Global Corporate Default Update (April 12 - 18, 2012)

On April 12, 2012, Standard & Poor's Ratings Services lowered its ratings on Dallas-based Reddy Ice Holdings Inc. to 'D', after the company announced that it has voluntarily filed for relief under Chapter 11 of the U.S. Bankruptcy Code and has secured commitments for $70 million in debtor-in-possession (DIP) financing from Macquarie Bank Ltd. On April 18, 2012, Standard & Poor's lowered its long- and short-term issuer credit ratings on Residential Capital LLC (ResCap) to 'SD' (selective default). ResCap, the troubled mortgage subsidiary of Ally Financial Inc., failed to make a scheduled interest payment on its senior unsecured notes, which will mature in April 2013, opting instead to use the 30-day grace period that the debt's indenture allows. These rating actions raised the 2012 global corporate default tally to 28 issuers.

Of the total defaulters this year, 18 were based in the U.S., five in the emerging markets, three in Europe, and two in the other developed region (Australia, Canada, Japan, and New Zealand). In comparison, last year, only 11 issuers--six based in the U.S., two in New Zealand, one in Europe, one in Canada, and one in the emerging markets--defaulted during the same period (through April 18).

So far this year, missed payments accounted for 11 defaults, bankruptcy filings accounted for six, distressed exchanges were responsible for four, and four defaulters were confidential. Of the remaining defaults, one was the result of a notice of acceleration by the issuer's lender, one was due to the company's placement under regulatory supervision, and the last was due to a judicial organization filing. In 2011, 21 issuers defaulted because of missed interest or principal payments, and 13 because of bankruptcy filings--both of which were among the top reasons for defaults in 2010. Distressed exchanges--another top reason for default in 2010--followed with 11 defaults in 2011. Of the remaining defaults, two issuers failed to finalize refinancing on bank loans, two were subject to regulatory action, one had its banking license revoked by its country's central bank, one was appointed a receiver, and two were confidential.

Table 1

Standard & Poor's expects the U.S. corporate trailing 12-month speculative-grade default rate to increase to 3.3% by December 2012 from 1.98% as of December 2011. Our baseline projection is still lower than the long-term (1981-2011) average of 4.5%. A total of 51 issuers would need to default in the 12 months ending December 2012 to reach this projection. Five U.S. speculative-grade companies defaulted as of Jan. 31, 2012, bringing the default rate up to an estimated 2.4%. In 2011, 29 speculative-grade issuers defaulted during the 12 months ended December 2011--12 of which defaulted in the fourth quarter.

In addition to our baseline projection, we forecast the default rate in our optimistic and pessimistic scenarios. Our optimistic default rate forecast assumes that the U.S. economy and financial markets perform better than expected. As a result, we would expect the default rate to be just below the current level at 1.8% by December 2012 (or 28 defaults during the 12-month period). On the other hand, a financial collapse and a deep recession in Europe could lead to another recession in the U.S. Under this pessimistic scenario, we would expect the default rate to be 5.3% (or 81 defaults during the 12-month period). We base our forecasts on quantitative and qualitative factors that we consider, including, but not limited to, Standard & Poor's proprietary default model for the U.S. corporate speculative-grade bond market. We update our outlook for the U.S. issuer-based corporate speculative-grade default rate each quarter after analyzing the latest economic data and expectations. For more details, see "The U.S. Corporate Default Rate Is Forecasted To Rise To 3.3% In 2012," published Feb. 2, 2012.

Table 2

Table 3

Default Studies

More analysis and statistics are available in our annual corporate default studies, published on RatingsDirect:

• 2011 Annual Global Corporate Default Study And Rating Transitions
• 2011 Default Synopses
• 2011 Annual U.S. Corporate Default Study And Rating Transitions
• 2011 Annual European Corporate Default Study And Rating Transitions
• 2010 Annual Asian Corporate Default Study And Rating Transitions

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• Distressed Debt Monitor: The U.S. Distress Ratio Falls To 10.8% In March, March 28, 2012
• Global Weakest Links And Default Rates: An Uptick In Weakest Links, March 22, 2012
• The U.S. Corporate Default Rate Declined Slightly In February To An Estimated 2.33%, March 2, 2012
• Ratings Distribution In Emerging And Developed Markets, Including The U.S. And Europe, As Of Fourth-Quarter 2011, Feb. 7, 2012
• Recovery Study (U.S.): Piecing Together The Performance Of Defaulted Instruments After The Recent Credit Cycle, Dec. 1, 2011
• Quarterly Global Corporate Default Update And Rating Transitions, Nov. 9, 2011
• How Distressed Exchanges Affect Default Rates And Ratings Performance, Sept. 26, 2011
• 'Til Debt Do Us Part: A Study Of Serial Defaulters, Nov. 10, 2010
• Global Credit Comment: Corporate Credit Ratings Effectively Measure Default Probability, Sept. 21, 2009
• The Devil Is In The Details: Understanding The Variation In Corporate Default Rates And Rating Transitions, July 14, 2009