.
  • The issuer with the longest time to default in 2011 was U.S.-based AMR Corp., which took 30.9 years to default from its initial rating of 'BBB-'. AMR's principal operating subsidiary is American Airlines Inc., which was initially rated 'BBB-' in 1965.
  • At the opposite end of the spectrum, the issuer with the shortest time to default--0.04 years--was U.S.-based transportation company Trailer Bridge Inc., which quickly failed to make principal and interest payments on its senior secured debt only 15 days after it was upgraded to 'CC' following a prior selective default.
  • Gini ratios attest to ratings remaining effective indicators of relative default risk. These ratios range from 0 to 100, with 0 indicating random rank ordering and 100 perfect rank ordering of defaults. Among U.S.-based corporate entities that Standard & Poor's rates, the Gini coefficient declined to 84.7% in 2011 from 92.1% the prior year. This decline resulted from the default of 'BBB-' rated MF Global, as well as from an uptick in the default rate for 'B+' rated companies to 0.65% from 0.00%.
  • The one-year weighted-average Gini coefficient was 80.5%, the three-year was 73.8%, the five-year was 70.1%, and the seven-year was 68.5%. These weighted-average Gini ratios are weighted by count of issuers by year since 1981. (For details on the Gini methodology, refer to Appendix II.)

The decline in U.S. defaults in 2011 reflects the global trend (see chart 1). Companies benefited from strong investor demand and liquidity, which facilitated considerable issuance and refinancing in the first half of the year. In the U.S., 34 of the 39 corporate defaults were rated at the time of default. In 2011, 67% of the global rated defaulters were U.S. companies. This proportion reached a low in 2002, when the U.S. accounted for only 53% of the global total, and it hit a recent high of 87% in 2005. In 2011, the count of U.S. rated corporate defaults declined by 33%, while the global total declined by 29%. The U.S. speculative-grade default rate remained extremely low, at 1.98%, which is below the long-term average default rate of 4.5%.

Chart 1

Table 1

U.S. 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 0 2 0.15 0.00 0.63 0.06
1982 18 2 15 1.22 0.19 4.44 0.90
1983 12 1 10 0.78 0.09 2.98 0.37
1984 14 2 12 0.95 0.18 3.32 0.36
1985 19 0 18 1.16 0.00 4.39 0.31
1986 34 2 30 1.81 0.16 5.74 0.46
1987 19 0 19 1.00 0.00 2.83 1.60
1988 32 0 29 1.48 0.00 3.88 3.30
1989 39 2 32 1.73 0.16 4.31 7.28
1990 68 2 54 2.92 0.16 7.91 21.15
1991 90 2 62 3.55 0.16 10.69 23.65
1992 39 0 32 1.76 0.00 6.23 5.40
1993 25 0 13 0.66 0.00 2.39 2.38
1994 20 0 15 0.71 0.00 2.19 2.30
1995 33 1 28 1.26 0.07 3.64 8.97
1996 19 0 15 0.62 0.00 1.85 2.65
1997 21 1 19 0.77 0.06 2.17 4.93
1998 38 1 34 1.21 0.05 3.24 11.27
1999 81 5 66 2.26 0.27 5.23 35.07
2000 120 6 96 3.23 0.32 7.33 39.72
2001 172 6 134 4.54 0.33 10.54 100.91
2002 133 10 81 3.12 0.56 7.14 188.14
2003 89 0 65 2.30 0.00 5.54 42.68
2004 46 1 30 1.11 0.06 2.50 18.68
2005 33 1 26 0.94 0.06 2.00 42.04
2006 21 0 18 0.61 0.00 1.29 6.97
2007 18 0 15 0.49 0.00 1.01 7.02
2008 94 11 65 2.47 0.73 4.13 334.34
2009 191 5 163 5.71 0.34 11.19 516.08
2010 58 0 45 1.62 0.00 3.29 79.45
2011 39 1 29 1.04 0.07 1.98 74.30
*This column includes companies that were no longer rated at the time of default. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 2

2011 U.S. Region Corporate Defaults
Company Reason for default Industry Debt amount (mil. $) Default date Next-to-last rating Date of next-to-last rating First rating Date of first rating
Confidential Company Ch. 11 Consumer/service sector 2,144.1 2/16/2011 NR 10/31/2007 B- 7/13/2007
Berkline/BenchCraft Holdings LLC Ch. 11 Consumer/service sector 0.0 5/2/2011 NR 9/12/2006 B+ 9/29/2004
Caribe Media Inc Ch. 11 Leisure time/media 464.0 5/6/2011 CCC- 8/23/2010 B 3/2/2006
Confidential Company Ch. 11 Consumer/service sector 155.0 6/26/2011 NR 6/23/2011 CC 10/13/2009
NBC Acquisition Corp. Ch. 11 Consumer/service sector 527.0 6/27/2011 CCC 4/5/2011 B+ 2/10/1998
NewPage Corp. Ch. 11 Forest products 3,227.8 9/7/2011 CCC 8/15/2011 CCC+ 10/5/2009
MF Global Holdings Ltd. Ch. 11 Financial institutions 2,517.0 10/31/2011 BBB- 11/24/2010 BBB+ 5/31/2007
Dynegy Holdings LLC Ch. 11 Energy and natural resources 5,209.8 11/8/2011 CC 3/18/2011 BBB- 9/28/1995
PMI Group Inc. Ch. 11 Insurance 1,045.0 11/28/2011 CC 8/4/2011 A+ 11/6/1996
AMR Corp. Ch. 11 Transportation 3,138.2 11/29/2011 CCC+ 11/17/2011 BBB- 12/31/1980
Confidential Company Ch. 11 Leisure time/media 1,886.7 12/12/2011 NR 4/23/2007 BB 4/5/2005
Delta Petroleum Corp. Ch. 11 Energy and natural resources 265.0 12/19/2011 CCC- 11/11/2011 B- 3/1/2005
Wastequip Inc. Confidential Aerospace/auto/capital goods/metal 371.5 10/19/2011 CCC- 9/29/2011 CCC 9/22/2010
Trailer Bridge Inc. Confidential Transportation 204.4 10/26/2011 CCC 6/10/2011 B- 11/10/2004
Liz Claiborne Inc. Distressed exchange Consumer/service sector 759.7 4/11/2011 CC 3/11/2011 BBB 11/16/1999
Texas Competitive Electric Holdings Co. LLC Distressed exchange Energy and natural resources 32,460.3 4/20/2011 CC 4/4/2011 B- 11/17/2009
Keystone Automotive Operations Inc. Distressed exchange Consumer/service sector 445.6 4/28/2011 CC 11/23/2010 B+ 10/15/2003
YRC Worldwide Inc. Distressed exchange Transportation 816.3 7/27/2011 CC 3/16/2011 CCC- 1/11/2010
Travelport Holdings Ltd. Distressed exchange Transportation 7,428.8 10/5/2011 CC 9/21/2011 CCC 9/13/2011
Hovnanian Enterprises Inc. Distressed exchange Forest products 1,386.5 11/2/2011 CC 10/5/2011 CCC+ 10/5/2009
Aquilex Holdings LLC Distressed exchange Health care/chemicals 438.2 12/16/2011 CC 11/21/2011 B 11/20/2008
GMX Resources Inc. Distressed exchange Energy and natural resources 444.5 12/16/2011 CC 11/30/2011 B- 4/21/2011
SuperMedia Inc. Distressed exchange Leisure time/media 1,839.8 12/16/2011 CC 11/16/2011 B- 12/29/2010
Dune Energy Inc. Distressed exchange Energy and natural resources 92.5 12/23/2011 CC 10/11/2011 CCC- 12/31/2009
Sbarro Inc. Missed Consumer/service sector 347.9 2/1/2011 CC 1/6/2011 BB- 9/3/1999
Ahern Rentals Inc. Missed Aerospace/auto/capital goods/metal 617.5 2/16/2011 B- 6/21/2010 B 8/2/2005
Harry & David Operations Corp. Missed Consumer/service sector 303.4 3/7/2011 CC 1/20/2011 B 2/9/2005
Perkins & Marie Callender's Inc. Missed Consumer/service sector 344.2 4/7/2011 CC 12/22/2010 B+ 12/11/1997
Real Mex Restaurants Inc. Missed Consumer/service sector 220.0 7/20/2011 CCC 6/24/2011 B 3/12/2004
William Lyon Homes Missed Forest products 485.8 8/19/2011 CCC- 6/6/2011 CCC- 6/16/2009
Global Aviation Holdings Inc. Missed Transportation 230.2 8/23/2011 CCC+ 8/16/2011 B 7/20/2009
Horizon Lines Inc. Missed Transportation 598.2 8/23/2011 CCC 3/29/2011 B 9/30/2005
General Maritime Corp. Missed Transportation 2,165.7 10/4/2011 CCC+ 12/9/2010 BB 3/4/2003
Real Mex Restaurants Inc. Missed Consumer/service sector 210.2 10/4/2011 CC 8/5/2011 CC 8/5/2011
William Lyon Homes Missed Forest products 485.8 10/11/2011 CC 9/20/2011 CC 9/20/2011
River Rock Entertainment Authority Missed Leisure time/media 200.0 11/2/2011 CCC 10/28/2011 B+ 10/23/2003
Chukchansi Economic Development Authority Missed Leisure time/media 310.0 11/15/2011 NR 11/3/2011 BB- 10/24/2005
Trailer Bridge Inc. Missed Transportation 204.4 11/16/2011 CC 11/1/2011 CC 11/1/2011
PMI Mortgage Insurance Co. Regulatory suspension Insurance 285.0 8/22/2011 CCC- 8/4/2011 AA 3/8/1985
Total 74,276
Aero/auto/CG/metal--Aerospace/automotive/capital goods/metal. High tech--High technology/computers/office equipment. Forest products--Forest and building products/homebuilders. Cons/service--Consumer/service sector. Ch. 11--Chapter 11. Missed--Missed interest or principal payment. Sources: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

The Proportion Of Speculative-Grade Ratings In The U.S. Is Higher Than Other Regions

Corporate ratings skew more toward speculative grade in the U.S. than in other regions (see chart 2). As a result, it's not surprising that a high number of rated companies in the U.S. default each year. In the U.S., 48.5% of corporate ratings were investment grade at the end of 2011, while the global corporate percentage is 55.6%. Compared with the global distribution of ratings, a disproportionately high percentage of U.S. rated corporate entities fall into the 'B' and 'CCC'/'C' categories. Note that the data we present in this study (unless labeled otherwise) only reference public and confidential issuer credit ratings on nonfinancial and financial companies, and not credit estimates. Standard & Poor's typically establishes credit estimates on the basis of private information it receives from investors. Credit estimates are disproportionately concentrated in the lower rating categories and therefore are far less stable.

While the majority of U.S. companies in Standard & Poor's rated universe are speculative grade, an even higher proportion of nonfinancial companies are rated speculative grade. As investor demand for speculative-grade debt has grown as an asset class over the past 30 years, insurance companies and mutual funds amended their investment policy guidelines to include acceptance of high-yield bonds, expanding the potential market for high yield. More than half of newly rated issuers in the U.S. have been rated speculative grade in each year since 1992, except 2001. In addition to these newly rated companies, corporate managers have shown more willingness over the past few decades to increase equity returns through shareholder-friendly actions such as one-time dividends, mergers, divestitures, and leveraged buyouts (LBOs). This tendency to boost equity returns through increased leverage has frequently come at the expense of lower credit ratings.

In most years, downgrades tend to outpace upgrades. However, the opposite was true in both 2011 and 2010 (see table 6). Also in 2011, U.S. corporate rising stars (companies upgraded to investment grade) outnumbered fallen angels (companies downgraded to speculative grade) 15 to 11.

Chart 2

Speculative-grade default rates in the U.S. have had generally the same trajectory as global default rates over the past several years (see chart 3). However, one exception occurred last year as the default rate in Europe increased while the rates fell in other regions. The speculative-grade default rate in Europe rose to 1.60% from 1.01%, while the global average declined to 1.71% from 2.82%. At 1.98%, the U.S. speculative-grade default rate remained slightly higher at the end of 2011 than the global average, but it had declined from 3.29% as of year-end 2010.

Chart 3

In 2011, 85% of the U.S. defaulters were rated 'B' or lower, 13% were unrated at the time of default, and one company, MF Global, was rated 'BBB-' at the time of default. Historically the 'BBB-' rating has had an average one-year default rate of 0.30%. Of the 34 companies that were rated at the time of default, 32 were rated in the 'CCC'/'C' category immediately prior to default. This supports our view that ratings continue to serve as effective indicators of relative credit risk. In 2011, the one-year default rate fell to 15.79% from 22.64% for companies that were rated 'CCC'/'C' at the beginning of the year (see table 3). In 2011, the 'B-' one-year default rate rose to 5.33% from 3.21%, and the 'B+' rate increased to 0.65% from 0.0%. With the exception of 'BBB-', each rating had a default rate that was lower than its long-term average and median. Note that the investment-grade defaults that occurred in 2008 were the result of the recession and the credit crisis, which had a particularly large impact on financial institutions. As we saw with MF Global, financial issuers usually experience faster or steeper paths to default over the long run, and this pattern has accelerated over the past 12 quarters because of investors' marked loss of confidence in this sector (see chart 6). By presenting these two broad sectors on the same scale, we can easily see the differing characteristics of the defaulters in these groups. Nonfinancial defaulters have had a much smoother and more gradual path to default.

