Key Takeaways
- During the COVID-19-led global recession, our corporate ratings performed as designed.
- The number of defaults rose, but all entities that defaulted in 2020 began the year rated speculative grade--and 94% with a rating in the 'B' category or lower.
- Default and downgrade rates were in line with the rank ordering of our ratings, with higher default and downgrade rates among the lower ratings, and vice versa.
- Annual stability rates displayed positive rank ordering in 2020, and most ratings had stability rates above their long-term averages.
The global coronavirus pandemic led to the deepest recession the world has seen since the Great Depression. Global GDP declined 4% in 2020 amid lockdowns to contain the virus' spread, while governments and central banks stepped in with unprecedented amounts of fiscal and monetary stimulus.
The number of rated corporate defaults in 2020 hit its highest level since the financial crisis in 2009.
Amid these challenging circumstances, our ratings in 2020 showed their value as indicators of creditworthiness and relative default risk. Here we summarize the results of global corporate ratings' performance during 2020, compared with their 1981-2019 long-term averages.
Defaults Rose, But Were Largely Limited To The Lowest Ratings
- Globally, 2020 saw the fifth-highest overall annual default rate since 1981 (see chart 1).
- The default rate was higher only in previous recession periods.
- All defaulted entities in 2020 began the year rated speculative grade--94% with a rating in the 'B' category or lower.
- Defaults were largely rank ordered--with the highest default rates among the lowest ratings, and vice versa. Of the 198 defaults, 113 began the year with a rating in the 'CCC'/'C' category.
Chart 1
Chart 2
Downgrades Were Elevated Mostly At The Lowest Ratings
- Speculative-grade ratings had downgrade rates much higher than long-term averages (see chart 3).
- The 'AA' category had a downgrade rate higher than its long-term average, but this includes a smaller set of issuers, and declines out of the rating category were entirely due to downgrades at the 'AA-' rating.
- Meanwhile, downgrades from 'BBB' occurred across many sectors in 2020, with the 'BBB' category downgrade rate only 0.6% higher than the long-term average of 4.1%.
Chart 3
Higher Ratings Were More Stable In 2020 Despite Volatile Conditions
- 'B' and 'CCC'/'C' were the only categories with lower stability rates than their long-term averages (see chart 4).
- 'B' fell short by roughly 3%, and 'CCC/C' by nearly 9%.
- Ratings stability during 2020 and over the long term has been much higher for investment-grade ratings. The 90.1% stability rate for 'BBB' in 2020 was nearly 12% higher than the 78.2% rate for 'BB'.
Chart 4
Notes And Definitions
Downgrade rates are calculated based on changes in ratings at the start of the year compared with the end of the year, regardless of the number of interim rating changes. Downgrades do not include movement to 'D'.
Stability rates are calculated based on ratings at the start of the year compared with at the end of the year, regardless of any interim rating changes. Stability rates are based on the number of ratings at the start of the year, minus defaults, upgrades, downgrades, and rating withdrawals (movement to 'NR').
This report does not constitute a rating action.
| Ratings Performance Analytics: | Nick W Kraemer, FRM, New York + 1 (212) 438 1698; nick.kraemer@spglobal.com |
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