2020 Summary

Consistent with global trends through the pandemic in 2020, the Australia/New Zealand region saw an increase in defaults last year (see chart 1), and a marked decline in credit quality, punctuated by a 22-year high in the downgrade-to-upgrade ratio of 4.5-to-1 (see table 3). The region's overall default rate of 2.1% was lower than globally (2.75%), but the speculative-grade default rate for Australia/New Zealand was a much higher 13.8% compared to 5.5% globally (see tables 1 and 2).

Australia/New Zealand saw four defaults in 2020, all of which were initially rated speculative-grade. This puts the 13.8% speculative-grade default rate in perspective--this is a region dominated by investment-grade firms, with a comparably larger share from the financial services sector. In all, there were only 29 speculative-grade firms at the beginning of 2020 in the region (15.3% of the total). But speculative-grade issuers represented 39% of all downgrades seen during the year, illustrative of the region's strong ratings performance through the pandemic.

Out of the four defaults, three resulted from the effects of the pandemic. The exception, Speedcast International Ltd., missed interest payments on its US$600 million term loan, due on March 31, 2020, although it too faced operating headwinds associated with the pandemic. Three of the defaults were from nonfinancial sectors. The exception was New Zealand-based FE Investments Ltd., which belongs to the financial institutions sector.

S&P Global Ratings Research's corporate default and rating transition studies have found that defaults typically stem from the speculative-grade rating category ('BB+' or lower), and credit risk typically monotonically increases down the ratings spectrum (e.g., 'CCC' rated issuers show a substantially higher likelihood of default than higher-rated counterparts like 'BBB' rated companies) (see chart 2).

The statistics we present in this study refer only to corporate ratings and include financial and nonfinancial companies in Australia and New Zealand, unless otherwise stated. Our methodology and definitions of the terms we use in this study are in Appendix I.

The relative lack of defaults from Australia/New Zealand can be largely attributed to the region's comparably strong rating distribution (see chart 3). Roughly 85% of its ratings are investment-grade, compared to about half of the global total. At the end of 2020, 47.6% of rated issuers were in the 'BBB' category, followed by 29.7% in the 'A' category. In comparison, globally, 25.8% finished in the 'BBB' category and 27.2% in the 'B' category.

Globally, corporate defaults rose to 226 in 2020 from 118 in 2019 and 82 in 2018. The 226 corporate defaults in 2020 affected debt worth US$353.43 billion, nearly twice 2019's US$183.21 billion (see table 2).

Table 1

Table 2

Table 3

A Closer Look At Australia And New Zealand Corporate Defaulters

In 2020, three Australia-based companies and one New Zealand based company with US$21 billion of debt rated by S&P Global Ratings defaulted (see table 4).

FE Investments Ltd.

On April 6, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New Zealand-based nonbank financier FE Investments Ltd. to 'D' from 'CCC'. The issuer was unable to raise capital to maintain the regulatory minimum, and subsequently the principal and interest payments to depositors were suspended. The issuer was facing a rise in additional loan loss provision, which was attributed to the large nonperforming loans. As a result, the trustee placed the issuer into receivership (with KordaMentha as receivers).

On June 4, 2020, we withdrew the ratings on the issuer because of insufficient information to continue the surveillance of the ratings.

Speedcast International Ltd.

• US$600 million floating rate bank loan due May 15, 2025

• US$100 million first-lien guaranteed senior secured revolver bank loan due May 15, 2023

On April 7, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Australia-based telecom service provider Speedcast International Ltd. to 'D' from 'CCC' after the issuer missed interest payments on its US$600 million term loan, due on March 31, 2020.

Earlier, on Feb. 9, 2020, we lowered the issuer credit rating on Speedcast to 'CCC' from 'B-' after the issuer announced lower 2019 earnings and a challenging operating outlook, which intensified pressure on the group's liquidity.

Virgin Australia Holdings Ltd.

• US$350 million 7.875% notes due Oct. 15, 2021

• A$150 million 8.25% medium-term notes due May 30, 2023

• A$250 million 8.075% medium-term notes senior second due March 5, 2024

• US$425 million 8.125% callable notes due Nov. 15, 2024

• A$325 million 8.00% senior unsecured notes due Nov. 26, 2024

On April 30, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Australia-based airline company Virgin Australia Holdings Ltd. to 'D' from 'CC' after the company filed for Chapter 15 bankruptcy and announced it would not pay the coupon on its US$425 million senior unsecured notes because of a moratorium on all creditor payments.