Table 3

U.S. Corporate Default Rates By Rating Modifier
AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C
1981 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 3.28 0.00 0.00
1982 0.00 0.00 0.00 0.00 0.00 0.33 0.00 0.00 0.69 0.00 0.00 2.86 7.14 2.22 2.33 7.41 21.43
1983 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.35 2.27 0.00 1.64 1.22 9.80 4.76 6.67
1984 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.41 0.00 0.00 1.72 1.56 2.13 3.51 7.69 25.00
1985 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.69 1.56 1.39 2.59 13.11 8.00 15.38
1986 0.00 0.00 0.00 0.00 0.00 0.00 0.78 0.00 0.78 0.00 1.85 1.22 1.14 4.68 12.16 17.07 23.08
1987 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.83 1.32 6.02 6.82 12.28
1988 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.34 2.00 4.55 9.80 20.37
1989 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.92 0.81 0.00 0.00 0.00 2.00 0.43 7.86 4.88 31.37
1990 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.78 0.00 1.11 1.43 3.06 4.50 4.91 12.38 22.58 31.82
1991 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.85 0.75 0.00 3.77 1.12 1.05 8.72 16.88 30.56 32.76
1992 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 0.73 15.87 20.83 31.37
1993 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.94 0.00 1.32 4.26 4.35 14.29
1994 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.89 0.00 1.87 6.85 3.33 17.39
1995 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.72 0.00 1.67 1.23 2.88 7.29 8.11 30.43
1996 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.98 0.00 0.62 2.47 3.92 4.26 4.55
1997 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.48 0.00 0.00 0.00 0.00 0.47 0.80 5.69 15.91 8.33
1998 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.36 0.00 0.00 0.71 0.45 1.66 6.72 8.20 42.86
1999 0.00 0.00 0.00 0.64 0.00 0.37 0.43 0.00 0.38 0.45 0.85 1.30 0.81 4.02 9.14 15.19 37.50
2000 0.00 0.00 0.00 0.00 0.00 0.37 0.93 0.00 0.37 0.93 0.00 1.24 3.35 6.56 10.77 14.47 40.32
2001 0.00 0.00 0.00 0.00 0.92 0.00 0.00 0.41 0.71 0.44 0.80 1.29 4.64 5.57 16.30 28.72 50.62
2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.22 0.68 2.15 1.80 1.16 4.00 2.89 6.29 18.75 34.65
2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.89 1.59 0.40 1.03 5.26 13.70 37.14
2004 0.00 0.00 0.00 0.00 0.00 0.43 0.00 0.00 0.00 0.00 0.00 1.18 0.39 0.00 3.41 3.85 21.69
2005 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.30 0.00 0.80 0.00 0.40 1.08 3.33 4.95 11.11
2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.88 0.00 0.40 0.52 0.73 0.93 14.86
2007 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.54 0.39 0.00 0.00 0.68 16.44
2008 0.00 0.00 1.11 0.99 0.79 0.48 0.96 0.45 0.76 0.94 2.52 0.63 0.77 3.09 3.16 7.93 29.17
2009 0.00 0.00 0.00 0.00 0.00 0.48 0.00 0.49 0.37 0.85 0.00 1.43 0.88 5.07 9.57 19.90 48.97
2010 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 0.96 3.21 22.64
2011 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.39 0.00 0.00 0.00 0.65 0.72 5.33 15.79
Average 0.00 0.00 0.04 0.05 0.06 0.08 0.10 0.18 0.27 0.30 0.66 0.87 1.38 2.34 6.84 10.39 24.20
Median 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.89 0.81 1.87 6.02 7.93 22.64
Standard deviation 0.00 0.00 0.20 0.21 0.21 0.17 0.28 0.34 0.37 0.53 0.97 0.87 1.69 2.13 4.73 8.09 12.90
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 1.11 0.99 0.92 0.48 0.96 1.22 1.41 2.15 3.77 3.06 7.14 8.72 16.88 30.56 50.62
Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Chart 4

Chart 5

Chart 6

Industry Profile

In 2011, the default rates for 11 of the 13 U.S. corporate industries fell below their long-term averages, which is an improvement over 2010, when eight sectors had default rates below their long-term averages (see table 4). The two sectors with 2011 default rates that were higher than their long-term averages were transportation and forest and building products/homebuilders. The transportation sector's default rate nearly tripled to 7.50% from 2.67% as six companies defaulted. The forest and building products/homebuilders sector's default rate fell to 3.33% from 4.71% in 2010 as three companies defaulted. These two sectors are cyclical and rely on consumer demand, and they had the highest default rates in 2010, though they were lower than 2009 levels. A lingering supply of homes and a shadow inventory continue to depress demand for homebuilders, and the transportation sector saw an increase in the number of defaults as political upheaval in the Middle East led to higher oil prices and uncertain demand for transportation services.

Table 4

Annual U.S. Corporate Default Rates By Industry (%)
Year Aerospace/auto/capital goods/metal Consumer/service sector Energy and natural resources Financial institutions Forest and building products homebuilders
1981 0.00 0.00 0.00 0.00 0.00
1982 1.33 1.67 0.85 1.04 2.70
1983 0.95 1.27 2.68 0.00 0.00
1984 0.00 0.42 5.83 0.00 1.41
1985 1.34 1.60 5.17 0.00 0.00
1986 4.51 0.36 10.62 0.00 1.27
1987 1.93 1.37 4.76 0.00 1.10
1988 1.21 1.97 2.08 1.98 1.03
1989 2.54 1.29 0.00 2.69 0.00
1990 2.19 5.02 0.00 1.86 8.16
1991 2.50 6.79 3.49 2.64 8.24
1992 1.55 3.10 1.16 2.75 1.39
1993 2.02 1.10 2.06 0.38 0.00
1994 0.48 1.36 0.95 0.00 1.10
1995 0.00 4.18 0.88 0.60 3.06
1996 1.26 1.91 0.82 0.00 0.00
1997 1.17 3.01 0.00 0.28 0.00
1998 0.73 3.62 1.31 0.81 0.88
1999 2.66 3.28 6.32 0.30 1.60
2000 4.80 6.42 0.63 0.31 4.69
2001 10.50 7.46 2.48 1.84 4.35
2002 6.84 3.45 1.95 0.31 5.88
2003 5.23 3.99 1.33 0.62 1.06
2004 2.85 2.29 0.65 0.00 2.11
2005 2.64 1.64 0.00 0.34 0.92
2006 1.61 1.08 0.00 0.00 2.63
2007 1.32 0.55 0.00 0.60 2.56
2008 1.99 2.43 1.49 3.78 3.67
2009 10.18 4.71 5.45 2.74 21.15
2010 1.91 2.33 1.46 0.99 4.71
2011 0.73 2.33 1.31 0.33 3.33
Weighted average 2.78 2.77 2.08 0.94 3.02
Median 1.91 2.29 1.31 0.34 1.41
Standard deviation 2.60 1.90 2.44 1.08 4.07
Minimum 0.00 0.00 0.00 0.00 0.00
Maximum 10.50 7.46 10.62 3.78 21.15
Year Health care/chemicals High technology/computers/office equipment Insurance Leisure time/media Real estate
1981 0.00 0.00 0.00 0.00 0.00
1982 0.00 1.52 3.23 2.13 0.00
1983 0.00 0.00 5.13 0.00 0.00
1984 0.00 3.08 0.00 0.00 0.00
1985 2.22 0.00 1.75 2.50 0.00
1986 1.98 3.66 0.00 0.95 0.00
1987 0.85 0.00 0.00 0.72 0.00
1988 3.25 0.00 0.00 3.23 0.00
1989 0.88 1.06 0.80 6.71 7.14
1990 0.00 4.94 0.00 9.23 4.76
1991 1.87 1.54 1.92 6.96 6.67
1992 0.94 4.84 0.94 1.89 6.67
1993 0.00 1.59 0.40 0.84 0.00
1994 0.66 1.45 0.00 2.96 0.00
1995 1.21 1.32 0.34 1.83 0.00
1996 0.00 0.00 0.00 2.15 0.00
1997 0.54 1.22 0.29 0.00 0.00
1998 2.00 0.00 0.00 2.55 0.00
1999 3.38 1.55 0.89 5.13 0.00
2000 4.83 5.34 1.74 5.13 0.00
2001 5.34 5.30 0.00 5.62 0.00
2002 0.95 3.20 0.45 3.45 0.00
2003 3.24 2.44 0.47 0.88 0.00
2004 0.45 0.00 0.71 1.33 0.00
2005 1.22 0.00 0.00 0.90 0.00
2006 0.40 0.76 0.22 0.86 0.00
2007 0.75 0.00 0.00 0.81 0.00
2008 3.15 0.00 0.85 6.79 4.76
2009 4.85 1.94 0.67 19.35 6.67
2010 1.56 0.00 0.47 5.50 1.23
2011 0.37 0.00 0.47 1.67 0.00
Weighted average 1.74 1.46 0.50 3.77 0.85
Median 0.94 1.22 0.40 2.13 0.00
Standard deviation 1.57 1.76 1.10 3.86 2.48
Minimum 0.00 0.00 0.00 0.00 0.00
Maximum 5.34 5.34 5.13 19.35 7.14
Year Telecommunications Transportation Utility
1981 0.00 2.15 0.00
1982 0.00 2.13 0.40
1983 0.00 1.04 0.00
1984 0.00 3.06 0.00
1985 0.00 0.00 0.00
1986 0.00 0.91 0.00
1987 1.41 0.00 0.37
1988 1.32 0.00 0.73
1989 0.00 1.77 0.00
1990 2.67 3.81 0.00
1991 0.00 6.38 1.09
1992 0.00 0.00 1.06
1993 0.00 0.00 0.00
1994 0.00 1.92 0.00
1995 0.00 2.94 0.00
1996 1.11 0.00 0.00
1997 2.06 0.98 0.00
1998 1.60 1.90 0.00
1999 2.74 2.94 0.29
2000 3.45 5.05 0.58
2001 14.60 5.38 0.84
2002 16.04 10.47 1.65
2003 12.22 1.30 1.45
2004 3.75 2.27 0.00
2005 0.00 4.82 0.60
2006 0.00 1.19 0.00
2007 0.00 0.00 0.00
2008 2.22 3.53 0.00
2009 2.50 6.67 0.00
2010 1.28 2.67 0.00
2011 0.00 7.50 0.00
Weighted average 2.71 2.55 0.31
Median 0.00 2.13 0.00
Standard deviation 4.21 2.58 0.48
Minimum 0.00 0.00 0.00
Maximum 16.04 10.47 1.65
Includes investment-grade and speculative-grade entities. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

When combining all financial industries, the aggregate default rate of 2.57% at the end of 2011 exceeded the 1981-2010 long-term average of 2.35% in the three-year horizon, while the 2011 one-year and 10-year default rates of 0.41% and 4.59%, respectively, were below the long-term one-year default rates of 0.74% and 6.21%. In the nonfinancial sectors, the one-year default rate was also below the historical average, while the three-year and 10-year default rates exceeded the averages (see table 5). As the record defaults from 2009 work their way through the sample, we expect the three-year default rate to decline next year, barring a surge of defaults in 2012.

Table 5

Cumulative U.S. Corporate Default Rates By Sector (%)
--All financials-- --All nonfinancials--
Year One-year Three-year 10-year One-year Three-year 10-year
1981 0.00 N.A. N.A. 0.16 N.A. N.A.
1982 1.57 N.A. N.A. 1.18 N.A. N.A.
1983 1.28 2.42 N.A. 0.72 2.11 N.A.
1984 0.00 2.36 N.A. 1.08 2.83 N.A.
1985 0.49 1.92 N.A. 1.26 2.56 N.A.
1986 0.00 1.10 N.A. 2.17 4.32 N.A.
1987 0.00 0.98 N.A. 1.21 4.16 N.A.
1988 1.41 2.05 N.A. 1.49 4.13 N.A.
1989 2.08 3.96 N.A. 1.64 4.07 N.A.
1990 1.22 5.08 6.45 3.38 5.59 8.13
1991 2.38 5.97 8.66 3.91 8.78 9.68
1992 1.92 5.62 8.33 1.70 8.74 10.06
1993 0.39 4.99 7.73 0.76 6.15 10.80
1994 0.00 2.35 9.27 0.96 2.81 10.71
1995 0.48 0.98 7.51 1.56 2.63 10.30
1996 0.00 0.54 10.06 0.86 3.21 11.63
1997 0.28 0.79 10.45 0.96 3.05 12.24
1998 0.38 0.30 9.09 1.52 2.98 12.69
1999 0.64 0.85 6.85 2.80 4.32 12.38
2000 1.14 2.13 6.41 3.92 7.37 9.77
2001 0.78 2.57 4.06 5.80 11.45 7.54
2002 0.39 2.67 2.94 4.08 12.72 8.86
2003 0.54 1.95 3.24 2.93 12.59 11.10
2004 0.41 1.44 3.49 1.36 8.58 11.92
2005 0.14 0.94 2.98 1.21 5.33 12.22
2006 0.13 0.54 3.26 0.78 3.26 14.08
2007 0.25 0.42 4.51 0.58 2.61 17.27
2008 2.09 2.68 5.66 2.60 3.88 19.88
2009 1.54 3.87 6.10 7.21 9.01 21.26
2010 0.68 4.19 5.06 1.95 10.85 19.55
2011 0.41 2.57 4.59 1.25 9.98 15.16
Average 0.74 2.35 6.21 2.03 5.86 12.60
Median 0.48 2.13 6.26 1.49 4.32 11.78
Standard deviation 0.72 1.63 2.42 1.59 3.35 3.81
Minimum 0.00 0.30 2.94 0.16 2.11 7.54
Maximum 2.38 5.97 10.45 7.21 12.72 21.26
N.A.--Not available. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Upgrades declined to 11.94% of the total rated U.S. population in 2011 from 12.81% in 2010, while downgrades increased to 9.97% from 9.00% in 2010 (see table 6). The ratio of downgrades to upgrades rose to 0.83 from 0.70 as the number of downgrades picked up in the second half of the year. Nevertheless, the count of upgrades was still higher than that of downgrades. In the U.S., 2006 and 2010 were the only other years in the past decade that the downgrade-to-upgrade ratio was less than one in the U.S. Globally, however, downgrades outpaced upgrades as a series of sovereign downgrades occurred in Europe and political upheaval in the Middle East led to heightened market volatility and downgrades.

Table 6

Summary Of U.S. Net Annual Corporate Rating Activity* (%)
Year Count of issuers as of Jan. 1 Upgrades Downgrades§ Defaults Withdrawn ratings Changed ratings Unchanged ratings Downgrade-to-upgrade ratio
1981 1354 9.82 13.29 0.15 2.07 25.33 74.67 1.35
1982 1398 6.01 12.52 1.22 5.36 25.11 74.89 2.08
1983 1408 7.24 11.79 0.78 5.40 25.21 74.79 1.63
1984 1477 11.37 9.95 0.95 2.98 25.25 74.75 0.88
1985 1550 8.13 14.26 1.16 4.06 27.61 72.39 1.75
1986 1769 7.29 16.05 1.81 7.12 32.28 67.72 2.20
1987 1901 7.31 12.05 1.00 9.52 29.88 70.12 1.65
1988 1964 8.91 12.17 1.48 8.50 31.06 68.94 1.37
1989 1969 9.65 11.22 1.73 8.58 31.18 68.82 1.16
1990 1920 6.56 16.04 2.92 7.19 32.71 67.29 2.44
1991 1803 6.54 13.20 3.55 4.05 27.34 72.66 2.02
1992 1821 10.38 9.72 1.76 4.39 26.25 73.75 0.94
1993 1955 9.57 8.39 0.66 9.05 27.67 72.33 0.88
1994 2113 7.76 8.23 0.71 5.02 21.72 78.28 1.06
1995 2301 9.17 8.21 1.26 5.30 23.95 76.05 0.90
1996 2415 10.02 7.33 0.62 7.78 25.76 74.24 0.73
1997 2581 10.03 7.21 0.77 8.06 26.08 73.92 0.72
1998 2900 8.45 8.97 1.21 8.03 26.66 73.34 1.06
1999 3136 6.28 10.49 2.26 8.45 27.49 72.51 1.67
2000 3162 5.76 12.14 3.23 7.15 28.27 71.73 2.11
2001 3083 5.22 16.06 4.54 7.17 32.99 67.01 3.07
2002 2919 4.86 19.39 3.12 6.89 34.26 65.74 3.99
2003 2828 5.73 15.52 2.30 7.11 30.66 69.34 2.71
2004 2794 6.73 9.74 1.11 7.91 25.48 74.52 1.45
2005 2863 9.36 11.28 0.94 7.58 29.17 70.83 1.21
2006 2935 10.90 10.19 0.61 7.80 29.51 70.49 0.93
2007 3032 10.22 11.54 0.49 9.00 31.27 68.73 1.13
2008 3080 7.18 17.82 2.47 7.37 34.84 65.16 2.48
2009 2943 5.13 18.45 5.71 6.49 35.78 64.22 3.60
2010 2779 12.81 9.00 1.62 5.47 28.90 71.10 0.70
2011 2890 11.94 9.97 1.04 6.85 29.79 70.21 0.83
Weighted average 8.20 12.08 1.83 6.95 29.05 70.95 1.68
Median 8.13 11.54 1.22 7.15 28.27 71.73 1.37
Standard deviation 2.15 3.32 1.27 1.85 3.43 3.43 0.86
Minimum 4.86 7.21 0.15 2.07 21.72 64.22 0.70
Maximum 12.81 19.39 5.71 9.52 35.78 78.28 3.99
*This table compares the net change in ratings from the first to the last day of each year. All intermediate ratings are disregarded. §Excludes revisions to 'D', shown separately in the default column. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Transition Tables And Cumulative Default Rates

The analysis of rating transitions in 2011 suggests that ratings behavior in the U.S. continues to exhibit consistency generally with global trends. These trends show a negative correspondence between credit rating and default probability. Investment-grade-rated issuers in the U.S. tend to exhibit greater rating stability (as measured by the frequency of rating transitions) than their speculative-grade counterparts (see table 7). For instance, 90.57% of U.S. issuers rated 'A' at the beginning of this period (i.e., Jan. 1, 2011) were still rated 'A' at the end of this period (i.e., Dec. 31, 2011), whereas the comparable share for issuers rated 'B' was only 78.16%.

