Its Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. On April 9, 2020, we raised the ratings on the issuer to 'CCC' from 'D' on the expectation of average leverage above 15x. Post the transaction, the company will have new senior secured three-and-half-year US$171.4 million notes due in 2024 and five-year US$251 million notes due in 2025. Subsequently, we withdrew the ratings due to insufficient information. On Feb. 21, 2020, S&P Global Ratings lowered its long-term issuer credit rating on China-based high technology service provider Tunghsu Group Co. Ltd. to 'SD' from 'CCC-' after the issuer missed interest and principal payments on three onshore bonds. After experiencing high downgrade and default rates in 2020, ratings were much more stable in 2021. This study limits the reporting of default rates to the 15-year time horizon. In a theoretical exploration of recovery rates in a structural On June 4, 2020, we raised the issuer credit rating to 'CCC-' from 'SD', reflecting our view of the company's still unsustainable capital structure, very high debt service burden, and weak liquidity. In its base case, Moody's analyzed the underlying collateral pool as having a performing par of USD267.4 million, We use rating modifiers (plus and minus signs) to calculate upgrade and downgrade percentages, as well as the magnitude of rating changes, throughout this study. This caused high liquidity constraints for Hertz. Austria, Belgium, British Virgin Islands, Bulgaria, Channel Islands, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova Republic of, Monaco, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the U.K. We viewed the proposed transaction, if completed, as distressed and tantamount to a selective default because the proposed transaction involved debt exchange at a discount. A ratio of 1 would indicate that the percentages of upgrades and downgrades were equal. Default and recovery rates for sustainable project finance bank loans, 1983-2020: 16 Feb 2023 . To facilitate the proposed exchange, the issuer entered a new term loan facility of US$190 million maturing in 2024. A major difference between financial and nonfinancial companies is the incidence of default. Earlier, on May 13, 2020, we lowered our issuer credit rating and senior unsecured issue-level ratings on Extraction to 'CC' from 'CCC+', reflecting the increased likelihood that the issuer would enter a debt restructuring that we would view as distressed in the near term. We believe that COVID-19-related fitness club closures have materially impaired the company's liquidity position. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro. In periods of high defaults, there tends to be greater variation in the distribution of ratings prior to default, which reduces the Gini. Earlier, on May 29, 2020, we lowered our ratings on BLY from 'CCC+' to 'CC' and placed them on CreditWatch with negative implications following the company's announcement of a proposal to convert the interest payments due on its senior secured notes in 2020 to PIK interest payments. On March 16, 2020, S&P Global Ratings raised its rating on the issuer to 'CCC-' from 'SD'. Preferred stock is not considered a financial obligation; thus, a missed preferred stock dividend is not normally equated with default. The differences between each rating category's minimum and maximum times to default are in the last column, under "range." The issuer has been facing negative free cash flows and unsustainable leverage because of its high debt balance and uneven operating performance. With these liquidity supports from central banks in place, market volatility eased after the spring. In contrast, the relationship is slightly more discontinuous when we examine rating transitions across modifiers (the plus or minus after a rating), but these variations are likely a result of sample size considerations, and we do not consider them significant (see table 23). On Nov. 16, 2020, Libbey announced that it had successfully emerged from Chapter 11 by completing its financial restructuring. On Aug. 10, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New York-based oil field service and drilling service provider UTEX Industries Inc. to 'D' from 'CCC' after the issuer opted for missing interest payments on its first-lien and second-lien notes. For example, 427 defaults were recorded in the five-year pool that began in January 2016, of which 414 were rated speculative grade on Jan. 1, 2016. Scribd is the world's largest social reading and publishing site. On July 10, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Florida-based consumer products manufacturer and seller Tupperware Brands Corp. to 'SD' from 'CC' after the issuer completed a distressed exchange, for about US$97.6 million of its US$ 600 million, where noteholders received less than par value. For the purposes of this study, a corporate rating may also be withdrawn as a result of mergers and acquisitions. Earlier, on Feb. 27, 2020, we revised our outlook on the issuer to negative from stable because of high refinancing risks given the high leverage and significant portion of debt maturing in 2022. Strains between the U.S. and China in their ongoing trade dispute eased at the end of the year with the signing of the "Phase 1" trade deal, which helped markets close the . On Oct. 15, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' because