These tables can also be constructed for each rating category. On Sept. 24, 2020, we raised the issuer credit rating to 'CCC' from 'SD'. On Feb. 28, 2020, S&P Global Ratings raised the long-term issuer ratings on Calfrac to 'CCC-' from 'SD' after it completed a debt exchange, which reduced the debt by US$98 million. 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. On Sept. 25, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC+' from 'SD' as the liquidity metrics significantly improved and debt was lower, with sources of cash exceeding uses by significantly more than 1.5x in the following 12 months. The eligible holders of second-lien notes received 97.5 cents on the dollar of the principal amount, whereas first-lien notes holders received 90 cents on the dollar of the principal amount. We consider companies reemerging from prior defaults to be separate entities, and their rating histories begin with the post-default rating. The rating action followed the issuer's exchange of its senior secured notes due 2027 for the new notes, including the PIK of the four quarterly principal and interest payments in the next 12 months, which are repaid pro rata during the remaining term of the notes. Defaulted issuers initially rated 'BB' show a similar pattern but peak a little later, in the fourth year. On June 26, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Irving, Texas-based CEC Entertainment Inc. to 'D' from 'CC' as the company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. 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. On Feb. 24, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Mississippi-based consumer products supplier VIP Cinema Holdings Inc. to 'D' from 'CCC-' after the issuer filed for Chapter 11 bankruptcy. Table 10 displays the median, average, and standard deviations for the time to default from the original rating. We considered the transaction as distressed given the company's weak operating performance, negative cash flow generation, and near-term debt maturities. On May 22, 2020, S&P Global Ratings lowered its long-term issuer credit rating on California-based Guitar Center Inc. to 'SD' from 'CCC'. We study the effect of industry distress on recovery rates by using 5334 debt and loan instruments from Moody's Default and Recovery Database for the period from 1990 to 2017. On the same day, we withdrew the issuer ratings. In our view, continued supply-demand rebalancing will be necessary to slow wage . Earlier, on March 31, 2020, we lowered our issuer credit rating on Global Knowledge to 'CC' from 'CCC-' as the company's liquidity remained very weak and it faced substantial near-term debt maturities, as well as needed to address its unsustainable capital structure. PGS was also in talks with lenders to secure a new capital structure. On Jan. 19, 2020, The Krystal Co. defaulted after the company filed for bankruptcy under Chapter 11 with the Northern District of Georgia. 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. On Nov. 23, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Oklahoma-based exploration and production company Gulfport Energy Corp. to 'D' from 'CCC-' after the issuer elected to skip its interest payment on its 6% senior unsecured notes maturing Oct. 15, 2024, and enter into a 30-day grace period. On June 16, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Alta-based frac sand producer and supplier Source Energy Services Ltd. to 'D' from 'CCC-' after the issuer missed the interest payment due on June 15, and we believed the company was unlikely to make the interest payment within the 60-day grace period. Over the long term (1981-2020), heightened ratings stability is broadly consistent with higher ratings (see table 21). 3Q 2021 . Back in December, Moody's Investors Servicepegged the 2017 default rate for speculative-grade debt in the U.S. at 4% by year-end, down from 5.6%. On Aug. 26, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New York-based fitness club operator Town Sports International Holdings Inc. to 'SD' from 'CC' after the issuer failed to pay its US$14 million outstanding revolver balance. As is the case globally, the proportion of speculative-grade ratings reached an all-time high in the U.S. as well, at 57.8%. This preview shows page 40 - 41 out of 49 pages. On Jan. 9, 2019, S&P Global Ratings lowered its issuer credit rating on Missouri-based retailer Moran Foods LLC (SAL Acquisition Corp.) to 'SD' from 'CCC' after the company elected not to make an interest payment due Dec. 31, 2019, while entering into a forbearance agreement. This is followed by a rating withdrawal in 1990 and a default in 1993. On Nov. 6, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC' from 'SD' on completion of restructuring. Financial services companies are typically more sensitive to sudden declines in investor and stakeholder confidence than nonfinancial companies, which can contribute to a rapid decline in funding liquidity and credit quality. Earlier, on May 1, 2020, we lowered our issuer credit rating on Chesapeake Energy to 'CC' from 'CCC'. High technology/computers/office equipment. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro. On Sept. 9, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Missouri-based printing equipment designer and manufacturer MAI Holdings Inc. to 'SD' from 'CCC-' after the issuer completed the partial exchange of its senior secured notes. Cross-Sector: The . The issuer announced that it voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Finally, PD estimates should also be compared across banks (EBA 2020). On July 23, 2020, S&P Global Ratings lowered its rating on the issuer to 'D' from 'CCC-' upon the company filing for Chapter 11 bankruptcy, following which, on Jan. 5, 2021, the ratings on the issuer were withdrawn. If these default rate forecasts crystalize, the pandemic induced default cycle will be relatively mild comparing with prior recessionary default cycles whose peaks ranged from 9.7% to 13.3%. 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 Dec. 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Houston-based oil and gas exploration and production company Callon Petroleum Co. to 'SD' from 'CC' following a distressed exchange wherein it exchanged US$217 million of new 9% second-lien notes due 2025 for US$389 million of its existing unsecured notes. We expect the company will not be able to pay most of its obligations as they come due, unless a major debt restructuring it is working on allows it to extend major debt maturities, including the $350 million Eurobond repayment due in September 2021. One key reason is that financial services companies typically start with investment-grade ratings, while most nonfinancial issuers have speculative-grade initial ratings, particularly over the past 10 years. On July 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based oil and gas exploration and production company Lonestar Resources U.S. Inc. to 'D' from 'CCC-' after the issuer elected to skip an interest payment on its unsecured notes due 2023, and was not likely to pay within the 30-day grace period. After beginning with heightened credit market stress and a 45-plus-day stretch without any speculative-grade issuance in the U.S. and Europe, 2019 ultimately saw only marginally higher default and downgrade rates than 2018. As coincident indicators, the proportion of new speculative-grade ratings at 'B-' or lower in the U.S. and the year-end U.S. speculative-grade default rate generally mirror each other throughout most of their shared history (see chart 17). On Aug. 19, 2020, we raised the issuer credit rating to 'CCC-' from 'SD' after the issuer resumed interest payments on senior secured notes issued by its subsidiary. At the end of September, the trailing 12-month default rate for U.S. corporate issuers of speculative-grade bonds and loans was 8.5%, according to Moody's Investors Service. A ratio of 1 would indicate that the percentages of upgrades and downgrades were equal. However, given that machine learning currently receives a lot of attention in the credit risk community, further reviews and benchmark studies would certainly be welcome. The exchange occurred at a weighted average ratio of approximately US$557 per US$1,000 of principal exchanged plus a total of 1.76 million warrants with a strike price of US$5.60. The company will not make the interest payments within the 30-day grace period. The group issued a US$450 million senior secured term loan and US$111 million senior secured term loan due in May 2024 and refinanced the US$111 million additional RCF that was maturing in December 2020. Each issuer is likely to be captured multiple times, in line with its migration from one rating to another, so the total count in table 13 is different from that in table 12. This transaction was viewed as distressed because the exchange was at a much discounted rate, of about 70 cents on a dollar. However, defaults from most other sectors increased as well. The issuer has limited refinancing options owing to the disruptions caused by the coronavirus and the presence of foreign currency-denominated debt, about 40%. 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. Defaulters initially rated 'CCC' show the reverse pattern, with the highest default rate observed in the first year, which is not surprising given the low rating and S&P Global Ratings' associated criteria (see "Criteria For Assigning CCC+, CCC, CCC-, And CC Ratings," Oct. 1, 2012). In fact, only four sectors had default rates in 2020 that were lower than their long-term averages (aerospace/automotive/capital goods/metal, forest and building products/homebuilders, financial institutions, and insurance) (see chart 2). Credit deterioration was significant in 2020, with a new historical low upgrade rate (2.8%) and one of the highest annual downgrade rates (18.5%). Earlier in the month, on Feb. 5, 2020, American Commercial Lines Inc. announced it would execute a restructuring, after which S&P Global Ratings lowered the long-term issuer credit rating to 'CC' from 'CCC'. Later, on Oct. 15, 2020, we withdrew the ratings at the issuer's request. 