Table 7

2011 Corporate Transition Rates: U.S. Versus Global (%)
From/to AAA AA A BBB BB B CCC/C D NR
U.S.
AAA 14.29 82.14 0.00 0.00 0.00 0.00 0.00 0.00 3.57
AA 0.00 83.33 11.36 0.76 0.00 0.00 0.00 0.00 4.55
A 0.00 0.92 90.57 4.99 0.18 0.00 0.00 0.00 3.33
BBB 0.00 0.00 2.21 92.54 2.07 0.00 0.14 0.14 2.90
BB 0.00 0.00 0.00 2.94 83.23 5.24 0.00 0.00 8.60
B 0.00 0.00 0.00 0.22 5.38 78.16 3.70 1.57 10.97
CCC/C 0.00 0.00 0.00 0.00 0.00 23.16 47.37 15.79 13.68
Global
AAA 49.02 47.06 0.00 0.00 0.00 0.00 0.00 0.00 3.92
AA 0.00 80.99 12.67 0.83 0.00 0.28 0.00 0.00 5.23
A 0.00 1.80 86.66 6.78 0.50 0.00 0.00 0.00 4.25
BBB 0.00 0.00 2.68 89.61 2.75 0.33 0.07 0.07 4.51
BB 0.00 0.00 0.00 5.60 79.33 4.68 0.51 0.00 9.88
B 0.00 0.00 0.00 0.14 6.59 76.29 3.44 1.50 12.03
CCC/C 0.00 0.00 0.00 0.00 0.00 23.19 47.83 15.94 13.04
Sources: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

The notable exception to the general stability of higher-rated entities is in the 'AAA' category this year. In the U.S., only 14.29% of issuers rated 'AAA' on Jan. 1, 2011, remained rated 'AAA' at the end of the year. Most of these downgrades followed Standard & Poor's downgrade of the U.S. to 'AA+' from 'AAA' on Aug. 5. This rating action led to downgrades of several companies with long-term ratings constrained by country-risk exposure, as well as several government-related financial institutions that we classify as having a very high likelihood of receiving government support, if needed (see table 8).

Table 8

U.S. Companies Downgraded From 'AAA' In 2011
Issuer
Financial institutions
Confidential
Federal Home Loan Bank of Atlanta
Federal Home Loan Bank of Boston
Federal Home Loan Bank of Cincinnati
Federal Home Loan Bank of Dallas
Federal Home Loan Bank of Des Moines
Federal Home Loan Bank of Indianapolis
Federal Home Loan Bank of New York
Federal Home Loan Bank of Pittsburgh
Federal Home Loan Bank of San Francisco
Federal Home Loan Bank of Topeka
Federal Home Loan Banks
Fixed Income Clearing Corp.
National Securities Clearing Corp.
Options Clearing Corp.
The Depository Trust Co.
Insurance
Knights of Columbus
New York Life Insurance Co.
Northwestern Mutual Life Insurance Co.
Teachers Insurance & Annuity Association of America
United Services Automobile Association
USAA Capital Corp.
USAA Life Insurance Co.
Sources: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

The CreditPro® database that we used to conduct our default study is constructed with the aim of capturing a group of companies that best reflects individual default risk. With this in mind, we excluded subsidiaries with debt that is fully guaranteed by their parents as well as subsidiaries with default risk that is considered identical to that of their parents. However, in some instances, this changes over time--such as a parent company gradually increasing its ownership stake in its subsidiary, or a group of distinct companies sharing a common rating profile. In such cases, it's common for more than one member of a group of companies to have ratings entries in CreditPro®. When a rating action affects multiple members of a group, this can then amplify the transition. This typically becomes more evident at the higher rating categories.

The long-term (1981-2011) trend of ratings behavior among all global rated issuers shows that higher-rated companies are generally more stable than lower-rated companies. Of the U.S. issuers rated 'AAA', 87.41% retained this rating after one year, whereas only 74.54% of issuers rated 'B' maintained that rating after a year (see table 9). Based on the transition analysis for a time horizon of three years rather than one year, lower ratings also tend to display less stability than higher ratings do (see table 9).

Table 9

Average One-Year Corporate Transition Rates (1981-2011) (%)
From/to AAA AA A BBB BB B CCC/C D NR
U.S.
AAA 87.41 8.42 0.57 0.04 0.12 0.04 0.04 0.00 3.35
(14.92) (15.03) (1.22) (0.19) (0.36) (0.32) (0.32) (0.00) (2.63)
AA 0.57 86.28 8.05 0.65 0.09 0.13 0.04 0.04 4.16
(0.52) (6.51) (4.83) (0.89) (0.23) (0.30) (0.11) (0.18) (2.37)
A 0.05 1.80 87.26 5.63 0.46 0.19 0.03 0.08 4.49
(0.14) (1.28) (3.74) (2.41) (0.54) (0.36) (0.11) (0.17) (1.83)
BBB 0.01 0.14 3.58 85.03 4.23 0.72 0.13 0.27 5.89
(0.07) (0.22) (2.42) (4.91) (1.71) (1.08) (0.19) (0.31) (1.93)
BB 0.03 0.06 0.20 5.13 75.85 8.12 0.68 0.96 8.98
(0.08) (0.17) (0.38) (2.62) (5.28) (4.80) (0.84) (1.00) (2.86)
B 0.00 0.05 0.15 0.24 5.02 74.54 4.65 4.59 10.76
(0.00) (0.13) (0.38) (0.35) (2.49) (5.30) (2.72) (3.30) (3.06)
CCC/C 0.00 0.00 0.23 0.35 0.87 12.25 45.06 27.58 13.65
(0.00) (0.00) (0.75) (1.08) (1.42) (8.44) (12.39) (12.90) (6.84)
Global
AAA 87.19 8.69 0.54 0.05 0.08 0.03 0.05 0.00 3.37
(9.11) (9.10) (0.87) (0.31) (0.25) (0.20) (0.40) (0.00) (2.58)
AA 0.56 86.32 8.30 0.54 0.06 0.08 0.02 0.02 4.09
(0.55) (4.94) (4.01) (0.73) (0.25) (0.25) (0.07) (0.07) (1.92)
A 0.04 1.91 87.27 5.44 0.38 0.16 0.02 0.08 4.72
(0.13) (1.15) (3.49) (2.10) (0.49) (0.36) (0.07) (0.11) (1.92)
BBB 0.01 0.12 3.64 84.87 3.91 0.64 0.15 0.24 6.42
(0.07) (0.23) (2.31) (4.64) (1.84) (1.03) (0.24) (0.27) (1.82)
BB 0.02 0.04 0.16 5.24 75.87 7.19 0.75 0.90 9.84
(0.06) (0.16) (0.39) (2.37) (4.97) (4.70) (0.92) (1.05) (2.85)
B 0.00 0.04 0.13 0.22 5.57 73.42 4.42 4.48 11.72
(0.00) (0.13) (0.38) (0.34) (2.52) (5.30) (2.57) (3.32) (3.02)
CCC/C 0.00 0.00 0.17 0.26 0.78 13.67 43.93 26.82 14.37
(0.00) (0.00) (0.71) (1.02) (1.30) (8.59) (12.79) (12.68) (7.32)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 10

Average Three-Year Corporate Transition Rates (1981-2011) (%)
From/to AAA AA A BBB BB B CCC/C D NR
U.S.
AAA 68.27 18.10 2.44 0.38 0.21 0.13 0.13 0.17 10.19
(14.87) (15.91) (2.17) (1.00) (0.56) (0.51) (0.50) (0.60) (5.32)
AA 1.27 65.08 18.10 2.53 0.46 0.42 0.04 0.20 11.90
(0.66) (10.39) (6.64) (1.73) (0.68) (0.67) (0.16) (0.44) (4.78)
A 0.10 4.24 67.53 12.03 1.75 0.68 0.14 0.42 13.12
(0.12) (2.64) (5.70) (3.02) (1.16) (0.85) (0.20) (0.36) (3.29)
BBB 0.04 0.45 8.39 63.04 7.88 2.42 0.34 1.22 16.22
(0.11) (0.49) (4.50) (8.94) (2.50) (1.79) (0.49) (0.73) (3.82)
BB 0.02 0.09 0.78 10.83 44.31 13.75 1.39 5.46 23.38
(0.10) (0.23) (1.09) (4.68) (6.75) (4.14) (1.06) (3.25) (4.69)
B 0.01 0.05 0.40 1.03 9.98 40.68 4.87 15.79 27.19
(0.12) (0.16) (0.79) (1.03) (3.55) (6.73) (2.57) (6.66) (6.21)
CCC/C 0.00 0.00 0.34 0.95 1.84 11.99 12.67 45.71 26.50
(0.00) (0.00) (0.94) (2.37) (3.51) (7.84) (11.41) (15.02) (10.71)
Global
AAA 66.82 19.93 2.42 0.33 0.17 0.08 0.11 0.14 9.99
(11.61) (11.67) (1.67) (0.83) (0.45) (0.35) (0.51) (0.39) (5.50)
AA 1.29 65.24 18.95 2.24 0.36 0.27 0.03 0.15 11.47
(0.79) (8.34) (5.83) (1.41) (0.66) (0.53) (0.08) (0.19) (4.32)
A 0.08 4.42 67.45 11.90 1.40 0.57 0.12 0.33 13.74
(0.11) (2.38) (5.96) (2.83) (1.14) (0.82) (0.16) (0.26) (3.69)
BBB 0.03 0.38 8.67 62.12 7.36 2.07 0.36 1.19 17.83
(0.10) (0.54) (4.11) (7.92) (2.67) (1.76) (0.50) (0.86) (3.40)
BB 0.01 0.07 0.65 11.17 44.28 12.13 1.35 4.97 25.36
(0.09) (0.23) (1.10) (4.30) (5.86) (3.83) (1.09) (3.44) (4.01)
B 0.01 0.04 0.32 1.00 10.71 39.49 4.54 15.25 28.63
(0.12) (0.16) (0.80) (0.99) (3.64) (6.30) (2.40) (6.82) (6.03)
CCC/C 0.00 0.00 0.26 0.88 1.86 15.18 11.62 42.69 27.52
(0.00) (0.00) (0.86) (2.34) (3.41) (7.59) (11.50) (14.23) (11.60)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 11

Average 10-Year Corporate Transition Rates (1981-2011) (%)
From/to AAA AA A BBB BB B CCC/C D NR
U.S.
AAA 31.09 25.68 9.25 2.83 0.25 0.10 0.05 0.71 30.03
(7.51) (9.53) (2.99) (3.23) (0.47) (0.35) (0.22) (0.85) (6.37)
AA 1.72 26.35 28.82 7.35 1.15 0.57 0.05 0.87 33.13
(0.76) (5.99) (3.67) (1.97) (0.97) (0.56) (0.14) (0.77) (4.63)
A 0.18 5.09 34.39 17.86 3.42 1.23 0.17 2.18 35.48
(0.20) (2.01) (3.54) (2.48) (0.69) (0.95) (0.23) (0.80) (2.85)
BBB 0.03 1.12 9.92 30.04 7.54 3.02 0.24 5.90 42.19
(0.13) (0.68) (4.33) (4.50) (1.23) (1.40) (0.24) (1.54) (3.40)
BB 0.03 0.08 1.88 10.82 12.94 7.97 0.76 18.75 46.75
(0.10) (0.23) (1.56) (3.73) (4.24) (3.57) (0.62) (4.49) (5.00)
B 0.00 0.02 0.67 2.54 6.25 7.72 0.93 33.67 48.20
(0.00) (0.08) (0.96) (2.14) (1.33) (2.87) (0.82) (6.20) (5.96)
CCC/C 0.00 0.00 0.36 0.83 2.13 2.13 0.36 57.70 36.49
(0.00) (0.00) (1.00) (1.87) (4.17) (3.18) (0.79) (11.91) (11.52)
Global
AAA 28.49 28.06 10.26 3.32 0.17 0.07 0.03 0.67 28.93
(5.86) (6.77) (2.19) (2.38) (0.31) (0.24) (0.14) (0.81) (7.26)
AA 1.44 28.33 28.75 7.18 1.03 0.44 0.03 0.77 32.02
(0.81) (4.24) (3.02) (1.40) (0.88) (0.38) (0.11) (0.71) (4.18)
A 0.15 5.51 34.29 17.56 3.15 1.07 0.14 1.90 36.23
(0.19) (1.80) (3.85) (2.18) (0.60) (0.93) (0.18) (0.78) (3.85)
BBB 0.03 1.14 10.17 29.54 7.30 2.91 0.30 5.77 42.83
(0.15) (0.74) (3.77) (4.00) (1.14) (1.10) (0.24) (1.55) (3.02)
BB 0.02 0.08 2.02 10.83 12.70 7.45 0.69 18.78 47.42
(0.10) (0.23) (1.38) (3.74) (3.45) (2.73) (0.53) (4.33) (4.02)
B 0.00 0.02 0.67 2.53 6.18 7.37 0.88 33.43 48.92
(0.00) (0.08) (0.95) (2.06) (1.43) (2.57) (0.80) (5.87) (5.27)
CCC/C 0.00 0.00 0.30 0.79 3.35 2.85 0.30 56.69 35.73
(0.00) (0.00) (0.92) (1.83) (4.09) (3.16) (0.63) (10.56) (11.36)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Transitions at the rating modifier (plus or minus following the rating) also display the same relationship by and large, though differences in stability rates among rating modifiers within the same rating category frequently exist (see table 12).

