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Default, Transition, and Recovery: The U.S. Distress Ratio Remains Low But May Rise As Financing Costs Increase

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Credit Trends: This Month In Credit: 2025 Data Companion

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Global Financing Conditions: Peak Uncertainty Leaves A Range Of Projections For Issuance

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Credit Trends: Global Refinancing: Uncertain Conditions Heighten Maturity Risk

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Default, Transition, and Recovery: Corporate Default Forecasts Maintained, But Risks Are Rising


Default, Transition, and Recovery: The U.S. Distress Ratio Remains Low But May Rise As Financing Costs Increase

The U.S. distress ratio--the proportion of speculative-grade (rated 'BB+' or lower) issues with option-adjusted composite spreads of more than 1,000 basis points relative to U.S. Treasuries--decreased slightly to 2.4% as of Jan. 14, 2022, from 2.6% in the previous month. As a good predictor of future defaults in more favorable lending conditions, a low distress ratio highlights how corporate credit markets currently seem sanguine about the prospect of increasing defaults in the near term. Rating performance data supports this, with the U.S. 12-month speculative-grade default rate falling to 1.5% in December--its lowest level since August 2014--while the distress ratio has remained well below both its 2021 average of 2.9% and its five-year average of 7.6% (see chart 1). The number of U.S defaults year to date in 2022 remains below comparable 2021 levels, and if this continues, speculative-grade default rates are likely to drop further (see "Fusion Connect Pushes The 2022 Corporate Default Tally To Three," Jan. 31, 2022).

Although financing conditions remain accommodative and composite spreads extremely tight, risks remain to the downside, primarily linked to the future direction of monetary policy against a backdrop of a historically high number of speculative-grade issuers (see chart 2). While trends are continuing to improve, with the percentage of 'CCC+' and below rated issuers falling in the region and currently sitting at just 8.8% of the speculative-grade population, the percentage of 'CCC+' and below rated issuers remains higher than pre-pandemic levels and these are the issuers most susceptible to market shocks.

Chart 1

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Chart 2

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Chart 3

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Additional Exhibits

Table 1

The Media And Entertainment Sector Has The Most Affected Debt
Distress ratio (%)* Debt-based distress ratio (%)§ Number of distressed issues Total debt affected (mil. $)
Aerospace and defense 5.40 4.30 2 1,169
Automotive 2.70 3.80 2 1,550
Banks and brokers
Capital goods 3.00 3.10 2 1,065
Chemicals, packaging, and environmental services 1.80 2.30 2 1,380
Consumer products 1.10 0.50 2 575
Financial institutions 1.10 0.80 3 684
Forest products and building materials 1.60 1.00 1 325
Health care 2.90 2.00 3 1,876
High technology 1.10 0.60 1 375
Homebuilders/real estate co. 3.80 2.20 3 690
Insurance 5.60 2.60 2 550
Media and entertainment 3.10 3.50 10 7,343
Metals, mining, and steel
Oil and gas 1.50 1.10 3 1,064
Retail/restaurants 3.30 1.80 4 1,033
Telecommunications 2.60 1.20 3 1,500
Transportation
Utilities 4.30 2.30 9 2,976
Total 2.37 1.90 52 24,155
Data as of Jan. 14, 2022. *The S&P Global distress ratio is defined as the number of speculative-grade issues with option-adjusted spreads above 1,000 basis points relative to U.S. Treasuries to the total number of speculative-grade issues. §The debt-based distress ratio is defined as the outstanding debt amount associated with distressed issues divided by the total debt outstanding of speculative-grade issues. The distress ratio indicates the level of risk the market has priced into bonds. A rising distress ratio reflects an increased need for capital and often precedes increased defaults when accompanied by a severe and sustained market disruption. Source: S&P Global Ratings Research.

Table 2

List Of Distressed Credits By Issuers
Sector/company Issuer ratings are for a related entity Issue count Outstanding amount (mil. $) Rating Outlook/ CreditWatch
Aerospace and defense

Wesco Aircraft Holdings Inc.

2 1,168.5 CCC+ Negative
Automotive

Ford Motor Co.

2 1,550.0 BB+ Positive
Capital goods

Ahern Rentals Inc.

1 550.0 CCC Developing

Aptim Corp.

1 515.0 CCC+ Stable
Chemicals, packaging and environmental services

Cornerstone Chemical Co.

1 450.0 CCC+ Negative

TPC Group Inc.

1 930.0 CCC Negative
Consumer products

Fossil Group Inc.

1 125.0 B Stable

Revlon Consumer Products Corp.

1 450.0 CCC- Negative
Financial institutions

BrightSphere Investment Group Inc.

1 125.0 BB+ Stable

CNG Holdings Inc.

1 259.0 B- Stable

Navient Corp.

1 300.0 BB- Stable
Forest Products & Building Materials

Apex Tool Group LLC

1 325.0 CCC Negative
Health care

Air Methods Corp.

1 500.0 B- Stable

Envision Healthcare Corp.

1 1,026.4 CCC+ Negative

Lannett Co. Inc.

1 350.0 B- Negative
High technology

Pitney Bowes Inc.

1 375.0 BB Stable
Homebuilders/real estate companies

Diversified Healthcare Trust

2 600.0 BB- Negative

K. Hovnanian Enterprises Inc.

Yes 1 90.0 CCC+ Positive
Insurance

Assurant Inc.

1 250.0 BBB Stable

Unum Group

1 300.0 BBB Stable
Media and entertainment

AMC Entertainment Holdings Inc.

2 186.3 CCC+ Positive

AMC Entertainment Inc.

Yes 1 98.3 CCC+ Positive

Diamond Sports Group LLC

3 4,824.8 CC Negative

Exela Intermediate LLC

Yes 2 1,004.0 CCC- Negative

National CineMedia LLC

1 230.0 B- Stable

Staples Inc.

1 1,000.0 B Negative
Oil and gas

Global Marine Inc.

Yes 1 261.2 CCC Negative

KLX Energy Services Holdings Inc.

1 250.0 CCC+ Stable

W&T Offshore Inc.

1 552.5 CCC+ Stable
Retail/restaurants

99 cents only stores LLC

1 350.0 CCC+ Negative

Party City Holdings Inc.

1 22.9 B Stable

QVC Inc.

2 660.0 BB- Stable
Telecommunications

United States Cellular Corp.

3 1,500.0 BB Stable
Utilities

CSI Compressco L.P.

1 155.0 B- Stable

PBF Finance Corp.

Yes 3 1,607.3 B Negative

Talen Energy Supply LLC

5 1,213.4 B- Stable
Data as of Jan. 14, 2022. The list excludes companies with confidential ratings. Source: S&P Global Ratings Research.

Related Research

This report does not constitute a rating action.

Credit Markets Research:Nicole Serino, New York + 1 (212) 438 1396;
nicole.serino@spglobal.com
Patrick Drury Byrne, Dublin (00353) 1 568 0605;
patrick.drurybyrne@spglobal.com
Research Contributor:Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai

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