Quarterly global defaults reach highest level since 2020
With 44 defaults in the second quarter, the global default tally recorded its highest quarterly default tally since the fourth quarter of 2020, as defaults continue to rise, according to an S&P Global Ratings report. By region, nearly two-thirds of defaults in the second quarter were from the U.S., where credit conditions remain tight with benchmark rates unlikely to fall, continuing pricing pressures, and lenders becoming even more selective. In June alone, 77% of defaults were from U.S. based companies. Meanwhile in Europe, the number of defaults has been more stable in recent weeks with none in June and only six defaults this quarter, down from seven in the first quarter.
S&P Global Ratings’ 2023 global corporate default tally has reached to 84 after following 13 in June:
- Australia based health care sector Genesis Care Pty Limited
- Atlanta-based coin-operated amusement machine operator Lucky Bucks LLC
- Virginia-based third-party provider of visas, passports, and immigration-related travel documentation KCIBT Holdings L.P..
- U.S.-based data center operator Cyxtera Technologies Inc..
- U.S. based ATM and point-of-sale terminal manufacturer, seller, and servicer Diebold Nixdorf Inc.
- U.S.-based competitive telecommunications and cloud provider U.S. TelePacific Holdings Corp.Canada based mining and processing iron ore mineral reserves Tacora Resources Inc.
- Brazil based cement producer and seller InterCement Brasil S.A..
- U.S. based home appliance Instant Brands Holdings Inc..
- U.S. based transport service provider URS Holdco Inc.
- U.S. based media and entertainment service provider Photo Holdings LLC
- U.S. based provide credit report services PGX Holdings Inc..
- And one confidential issuer.
Moving forward, S&P Global expects there will be greater stress in the U.S., where 38% of speculative grade issuers have these low ratings, compared with 30% in Europe, and only 16% in the rest of the world. Considering current trends, we anticipate defaults will increase through early 2024 — to 4.25% in the U.S. and 3.6% in Europe.
In the emerging markets region, defaults have been rising. All 11 emerging market defaults so far this year—six of which were in the second quarter–were in Latin America, versus only two Latin American defaults for the same period in 2022 . The region’s extremely tight financing conditions are exacerbating companies’ funding costs and heightening credit stress for entities that already had precarious liquidity positions. More defaults may come given persistently higher interest rates coupled with looming debt maturities in the region.
The media and entertainment sector continued to lead defaults in June with three followed by consumer products and telecom with two each. For the media and entertainment sector, year-to-date totals are almost five times greater than at this point in 2022. The combination of now-elevated rates and worsening secular or cyclical media trends is hurting cash flow generation of lower-rated companies, especially in the U.S. where many of these defaults are from. We expect this trend to broadly continue as media and entertainment and consumer products lead our weakest link tally.
Bankruptcies led defaults last month with five, compared with distressed exchanges with four. However, the number of distressed exchanges for the quarter remains elevated with 41% of total defaults — slightly higher than the previous quarter.
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