the issuer had enough liquidity to pay the remainder of the bond's maturity. Over the long term (since 1981), financial services defaulters show a median rating of 'BB+' five years prior to default. Annual speculative-grade default rates increased in all major regions in 2020, relative to 2019. This difference results from the different methods of calculating default rates. For example, of all the companies that defaulted during 1981-2020, only two entities rated 'AAA' at inception defaulted within seven years. On Oct. 19, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based health care provider Alliance HealthCare Services to 'SD' from 'B-' after the issuer completed a distressed exchange of its second-lien debt. Earlier, on May 5, 2020 we lowered the issuer credit rating on Avianca to 'CCC-' from 'CCC' and kept the ratings on CreditWatch with negative implications. On Nov. 19, 2020, we lowered our issuer credit rating to 'SD' from 'CC 'as the company completed its previously announced 5.75% senior notes exchange. Ten of the defaulters in 2020 were initially rated investment grade, and the other 216 (96% of the total) were initially rated speculative grade. If an issuer defaults or if the rating on the issuer is withdrawn in the middle of the year, then it would be considered rated 'D' or not rated as of Dec. 31 of that particular year. On April 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based oilfield services company KCA DEUTAG Alpha Ltd. to 'SD' from 'CCC+' after the issuer announced it would use the grace period for interest payments. In line with expectations, the majority of companies that defaulted within one year of the original rating are from the lowest speculative-grade rating categories, 'B' and lower. On Feb. 18, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based home dcor and furniture retailer Pier 1 Imports Inc. to 'D' from 'CCC-' after the issuer filed for Chapter 11 bankruptcy. On Oct. 7, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Massachusetts-based foodservice equipment and supplies distributes TMK Hawk Parent Corp. to 'SD' from 'CCC' after the issuer completed a recapitalization transaction and issued a new US$120 million super-priority first out term loan, which was provided by a majority of its first-lien lenders. On June 23, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Doraville, Georgiabased leading U.S. bedding manufacturer Serta Simmons Bedding LLC to 'SD' from 'CC' as the company completed its distressed debt exchange, swapping $992 million first-lien debt and $300 million of second-lien debt for $851 million of super-priority second-out debt, and issued $200 million new super-priority first-out debt provided by the debt-exchange lenders. Combined global bond issuance for nonfinancial corporates and financial services companies hit $5.7 trillion--a 27% increase from the high in 2019. On Nov. 20, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Minnesota-based exploration and production (E&P) company Northern Oil and Gas Inc. to 'SD' from 'CCC+' after the issuer disclosed debt exchanges, which over the past few quarters represent a meaningful amount of the original principal. CPK's performance was weak prior to the disruption stemming from the coronavirus pandemic; however, we believe the pandemic contributed additional operating pressure and potentially accelerated the need to restructure its debt. The Content shall not be used for any unlawful or unauthorized purposes. On Aug. 5, 2020, we raised our issuer credit rating on SMLP to 'CCC' from 'SD' on completion of the distressed exchanges. Default rate calculation. This restructuring was viewed as a distressed exchange because it would delay the interest payments. On Oct. 30, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' following the completion of the distressed exchange. Each static pool can be interpreted as a buy-and-hold portfolio. In 2020, 216 of the 226 defaults, or 96%, were from companies originally rated speculative grade, which is nearly eight percentage points higher than the long-term average of 88.3%. On June 25, 2020, we raised our long-term issuer credit rating on Jo-Ann to 'CCC' from 'SD', reflecting the ongoing risk of a conventional default. But in both cases, defaults and downgrades were largely limited to the lowest rating categories, resulting in generally strong ratings performance in 2020. Although defaulters that are not rated (NR) are not always captured in the default rate calculations for the year of default, we do capture them in the longer-term cumulative default rate statistics, which are tied back to the year in which defaulters were last rated. As the Gini ratios show, corporate ratings also serve as effective measures of relative risk over time, particularly in low-default years. We view the nonpayment of interest as akin to default on the senior secured notes. Despite a rising default rate in 2020 (see chart 21), risk tolerance among lenders has remained near the post-financial crisis high. The share of newly assigned issuer credit ratings that are speculative grade has remained elevated in 2020: 78% of newly assigned issuer credit ratings globally were speculative grade. We viewed the debt exchange as distressed due to the company's weak operating performance, liquidity constraints, and lack of compensation to existing lenders for the exchange. On