Table 12

Average One-Year Transition Rates For U.S. Corporate Issuers By Rating Modifier (1981-2011) (%)
--Rating--
From/to AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC D NR
AAA 87.41 4.91 2.82 0.70 0.20 0.20 0.16 0.00 0.04 0.00 0.04 0.08 0.00 0.00 0.04 0.00 0.04 0.00 3.35
(14.92) (15.10) (4.17) (1.16) (0.61) (0.75) (0.48) (0.00) (0.19) (0.00) (0.25) (0.26) (0.00) (0.00) (0.32) (0.00) (0.32) (0.00) (2.63)
AA+ 2.60 76.98 9.69 4.79 0.83 0.63 0.31 0.00 0.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.96
(4.28) (16.83) (9.80) (6.47) (4.50) (1.28) (1.00) (0.00) (1.09) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (5.42)
AA 0.48 1.28 81.30 7.11 2.80 1.60 0.43 0.56 0.19 0.11 0.05 0.05 0.03 0.00 0.00 0.03 0.08 0.03 3.89
(0.50) (1.61) (9.92) (5.90) (2.45) (1.76) (1.43) (1.11) (0.41) (0.49) (0.26) (0.19) (0.11) (0.00) (0.00) (0.09) (0.25) (0.20) (3.14)
AA- 0.06 0.16 3.88 76.65 10.05 3.09 0.63 0.32 0.16 0.06 0.06 0.00 0.00 0.06 0.19 0.03 0.00 0.06 4.54
(0.43) (0.38) (3.29) (8.42) (5.47) (3.69) (1.16) (0.73) (0.47) (0.18) (0.47) (0.00) (0.00) (0.27) (0.66) (0.14) (0.00) (0.21) (2.62)
A+ 0.00 0.12 0.63 3.96 78.19 8.54 2.58 0.79 0.41 0.12 0.10 0.18 0.02 0.08 0.06 0.02 0.00 0.06 4.14
(0.00) (0.39) (1.04) (2.73) (5.80) (3.30) (1.74) (0.95) (0.46) (0.28) (0.24) (0.40) (0.08) (0.21) (0.19) (0.09) (0.00) (0.21) (2.06)
A 0.07 0.03 0.35 0.48 4.90 78.51 6.02 2.98 1.16 0.31 0.19 0.19 0.13 0.12 0.04 0.01 0.03 0.08 4.41
(0.18) (0.10) (0.57) (0.56) (1.81) (4.50) (2.87) (1.87) (1.14) (0.43) (0.30) (0.40) (0.42) (0.39) (0.15) (0.07) (0.11) (0.17) (2.26)
A- 0.08 0.02 0.10 0.21 0.54 6.27 75.34 7.91 2.95 0.65 0.17 0.21 0.17 0.19 0.04 0.02 0.08 0.11 4.94
(0.36) (0.09) (0.29) (0.47) (0.82) (3.95) (6.85) (3.59) (1.48) (0.90) (0.60) (0.56) (0.36) (0.53) (0.11) (0.14) (0.27) (0.28) (2.15)
BBB+ 0.00 0.02 0.12 0.08 0.33 1.18 6.55 72.42 9.35 2.46 0.56 0.46 0.19 0.33 0.15 0.04 0.12 0.19 5.44
(0.00) (0.08) (0.31) (0.29) (0.77) (1.74) (3.67) (7.37) (3.49) (2.05) (0.91) (0.76) (0.35) (0.72) (0.40) (0.11) (0.28) (0.34) (2.79)
BBB 0.01 0.00 0.04 0.04 0.19 0.55 1.39 6.70 75.19 6.17 1.68 0.79 0.43 0.37 0.18 0.03 0.09 0.25 5.86
(0.12) (0.00) (0.14) (0.22) (0.33) (1.05) (1.51) (3.09) (5.75) (2.70) (1.36) (0.85) (0.79) (0.68) (0.68) (0.09) (0.18) (0.37) (2.75)
BBB- 0.02 0.02 0.00 0.11 0.08 0.23 0.42 1.39 8.48 71.75 5.33 2.89 1.14 0.61 0.27 0.25 0.21 0.36 6.43
(0.12) (0.09) (0.00) (0.36) (0.30) (0.74) (1.02) (1.97) (3.24) (7.77) (3.03) (2.28) (1.16) (1.52) (0.81) (0.81) (0.45) (0.53) (2.77)
BB+ 0.11 0.00 0.00 0.07 0.04 0.22 0.11 0.56 2.71 11.36 62.76 6.42 3.71 1.56 1.08 0.19 0.48 0.63 7.98
(0.38) (0.00) (0.00) (0.23) (0.14) (0.95) (0.30) (1.28) (2.87) (5.86) (6.84) (3.63) (2.88) (2.87) (2.94) (0.47) (1.27) (0.97) (3.82)
BB 0.00 0.00 0.08 0.03 0.00 0.11 0.08 0.24 0.90 2.90 7.48 64.62 8.35 2.98 1.66 0.55 0.47 0.84 8.72
(0.00) (0.00) (0.39) (0.11) (0.00) (0.51) (0.40) (0.71) (1.25) (3.29) (4.87) (7.05) (4.02) (2.01) (1.82) (0.86) (1.00) (0.87) (3.74)
BB- 0.00 0.00 0.00 0.02 0.02 0.02 0.10 0.21 0.32 0.51 2.17 8.05 63.81 8.38 3.41 1.16 0.93 1.22 9.67
(0.00) (0.00) (0.00) (0.17) (0.12) (0.11) (0.43) (0.40) (0.71) (0.92) (2.34) (4.40) (7.81) (5.07) (2.24) (1.24) (1.18) (1.69) (3.39)
B+ 0.00 0.01 0.00 0.05 0.00 0.04 0.10 0.05 0.08 0.10 0.31 1.38 6.36 66.79 7.68 2.43 1.88 2.49 10.25
(0.00) (0.08) (0.00) (0.19) (0.00) (0.11) (0.31) (0.19) (0.28) (0.26) (0.44) (1.42) (3.13) (7.78) (3.67) (1.34) (1.60) (2.13) (3.68)
B 0.00 0.00 0.02 0.02 0.00 0.10 0.08 0.06 0.10 0.02 0.20 0.36 1.44 8.08 59.96 7.72 5.63 5.51 10.69
(0.00) (0.00) (0.16) (0.09) (0.00) (0.44) (0.89) (0.16) (0.65) (0.16) (0.78) (1.08) (2.11) (4.14) (9.35) (4.06) (4.79) (4.73) (4.35)
B- 0.00 0.00 0.00 0.00 0.05 0.09 0.00 0.18 0.05 0.14 0.23 0.14 0.73 2.83 9.92 50.66 12.25 10.01 12.71
(0.00) (0.00) (0.00) (0.00) (0.85) (0.80) (0.00) (0.70) (0.24) (0.87) (1.07) (2.34) (1.86) (3.38) (6.15) (12.17) (7.04) (8.09) (7.55)
CCC/C 0.00 0.00 0.00 0.00 0.06 0.00 0.17 0.12 0.12 0.12 0.06 0.29 0.52 1.45 3.19 7.61 45.06 27.58 13.65
(0.00) (0.00) (0.00) (0.00) (0.35) (0.00) (0.69) (0.66) (0.43) (0.81) (0.33) (0.71) (1.23) (2.31) (5.87) (5.28) (12.39) (12.90) (6.84)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Consistent with global trends, ratings in the U.S. have shown a negative correspondence between ratings and defaults: the higher the issuer rating, the lower the observed frequency of default, and vice versa. This relationship remains true over time, as the cumulative average default rates illustrate (see tables 13 and 14 and chart 7). Chart 7 provides an illustration of the data in the top half of table 13. From this view, the relationship between default occurrence and rating is most obvious, with the lowest rating categories exhibiting default rates far in excess of the investment-grade categories.

Table 13

Comparison Of Corporate Average Cumulative Default Rates (1981-2011) (%)
Rating --Time horizon (years)--
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
U.S.
AAA 0.00 0.04 0.17 0.30 0.43 0.56 0.61 0.70 0.80 0.90 0.96 1.01 1.07 1.19 1.32
(0.00) (0.01) (0.07) (0.14) (0.20) (0.26) (0.26) (0.24) (0.21) (0.20) (0.19) (0.18) (0.17) (0.17) (0.19)
AA 0.04 0.09 0.19 0.34 0.48 0.64 0.78 0.90 0.99 1.10 1.20 1.29 1.38 1.45 1.54
(0.01) (0.03) (0.05) (0.11) (0.16) (0.23) (0.28) (0.36) (0.37) (0.40) (0.42) (0.45) (0.42) (0.39) (0.37)
A 0.08 0.23 0.41 0.62 0.84 1.08 1.36 1.62 1.90 2.19 2.44 2.64 2.84 3.02 3.25
(0.03) (0.04) (0.07) (0.11) (0.12) (0.11) (0.14) (0.16) (0.20) (0.28) (0.39) (0.42) (0.43) (0.41) (0.39)
BBB 0.27 0.71 1.18 1.81 2.48 3.16 3.76 4.38 4.99 5.58 6.16 6.63 7.09 7.58 8.07
(0.06) (0.13) (0.12) (0.18) (0.24) (0.35) (0.45) (0.51) (0.63) (0.72) (0.80) (0.69) (0.53) (0.36) (0.23)
BB 0.96 2.93 5.31 7.53 9.50 11.46 13.13 14.65 16.03 17.23 18.21 19.08 19.82 20.43 21.14
(0.31) (0.53) (0.73) (1.07) (1.58) (2.18) (2.15) (2.27) (2.61) (2.87) (3.33) (3.35) (3.33) (3.12) (2.98)
B 4.59 10.29 15.22 19.06 22.02 24.41 26.37 27.94 29.31 30.61 31.75 32.67 33.51 34.28 35.06
(0.90) (1.90) (2.13) (2.35) (2.87) (2.87) (3.05) (3.26) (3.21) (2.85) (2.27) (2.21) (2.09) (2.26) (2.46)
CCC/C 27.58 38.13 44.28 48.19 51.09 52.43 53.59 54.47 55.66 56.51 57.34 58.23 59.18 60.00 60.00
(6.97) (7.58) (8.83) (9.85) (9.95) (8.62) (8.87) (8.89) (8.51) (7.16) (7.33) (7.42) (7.22) (5.90) (5.90)
Investment grade 0.14 0.37 0.64 0.98 1.34 1.71 2.06 2.41 2.74 3.08 3.39 3.64 3.89 4.13 4.39
(0.03) (0.06) (0.10) (0.14) (0.17) (0.18) (0.20) (0.20) (0.27) (0.34) (0.42) (0.41) (0.37) (0.31) (0.25)
Speculative grade 4.49 8.91 12.81 15.95 18.47 20.60 22.37 23.88 25.23 26.46 27.50 28.39 29.19 29.88 30.58
(0.95) (1.37) (1.68) (1.77) (1.75) (1.43) (1.53) (1.54) (1.32) (1.05) (0.83) (0.79) (0.76) (0.74) (0.75)
All rated 1.83 3.66 5.30 6.69 7.83 8.84 9.68 10.42 11.10 11.73 12.27 12.73 13.15 13.52 13.92
(0.42) (0.70) (0.97) (1.14) (1.23) (1.20) (1.25) (1.22) (1.15) (1.00) (0.88) (0.91) (0.95) (1.03) (1.11)
Global
AAA 0.00 0.03 0.14 0.25 0.37 0.49 0.55 0.64 0.71 0.78 0.81 0.85 0.89 0.97 1.06
(0.00) (0.01) (0.07) (0.13) (0.19) (0.26) (0.28) (0.28) (0.24) (0.21) (0.20) (0.19) (0.18) (0.19) (0.20)
AA 0.02 0.07 0.14 0.26 0.37 0.49 0.60 0.69 0.77 0.86 0.94 1.01 1.09 1.17 1.23
(0.01) (0.03) (0.04) (0.09) (0.15) (0.22) (0.29) (0.37) (0.38) (0.41) (0.43) (0.47) (0.44) (0.42) (0.41)
A 0.08 0.18 0.32 0.48 0.66 0.86 1.10 1.31 1.53 1.77 1.97 2.14 2.30 2.45 2.66
(0.02) (0.04) (0.05) (0.08) (0.09) (0.10) (0.13) (0.16) (0.24) (0.36) (0.49) (0.53) (0.55) (0.53) (0.53)
BBB 0.24 0.67 1.13 1.71 2.30 2.88 3.38 3.88 4.38 4.88 5.41 5.85 6.30 6.76 7.22
(0.06) (0.14) (0.17) (0.24) (0.31) (0.41) (0.50) (0.59) (0.73) (0.84) (0.93) (0.82) (0.67) (0.53) (0.43)
BB 0.90 2.70 4.80 6.80 8.61 10.34 11.85 13.21 14.49 15.59 16.49 17.29 17.97 18.55 19.24
(0.31) (0.56) (0.83) (1.20) (1.69) (2.30) (2.29) (2.43) (2.78) (3.04) (3.51) (3.55) (3.56) (3.36) (3.23)
B 4.48 9.95 14.57 18.15 20.83 23.00 24.76 26.19 27.46 28.70 29.77 30.65 31.47 32.22 33.01
(0.94) (1.98) (2.21) (2.44) (2.91) (2.87) (3.01) (3.19) (3.13) (2.78) (2.21) (2.13) (2.00) (2.15) (2.34)
CCC/C 26.82 35.84 41.14 44.27 46.72 47.82 48.79 49.66 50.77 51.65 52.42 53.28 54.24 55.13 55.13
(6.99) (7.19) (8.32) (9.21) (9.33) (7.91) (8.14) (8.15) (7.82) (6.46) (6.62) (6.73) (6.54) (5.22) (5.22)
Investment grade 0.12 0.33 0.57 0.86 1.17 1.47 1.76 2.03 2.30 2.57 2.82 3.04 3.25 3.46 3.69
(0.03) (0.06) (0.10) (0.13) (0.16) (0.16) (0.18) (0.22) (0.29) (0.40) (0.49) (0.49) (0.45) (0.39) (0.34)
Speculative grade 4.21 8.23 11.74 14.56 16.82 18.72 20.31 21.68 22.93 24.08 25.06 25.89 26.65 27.33 28.03
(0.98) (1.41) (1.73) (1.85) (1.86) (1.61) (1.68) (1.68) (1.53) (1.37) (1.30) (1.28) (1.28) (1.23) (1.20)
All rated 1.57 3.10 4.47 5.62 6.58 7.41 8.12 8.73 9.30 9.83 10.29 10.68 11.05 11.38 11.74
(0.38) (0.60) (0.82) (0.94) (0.99) (0.93) (0.95) (0.88) (0.78) (0.61) (0.47) (0.47) (0.49) (0.55) (0.61)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 14

