The number of weakest links (issuers rated 'B-' or lower by S&P Global Ratings with negative outlooks or ratings on CreditWatch with negative implications) grew to 263 in September from 243 in August, reaching its highest since November 2009, when the global speculative-grade default rate was at a record high of 10.5% amid the financial crisis. The default rate of weakest links is nearly eight times greater than that of the broader speculative-grade (rated 'BB+' or lower) segment, and the rise in the weakest links tally may signify higher default rates ahead.
The consumer products sector leads the tally with 52 weakest links (20% of the total) and had the most additions in September, including U.S.-based Renfro Corp., Blue Ribbon Intermediate Holdings LLC, and Anastasia Holdings LLC, as well as China-based Beijing Ruyi Fashion Investment Holding Co. Ltd.
Chart 1
Consumer Product Weakest Links Rise
In the consumer products sector, downgrades continue to outpace upgrades, leading to an increase in weakest links and a low median rating, in the 'B' rating category. These weakest links include producers that sell their products through their own distribution channels, like David's Bridal and J. Crew, which have faced both top-line growth and bottom-line cost pressures amid changing consumer preferences and greater price transparency due to the growing online marketplace (see "Industry Top Trends 2019: Consumer Products," Nov. 13, 2018).
In our base case, we currently forecast the U.S. default rate will reach 3.4% by June 30, 2020. We expect the consumer products and retail and restaurants sectors to have higher percentages of defaults than other sectors over the next 12 months, given their sector-specific stressors (see "The Expansion Of The 'B-' Segment Is Feeding Growing Vulnerabilities," Sept. 25, 2019).
Trends in U.S. consumer products
- For U.S. consumer products, downgrades outpaced upgrades in 2019 through Sept. 23, with 52 downgrades and five upgrades (see chart 3).
- In the U.S., the consumer products, auto, and retail and restaurants sectors lead in negative bias (the proportion of issuers with negative outlooks or ratings on CreditWatch with negative implications) (see chart 4).
- Issuance in the U.S. consumer products sector remains low, at nearly half of its year-to-date 2018 total. The only two consumer product issuers that have issued debt this year are U.S.-based Getty Images Inc. and KeHE Distributors LLC (see chart 5).
- Among the weakest links listed in the top 250 corporate obligors in outstanding rated U.S. cash flow CLOs, the U.S. consumer products sector leads with six (see table 2).
Chart 2
Chart 3
Chart 4
Chart 5
Table 1
Weakest Links Exceed Five-Year And 10-Year Averages In All Regions Except EEMEA And Canada | ||||||||
---|---|---|---|---|---|---|---|---|
Weakest links by region | ||||||||
Number of weakest links | Five-year average | 10-year average | ||||||
U.S. | 177 | 138 | 114 | |||||
Europe | 36 | 22 | 20 | |||||
Latin America | 28 | 13 | 14 | |||||
Asia-Pacific | 14 | 7 | 7 | |||||
EEMEA | 5 | 15 | 11 | |||||
Canada | 3 | 8 | 7 | |||||
EEMEA--Eastern Europe, Middle East, and Africa. Data as of Sept. 23, 2019. Source: S&P Global Ratings Research. |
Table 2
Consumer Products Lead Weakest Links Listed In The Top 250 Corporate Obligors In Outstanding Rated U.S. Cash Flow CLOs | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Organization | Rank in U.S. CLO transactions | Outlook/CreditWatch | Applied rating | Sector/subsector | ||||||
Advantage Sales & Marketing Inc. |
33 | Negative | B- | Consumer products | ||||||
Riverbed Parent Inc. |
101 | Negative | CCC+ | High technology | ||||||
Harland Clarke Holdings Corp. |
117 | Negative | CCC+ | Media and entertainment | ||||||
Petco Holdings Inc. |
118 | Negative | CCC+ | Retail/restaurants | ||||||
Mallinckrodt PLC |
130 | Negative | CCC | Health care | ||||||
Serta Simmons Bedding LLC |