Earlier, on April 21, 2020, we lowered the rating on the issuer to 'CC' from 'CCC' after it announced it was entering into a voluntary administration to undertake a proposed debt restructuring and recapitalization of the business. The company's credit quality deteriorated with the pressure on airlines' cash flows and liquidity due to the coronavirus pandemic.

On Dec. 9, 2020, S&P Global Ratings withdrew its 'D' issuer credit rating at the issuer's request.

Boart Longyear Ltd.

• US$88 million 7.00% senior notes due Dec. 31, 2022
• US$200 million 10.00% senior secured notes due Dec. 31, 2022
• US$92 million subordinated notes due Dec. 31, 2022
• US$105 million second lien guaranteed secured payment-in-kind term B due Dec. 31, 2022

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'. The downgrade followed BLY's conversion of the June 2020 and December 2020 interest payments due on its senior secured notes to payment-in-kind (PIK) interest from cash interest. The company was to pay 12.0% and 14.5% PIK interest in June and December, respectively, rather than the previous 10.0% rate. While these payments would have a higher interest rate, we considered this modification a selective default since investors were receiving less than they were originally promised under the security, partly because the amendment would delay the timing of the interest payments.

On July 2, 2020, we raised our issuer credit rating on BLY to 'CCC+' from 'SD' as the company completed amending interest payments on its senior secured notes to PIK from cash for 2020. The negative outlook reflects our view of a potential risk from a prolonged decline in customer's mining and drilling activity and slower-than-expected recovery, which could lead to further liquidity pressure and leverage remaining above 10x ahead of the large debt maturities in 2022, increasing the risk of another distressed transaction.

Earlier, on May 29, 2020, we lowered our ratings on BLY to 'CC' from 'CCC+' and placed them on CreditWatch with negative implications following the company's announcement of a proposal to convert the interest payments due on its senior secured notes in 2020 to PIK interest payments. We understood that the company was making those amendments to preserve cash because customers have had to suspend their mining operations or delayed their project spending due to the coronavirus pandemic.

Table 4

Higher Ratings Are Consistent With Fewer Defaults

We generally have observed that higher-rated companies take longer to default than lower-rated companies do, as well as generally defaulting with far less frequency. The breakdown of default rates by rating modifier (the plus or minus after the rating) shows that lower rating categories historically experience higher default rates on average, though variability is possible in any given year, especially in earlier years where the rated population is smaller (see table 5). Nevertheless, the data from past default cycles indicate that most defaults stemmed from the lowest ratings.

Table 5

Industry Profile

In 2020, there were four defaults, with one each in energy and natural resources, financial institutions, telecommunications, and transportation. The Australia/New Zealand region is generally small, with about 181 active ratings (as of Sept. 1, 2021) and some sectors are much more heavily represented than others. Many sectors are dominated by a small number of strong issuers, most of which have investment-grade ratings. For example, with only one default, the sector default rate in 2020 for telecommunications was 20% (see table 6).

The sector with both the largest population and the most defaults historically is financial institutions. This is generally not typical, as this sector has fewer rated companies, and comparably very few defaults, globally. That said, the historical defaults among financial institutions in Australia/New Zealand (14) have come from non-bank financial institutions, with all but three originally rated speculative-grade. Many of these defaults were largely concentrated: one defaulter--GFNZ Group Ltd.--defaulted three separate times. And a large majority of this sector's defaults were from New Zealand, with roughly two-thirds occurring in the 2010-2011 period during New Zealand's property market downturn and credit crunch.

Table 6

Transition Tables And Cumulative Default Rates

Our analysis of rating transitions in 2020 suggests that ratings behavior in Australia and New Zealand remains consistent with global trends, which have shown a positive correspondence between credit rating and stability. Investment-grade-rated issuers in Australia and New Zealand tend to exhibit greater credit stability (as measured by the frequency of rating transitions) than their speculative-grade counterparts (see table 7). For instance, 86.7% of Australia- and New Zealand-based issuers rated 'A' at the beginning of the period (i.e., Jan. 1, 2020) were still rated 'A' at the end of the period (i.e., Dec. 31, 2020), whereas the comparable share for issuers rated 'B' was 81.3%. Caution must be used in interpreting results by rating category in these transition tables in light of the small sample sizes among many.