U.S. Corporate Average Cumulative Default Rates By Rating Modifier (1981-2011) (%)
--Time horizon (years)--
Rating 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
AAA 0.00 0.04 0.17 0.30 0.43 0.56 0.61 0.70 0.80 0.90 0.96 1.01 1.07 1.19 1.32
(0.00) (0.01) (0.07) (0.14) (0.20) (0.26) (0.26) (0.24) (0.21) (0.20) (0.19) (0.18) (0.17) (0.17) (0.19)
AA+ 0.00 0.11 0.11 0.21 0.33 0.44 0.55 0.67 0.78 0.90 1.03 1.16 1.30 1.45 1.61
(0.00) (0.09) (0.09) (0.24) (0.50) (0.88) (1.62) (1.60) (1.58) (1.55) (1.53) (1.50) (1.47) (1.44) (1.40)
AA 0.03 0.05 0.14 0.33 0.50 0.65 0.79 0.92 1.01 1.14 1.24 1.31 1.45 1.52 1.60
(0.01) (0.02) (0.05) (0.09) (0.14) (0.17) (0.20) (0.21) (0.22) (0.27) (0.30) (0.28) (0.24) (0.23) (0.21)
AA- 0.06 0.13 0.29 0.40 0.50 0.69 0.84 0.95 1.03 1.12 1.20 1.30 1.30 1.35 1.41
(0.03) (0.05) (0.14) (0.27) (0.41) (0.61) (0.69) (0.81) (0.88) (0.84) (0.81) (1.14) (1.14) (1.13) (1.14)
A+ 0.06 0.14 0.33 0.58 0.78 0.96 1.18 1.37 1.63 1.90 2.15 2.39 2.69 3.04 3.35
(0.03) (0.22) (0.19) (0.16) (0.17) (0.20) (0.25) (0.27) (0.22) (0.20) (0.31) (0.36) (0.40) (0.53) (0.54)
A 0.08 0.22 0.36 0.55 0.76 1.00 1.23 1.48 1.79 2.15 2.44 2.61 2.76 2.85 3.11
(0.03) (0.05) (0.09) (0.14) (0.18) (0.17) (0.22) (0.21) (0.24) (0.26) (0.36) (0.42) (0.45) (0.41) (0.36)
A- 0.11 0.33 0.56 0.76 1.01 1.32 1.75 2.09 2.34 2.55 2.74 2.94 3.12 3.24 3.33
(0.05) (0.12) (0.16) (0.21) (0.40) (0.64) (0.92) (0.98) (1.15) (1.22) (1.15) (1.08) (1.01) (0.97) (0.98)
BBB+ 0.19 0.54 0.89 1.31 1.81 2.34 2.75 3.19 3.68 4.08 4.45 4.67 4.99 5.47 6.05
(0.09) (0.23) (0.38) (0.52) (0.59) (0.68) (0.75) (0.84) (0.79) (0.83) (0.55) (0.58) (0.64) (0.78) (0.97)
BBB 0.25 0.69 1.05 1.60 2.12 2.65 3.20 3.76 4.37 4.97 5.62 6.18 6.65 6.83 7.13
(0.09) (0.30) (0.28) (0.31) (0.38) (0.42) (0.52) (0.69) (0.84) (1.01) (1.11) (0.94) (0.79) (0.74) (0.64)
BBB- 0.36 0.92 1.69 2.69 3.76 4.82 5.73 6.64 7.38 8.19 8.90 9.55 10.18 11.15 11.81
(0.11) (0.23) (0.39) (0.59) (0.98) (1.39) (1.65) (1.49) (1.54) (1.35) (1.43) (1.38) (1.26) (1.03) (0.97)
BB+ 0.63 1.68 3.01 4.44 5.77 7.27 8.60 9.44 10.52 11.55 12.26 13.04 13.66 14.17 15.10
(0.25) (0.72) (1.99) (2.72) (3.19) (3.33) (3.66) (4.02) (4.74) (5.15) (4.96) (4.71) (4.47) (4.37) (4.22)
BB 0.84 2.32 4.72 6.81 8.75 10.61 12.20 13.59 14.75 15.79 16.77 17.64 18.13 18.43 18.82
(0.26) (0.35) (0.72) (0.90) (1.25) (1.23) (1.34) (1.55) (1.31) (1.38) (0.85) (1.13) (1.30) (1.38) (1.50)
BB- 1.22 4.02 6.92 9.64 11.96 14.25 16.15 18.14 19.87 21.29 22.41 23.36 24.34 25.25 26.09
(0.41) (0.71) (0.79) (1.07) (1.58) (2.58) (2.72) (2.90) (3.25) (3.60) (4.29) (4.54) (4.58) (4.24) (4.07)
B+ 2.49 6.83 11.09 14.80 17.74 20.02 22.14 24.05 25.77 27.43 28.79 29.81 30.81 31.71 32.53
(0.60) (1.87) (2.64) (3.19) (3.73) (4.17) (4.55) (4.84) (4.99) (2.44) (2.64) (2.77) (2.89) (3.01) (3.14)
B 5.51 12.36 17.92 21.70 24.56 27.39 29.08 30.15 31.05 31.88 32.78 33.64 34.41 35.10 35.93
(1.61) (2.60) (2.85) (3.24) (4.02) (3.72) (3.68) (3.85) (3.78) (3.38) (2.59) (2.39) (2.06) (2.26) (2.47)
B- 10.01 18.18 24.36 29.02 32.42 34.44 36.33 37.47 38.21 38.79 39.41 39.96 40.25 40.57 41.08
(3.08) (5.46) (6.24) (6.86) (7.21) (7.47) (7.92) (8.13) (8.27) (8.33) (7.74) (7.93) (8.04) (8.15) (8.32)
CCC/C 27.58 38.13 44.28 48.19 51.09 52.43 53.59 54.47 55.66 56.51 57.34 58.23 59.18 60.00 60.00
(6.97) (7.58) (8.83) (9.85) (9.95) (8.62) (8.87) (8.89) (8.51) (7.16) (7.33) (7.42) (7.22) (5.90) (5.90)
Investment grade 0.14 0.37 0.64 0.98 1.34 1.71 2.06 2.41 2.74 3.08 3.39 3.64 3.89 4.13 4.39
(0.03) (0.06) (0.10) (0.14) (0.17) (0.18) (0.20) (0.20) (0.27) (0.34) (0.42) (0.41) (0.37) (0.31) (0.25)
Speculative grade 4.49 8.91 12.81 15.95 18.47 20.60 22.37 23.88 25.23 26.46 27.50 28.39 29.19 29.88 30.58
(0.95) (1.37) (1.68) (1.77) (1.75) (1.43) (1.53) (1.54) (1.32) (1.05) (0.83) (0.79) (0.76) (0.74) (0.75)
All rated 1.83 3.66 5.30 6.69 7.83 8.84 9.68 10.42 11.10 11.73 12.27 12.73 13.15 13.52 13.92
(0.42) (0.70) (0.97) (1.14) (1.23) (1.20) (1.25) (1.22) (1.15) (1.00) (0.88) (0.91) (0.95) (1.03) (1.11)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Higher Ratings Are Consistent With Fewer Defaults

The majority of defaults in our sample comes from the U.S.--which has the highest number of rated, corporate entities. From 1981 to 2011, 2,068 global corporate issuers defaulted. The U.S. accounted for 1,621, or 78% of the total. The time to default--the average number of years between the initial rating date and the default date--for the 39 U.S. defaulters in 2011 was 6.52 years. This is longer than the 5.66-year average for the long-term global pool. In 2011, two companies that had been rated for 20 years or more defaulted. They were AMR Corp. and PMI Mortgage Insurance Co. AMR, the parent company of American Airlines, had been rated for nearly 31 years, and was speculative grade since 2001.

Both in the U.S. and globally, companies with lower initial ratings generally take less time to default from their initial rating than higher-rated entities do (see chart 7 and table 15). For example, U.S. entities rated 'B' took an average of 5.1 years to default, less than the 7.0 years for 'BB' rated entities. Globally, the same relationship holds true, with the average time to default decreasing with each subsequently lower rating category. Only when looking at longer time frames do companies with higher original ratings surface among the defaulters.

Although the times to default are consistently shorter at each subsequently lower rating category, these differences are generally small. Nevertheless, we again see that the higher the rating, the longer the time to default (see table 16).

Chart 7

Table 15

Time To Default From Original Rating Among Corporate Defaulters (U.S. Versus Global) (1981-2011)
Original rating Defaults Average years from original rating* Median years from original rating Standard deviation of years from original rating
U.S.
AAA 6 18.0 19.0 11.8
AA 25 15.8 19.0 8.1
A 75 13.8 11.0 7.9
BBB 134 9.4 8.0 6.1
BB 391 7.1 6.0 5.4
B 915 5.1 4.0 4.1
CCC/C 91 3.0 2.0 3.3
NR N.A. N.A. N.A. N.A.
Total 1637 6.4 5.0 5.6
Global
AAA 7 16.4 9.0 11.3
AA 28 15.4 16.5 7.8
A 86 12.6 10.6 7.8
BBB 185 8.0 6.6 5.7
BB 513 6.4 5.0 5.0
B 1,114 4.7 3.5 3.9
CCC/C 135 2.5 1.4 3.0
NR N.A. N.A. N.A. N.A.
Total 2068 5.8 4.1 5.2
*Or Dec. 31, 1980, whichever is later. NR--Not rated. N.A.--Not available. Sources: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

Table 16

Time To Default From All Ratings For Corporate Defaulters (U.S. Versus Global) (1981-2011)
Rating path to default Average years from rating category Median years from rating category Standard deviation of years from rating category
U.S.
AAA 18.3 19.5 10.1
AA 14.9 16.8 7.9
A 11.7 10.2 7.4
BBB 8.3 6.7 6.4
BB 6.3 4.6 5.4
B 3.7 2.5 4.0
CCC/C 1.0 0.4 1.8
NR 4.8 2.9 4.9
Total 4.3 2.4 5.2
Global
AAA 17.1 15.7 10.1
AA 14.0 14.4 8.1
A 11.0 9.6 7.4
BBB 7.6 6.0 6.2
BB 5.6 4.1 5.0
B 3.4 2.2 3.8
CCC/C 0.9 0.3 1.7
NR 4.5 2.7 4.8
Total 3.8 2.0 4.9
NR--Not rated. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Chart 8

Gini Ratios And Lorenz Curves

A quantitative measure of ratings performance indicates that the relative rank ordering of ratings in the U.S. is consistent across various time horizons. To measure ratings performance or ratings accuracy, we plotted the cumulative share of issuers by rating against the cumulative share of defaulters in a Lorenz curve to show the accuracy of their rank ordering (see charts 9-11). For definitions and methodology, refer to Appendix II. Our calculations indicate that the one-year transition to default in the U.S. shows a weighted-average one-year Gini coefficient of 80.50%, a three-year of 73.82%, and a five-year of 70.14% (see table 17). If corporate ratings only randomly approximated default risk, the Gini coefficient would be zero. On the other hand, if corporate ratings were perfectly rank-ordered so that all defaults occurred only among the lowest-rated entities, the Lorenz curve would capture all of the area on the graph above the diagonal, and its Gini coefficient would be 1.

Table 17

Corporate Gini Coefficients By Region (1981-2011)
--Time horizon--
Region One-year Three-year Five-year Seven-year
Global
Weighted average 82.05 75.47 71.58 69.81
Average 84.17 77.35 73.13 70.26
Standard deviation (5.59) (5.04) (5.24) (5.03)
U.S.
Weighted average 80.50 73.82 70.14 68.45
Average 82.79 75.35 71.11 68.47
Standard deviation (6.98) (6.86) (6.79) (5.96)
Europe
Weighted average 90.76 85.52 80.34 76.17
Average 92.37 87.35 79.12 69.89
Standard deviation (5.64) (6.33) (7.12) (11.35)
Note: Numbers in parentheses are standard deviations. Standard deviation for Europe calculated for the period 1996-2011. Sources: Standard & Poor’s Global Fixed Income Research and Standard & Poor's CreditPro®.

As expected, the Gini coefficients decline as the time horizon lengthens because longer time horizons increase the likelihood of credit degradation among higher-rated entities. In the one-year U.S. Lorenz curve, for example, speculative-grade issuers accounted for 95.4% of total corporate defaults from 1981-2011, but only 38.8% of total issuers during this time (see chart 9). The five-year Lorenz curve shows that speculative-grade issuers constituted 89.0% of defaulters and only 36.7% of the entire sample (see chart 11). 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.

Chart 9

Chart 10

Chart 11

The three- and five-year Gini ratios ended in 2011 rebounded from their all-time lows in 2009 (see chart 12). By encompassing longer time horizons, the three- and five-year Gini ratios experience a delay, though they are roughly parallel to the one-year ratio. Because of this, we expect that these two series will also rebound along the same path as the one-year Gini ratio did from 2008-2010.

Chart 12

Appendix I: Default Methodology And Definitions

This long-term corporate default and rating transition study uses the CreditPro® database of long-term local currency issuer credit ratings. Most charts and tables in this study are the direct output of the CreditPro® interface, while others are based off of manual manipulation of the underlying database. The charts and tables that we created through manual manipulation of the data are charts 4-13, tables 15-17, and the first column of table 1. The portions of the tables that present summary descriptive statistics, including the standard deviations in the various transition and cumulative default rate tables, were also the result of end-user calculations.

An issuer credit rating reflects Standard & Poor's forward-looking opinion of a company's overall capacity to pay its obligations (that is, its fundamental creditworthiness). This opinion focuses on the obligor's ability and willingness to meet its financial commitments on a timely basis, and it generally indicates the likelihood of default for all of a firm's financial obligations. It is not necessary for a company to have rated debt to be assigned an issuer credit rating.

Although the rating on a company's very senior forms of secured debt, particularly ones with strong covenants, could occasionally be higher than the issuer credit rating on the company, Standard & Poor's typically rates specific issues as high as or lower than the issuer credit rating, depending on the debt issues' relative priority within the company's debt structure. For speculative-grade companies, the issuer credit ratings are generally two notches higher than the subordinated debt ratings. Otherwise, they are generally one notch higher. Therefore, although a 'BB+' issuer credit rating is generally paired with a 'BB-' subordinated debt rating, a 'AA' issuer credit rating usually corresponds to a 'AA-' subordinated rating.

Standard & Poor's 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 back to Dec. 31, 1980. 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 U.S. region includes the U.S., Bermuda, and the Cayman Islands. As a basis of comparison, we refer to other regions in this study. Europe refers to Austria, Belgium, Bulgaria, Channel Islands, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the U. K. The emerging markets are Argentina, Bahamas, Bahrain, Barbados, Belize, Bolivia, Brazil, British Virgin Islands, Bulgaria, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Dominican Republic, Egypt, El Salvador, Estonia, Fiji, Georgia, Gibraltar, Guatemala, Hong Kong, Hungary, India, Indonesia, Israel, Jamaica, Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Liberia, Lithuania, Malaysia, Marshall Islands, Mauritius, Mexico, Mongolia, Morocco, Netherlands Antilles, Nigeria, Oman, Pakistan, Saint Helena, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Arab Emirates, Uruguay, Vanuatu, and Venezuela.

The study analyzes the rating histories of 9,076 companies in the U.S. that Standard & Poor's rated as of Dec. 31, 1980, or that were first rated between that date and Dec. 31, 2011. These companies include industrials, utilities, financial institutions, and insurance companies around the world with long-term local currency ratings. The analysis excludes public information ("pi") ratings and ratings based on the guarantee of another company. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subject of separate default and transition studies, and we also excluded them from this study.

We excluded subsidiaries with debt that is fully guaranteed by a parent as well as those with default risk that is considered identical to that of their parents. 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 carried a distinct and separate risk of default.

Definition of default

A default is recorded on the first occurrence of a payment default on any financial obligation, rated or unrated, other than a financial obligation subject to a bona fide commercial dispute. An exception occurs when a company misses an interest payment on the due date but then makes that payment during the grace period. We do not consider preferred stock a financial obligation, so we do not normally equate a missed preferred stock dividend with default. On the other hand, we consider distressed exchanges to be defaults when the debtholders are coerced into accepting substitute instruments with lower coupons, longer maturities, or any other diminished financial terms.

Standard & Poor's usually revises issue ratings to 'D' following a company's default on the corresponding obligation. In addition, Standard & Poor's revises ratings to 'SD' when it believes that an obligor that has selectively defaulted on a specific issue or class of obligations will continue to meet its payment obligations on other issues or classes of obligations in a timely matter. An 'R' 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 others or pay some obligations and not others. Standard & Poor's deems 'D', 'SD', and 'R' issuer ratings defaults for the purposes of this study. A default is assumed to take place on the earliest of: the date Standard & Poor's revised the ratings 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 or was forced into bankruptcy.

Calculations

Static pool methodology.  Standard & Poor's conducts its default studies on the basis of groupings called static pools. We form static pools by grouping issuers by rating category at the beginning of each year that the study covers. 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.

Standard & Poor's uses the static pool methodology to avoid certain pitfalls in estimating default rates. This is to ensure that default rates account for rating migration and to allow for default rates to 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; this method might yield comparatively low default rates during periods of high rating activity because it ignores prior years' defaults.

The pools are static in the sense that their membership remains constant over time. 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, it is not possible to compare static pools across different studies. Therefore, every new update revises results back to the same starting date of Dec. 31, 1980, so as to avoid continuity problems.

