One Global Corporate Default This Week Brings The 2010 Tally To Eight Defaults, Article Says

One global corporate issuer defaulted this week, bringing the 2010 year-to-date tally to eight defaults, said an article published today by Standard & Poor's, titled "Global Corporate Default Update (Jan. 15 - 21, 2010) (Premium)."


This week's default, Air Jamaica Ltd., is based in the emerging markets, bringing the year-to-date default tallies by region to five defaults in the U.S., two in the emerging markets, and one in the other developed region (Australia, Canada, Japan, and New Zealand).

"This week's default resulted from a distressed exchange," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "So far this year, three issuers defaulted because of distressed exchanges and another three defaulted as a result of missed interest or principal payments. The remaining two defaulted issuers were confidential."

Of the global corporate defaulters in 2010, 17% of issues with available recovery ratings had recovery ratings of '6' (indicating our expectation for negligible recovery of 0%-10%), none of the issues had recovery ratings of '5' (modest recovery prospects of 10%-30%), 33% had recovery ratings of '4' (average recovery prospects of 30%-50%), and 33% had recovery ratings of '3' (meaningful recovery prospects of 50%-70%). And for the remaining two rating categories, none of the issues had recovery ratings of '2' (substantial recovery prospects of 70%-90%) and 17% of issues had recovery ratings of '1' (very high recovery prospects of 90%-100%).

The marked improvement in financial conditions has altered our expectations for corporate default rates within the one-year forecast horizon. The sharp decline in funding costs, the reopening of the bond markets (even for low-rated issuance), and the abatement of volatility are factors that will lower refinancing costs, even for low-rated issuers. As a result, our 12-month-forward baseline projection for the U.S. corporate speculative-grade default rate is now 6.9%. Our pessimistic and optimistic scenarios result in default rates of 9.9% and 5.5%, respectively. As of September 2009, the U.S. 12-month-trailing corporate speculative-grade default rate was 10.8%. Previously, we had stated our expectations for a swathe of defaults to occur in the first half of 2010. But now, we expect that many of the defaults might be postponed to later quarters beyond the 12-month forecast horizon. Our forecasts are based 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.

This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect on the Global Credit Portal at www.globalcreditportal.com and to RatingsDirect at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.