S&P’s “Weakest Links” List Rises to Record 300 Companies
Standard & Poor’s added three companies to its list of the global weakest links in the last month, bringing it to a record high of 300 as of April 22. Eroding credit quality is leading to lower ratings and more entities with negative outlooks or with ratings on CreditWatch with negative implications.
This is the 14th consecutive month that has seen an increase in weakest links, S&P said. The 300 weakest links have combined rated debt worth $485.75 billion. By sector, media and entertainment, retail and restaurants, and forest products and building materials were the most vulnerable, with the highest concentrations of weakest links, according to S&P’s Global Bond Markets’ Weakest Links And Monthly Default Rates report. Weakest links are defined as issuers rated ‘B-’ or lower with either a negative outlook or with ratings on CreditWatch negative, and they are at greater risk of default.
The 12-month-trailing global corporate speculative-grade bond default rate increased to 4.92% in March 2009 from 4.28% in February and is now more than 6x the 25-year low of 0.79% recorded in November 2007. The U.S. speculative-grade corporate default rate increased for the 16t consecutive month, reaching 5.42% in March 2009, up from 4.9% in February and now about5.5x the level from year-end 2007.
Corporate defaults continue to rise rapidly in 2009. Through April 22, 2009, 92 issuers defaulted, affecting debt worth $243.95 billion. By comparison, 126 defaults were recorded in all of 2008, affecting debt worth $433 billion.
We expect the U.S. corporate speculative-grade default rate to continue rising to an all-time high of 14.3% by March 2010. – Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group.
“Historically, defaults have continued to escalate even after signs of economic recovery. This cycle will be no different. We expect the economy to bottom out in the third quarter of 2009, but defaults likely will be abundant past that time horizon.”
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