Table 7

This pattern is similar to the long-term (1981-2020) trend for ratings behavior among all global rated issuers. Of the Australia- and New Zealand-based issuers rated 'AA', 87% retained this rating after one year, whereas only 68.2% of issuers rated 'B' retained that rating (see table 8).

Table 8

Transitions at the rating modifier also display the same relationship by and large, though differences in sample size occasionally create slight variations between adjacent rating categories (see table 9).

Table 9

The negative correspondence between ratings and defaults in Australia and New Zealand holds true over time, as the cumulative average default rates illustrate (see tables 10 and 11). No defaults have ever occurred in the 'AAA' category in Australia and New Zealand. On average, from 1989-2020, 'BBB' rated Australia and New Zealand issuers had a 0.11% default rate over a one-year period and a 0.23% default rate after two years, assuming survival after the first year. In contrast, issuers rated 'B' had a default rate of 4.7% on average in the first year and of 11.6% in the second.

Our findings here are also qualified by the small number of issuers in the pool and the short period of the study. There are only 185 issuer ratings in the pool for New Zealand and Australia for 2020. Although the study period for Australia and New Zealand is 1989-2020, a majority of issuer ratings were assigned after 2008. Therefore, a significant portion of the pool is not as seasoned as its global counterparts, and outliers will have a larger impact on the results.

Table 10

Table 11

Gini Ratios And Lorenz Curves

The Gini ratio (coefficient), a quantitative measure of ratings performance, indicates that the relative rank ordering of ratings in Australia and New Zealand have remained reliable over various time horizons. To measure ratings performance or ratings accuracy, the cumulative share of issuers by rating is plotted against the cumulative share of defaulters in a Lorenz curve to render the accuracy of their rank ordering visually (see charts 4). For definitions and methodology, refer to Appendix II. Our calculations indicate that the one-year transition to default in Australia and New Zealand shows an average one-year Gini coefficient of 91%, a three-year of 92.5%, and a five-year of 88.5% (see table 12). If corporate ratings only randomly approximated default risk, the Gini coefficient would be zero. On the other hand, if corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated issuers, the Lorenz curve would capture all of the area on the graph above the diagonal, and its Gini coefficient would be 1.

Table 12

As expected, the Gini coefficients decline as the time horizon lengthens because longer time horizons allow for more credit degradation among higher-rated issuers. In the one-year Australia and New Zealand Lorenz curve, for example, 92.1% of defaults occurred in the speculative-grade category, while speculative-grade ratings constituted only 12.4% of all Australia and New Zealand corporate issuers (see chart 4). If the rank ordering of ratings had little predictive value, the cumulative share of defaulting corporate issuers and the cumulative share of all issuers would be nearly the same.

Appendix I: Default Methodology And Definitions

This long-term corporate default and rating transitions study uses the CreditPro® database of long-term local-currency issuer credit ratings. The analysis excludes public information ("pi") ratings and ratings based on the guarantee of another company or government entity. We also do not include short-term issuer ratings. S&P Global Ratings does not require all issuers with rated debt to have an issuer credit rating. Therefore, if an issuer has rated debt but not an issuer credit rating, we assign a proxy rating so that the CreditPro corporate dataset accurately represents the complete universe of ratings. The local-currency senior unsecured rating is the preferred debt-level rating used for the proxy because this rating is usually consistent with the issuer credit rating. In a small number of cases, we use the subordinated debt rating or the senior secured rating as the proxy.

An S&P Global Ratings issuer credit rating is a forward-looking opinion about an obligor's overall creditworthiness. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation because it does not take into account the nature and provisions of any single obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and enforceability of the obligation. Counterparty credit ratings, corporate credit ratings, and sovereign credit ratings are all forms of issuer credit ratings. Issuer credit ratings can be either long term or short term.

S&P Global Ratings Research's ongoing enhancement of the database used to generate this study could lead to outcomes that differ to some degree from those reported in previous studies. However, this poses no continuity problem because each study is self-contained and effectively supersedes all previous versions.

Issuers included in this study

This study analyzes the rating histories of companies in Australia and New Zealand that were rated by S&P Global Ratings as of Dec. 31, 1988, or that were first rated between that date and Dec. 31, 2020. These include industrials, utilities, financial institutions, and insurance companies around the world with long-term local-currency ratings. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subject of separate default and transition studies, and we exclude them from this study.