143 | Negative | CCC+ | Consumer products | ||||||
Bright Bidco B.V. |
149 | Negative | CCC+ | Automotive | ||||||
Alphabet Holding Co. Inc. |
162 | Negative | B- | Consumer products | ||||||
Revlon Inc. |
191 | Negative | CCC+ | Consumer products | ||||||
Ascena Retail Group Inc. |
198 | Negative | CCC+ | Consumer products | ||||||
Idemia France SAS |
209 | Negative | B- | High technology | ||||||
DTI Holdco Inc. |
213 | Negative | B- | Media and entertainment | ||||||
New Academy Holding Co. LLC |
232 | Negative | CCC+ | Retail/restaurants | ||||||
Varsity Brands Holding Co. Inc. |
247 | Negative | B- | Consumer products | ||||||
CLO--Collateralized loan obligation. Data as of Sept. 23, 2019. Source: S&P Global Ratings Research. |
Table 3
Weakest Link Additions | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Entity | Outlook or CreditWatch | Rating | Debt (mil. US$) | Sector | Region | |||||||
Bright Bidco B.V. |
Negative | CCC+ | 1,683 | Automotive | Europe | |||||||
Optimas OE Solutions Holding LLC |
Negative | CCC+ | 450 | Capital goods | U.S. | |||||||
Strategic Materials Holding Corp. |
Negative | CCC+ | 315 | Chemicals, packaging, and environmental services | U.S. | |||||||
Shandong Ruyi Technology Group Co. Ltd. |
Watch Neg | B- | 645 | Consumer products | Asia-Pacific | |||||||
KNB Holdings Corp. |
Negative | B- | 295 | Consumer products | U.S. | |||||||
Renfro Corp. |
Negative | CCC+ | 220 | Consumer products | U.S. | |||||||
Anastasia Holdings LLC |
Negative | B- | 650 | Consumer products | U.S. | |||||||
Blue Ribbon Intermediate Holdings LLC |
Negative | B- | 0 | Consumer products | U.S. | |||||||
Varsity Brands Holding Co. Inc. |
Negative | B- | 2,800 | Consumer products | U.S. | |||||||
Rayonier Advanced Materials Inc. |
Watch Neg | B- | 550 | Forest products and building materials | U.S. | |||||||
Alvogen Pharma US Inc. |
Negative | B- | 2,119 | Health care | U.S. | |||||||
Mallinckrodt PLC |
Negative | CCC | 11,624 | Health care | Europe | |||||||
Navico Group AS |
Negative | CCC+ | 260 | High technology | Europe | |||||||
Deliver Buyer Inc. |
Negative | B- | 630 | Media and entertainment | U.S. | |||||||
Monitronics International Inc. |
Negative | B- | 1,923 | Media and entertainment | U.S. | |||||||
Imagine Group LLC (The) |
Negative | CCC+ | 499 | Media and entertainment | U.S. | |||||||
Harland Clarke Holdings Corp. |
Negative | CCC+ | 1,842 | Media and entertainment | U.S. | |||||||
Zhongrong Xinda Group Co. Ltd. |
Watch Neg | CCC+ | 500 | Metals, mining, and steel | Asia-Pacific | |||||||
SGL Carbon SE |
Negative | B- | 275 | Metals, mining, and steel | Europe | |||||||
Schmolz + Bickenbach AG |
Watch Neg | B- | 0 | Metals, mining, and steel | Europe | |||||||
KCA DEUTAG Alpha Ltd. |
Negative | CCC+ | 1,685 | Oil and gas | Europe | |||||||
Forum Energy Technologies Inc. |
Negative | B- | 400 | Oil and gas | U.S. | |||||||
Unit Corp. |
Negative | B- | 650 | Oil and gas | U.S. | |||||||
Jo-Ann Stores Holdings Inc. |
Negative | B- | 1,130 | Retail/restaurants | U.S. | |||||||
Telecom Argentina S.A. |
Negative | B- | 400 | Telecommunications | Latin America | |||||||
Transportadora de Gas del Sur S.A. (TGS) |
Negative | B- | 500 | Utility | Latin America | |||||||
CAPEX S.A. |
Negative | B- | 300 | Utility | Latin America | |||||||
Aeropuertos Argentina 2000 S.A. |
Negative | B- | 400 | Utility | Latin America | |||||||
Diamond (BC) B.V. |
Negative | B- | 2,464 | Chemicals, packaging, and environmental services | Europe | |||||||
Spring Education Group Inc. |
Negative | B- | 866 | Media and entertainment | U.S. | |||||||
Offshore Drilling Holding S.A. |
Negative | CCC- | 950 | Oil and gas | Latin America | |||||||
Data as of Sept. 23, 2019. Source: S&P Global Ratings Research. |
Table 4
11 Issuers Were Removed From The Weakest Links Tally In September | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Weakest link removals | ||||||||||||||