Nov. 26, 2020, S&P Global Ratings lowered the long-term issuer credit rating on Spain-based real estate debt and property management company Haya Real Estate S.A.U. Earlier, on March 20, 2020, we lowered the issuer credit rating to 'CCC' from 'B' because the gaming operator and gaming equipment sectors were facing an unprecedented decline in revenue resulting from the temporary closures of casinos across the U.S. On May 20, 2020, S&P Global Ratings lowered its issuer credit rating on New York-based fitness club operator Equinox Holdings Inc. to 'SD' from 'CCC' after the issuer completed an amendment to its partial guarantee on affiliate company SoulCycle Inc.'s credit facility that will allow it to delay a mandatory payment, which we view as tantamount to a default. S&P Global Ratings subsequently withdrew the ratings at the issuer's request. Earlier, on March 19, 2020, we lowered the issuer credit rating on Libbey to 'CCC' from 'B-' on constrained liquidity and less likelihood of refinancing its term loans. Weights are based on the number of issuers in each static pool. On May 25, 2020, S&P Global Ratings lowered the issuer credit rating on U.K.-based foreign-exchange service provider Travelex Holdings Ltd. to 'D' from 'CCC' after the issuer failed to make the interest payments on its senior secured notes. The depressed commodity prices, the company's liquidity position, and the ongoing capital needs to maintain production were the main factors behind the decision. On Dec. 7, 2020, the issuer credit rating on the company was raised to 'CCC+'. The issuer was unable to raise capital to maintain the regulatory minimum, and subsequently the principal and interest payments to the depositors were suspended. The company's credit quality deteriorated with the pressure on airlines' cash flows and liquidity due to the coronavirus pandemic. IssuanceEconomist For 2019's offerings of US$-denominated corporate bonds, Even with a 60-day grace period, we did not expect payments. In this study, the insurance industry includes life insurance, health insurance, property/casualty insurance, reinsurance, bond insurance, mortgage insurance, and title insurance. We understood that the company was making those amendments to preserve cash because customers have had to suspend their mining operations or delay their project spending due to the coronavirus pandemic. The largest gap between the two was in financial institutions, which had a five-notch difference: The 233 financial institutions that defaulted had a median original rating of 'B+', compared with a sector median of 'BBB'. On May 4, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New York-based apparel retailer J. Yet each of the four pools in which this company was included (1987-1990) would record its 1993 default at the appropriate time horizon. PFS also announced an agreement to merge with Animal Supply Co. On May 6, 2020, S&P Global Ratings lowered its ratings on the issuer to 'D' from 'SD' upon missed interest payments, following which, on May 14, 2020, the ratings on the issuer were withdrawn. If the rating on the issuer was withdrawn in the middle of 1991, it would be included in the column representing transitions to NR in the 1991 transition matrix. On Aug. 27, 2020, Texas-based oil and gas exploration and production company SAExploration Holdings Inc. defaulted after the issuer filed for reorganization under Chapter 11. In this case, these are the seven-year Gini ratios from the 1981 cohort through the 2014 seven-year cohort. Defaults increased in many sectors in 2020, though the consumer services and energy and natural resources sectors once again led the global default tally, together accounting for almost 54% of the total. to 'SD' from 'CCC+' after the company missed interest payment on its 510 million senior secured notes due November 2023. The issuer entered into an agreement with the majority of its lenders for recapitalization of its funded debt. This helps explain the resemblance between the annual default rates of nonfinancial entities and those of the speculative-grade segment as a whole, which certainly contributes to the vast differences between cumulative default rates across financial and nonfinancial sectors (see table 16). On the same day, we withdrew the issuer ratings. Given this track record, monitoring the trends of newly assigned ratings could prove useful in anticipating future default activity, based on the observation that years with high numbers of new 'B-' and lower ratings will likely be followed by increased default risk. On June 24, 2020, we raised the credit ratings on the issuer to 'CCC+' from 'SD' after it extended the maturities on all its loans to 2021 and 2022, which helps CSM maintain liquidity for its operation over the next 12 months. On July 20, 2020, S&P Global Ratings raised the issuer ratings to 'B-' from 'SD' after the issuer completed its debt restructuring, resulting in its syndicated debt falling to 242 million from 575 million and the extension of debt maturities on its 160 million senior term loan and 82 million junior term loan by five and six years, respectively. On Nov. 25, 2020, we lowered the issuer credit rating to 'SD' from 'CCC+' after the issuer disclosed it had repurchased a significant portion of senior unsecured notes due in 2022 and 2024 below par. 3Q 2021 . The company was acquired by an unrated company. The