To avoid overcounting, we exclude subsidiaries with debt that is fully guaranteed by a parent or with default risk that is considered identical to that of a parent. The latter are companies with obligations that are not legally guaranteed by a parent but that have operating or financing activities that are so inextricably entwined with those of the parent that it would be impossible to imagine the default of one and not the other. 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. We included such subsidiaries for the period during which they had a distinct and separate risk of default.

Issuers with withdrawn ratings

S&P Global Ratings withdraws ratings when an entity's entire debt is paid off or when the program or programs rated are terminated and the relevant debt extinguished. For the purposes of this study, a corporate rating may be withdrawn as a result of mergers and acquisitions. Others are withdrawn because of a lack of cooperation, particularly when a company is experiencing financial difficulties and refuses to provide all the information needed to continue surveillance on the ratings, or at the entity's request.

Definition of default

An obligor rated 'SD' (selective default) or 'D' (default) is in default on one or more of its financial obligations, including rated and unrated financial obligations but excluding hybrid instruments classified as regulatory capital or in nonpayment according to terms. An obligor is considered in default unless S&P Global Ratings believes that such payments will be made within five business days of the due date in the absence of a stated grace period, or within the earlier of the stated grace period or 30 calendar days.

A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An 'SD' rating is assigned when S&P Global Ratings believes that the obligor has selectively defaulted on a specific issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. S&P Global Ratings lowers its rating on an obligor to 'D' or 'SD' if the obligor is conducting a distressed exchange offer.

'R' (regulatory intervention) indicates that an obligor is under regulatory supervision owing to its financial condition. 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. Preferred stock is not considered a financial obligation; thus, a missed preferred stock dividend is not normally equated with default. On July 5, 2019, we removed the 'R' symbol from all rating scales.

We deem 'D', 'SD', and 'R' issuer ratings to be defaults for the purposes of this study. A default is assumed to take place on the earliest of:

• The date S&P Global Ratings revised the rating(s) to 'D', 'SD', or 'R';
• The date a debt payment was missed;
• The date a distressed exchange offer was announced; or
• The date the debtor filed for, or was forced into, bankruptcy.

When an issuer defaults, it is not uncommon for S&P Global Ratings to subsequently withdraw the 'D' rating. For the purposes of this study, if an issuer defaults, we end its rating history at 'D'. If any defaulting entity reemerges from bankruptcy--or otherwise restructures its defaulted debt instruments, thereby reestablishing regular, timely payment of all its debts--we reenter this issuer into the database as a new entity. Its rating history after the default event is included in all calculations as entirely separate from its experience leading up to its earlier default.

Many practitioners use statistics from this default study to estimate the "probability of default" and "probability of rating transition." It is important to note that S&P Global Ratings' credit ratings do not imply a specific probability of default.

Calculations

Static pool methodology.  S&P Global Ratings Research conducts its default studies on the basis of groupings called static pools. For the purposes of this study, we form static pools by grouping issuers by rating category at the beginning of each year, quarter, or month that the database covers. Each static pool is followed from that point forward. All companies included in the study are assigned to one or more static pools. When an issuer defaults, we assign that default back to all of the static pools to which the issuer belonged.

We use the static pool methodology to avoid certain pitfalls in estimating default rates. This is to ensure that default rates account for rating migration and to allow for default rates to be calculated across multiperiod time horizons. Some methods for calculating default and rating transition rates might charge defaults against only the initial rating on the issuer, ignoring more recent rating changes that supply more current information. Other methods may calculate default rates using only the most recent year's default and rating data, which may yield comparatively low default rates during periods of high rating activity because they ignore prior years' default activity.

The pools are static in the sense that their membership remains constant over time. Each static pool can be interpreted as a buy-and-hold portfolio. Because errors, if any, are corrected by every new update and because the criteria for inclusion or exclusion of companies in the default study are subject to minor revisions as time goes by, it is not possible to compare static pools across different studies. Therefore, every new update revises results back to the starting date so as to avoid continuity problems.