Entity | Country | Outlook/CreditWatch | Rating | Debt (mil. US$) | Sector/subsector | Region | ||||||||
Sprint Industrial Holdings LLC |
U.S. | Negative | CCC- | 241 | Capital goods | U.S. | ||||||||
Alta Mesa Resources Inc. |
U.S. | Negative | CCC- | 1,000 | Oil and gas | U.S. | ||||||||
Maxcom Telecomunicaciones S.A.B. de C.V. |
Mexico | Watch Neg | CC | 180 | Telecommunications | Latin America | ||||||||
PHL Variable Insurance Co. |
U.S. | Negative | CCC+ | 0 | Insurance | U.S. | ||||||||
BioClinica Holding I L.P. |
U.S. | Negative | B- | 2,620 | Health care | U.S. | ||||||||
EP Energy LLC |
U.S. | Negative | CC | 11,300 | Oil and gas | U.S. | ||||||||
PT Delta Merlin Dunia Textile |
Indonesia | Negative | CCC- | 300 | Consumer products | Asia-Pacific | ||||||||
McDermott International Inc. |
Panama | Negative | B- | 9,380 | Capital goods | Latin America | ||||||||
Horizon Global Corp. |
U.S. | Negative | CCC | 335 | Automotive | U.S. | ||||||||
Montreign Operating Co. LLC |
U.S. | Negative | CCC | 520 | Media and entertainment | U.S. | ||||||||
Triple Point Group Holdings Inc. |
U.S. | Negative | CCC | 435 | High technology | U.S. | ||||||||
Data as of Sept. 23, 2019. Source: S&P Global Ratings Research. |
Table 5
Global Corporate Defaults In Consumer Services In 2019 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Company | Country | Debt (mil. $) | Default date | Weakest link | ||||||
Shopko Stores Inc. |
U.S. | 0 | 1/16/2019 | No | ||||||
New Look Retail Group Ltd. |
U.K. | 1,657 | 1/31/2019 | Yes | ||||||
Charlotte Russe Inc. |
U.S. | 90 | 2/4/2019 | Yes | ||||||
TRM Holdings Corp. |
U.S. | 0 | 2/6/2019 | No | ||||||
Payless Inc. |
U.S. | 280 | 2/19/2019 | Yes | ||||||
CTI Foods Holding Co. LLC |
U.S. | 510 | 3/11/2019 | Yes | ||||||
Evergreen AcqCo1 L.P. d/b/a Savers |
U.S. | 775 | 3/28/2019 | Yes | ||||||
Debenhams PLC |
U.K. | 294 | 4/4/2019 | Yes | ||||||
CROSSMARK Holdings Inc. |
U.S. | 586 | 4/15/2019 | Yes | ||||||
USJ Acucar e Alcool S/A |
Brazil | 275 | 5/22/2019 | Yes | ||||||
FTD Inc. |
U.S. | 0 | 6/3/2019 | No | ||||||
Neiman Marcus Group LLC (The) |
U.S. | 1,698 | 6/11/2019 | Yes | ||||||
New Academy Holding Co. LLC |
U.S. | 1,825 | 6/14/2019 | Yes | ||||||
99 Cents Only Stores LLC |
U.S. | 684 | 7/23/2019 | Yes | ||||||
Barneys New York Inc. |
U.S. | 0 | 8/6/2019 | No | ||||||
Burger BossCo Intermediate Inc. |
U.S. | 193 | 9/3/2019 | Yes | ||||||
PT Delta Merlin Dunia Textile |
Indonesia | 300 | 9/13/2019 | Yes | ||||||
Note: Excludes confidential entities. Data as of Sept. 23, 2019. Source: S&P Global Market Intelligence's CreditPro®. |
For additional information regarding weakest links, please see our most recent quarterly publication, "Weakest Links Rise Among U.S. Health Care Service Providers," published Aug. 20, 2019.
Related Research
- EP Energy LLC Ratings Lowered To 'D' on Missed Interest Payment, Sept. 17, 2019
- Chesapeake Energy Corp. Downgraded To 'SD' From 'B+' On Debt For Equity Exchange; Various Notes Ratings Lowered To 'D', Sept. 13, 2019
- Alta Mesa Resources Inc. Ratings Lowered To 'D' On Chapter 11 Filing, Sept. 12, 2019
- PT Delta Merlin Dunia Textile Rating Lowered To 'D' Following Missed Interest Payments, Sept. 13, 2019
- Burger BossCo Intermediate Inc. Rating Lowered To 'SD' On Second-Lien Interest Payment Conversion To PIK, Sept. 3, 2019
- Global Financing Conditions: Bond Issuance Nears $4 Trillion Through July, Aug. 29, 2019
- The U.S. Speculative-Grade Corporate Default Rate Is Set To Rise To 3.4% By June 2020, Aug. 22, 2019
- Maxcom Telecomunicaciones S.A.B. de C.V. Ratings Corrected To 'D' From 'CC', Aug. 21, 2019
- ESG Industry Report Card: Consumer Products And Agribusiness, May 21, 2019
This report does not constitute a rating action.
Credit Markets Research: | Nicole Serino, New York + 1 (212) 438 1396; nicole.serino@spglobal.com |
Sudeep K Kesh, New York (1) 212-438-7982; sudeep.kesh@spglobal.com |
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