drilling market was under stress, and the drop in oil prices and the pandemic furthered worsened the problem. The company had debt of about US$1.4 billion and was not likely to pay the interest within the grace period. In nearly all instances, the financial services sector's longer-term default rates were lower in 2020 than long-term averages. Of these new issuers, 78% were rated speculative grade. On Dec. 18, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based financial products and services provider Populus Financial Group Inc. to 'SD' from 'CC'. Post default, the issuer has been upgraded three times, leading to a 'B' rating on Dec. 14, 2020, with a positive outlook, due to its improved financials and liquidity. On May 15, 2020, S&P Global Ratings lowered its issuer credit rating on Colorado-based oil and gas exploration and production company Extraction Oil & Gas Inc. to 'D' from 'CC' after the issuer missed the interest payment on its 7.375% senior notes due 2024. On Dec. 10, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' following the company's debt repurchase. This would be considered a default since S&P Global Ratings believes the second-lien noteholders will receive less than they were originally promised. On April 1, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Utah-based credit report repair service provider PGX Holdings Inc. to 'D' from 'CCC'. The issuer was facing a rise in additional loan loss provision, which was attributed to the large nonperforming loans. We used the same method to form static pools for 1983-2020. We calculated annual default rates for each static pool, first in units and later as percentages with respect to the number of issuers in each rating category. In its base case, Moody's analyzed the underlying collateral pool as having a performing par (after treating deferring securities as performing if they meet certain criteria) of $260.9 million, defaulted/deferring par of $0 million, a weighted average default probability of 12.33% (implying a WARF of 1527), and a weighted average recovery rate . We utilize the Lorenz curve, a graphical representation of the proportionality of a distribution, as one measure of ratings performance, and we summarize this via the Gini coefficient. Transition studies have repeatedly confirmed that higher ratings tend to be more stable and that speculative-grade ratings ('BB+' or lower) generally experience more volatility over a given time frame. On Dec. 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on France-based car rental service provider company Europcar Mobility Group S.A. to 'SD' from 'CC' after the issuer elected not to pay the interest due on its 2024 and 2026 corporate senior notes prior to the end of the 30-day grace period. To avoid overcounting, we exclude subsidiaries with debt that is fully guaranteed by a parent or with default risk that is considered identical to that of a parent. Later, on May 2, 2020, the issuer entered into standstill agreement with the lenders of the notes due 2021 and the term loan due 2023, until July 31, 2020. On March 9, 2020, Bluestem Brands Inc. defaulted, having filed for Chapter 11 bankruptcy to restructure its debt. Foreign currency translation unfavorably impacted Moody's revenue by 2%. On June 29, 2020, S&P Global Ratings withdrew its ratings on Intelsat. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro. This appendix provides summaries of the events leading up to each default and, in some cases, events following the default. On Sept. 15, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Spain-based food products retailer Distribuidora Internacional de Alimentacion S.A. to 'SD' from 'CC' after the issuer completed a distressed exchange. The principal liquidity sources for the issuer involves US$48 million cash on hand and about US$35 million to US$55 million available in revolving credits. On May 28, 2020, S&P Global Ratings withdrew its ratings on the issuer. Over the long term (1981-2020), heightened ratings stability is broadly consistent with higher ratings (see table 21). U.S., Bermuda, and the Cayman Islands, Other developed: Earlier, on April 22, 2020, we lowered our issuer credit rating on Takko to 'CCC+' from 'B-', reflecting our view that the group's ability to service its financial commitments could be further strained. We calculated standard deviations for Gini ratios in this study as the standard deviations of a sample, and not those of a population. The number of companies rated in the 'BBB' category has grown by 27% since the beginning of 2008, to roughly 1,847 at the end of 2020. On Jan. 13, 2020, S&P Global Ratings lowered its long-term issuer credit rating on paper manufacturer Lecta S.A. to 'SD' from 'CC' after failing to pay the interest of 3.8 million due November 2019 on its 225 million senior secured floating notes due 2020. The leisure and entertainment default rate finished at 9.9% in 2020 and could approach 30% in 2021. Investment-grade ratings are proportionately more prevalent among financial services companies as well (relative to nonfinancials). Reduced EBITDA amid the pandemic and oil price crisis in early 2020 stressed the operating performance of the issuer. The company entered into a forbearance agreement with its senior debt lenders and is expected to pursue a debt restructuring.
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