Issuers that have had ratings withdrawn--that is, revised to 'NR' (not rated)--are surveilled with the aim of capturing a potential default. Because static pools only include issuers with active ratings as of the beginning date of a given pool, we exclude companies with withdrawn ratings, as well as those that have defaulted, from subsequent static pools. If an entity has its rating withdrawn after the start date of a particular static pool and subsequently defaults, we will include it in that static pool as a default and categorize it in the rating category it was a member of at that time.

For instance, the 2001 static pool consists of all companies rated as of 12:01 a.m. on Jan. 1, 2001. Adding those companies first rated in 2001 to the surviving members of the 2001 static pool forms the 2002 static pool. All rating changes that took place are reflected in the newly formed 2002 static pool through these issuers' ratings as of 12:01 a.m. on Jan. 1, 2002.

Consider the following example: An issuer is originally rated 'BB' in mid-2000, and S&P Global Ratings downgrades the company to 'B' in 2002. This is followed by a rating withdrawal in 2003 and a default in 2004. We would include this hypothetical company in the 2001 and 2002 pools with the 'BB' rating, which was the rating on the company at the beginning of those years. Likewise, we would include it in the 2003 pool with the 'B' rating. It would not be part of the 2004 pool because it was not rated as of the first day of that year, and we would not include it in any pool after the last day of 2004 because S&P Global Ratings had withdrawn its rating on the company by then. Yet each of the three pools in which this company was included (2001-2003) would record its 2004 default at the appropriate time horizon.

Default rate.  We calculated annual default rates for each static pool, first in units and later as percentages with respect to the number of issuers in each rating category. We combined these percentages to obtain cumulative default rates for the 32 years the study covers.

Issuer-weighted default rates.  All default rates that appear in this study are based on the number of issuers rather than the dollar amounts affected by defaults or rating changes. Although dollar amounts provide information about the portion of the market that is affected by defaults or rating changes, issuer-weighted averages are a more useful measure of the performance of ratings.

Average cumulative default rate calculation.  The cumulative default rates in this study average the experience of all static pools by first calculating marginal default rates for each possible time horizon and for each static pool, weight-averaging the marginal default rates conditional on survival (survivors being nondefaulters), and accumulating the average conditional marginal default rates. We calculated conditional default rates by dividing the number of issuers in a static pool that default at a specific time horizon by the number of issuers that survived (did not default) to that point in time. Weights are based on the number of issuers in each static pool. Cumulative default rates are one minus the product of the proportion of survivors (nondefaulters).

For instance, the hypothetical weighted-average first-year default rate for speculative-grade rated companies in Australia and New Zealand for all 32 pools was 5.91%, meaning that an average of 94.09% survived one year (see table 15). Similarly, the second- and third-year conditional marginal averages were 4.51% for the first 31 pools (95.49% of those companies that did not default in the first year survived the second year) and 4.12% for the first 30 pools (95.88% of those companies that did not default by the second year survived the third year). Multiplying 94.09% by 95.49% results in an 89.84% survival rate to the end of the second year, which yields a two-year cumulative average default rate of 10.16%. Multiplying 89.84% by 95.88% results in an 86.15% survival rate to the end of the third year, which yields a three-year cumulative average default rate of 13.85%.

Transition analysis

Transition rates compare issuer ratings at the beginning of a period with ratings at the end of the period. 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. An issuer that remained rated for more than one year was counted as many times as the number of years it was rated. For instance, an issuer continually rated from the middle of 1984 to the middle of 1991 would appear in the seven consecutive one-year transition matrices from 1985 to 1991. If the rating on the issuer was withdrawn in the middle of 1991, it would be included in the column representing transitions to 'NR' in the 1991 transition matrix. Similarly, if it defaulted in the middle of 1991, it would be included in the column representing transitions to 'D' in the 1991 one-year transition matrix.

All 1989 static pool members still rated on Jan. 1, 2020, had 32 one-year transitions, while companies first rated on Jan. 1, 2020, had only one. Each one-year transition matrix displays all rating movements between letter categories from the beginning of the year through year-end. For each rating listed in the matrix's leftmost column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entry for 'NR'.

The only ratings considered in these calculations are those on issuers at the beginning of each static pool and those at the end. All rating changes that occur in between are ignored. For example, if an entity was rated 'A' on Jan. 1, 2015, and was downgraded to 'BBB' in the middle of the year and then upgraded to 'A' later in the year (with no other subsequent rating changes), this entity would be included only in the percentage of issuers that began the year as 'A' that ended the year as 'A'. This also applies to transition matrices that span longer time horizons. If an issuer defaults or if the rating on the issuer is withdrawn in the middle of the year, then either 'D' or 'NR' would be considered the rating on the issuer as of Dec. 31 of that particular year.