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. The issuer missed the aggregate interest payments on first-, second-, and 1.5-lien term loans due in 2021 and 2022, which was unlikely to be paid in the 30-day grace period. On May 27, 2020, we withdrew all the ratings on Extraction Oil & Gas Inc., including the 'D' issuer credit rating, at the company's request. On Sept, 24, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Switzerland-based automobiles and components manufacturing company Garrett Motion Inc. to 'D' from 'B' after the issuer filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. We considered this exchange as a distressed exchange. 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 April 12, 2020, Pace Industries Inc. filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Low demand, weak macroeconomic performance, and the pandemic led to weakening liquidity and performance. The company received commitments for US$256 million in debtor-in-possession financing from various lenders. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. The rating process begins when an arranger, issuer, sponsor, or underwriter contacts a member of Fitch's Business Relationship Management (BRM) group with a request to engage Fitch. On Oct. 20, 2020, S&P Global Ratings raised its issuer credit ratings to 'B-' from 'D' after the issuer announced it had completed a debt restructuring transaction, resulting in US$400 million of debt reduction. On Oct. 9, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Florida-based glass packaging producer company Anchor Glass Container Corp. to 'SD' from 'CC' after the issuer closed its previously announced exchange offer for its second-lien term loan at a discount to par, which was considered to be distressed and tantamount to default. S&P Global Ratings had previously withdrawn its ratings on Techniplas. S&P Global Ratings lowers its rating on an obligor to 'D' or 'SD' if the obligor is conducting a distressed exchange offer. In nearly all instances, the financial services sector's longer-term default rates were lower in 2020 than long-term averages. Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. The company eliminated its prepetition debt during the bankruptcy process. We calculated average transition matrices on the basis of the multiyear matrices just described. . The higher default rates for nonfinancial sectors are not surprising, given their higher concentration of speculative-grade issuers. These were Macy's Inc., Ally Financial Inc., Ambac Assurance Corp., Mutual Benefit Life Insurance Co., Executive Life Insurance Co. CA, Confederation Life Insurance Co., Motors Liquidation Co. (formerly known as General Motors Corp.), and Eastman Kodak Co. Table 13 shows the cumulative defaults over various time horizons from all ratings received subsequent to initial ratings. While the one-year default rate for nonfinancial companies has climbed above 3.5% in four cyclical peaks (1991, 2001-2002, 2009, and 2020), the annual default rate for financial services has remained below 2% since 1990 and below 1% for the past 11 years (see chart 18). On July 8, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Indonesia-based property developer PT Modernland Realty Tbk. However, some of the variation in default rates between sectors stems from overall sample size differences, as well as differences in the ratings distribution across industries. The downgrade reflected our belief that continued low crude oil prices, the weak outlook for offshore drilling services, and the distressed level at which Valaris' debt is trading made it likely the company would not make the interest payments within the grace period. Consistent with the increase in the number of defaults in 2020, the volume of debt affected by defaults almost doubled to $353.4 billion. Of the defaulted companies in 2020, 7.5% were unrated just prior to default, which is well below the long-term percentage of 16.2% (see chart 13). These factors, combined with asset managers' growing tolerance for investing in lower-rated companies, leave just a handful of the highest-rated entities. All speculative-grade categories had higher default rates in 2020 than their long-term averages, though in the cases of the 'BB' and 'B' categories, these increases were relatively small. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. We combined these percentages to obtain cumulative default rates for the 40 years the study covers (see tables 24-26 and 30-32). We calculated standard deviations for Gini ratios in this study as the standard deviations of a sample, and not those of a population. All of S&P Global Ratings Research's default studies have found a clear correlation between ratings and defaults: The higher the rating, the lower the observed frequency of default, and vice versa. With these liquidity supports from central banks in place, market volatility eased after the spring. On Dec. 