Entities that have had ratings withdrawn--that is, revised to 'NR'--are monitored with the aim of capturing a potential default. We exclude these companies, as well as those that have defaulted, from subsequent static pools. For example, the 1993 static pool consists of all companies rated as of 12:01 a.m. on Jan. 1, 1993. Adding those companies first rated in 1993 to the surviving members of the 1993 static pool forms the 1994 static pool. All rating changes that took place are reflected in the newly formed 1994 static pool.

Consider the following example: An issuer is originally rated 'BB' in mid-1996 and Standard & Poor's downgrades the company to 'B' in 1998. This is followed by a rating withdrawal ('NR') in 2000 and a default ('D') in 2003. We would include this hypothetical company in the 1997 and 1998 pools with the 'BB' rating, which it was rated at the beginning of those years. Likewise, we would include it in the 1999 and 2000 pools with the 'B' rating. It would not be part of the 1996 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 2000 because Standard & Poor's had withdrawn the rating by then. Yet each of the four pools in which this company was included (1997-2000) would record its 2003 default at the appropriate time horizon.

Standard & Poor's 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. Rating withdrawals can also occur as a result of mergers and acquisitions. 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.

Default rate.  We calculated annual default rates for each static pool, first in units and then as percentages with respect to the number of issuers in each rating category. Finally, we combined these percentages to obtain cumulative default rates for the 30 years the study covers.

Issuer-weighted default rates.  We calculated averages that appear in this study 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.

Many practitioners use statistics from this default study and CreditPro® to estimate probability of default and probability of rating transition. It is important to note that Standard & Poor's ratings do not imply a specific probability of default.

Average cumulative default rate calculation.  We derived cumulative default rates that average the experience of all static pools by calculating marginal default rates, conditional on survival (survivors being nondefaulters), for each possible time horizon and for each static pool, weight averaging the conditional marginal default rates 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).

For instance, the weighted-average first-year default rate for speculative-grade companies in the U.S. for all 31 pools was 4.49%, meaning that an average of 95.51% survived one year. Similarly, the second- and third-year conditional marginal averages were 4.63% for the first 30 pools (95.37% of those companies that did not default in the first year survived the second year) and 4.28% for the first 29 pools (95.72% of those companies that did not default by the second year survived the third year), respectively. Multiplying 95.51% by 95.37% results in a 91.09% survival rate to the end of the second year, which is a two-year cumulative average default rate of 8.91%. Multiplying 91.09% by 95.72% results in an 87.19% survival rate to the end of the third year, which is a three-year cumulative average default rate of 12.81%.

Time sample.  This update limits the reporting of default rates to the 15-year time horizon. However, the data was gathered for 31 years and all calculations are based on the rating experience of that period. The maturities of most obligations are much shorter than 15 years. In addition, average default statistics become less reliable at longer time horizons because the sample size becomes smaller and the cyclicality of default rates has a greater effect on averages.

Default patterns share broad similarities across all static pools, suggesting that Standard & Poor's rating standards have been consistent over time. Adverse business conditions tend to coincide with default upswings for all pools. These upswings have hit speculative-grade issuers the hardest, but investment-grade default rates also increase in stressful periods.

Transition analysis

Transition rates compare issuer ratings at the beginning of a time period with 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 1994 to the middle of 2001 would appear in the six consecutive one-year transition matrices from 1995 to 2000. All 1981 static pool members still rated on Dec. 31, 2011, had 31 one-year transitions, while companies first rated between Jan. 1, 2010, and Dec. 31, 2010, 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 left-most column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entry for 'NR'. For instance, table 7, which corresponds to the 2011 static pool, shows that out of all 'A' rated companies in the U.S. at the beginning of that year, 90.57% were rated the same at year-end, while Standard & Poor's had downgraded 4.99% to 'BBB' and upgraded 0.92% to 'AA', and so on.

We calculated average one-year transition matrices on the basis of the one-year transition matrix just described. The ratios represent the historical incidence of the ratings listed in the first column, changing to the ones listed on the top row over the course of the reference period (see table 7 and table 11).

Multiyear transitions.  We also calculated multiyear transitions for periods of three years. We compared the rating at the beginning of the multiyear period with the rating at the end of the period. For example, three-year transition matrices were the result of comparing ratings at the beginning of the years 1981-2009 with the ratings at the end of the years 1983-2011 (see table 9). Otherwise, the methodology was identical to that used for single-year transitions.

Initial-to-last transitions and default rates.  These transition rates compare issuer ratings from the time of the first rating to the last rating, regardless of the time elapsed in the interim. They provide a roadmap to all of the historically observed rating states inhabited by corporate ratings during their lifetime. Tables 21 and 22 display the initial-to-last transitions separately for two broad sectors, nonfinancials and financials (including insurance). We calculated initial-to-last default rates based on the initial rating of each defaulter, and they encompass varying time horizons. For example, in table 22, a default rate of 7.59% refers to the total share of defaulting issuers from the 158 financial institutions that received a first rating of 'BBB' in the entire historical database.

Additional Tables

Table 18

Static Pool Cumulative U.S. Corporate Default Rates Among All Ratings (1981-2011) (%)
--Time horizon (years)--
Year No. issuers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
1981 1,354 0.15 1.40 2.14 2.95 3.62 5.02 5.47 6.28 6.87 7.98 9.68 10.19 10.71 10.78 11.00
1982 1,398 1.22 1.93 2.79 3.51 4.94 5.29 6.08 6.58 7.73 9.59 10.09 10.66 10.73 10.94 10.94
1983 1,408 0.78 1.63 2.49 4.12 4.55 5.61 6.11 7.24 9.30 9.87 10.44 10.51 10.72 10.72 10.80
1984 1,477 0.95 2.03 3.93 4.40 5.48 6.23 7.45 9.21 9.82 10.43 10.49 10.70 10.70 10.83 10.83
1985 1,550 1.16 3.16 3.74 5.16 6.06 7.42 9.35 9.94 10.45 10.52 10.84 10.84 10.97 10.97 11.29
1986 1,769 1.81 2.43 3.79 4.69 6.16 8.14 8.82 9.38 9.55 9.84 9.95 10.18 10.29 10.51 10.97
1987 1,901 1.00 2.52 4.05 6.00 8.68 9.84 10.63 10.84 11.20 11.36 11.57 11.68 11.94 12.47 13.57
1988 1,964 1.48 3.21 5.50 8.76 9.93 10.74 10.95 11.46 11.61 11.91 12.12 12.42 13.19 14.21 15.22
1989 1,969 1.73 4.52 8.23 9.50 10.36 10.67 11.12 11.27 11.58 11.99 12.29 13.00 14.07 15.03 15.54
1990 1,920 2.92 6.51 8.07 8.96 9.27 9.79 9.90 10.31 10.83 11.20 12.08 13.18 14.27 14.84 15.00
1991 1,803 3.55 5.27 5.88 6.21 6.82 6.93 7.32 7.82 8.21 8.99 10.15 11.37 11.92 12.15 12.31
1992 1,821 1.76 2.36 2.69 3.35 3.51 3.90 4.39 4.72 5.55 6.64 7.85 8.35 8.57 8.73 8.90
1993 1,955 0.66 1.18 2.20 2.46 2.92 3.43 3.89 4.81 6.04 7.31 7.83 8.03 8.24 8.49 8.64
1994 2,113 0.71 2.04 2.51 3.08 3.60 4.50 5.73 7.19 8.47 9.04 9.32 9.51 9.80 9.94 10.65
1995 2,301 1.26 1.83 2.43 3.09 4.04 5.30 7.26 8.65 9.30 9.60 9.87 10.13 10.26 10.91 11.95
1996 2,415 0.62 1.33 2.24 3.48 4.80 6.75 8.28 9.03 9.40 9.65 9.90 10.06 10.77 11.80 12.01
1997 2,581 0.77 1.94 3.37 5.19 7.44 9.18 10.11 10.50 10.77 11.12 11.31 12.13 13.21 13.33 13.48
1998 2,900 1.21 3.28 5.93 8.90 10.86 12.10 12.72 13.14 13.55 13.76 14.59 15.79 15.93 16.10
1999 3,136 2.26 5.45 9.25 11.89 13.42 14.16 14.64 15.08 15.31 16.36 17.86 18.11 18.30
2000 3,162 3.23 7.50 10.22 12.08 13.06 13.69 14.17 14.42 15.62 17.49 17.74 17.99
2001 3,083 4.54 7.65 9.93 10.96 11.68 12.16 12.42 13.66 15.67 15.93 16.19
2002 2,919 3.12 5.55 6.71 7.37 7.85 8.12 9.52 11.85 12.13 12.40
2003 2,828 2.30 3.47 4.17 4.74 5.02 6.51 9.19 9.55 9.83
2004 2,794 1.11 1.93 2.54 2.90 4.55 7.55 8.02 8.41
2005 2,863 0.94 1.57 2.06 4.09 7.54 8.21 8.70
2006 2,935 0.61 1.16 3.58 7.53 8.38 9.06
2007 3,032 0.49 3.03 7.65 8.81 9.47
2008 3,080 2.47 7.66 9.09 9.74
2009 2,943 5.71 7.31 8.02
2010 2,779 1.62 2.63
2011 2,890 1.04
Summary statistics
Marginal average 1.83 1.87 1.70 1.46 1.23 1.09 0.93 0.82 0.76 0.71 0.62 0.52 0.48 0.43 0.46
Cumulative average 1.83 3.66 5.30 6.69 7.83 8.84 9.68 10.42 11.10 11.73 12.27 12.73 13.15 13.52 13.92
Standard deviation 1.27 2.14 2.71 2.99 3.04 2.94 2.85 2.80 2.79 2.81 2.84 2.77 2.50 2.14 2.03
Median 1.22 2.58 3.93 5.18 6.82 7.84 8.82 9.47 9.83 10.48 10.49 10.77 10.77 10.96 11.29
Minimum 0.15 1.16 2.06 2.46 2.92 3.43 3.89 4.72 5.55 6.64 7.83 8.03 8.24 8.49 8.64
Maximum 5.71 7.66 10.22 12.08 13.42 14.16 14.64 15.08 15.67 17.49 17.86 18.11 18.30 16.10 15.54
Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 19

Static Pool Cumulative U.S. Corporate Default Rates Among All Investment-Grade Ratings (1981-2011) (%)
--Time horizon (years)--
Year No. issuers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
1981 1,035 0.00 0.39 0.39 0.48 0.68 1.06 1.35 2.13 2.32 3.09 4.15 4.44 4.64 4.64 4.83
1982 1,060 0.19 0.28 0.38 0.57 1.04 1.32 2.08 2.26 3.11 4.25 4.53 4.81 4.81 5.00 5.00
1983 1,072 0.09 0.37 0.47 0.93 1.12 1.68 1.77 2.61 3.73 4.10 4.38 4.38 4.57 4.57 4.57
1984 1,116 0.18 0.27 0.63 0.81 1.25 1.43 2.15 3.14 3.49 3.76 3.76 3.94 3.94 4.03 4.03
1985 1,140 0.00 0.18 0.26 0.88 1.05 1.84 2.89 3.25 3.51 3.51 3.77 3.77 3.95 3.95 4.12
1986 1,246 0.16 0.16 0.56 0.72 1.28 2.25 2.65 2.81 2.81 3.05 3.05 3.21 3.29 3.37 3.69
1987 1,229 0.00 0.16 0.41 0.90 1.87 2.44 2.60 2.60 2.77 2.77 2.93 3.01 3.09 3.25 4.15
1988 1,216 0.00 0.25 0.41 1.07 1.64 1.81 1.81 1.97 1.97 2.14 2.14 2.22 2.38 3.13 3.95
1989 1,227 0.16 0.33 0.65 1.30 1.47 1.47 1.63 1.63 1.63 1.63 1.79 1.96 2.85 3.59 3.99
1990 1,237 0.16 0.40 0.89 1.13 1.13 1.29 1.29 1.29 1.37 1.62 2.02 2.83 3.48 3.88 3.96
1991 1,223 0.16 0.33 0.49 0.49 0.65 0.65 0.65 0.74 1.06 1.47 2.29 2.94 3.27 3.35 3.43
1992 1,307 0.00 0.08 0.08 0.23 0.23 0.23 0.31 0.54 0.84 1.45 1.99 2.30 2.37 2.52 2.75
1993 1,411 0.00 0.00 0.14 0.14 0.21 0.43 0.78 1.20 1.91 2.62 2.91 2.91 3.05 3.19 3.26
1994 1,429 0.00 0.14 0.14 0.28 0.35 0.84 1.19 1.89 2.52 2.87 2.94 3.01 3.15 3.22 3.71
1995 1,531 0.07 0.07 0.13 0.20 0.78 1.11 1.89 2.48 2.81 2.87 2.94 3.07 3.14 3.66 4.11
1996 1,602 0.00 0.06 0.06 0.56 1.00 1.87 2.37 2.68 2.81 2.87 3.00 3.00 3.56 4.12 4.18
1997 1,704 0.06 0.12 0.53 1.00 1.70 2.29 2.64 2.76 2.82 2.99 2.99 3.58 4.11 4.17 4.34
1998 1,851 0.05 0.49 1.03 1.67 2.38 2.81 3.03 3.19 3.30 3.30 3.94 4.65 4.75 4.97
1999 1,874 0.27 0.75 1.28 1.87 2.35 2.51 2.67 2.83 2.83 3.58 4.48 4.59 4.80
2000 1,853 0.32 0.81 1.24 1.78 1.89 2.10 2.27 2.27 3.13 4.10 4.21 4.48
2001 1,812 0.33 0.88 1.32 1.55 1.77 1.93 1.93 2.70 3.81 3.86 4.14
2002 1,785 0.56 0.95 1.12 1.29 1.34 1.34 2.13 3.19 3.25 3.47
2003 1,655 0.00 0.18 0.36 0.42 0.42 1.21 2.30 2.36 2.54
2004 1,596 0.06 0.19 0.25 0.25 1.07 2.07 2.19 2.38
2005 1,566 0.06 0.13 0.13 1.09 2.04 2.23 2.43
2006 1,543 0.00 0.00 0.97 1.62 1.81 2.01
2007 1,540 0.00 0.84 1.49 1.75 1.95
2008 1,506 0.73 1.20 1.39 1.66
2009 1,486 0.34 0.47 0.67
2010 1,413 0.00 0.07
2011 1,425 0.07
Summary statistics
Marginal average 0.14 0.23 0.27 0.35 0.36 0.38 0.36 0.35 0.35 0.35 0.32 0.26 0.26 0.25 0.27
Cumulative average 0.14 0.37 0.64 0.98 1.34 1.71 2.06 2.41 2.74 3.08 3.39 3.64 3.89 4.13 4.39
Standard deviation 0.18 0.32 0.44 0.55 0.62 0.66 0.71 0.75 0.82 0.86 0.89 0.88 0.80 0.68 0.55
Median 0.06 0.26 0.49 0.92 1.25 1.75 2.13 2.43 2.81 3.02 3.00 3.14 3.48 3.77 4.03
Minimum 0.00 0.00 0.06 0.14 0.21 0.23 0.31 0.54 0.84 1.45 1.79 1.96 2.37 2.52 2.75
Maximum 0.73 1.20 1.49 1.87 2.38 2.81 3.03 3.25 3.81 4.25 4.53 4.81 4.81 5.00 5.00
Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 20