Multiyear transitions.  Multiyear transitions were also calculated for periods of two to five years. In this case, we compared the rating at the beginning of the multiyear period with the rating at the end. For example, three-year transition matrices were the result of comparing ratings at the beginning of the years 1989-2018 with the ratings at the end of the years 1991-2020. Otherwise, the methodology was identical to that used for single-year transitions.

We calculated average transition matrices on the basis of the multiyear matrices just described. These average matrices are a true summary, the ratios of which represent the historical incidence of the ratings listed in the first column changing to the ones listed in the top row over the course of the multiyear period. Transition matrices that present averages over multiple time horizons are also calculated as issuer-weighted averages.

Initial-to-last transitions and default rates.  These transition rates compare issuer ratings from the initial rating to the last rating, regardless of the time elapsed in the interim. They provide a road map to all of the historically observed rating states that corporate issuers inhabit during their rated lifetimes. Initial-to-last default rates are based on the initial rating of each defaulter, and they encompass varying time horizons.

Rating modifiers

We use rating modifiers (plus and minus signs) to calculate upgrade and downgrade percentages, as well as the magnitude of rating changes, throughout this study. However, some transition tables may use full rating categories for practical reasons. In other words, the use of a rating category suggests that transitions to, for example, 'AA' from 'AA-' or to 'BBB+' from 'BBB-' are not considered to be rating transitions because the rating remained within the rating category.

Standard deviations

Many of the tables and charts in this study display averages of default rates, transition rates, and Gini ratios. Often these are issuer-weighted averages. Prior studies have shown that fluctuations within default rates and transitions can vary greatly depending on many circumstances specific to particular time frames, industries, and geographic regions. As a supplement to many of the averages and time series presented in this study, standard deviations are also shown to provide a gauge of the dispersion of data behind these averages.

For the transition matrices, the standard deviation for each cell in a given matrix is a weighted standard deviation, calculated using the data from each of the underlying cohort years that contribute to the averages, weighted by that cohort year's issuer base for each rating level. For example, in the average one-year transition matrix, each cell's weighted standard deviation is calculated from the series of that particular cell in each of the 32 cohorts beginning with the 1989 cohort and ending with the 2020 cohort. The squared difference between each cohort's transition rate and the weighted average--which is the data point in each cell--is multiplied by each cohort's weight. These weights are based on each cohort's rating level's contribution to the 32-year total issuer base for each rating level. We then divide this by the ratio of the total number of nonzero weights minus one and the total number of nonzero weights.

The standard deviations of Gini ratios are derived from the time series of Gini ratios for all of their constituent annual cohorts. As an example, the standard deviation applied to the seven-year weighted-average global Gini ratio was calculated from the time series of all available seven-year Gini ratios by cohort. In this case, these are the seven-year Gini ratios beginning with the 1989 cohort through the 2014 seven-year cohort. We calculated standard deviations for Gini ratios in this study as the standard deviations of a sample, and not those of a population.

Time sample

This update limits the reporting of default rates to the 10-year time horizon. However, the data were gathered for 32 years, and all calculations are based on the rating experience of that period. In addition, average default statistics become less reliable at longer time horizons as the sample size becomes smaller and the cyclical nature of default rates has a bigger effect on averages.

Additional Tables

Table 13

Table 14

Table 15

Table 16

Table 17

Table 18

Appendix II: Gini Methodology

To measure ratings performance or ratings accuracy, we plotted the cumulative share of issuers by rating against the cumulative share of defaulters in a Lorenz curve to visually render the accuracy of their rank ordering. The Lorenz curve was developed by Max O. Lorenz as a graphical representation of the proportionality of a distribution. To build the Lorenz curve, the observations are ordered from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA'). If S&P Global Ratings' corporate ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal. Their Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated issuers, the curve would capture all of the area above the diagonal on the graph, and its Gini coefficient would be 1 (see chart 9). The procedure for calculating the Gini coefficients is to divide area B by the total area A plus B. In other words, the Gini coefficient captures the extent to which actual ratings accuracy diverges from the random scenario and aspires to the ideal scenario.