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on U.K.-based payroll software provider Zellis Holdings Ltd. to 'SD' from 'CCC+'. 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. Over the 40 years this study covers, 70.5% of financial entities were initially rated investment grade, compared with only 29.4% of nonfinancial companies. On July 1, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Ohio-based frac sand and industrial minerals producer Covia Holdings Corp. to 'D' from 'CCC+'. We then divide this by the ratio of the total number of nonzero weights minus one and the total number of nonzero weights. On June 24, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Salt Lake City-based drilling services provider and manufacturer Boart Longyear Ltd. (BLY) to 'SD' from 'CC'. Crew Group Inc. to 'D' from 'CCC-' following the company's announced petitions filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In a theoretical exploration of recovery rates in a structural 16 FEB 2023. On May 6, 2020, S&P Global Ratings withdrew its ratings on the issuer. The issuer is exploring other strategic alternatives as liquidity remains constrained. Earlier, on April 1, 2020, we lowered our issuer credit rating on Gavilan to 'CCC-' from 'CCC+' after the issuer drew the full amount on the US$200 million reserve-based lending facility, which was up for redetermination in April 2020. Historically, nonfinancial defaulters tend to have a much smoother and shorter path to default (see chart 12). This does not necessarily indicate a default event, but during the period of regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. Difference between last four quarters and weighted average, Largest corporate defaulters by outstanding debt amount, Texas Competitive Electric Holdings Co. LLC. For the most part, the speculative-grade share of every sector has grown over the past decade, with the exception of the real estate sector. On April 14, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Chicago-based printing and digital media company LSC Communications Inc. to 'D' from 'CC' after the issuer filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. On June 1, 2020, we lowered the credit ratings to 'D' after the issuer commenced Chapter 11 bankruptcy restructuring, and subsequently on June 25, 2020, the ratings were withdrawn at the issuer's request. On April 17, 2020, we raised the issuer credit ratings to 'CCC-' after the issuer was able to shift a huge portion of debt maturing in the second quarter of 2020 to the next quarter. Document Information click to expand document information . On July 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based oil and gas exploration and production company Denbury Resources Inc. to 'D' from 'CCC+'. On June 5, 2020, we raised our issuer credit rating on Noble to 'CCC-' from 'SD' as the company's repurchased about $118 million in principal value of its two seller loans due 2022 and 2023 at 85% of par value in a transaction we viewed as a selective default. On June 4, 2020, S&P Global Ratings lowered its issuer credit rating on Los Angeles-based restaurant operator California Pizza Kitchen Inc. (CPK) to 'D' from 'CCC-' because the company missed its interest payments due at the end of May 2020 and entered into a forbearance agreement with its lenders. On Feb. 12, 2020, S&P Global Ratings lowered its long-term issuer credit rating on RentPath LLC to 'D' after the issuer defaulted and filed for Chapter 11 bankruptcy. Earlier, on April 14, 2020, we lowered the issuer credit ratings on the company to 'CCC-' from 'CCC' as it was contending with the disruption and recessionary conditions stemming from the coronavirus pandemic, the challenging trends facing department stores, and an unsustainable capital structure. 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. S&P Global Ratings subsequently withdrew the ratings at the issuer's request. We held over 13,000 customer engagement meetings, a 12% increase over 2020. Although MCS had sufficient liquidity to make the interest payment, S&P Global Ratings believed that the company was unlikely to pay it within the five-day grace period, given its unsustainable capital structure. Defaults US HY default rate: According to Moody's Investors Service, the U.S.' trailing 12-month high-yield default rate jumped from August 2019's 3.1% to August 2020's 8.7% and may average 10.6% during 2020's final quarter. Default activity in 2020 did increase, but to a lesser extent than recent recessions (see chart 1 and table 1). On July 20, 2020, we withdrew the ratings on the issuer. The Default & Recovery Database is part of Moody's Analytics broader Default Suite of products.
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