Static Pool Cumulative U.S. Corporate Default Rates Among All Speculative-Grade Ratings (1981-2011) (%)
--Time horizon--
Year Issuers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
1981 319 0.63 4.70 7.84 10.97 13.17 17.87 18.81 19.75 21.63 23.82 27.59 28.84 30.41 30.72 31.03
1982 338 4.44 7.10 10.36 12.72 17.16 17.75 18.64 20.12 22.19 26.33 27.51 28.99 29.29 29.59 29.59
1983 336 2.98 5.65 8.93 14.29 15.48 18.15 19.94 22.02 27.08 28.27 29.76 30.06 30.36 30.36 30.65
1984 361 3.32 7.48 14.13 15.51 18.56 21.05 23.82 27.98 29.36 31.02 31.30 31.58 31.58 31.86 31.86
1985 410 4.39 11.46 13.41 17.07 20.00 22.93 27.32 28.54 29.76 30.00 30.49 30.49 30.49 30.49 31.22
1986 523 5.74 7.84 11.47 14.15 17.78 22.18 23.52 25.05 25.62 26.00 26.39 26.77 26.96 27.53 28.30
1987 672 2.83 6.85 10.71 15.33 21.13 23.36 25.30 25.89 26.64 27.08 27.38 27.53 28.13 29.32 30.80
1988 748 3.88 8.02 13.77 21.26 23.40 25.27 25.80 26.87 27.27 27.81 28.34 29.01 30.75 32.22 33.56
1989 742 4.31 11.46 20.75 23.05 25.07 25.88 26.82 27.22 28.03 29.11 29.65 31.27 32.61 33.96 34.64
1990 683 7.91 17.57 21.08 23.13 24.01 25.18 25.48 26.65 27.96 28.55 30.31 31.92 33.82 34.70 34.99
1991 580 10.69 15.69 17.24 18.28 19.83 20.17 21.38 22.76 23.28 24.83 26.72 29.14 30.17 30.69 31.03
1992 514 6.23 8.17 9.34 11.28 11.87 13.23 14.79 15.37 17.51 19.84 22.76 23.74 24.32 24.51 24.51
1993 544 2.39 4.23 7.54 8.46 9.93 11.21 11.95 14.15 16.73 19.49 20.59 21.32 21.69 22.24 22.61
1994 684 2.19 5.99 7.46 8.92 10.38 12.13 15.20 18.27 20.91 21.93 22.66 23.10 23.68 23.98 25.15
1995 770 3.64 5.32 7.01 8.83 10.52 13.64 17.92 20.91 22.21 22.99 23.64 24.16 24.42 25.32 27.53
1996 813 1.85 3.81 6.52 9.23 12.30 16.36 19.93 21.53 22.39 23.00 23.49 23.99 24.97 26.94 27.43
1997 877 2.17 5.47 8.89 13.34 18.59 22.58 24.63 25.54 26.23 26.91 27.48 28.73 30.90 31.13 31.24
1998 1,049 3.24 8.20 14.59 21.64 25.83 28.50 29.84 30.70 31.65 32.22 33.37 35.46 35.65 35.75
1999 1,262 5.23 12.44 21.08 26.78 29.87 31.46 32.41 33.28 33.84 35.34 37.72 38.19 38.35
2000 1,309 7.33 16.96 22.92 26.66 28.88 30.10 31.02 31.63 33.31 36.44 36.90 37.13
2001 1,271 10.54 17.31 22.19 24.39 25.81 26.75 27.38 29.27 32.57 33.12 33.36
2002 1,134 7.14 12.79 15.52 16.93 18.08 18.78 21.16 25.49 26.10 26.46
2003 1,173 5.54 8.10 9.55 10.83 11.51 13.98 18.93 19.69 20.12
2004 1,198 2.50 4.26 5.59 6.43 9.18 14.86 15.78 16.44
2005 1,297 2.00 3.32 4.39 7.71 14.19 15.42 16.27
2006 1,392 1.29 2.44 6.47 14.08 15.66 16.88
2007 1,492 1.01 5.29 14.01 16.09 17.23
2008 1,574 4.13 13.85 16.45 17.47
2009 1,457 11.19 14.28 15.51
2010 1,366 3.29 5.27
2011 1,465 1.98
Summary statistics
Marginal average 4.49 4.63 4.28 3.60 2.99 2.61 2.24 1.93 1.78 1.63 1.42 1.23 1.11 0.98 1.00
Cumulative average 4.49 8.91 12.81 15.95 18.47 20.60 22.37 23.88 25.23 26.46 27.50 28.39 29.19 29.88 30.58
Standard deviation 2.82 4.52 5.43 5.87 6.00 5.72 5.43 5.20 4.83 4.57 4.53 4.55 4.29 3.78 3.46
Median 3.64 7.66 11.47 14.81 17.78 19.48 21.38 25.27 26.23 27.00 27.59 29.00 30.36 30.43 30.80
Minimum 0.63 2.44 4.39 6.43 9.18 11.21 11.95 14.15 16.73 19.49 20.59 21.32 21.69 22.24 22.61
Maximum 11.19 17.57 22.92 26.78 29.87 31.46 32.41 33.28 33.84 36.44 37.72 38.19 38.35 35.75 34.99
Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 21

Initial-To-Last Transition Rates By Rating Modifier For U.S. Nonfinancial Issuers (1981-2011) (%)
From/to No. issuers AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C D NR
AAA 93 2.15 1.08 2.15 4.30 3.23 5.38 1.08 1.08 0.00 0.00 0.00 0.00 0.00 0.00 1.08 0.00 0.00 3.23 75.27
AA+ 30 0.00 0.00 3.33 0.00 3.33 0.00 6.67 3.33 0.00 0.00 0.00 3.33 3.33 0.00 3.33 0.00 0.00 3.33 70.00
AA 205 0.49 0.49 2.44 1.46 1.46 5.37 9.27 3.90 5.85 3.90 0.98 0.98 0.00 0.00 0.00 0.00 0.49 3.41 59.51
AA- 88 0.00 0.00 0.00 3.41 3.41 11.36 4.55 5.68 3.41 5.68 0.00 0.00 1.14 1.14 0.00 0.00 1.14 2.27 56.82
A+ 173 0.58 0.00 0.00 0.58 7.51 5.78 8.67 5.20 4.05 3.47 1.73 0.58 0.58 1.73 0.00 0.00 0.00 5.78 53.76
A 480 0.00 0.00 0.21 0.42 1.88 6.04 4.79 6.67 7.50 3.13 1.67 1.46 0.42 0.00 1.25 0.63 0.00 6.88 57.08
A- 199 0.00 0.00 0.00 0.00 1.51 2.01 8.04 5.53 8.04 6.53 1.51 2.01 1.01 1.01 0.00 1.01 0.00 6.03 55.78
BBB+ 206 0.00 0.00 0.00 0.00 0.49 2.43 4.37 13.11 13.11 7.77 2.91 0.97 0.49 0.49 0.00 0.00 0.49 7.28 46.12
BBB 444 0.00 0.00 0.00 0.00 0.45 1.80 2.48 6.08 10.59 7.66 0.90 0.90 1.35 1.13 0.23 0.68 0.45 10.81 54.50
BBB- 366 0.00 0.00 0.27 0.00 0.00 0.82 1.64 3.28 8.74 12.84 3.01 2.19 1.91 1.91 2.19 0.55 0.00 9.84 50.82
BB+ 206 0.00 0.00 0.00 0.00 0.00 0.49 1.46 1.46 2.91 5.34 11.17 2.91 2.43 3.40 2.43 1.94 0.97 11.65 51.46
BB 424 0.00 0.00 0.00 0.00 0.24 0.24 0.24 1.42 1.18 3.30 3.54 8.25 4.48 2.83 2.59 1.18 0.24 20.28 50.00
BB- 904 0.00 0.00 0.00 0.00 0.00 0.00 0.22 0.33 1.22 1.11 2.65 4.31 8.74 3.21 3.32 0.55 0.33 26.99 47.01
B+ 1,622 0.00 0.00 0.00 0.00 0.06 0.00 0.18 0.12 0.43 0.31 0.99 1.17 2.47 10.67 4.87 1.48 0.74 29.47 47.04
B 1,200 0.00 0.00 0.00 0.00 0.00 0.17 0.00 0.25 0.08 0.25 0.42 0.58 2.08 4.00 21.42 3.08 2.08 24.25 41.33
B- 417 0.00 0.00 0.00 0.00 0.00 0.00 0.24 0.24 0.00 0.48 0.24 0.24 1.92 2.16 5.52 12.95 3.12 29.98 42.93
CCC/C 226 0.00 0.00 0.00 0.00 0.00 0.44 0.44 0.44 0.44 0.00 0.44 0.44 0.88 1.33 3.98 7.96 11.50 38.05 33.63
Sources: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

Table 22

Initial-To-Last Transition Rates By Rating Modifier For U.S. Financial Issuers (1981-2011) (%)
From/to No. issuers AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C D NR
AAA 153 0.00 20.92 4.58 9.80 5.88 3.92 4.58 0.65 1.31 0.00 0.65 0.00 0.00 0.00 1.31 0.00 0.00 2.61 43.79
AA+ 44 0.00 2.27 4.55 6.82 13.64 11.36 9.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.27 0.00 2.27 47.73
AA 159 0.00 1.26 2.52 11.32 6.29 6.92 6.29 1.26 0.63 2.52 0.00 0.00 0.00 0.00 1.26 0.00 0.00 6.92 52.83
AA- 117 0.00 0.00 0.00 12.82 11.11 4.27 9.40 2.56 1.71 0.00 1.71 0.00 1.71 0.00 0.00 0.00 0.00 3.42 51.28
A+ 184 0.00 0.54 0.00 3.26 15.22 10.87 4.35 2.72 1.63 0.54 0.54 0.00 0.54 0.00 0.00 0.00 0.54 2.17 57.07
A 218 0.00 0.92 0.46 1.83 5.50 9.63 10.55 3.67 3.21 0.92 0.92 0.00 0.46 0.00 0.92 0.00 0.46 3.67 56.88
A- 179 0.00 0.00 0.00 0.56 3.35 11.17 18.44 3.91 3.35 2.79 0.00 1.68 0.00 0.00 0.00 0.00 0.56 4.47 49.72
BBB+ 131 0.00 0.00 0.00 0.00 1.53 3.05 9.16 12.21 6.87 6.11 1.53 0.00 0.00 0.76 0.00 0.00 0.00 6.11 52.67
BBB 158 0.00 0.00 0.00 1.27 1.27 1.27 3.16 6.96 15.82 3.16 0.63 0.63 0.63 0.00 0.00 0.63 0.00 7.59 56.96
BBB- 138 0.00 0.00 0.00 0.00 0.72 0.00 2.17 4.35 10.14 18.84 2.17 0.72 0.00 2.17 0.00 0.00 0.72 10.87 47.10
BB+ 50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.00 2.00 8.00 16.00 0.00 2.00 2.00 0.00 0.00 0.00 20.00 48.00
BB 61 0.00 0.00 0.00 0.00 0.00 0.00 3.28 0.00 0.00 4.92 1.64 8.20 1.64 0.00 0.00 3.28 0.00 18.03 59.02
BB- 52 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.85 0.00 1.92 3.85 0.00 1.92 1.92 0.00 0.00 0.00 30.77 55.77
B+ 65 0.00 0.00 0.00 0.00 1.54 0.00 0.00 1.54 4.62 3.08 3.08 1.54 1.54 16.92 7.69 0.00 3.08 10.77 44.62
B 48 0.00 0.00 0.00 0.00 2.08 0.00 2.08 2.08 0.00 0.00 0.00 0.00 2.08 2.08 22.92 6.25 0.00 31.25 29.17
B- 20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.00 15.00 5.00 10.00 5.00 20.00 35.00
CCC/C 16 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 12.50 0.00 0.00 12.50 31.25 43.75
Sources: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

Table 23

Average Multiyear U.S. Region Corporate Transition Matrices (1981-2011): All Financials (%)
From/to AAA AA A BBB BB B CCC/C D NR
One year
AAA 88.28 8.47 0.38 0.06 0.13 0.06 0.06 0.00 2.55
(17.75) (17.38) (1.69) (0.39) (0.73) (0.36) (0.36) (0.00) (2.91)
AA 0.66 85.90 8.59 0.50 0.05 0.05 0.08 0.08 4.08
(0.93) (7.13) (6.01) (1.19) (0.16) (0.13) (0.38) (0.22) (2.34)
A 0.03 2.54 87.56 3.97 0.37 0.14 0.03 0.16 5.20
(0.37) (1.97) (4.48) (3.62) (0.93) (0.28) (0.08) (0.30) (2.65)
BBB 0.00 0.38 4.55 82.49 3.62 0.87 0.32 0.52 7.25
(0.00) (0.85) (2.98) (6.86) (4.66) (1.89) (0.49) (1.12) (3.21)
BB 0.00 0.35 0.53 8.05 69.94 7.25 1.68 1.41 10.79
(0.00) (0.86) (1.31) (6.89) (10.29) (4.60) (2.77) (1.92) (6.97)
B 0.00 0.14 0.43 0.86 8.01 69.67 6.44 5.01 9.44
(0.00) (0.60) (1.56) (3.14) (7.41) (15.40) (7.02) (6.23) (8.88)
CCC/C 0.00 0.00 0.00 0.00 3.33 10.00 41.33 27.33 18.00
(0.00) (0.00) (0.00) (0.00) (6.20) (14.14) (30.76) (25.86) (17.93)
Three year
AAA 70.76 18.37 1.53 0.33 0.20 0.13 0.20 0.27 8.22
(18.32) (17.45) (3.51) (2.33) (0.77) (0.53) (0.61) (0.83) (5.06)
AA 1.51 63.96 18.98 2.26 0.25 0.36 0.06 0.36 12.24
(1.63) (11.21) (8.73) (2.75) (0.54) (0.75) (0.18) (0.60) (5.09)
A 0.07 6.01 68.13 7.53 1.52 0.41 0.24 0.84 15.26
(0.47) (3.44) (6.82) (3.73) (2.14) (1.17) (0.43) (0.75) (5.37)
BBB 0.00 1.21 10.86 58.45 4.63 1.73 0.65 2.48 19.99
(0.00) (1.82) (5.07) (7.31) (3.91) (2.76) (1.49) (2.04) (5.73)
BB 0.00 0.49 2.05 15.26 37.18 9.78 2.25 6.75 26.22
(0.00) (1.05) (2.69) (8.62) (15.95) (5.29) (2.98) (6.47) (12.08)
B 0.00 0.00 1.17 4.00 13.67 37.00 4.33 15.83 24.00
(0.00) (0.00) (2.37) (5.43) (9.70) (19.76) (4.64) (13.24) (12.32)
CCC/C 0.00 0.00 0.79 1.59 3.17 6.35 14.29 36.51 37.30
(0.00) (0.00) (9.28) (3.10) (6.67) (9.77) (18.44) (31.85) (31.66)
10 year
AAA 34.48 26.38 9.83 2.33 0.17 0.17 0.09 0.95 25.60
(10.97) (13.50) (7.24) (5.38) (0.41) (0.43) (0.30) (1.52) (7.81)
AA 1.98 29.04 29.55 4.82 0.47 0.47 0.08 1.36 32.23
(1.49) (9.42) (8.63) (1.67) (0.50) (0.61) (0.16) (2.72) (6.24)
A 0.24 7.89 36.84 8.07 2.37 0.32 0.32 2.90 41.06
(0.88) (3.32) (3.78) (3.42) (1.08) (0.80) (0.36) (1.64) (4.28)
BBB 0.00 3.99 10.84 23.53 2.30 1.01 0.39 7.58 50.36
(0.00) (4.19) (3.21) (7.72) (2.08) (1.26) (0.92) (2.37) (6.00)
BB 0.00 0.30 5.21 11.61 6.55 3.87 0.30 18.90 53.27
(0.00) (0.92) (4.61) (4.46) (4.28) (4.13) (0.94) (10.76) (11.10)
B 0.00 0.00 3.94 10.14 9.30 4.23 0.56 29.58 42.25
(0.00) (0.00) (4.40) (9.71) (8.17) (7.24) (5.42) (15.10) (13.73)
CCC/C 0.00 0.00 1.12 0.00 1.12 0.00 0.00 48.31 49.44
(0.00) (0.00) (10.66) (0.00) (3.05) (0.00) (0.00) (34.44) (35.07)
Note: Numbers in parentheses are standard deviations. Source: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

Table 24

Average Multiyear U.S. Region Corporate Transition Matrices (1981-2011): Insurance (%)
From/to AAA AA A BBB BB B CCC/C D NR
One year
AAA 89.03 8.83 0.28 0.00 0.09 0.09 0.09 0.00 1.58
(20.53) (20.40) (1.80) (0.00) (0.41) (0.60) (0.60) (0.00) (2.35)
AA 0.86 86.86 7.84 0.45 0.08 0.08 0.12 0.08 3.63
(3.83) (7.76) (5.94) (1.02) (0.25) (0.17) (2.00) (0.20) (2.53)
A 0.03 2.75 87.76 3.84 0.37 0.16 0.03 0.22 4.84
(0.10) (8.90) (10.62) (5.35) (2.25) (0.34) (0.09) (0.30) (3.79)
BBB 0.00 0.23 5.26 81.87 3.81 0.76 0.69 0.38 7.01
(0.00) (2.31) (5.72) (6.79) (5.23) (2.34) (1.63) (2.05) (5.20)
BB 0.00 0.23 0.69 9.40 71.10 4.59 1.83 1.38 10.78
(0.00) (1.80) (2.81) (12.70) (16.55) (6.89) (4.64) (3.89) (10.21)
B 0.00 0.40 0.79 0.79 9.49 73.91 4.35 2.77 7.51
(0.00) (1.50) (6.12) (4.78) (13.26) (19.43) (6.59) (10.36) (9.23)
CCC/C 0.00 0.00 0.00 0.00 1.75 10.53 42.11 29.82 15.79
(0.00) (0.00) (0.00) (0.00) (5.99) (22.31) (39.35) (32.48) (19.24)
Three year
AAA 70.80 20.80 1.43 0.00 0.19 0.19 0.29 0.38 5.92
(19.93) (18.66) (2.59) (0.00) (0.76) (0.86) (0.94) (1.18) (6.36)
AA 2.07 66.08 17.52 2.29 0.35 0.43 0.09 0.39 10.79
(7.49) (13.58) (8.83) (2.34) (0.98) (0.89) (0.28) (0.67) (5.93)
A 0.11 6.71 68.76 6.96 1.43 0.32 0.32 1.04 14.35
(0.17) (13.99) (15.54) (5.87) (5.05) (3.45) (0.39) (3.05) (7.12)
BBB 0.00 0.80 12.54 58.45 5.16 1.42 1.07 2.31 18.24
(0.00) (4.45) (6.40) (10.78) (5.28) (2.34) (3.04) (4.33) (7.29)
BB 0.00 0.26 3.11 17.36 40.41 5.70 2.33 5.18 25.65
(0.00) (1.86) (6.32) (15.89) (25.57) (7.59) (5.75) (7.84) (16.08)
B 0.00 0.00 3.30 6.13 14.15 44.81 1.42 9.91 20.28
(0.00) (0.00) (10.18) (13.56) (16.45) (25.72) (2.62) (14.57) (12.57)
CCC/C 0.00 0.00 2.08 2.08 2.08 12.50 16.67 39.58 25.00
(0.00) (0.00) (18.57) (6.19) (9.28) (13.16) (24.77) (37.41) (33.87)
10 year
AAA 34.49 31.50 11.02 2.16 0.24 0.24 0.12 1.32 18.92
(18.84) (13.23) (9.29) (4.00) (0.60) (0.63) (0.42) (1.85) (11.44)
AA 2.60 30.61 27.65 5.75 0.73 0.73 0.12 1.27 30.55
(4.88) (11.16) (6.15) (3.98) (1.19) (0.80) (0.20) (2.38) (8.58)
A 0.60 8.84 35.16 8.71 2.88 0.20 0.80 4.02 38.78
(5.94) (11.45) (8.23) (6.85) (2.76) (0.41) (0.60) (4.31) (11.91)
BBB 0.00 6.18 9.27 33.20 2.90 0.58 0.58 10.81 36.49
(0.00) (9.40) (7.15) (13.10) (5.82) (0.70) (1.26) (6.63) (6.67)
BB 0.00 0.98 9.76 14.15 8.29 4.39 0.00 30.24 32.20
(0.00) (2.71) (11.60) (10.53) (10.16) (5.26) (0.00) (11.72) (12.22)
B 0.00 0.00 10.58 21.15 11.54 2.88 1.92 20.19 31.73
(0.00) (0.00) (13.72) (22.59) (16.06) (13.28) (8.68) (16.67) (13.85)
CCC/C 0.00 0.00 4.35 0.00 0.00 0.00 0.00 69.57 26.09
(0.00) (0.00) (21.32) (0.00) (0.00) (0.00) (0.00) (44.52) (32.32)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 25

Average Multiyear U.S. Region Corporate Transition Matrices (1981-2011): Financial Institutions (%)
From/to AAA AA A BBB BB B CCC/C D NR
One year
AAA 86.64 7.69 0.61 0.20 0.20 0.00 0.00 0.00 4.66
(20.21) (18.70) (2.28) (2.57) (2.57) (0.00) (0.00) (0.00) (6.74)
AA 0.30 84.13 9.98 0.60 0.00 0.00 0.00 0.08 4.91
(0.97) (10.33) (8.66) (1.42) (0.00) (0.00) (0.00) (0.26) (3.89)
A 0.03 2.34 87.36 4.10 0.37 0.12 0.03 0.09 5.55
(0.45) (2.77) (6.91) (5.15) (1.12) (0.29) (0.16) (0.54) (4.12)
BBB 0.00 0.47 4.12 82.87 3.51 0.94 0.09 0.61 7.40
(0.00) (0.86) (3.62) (9.17) (5.82) (2.32) (0.45) (1.31) (3.99)
BB 0.00 0.43 0.43 7.19 69.21 8.92 1.58 1.44 10.79
(0.00) (1.11) (1.95) (6.33) (10.85) (6.43) (2.88) (2.46) (8.56)
B 0.00 0.00 0.22 0.90 7.17 67.26 7.62 6.28 10.54
(0.00) (0.00) (1.38) (4.86) (9.25) (17.83) (8.90) (10.85) (11.18)
CCC/C 0.00 0.00 0.00 0.00 4.30 9.68 40.86 25.81 19.35
(0.00) (0.00) (0.00) (0.00) (7.83) (11.46) (37.08) (20.08) (30.69)
Three year
AAA 70.65 12.83 1.74 1.09 0.22 0.00 0.00 0.00 13.48
(23.71) (20.48) (4.67) (4.47) (1.43) (0.00) (0.00) (0.00) (8.12)
AA 0.48 60.08 21.67 2.22 0.08 0.24 0.00 0.32 14.92
(0.96) (15.36) (11.97) (3.41) (0.45) (0.72) (0.00) (0.65) (8.01)
A 0.03 5.36 67.55 8.05 1.60 0.49 0.16 0.65 16.09
(0.56) (4.66) (10.34) (6.15) (2.59) (0.98) (0.44) (1.14) (6.87)
BBB 0.00 1.44 9.89 58.44 4.33 1.91 0.41 2.57 21.01
(0.00) (1.59) (7.06) (10.46) (5.59) (3.83) (1.56) (3.20) (6.98)
BB 0.00 0.63 1.42 13.99 35.22 12.26 2.20 7.70 26.57
(0.00) (1.58) (2.76) (7.67) (13.73) (7.42) (3.64) (8.42) (13.76)
B 0.00 0.00 0.00 2.84 13.40 32.73 5.93 19.07 26.03
(0.00) (0.00) (0.00) (6.10) (14.61) (21.55) (7.04) (18.48) (16.67)
CCC/C 0.00 0.00 0.00 1.28 3.85 2.56 12.82 34.62 44.87
(0.00) (0.00) (0.00) (2.06) (7.92) (4.49) (25.76) (23.63) (36.78)
10 year
AAA 34.46 13.23 6.77 2.77 0.00 0.00 0.00 0.00 42.77
(16.66) (15.40) (9.14) (6.60) (0.00) (0.00) (0.00) (0.00) (11.23)
AA 0.87 26.22 32.97 3.16 0.00 0.00 0.00 1.52 35.26
(1.28) (11.65) (14.46) (3.56) (0.00) (0.00) (0.00) (3.52) (9.20)
A 0.00 7.26 37.93 7.66 2.04 0.39 0.00 2.17 42.54
(0.00) (3.58) (5.05) (4.73) (2.30) (1.06) (0.00) (2.20) (5.34)
BBB 0.00 3.09 11.48 19.56 2.06 1.19 0.32 6.25 56.06
(0.00) (2.90) (3.73) (7.31) (2.44) (1.85) (1.33) (3.21) (7.75)
BB 0.00 0.00 3.21 10.49 5.78 3.64 0.43 13.92 62.53
(0.00) (0.00) (3.02) (5.26) (3.59) (5.90) (1.44) (12.95) (14.36)
B 0.00 0.00 1.20 5.58 8.37 4.78 0.00 33.47 46.61
(0.00) (0.00) (2.84) (12.16) (9.47) (21.39) (0.00) (25.26) (22.99)
CCC/C 0.00 0.00 0.00 0.00 1.52 0.00 0.00 40.91 57.58
(0.00) (0.00) (0.00) (0.00) (3.05) (0.00) (0.00) (26.01) (37.73)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Table 26

Average Multiyear U.S. Region Corporate Transition Matrices (1981-2011): Nonfinancials (%)
From/to AAA AA A BBB BB B CCC/C D NR
One year
AAA 85.84 8.33 0.91 0.00 0.11 0.00 0.00 0.00 4.79
(10.66) (9.13) (1.96) (0.00) (0.38) (0.00) (0.00) (0.00) (7.10)
AA 0.49 86.63 7.56 0.78 0.12 0.19 0.00 0.00 4.23
(0.58) (7.90) (5.24) (1.23) (0.33) (0.39) (0.00) (0.00) (3.62)
A 0.06 1.38 87.09 6.58 0.51 0.22 0.04 0.04 4.09
(0.14) (1.38) (4.20) (2.64) (0.61) (0.49) (0.14) (0.11) (1.93)
BBB 0.02 0.08 3.33 85.69 4.39 0.69 0.08 0.20 5.54
(0.08) (0.18) (2.63) (5.44) (1.73) (1.07) (0.18) (0.33) (2.16)
BB 0.03 0.03 0.17 4.82 76.48 8.21 0.57 0.91 8.78
(0.09) (0.18) (0.38) (2.56) (5.74) (5.02) (0.58) (1.09) (3.29)
B 0.00 0.04 0.14 0.20 4.88 74.78 4.56 4.57 10.82
(0.00) (0.14) (0.40) (0.30) (2.54) (5.12) (2.82) (3.33) (3.11)
CCC/C 0.00 0.00 0.25 0.38 0.64 12.47 45.42 27.61 13.23
(0.00) (0.00) (0.85) (1.19) (1.41) (8.65) (12.31) (13.19) (7.35)
Three year
AAA 63.94 17.63 4.03 0.46 0.23 0.12 0.00 0.00 13.59
(14.14) (13.10) (4.19) (1.30) (0.54) (0.30) (0.00) (0.00) (11.23)
AA 1.06 66.07 17.33 2.77 0.64 0.47 0.02 0.05 11.59
(0.87) (13.31) (8.26) (2.10) (1.09) (0.63) (0.08) (0.11) (5.72)
A 0.12 3.28 67.21 14.46 1.87 0.83 0.08 0.19 11.96
(0.14) (2.91) (6.52) (3.98) (1.22) (1.02) (0.16) (0.29) (2.84)
BBB 0.05 0.26 7.77 64.21 8.70 2.60 0.26 0.89 15.26
(0.12) (0.40) (4.99) (10.07) (2.51) (1.83) (0.38) (0.73) (4.13)
BB 0.02 0.05 0.64 10.36 45.05 14.17 1.30 5.32 23.08
(0.10) (0.25) (1.09) (4.49) (7.49) (4.48) (1.02) (3.34) (5.48)
B 0.01 0.06 0.36 0.89 9.80 40.85 4.89 15.79 27.34
(0.12) (0.17) (0.85) (0.98) (3.41) (6.58) (2.70) (6.58) (6.59)
CCC/C 0.00 0.00 0.30 0.89 1.71 12.52 12.52 46.57 25.48
(0.00) (0.00) (0.57) (2.48) (3.81) (8.34) (12.34) (16.45) (10.76)
10 year
AAA 26.28 24.69 8.44 3.55 0.37 0.00 0.00 0.37 36.31
(7.71) (7.80) (4.12) (3.32) (0.97) (0.00) (0.00) (0.59) (11.95)
AA 1.53 24.52 28.33 9.07 1.61 0.63 0.03 0.53 33.75
(0.91) (10.40) (5.36) (4.22) (1.45) (0.63) (0.12) (0.57) (6.14)
A 0.16 3.90 33.34 22.06 3.86 1.62 0.11 1.86 33.09
(0.16) (2.89) (3.87) (4.91) (0.93) (0.98) (0.22) (0.83) (2.70)
BBB 0.04 0.50 9.72 31.45 8.68 3.46 0.21 5.53 40.42
(0.16) (0.50) (5.17) (4.99) (1.59) (1.70) (0.28) (1.65) (3.85)
BB 0.03 0.06 1.53 10.74 13.62 8.41 0.81 18.74 46.06
(0.12) (0.23) (1.30) (4.03) (4.22) (3.70) (0.63) (4.97) (5.54)
B 0.00 0.03 0.52 2.19 6.11 7.88 0.95 33.86 48.47
(0.00) (0.08) (1.03) (1.84) (1.46) (2.91) (0.70) (6.18) (6.25)
CCC/C 0.00 0.00 0.26 0.93 2.25 2.38 0.40 58.81 34.97
(0.00) (0.00) (0.47) (2.05) (4.22) (3.28) (0.91) (13.59) (12.88)
Note: Numbers in parentheses are standard deviations. Sources: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Appendix II: Gini Methodology

To measure ratings performance, or ratings 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, the observations are ordered from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA'). If Standard & Poor's corporate ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal. Their Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the curve would capture all of the area above the diagonal on the graph and its Gini coefficient would be one (see chart 13). To calculate the Gini coefficients (see table 17), we divide area B by the total area A plus 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.

Chart 13

Related Research

(And watch the related CreditMatters TV segment titled, "Standard & Poor's U.S. Corporate Default Study Examines Trends Behind The Headlines," dated March 23, 2012.)

Global Fixed Income Research:Diane Vazza, Managing Director, New York (1) 212-438-2760;
diane_vazza@standardandpoors.com
Nicholas Kraemer, Director, New York (1) 212-438-1698;
nick_kraemer@standardandpoors.com
Evan Gunter, Associate Director, New York (1) 212-438-6412;
evan_gunter@standardandpoors.com
Research Contributors:Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
Aniket Sakhare, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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