Key Takeaways:
- The U.S. distress ratio remained unchanged since our last report at 2.4%, despite increasing recent market volatility and rising secondary market spreads.
- Only 51 credits are currently trading at distressed levels and the distress ratio remains well below its five-year average of 8.3%.
- As the U.S. distress ratio is a leading indicator of defaults, defaults in the region are at their lowest year-to-date levels since 2011.
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 (bps) relative to U.S. Treasuries--remained at 2.4% as of April 19, 2022. The distress ratio, an indicator of the risk level the market has priced into the bonds, remains well below its five-year average of 8.3%, even as volatility in financial markets has increased and borrowing costs have begun to rise. U.S. speculative-grade spreads, a good indicator of broad market stress in the speculative-grade segment, are around 20% higher than the beginning of the year (see chart 1). Additionally, U.S. speculative-grade bond issuance continues to decline in 2022 and remains nearly 80% below previous year records through April 30 (see chart 2).
Chart 1
Chart 2
Movements in the U.S. distress ratio run roughly parallel to movements in the U.S. default rate (with a several month lead time), both of which have stabilized at historically low levels, so far, in 2022 (see chart 3). With only 12 defaults in 2022, so far, the U.S. default tally is at its lowest year-to-date level since 2011 (see chart 4).
However, risks are increasing, including the impact of rising cost on corporate margins and monetary policy tightening, which could both increase financing costs and reduce the amount of liquidity available to speculative grade borrowers. These challenges could lead to a corresponding increase in the distressed ratio and thus, an uptick in default rates.
Chart 3
Chart 4
Additional Exhibits
Table 1
Distribution of S&P Global Distress Ratio By Industry | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
SUBSECTOR | Distressed Ratio * (%) | Debt Based Distressed Ratio (%) | Number of Distresssed Issues | Total Debt Affected (Mil. $) | Percent Change Of Distressed Credits By Sector | |||||||
Aerospace and defense | 8.3 | 7.5 | 3 | 2044 | 50.0 | |||||||
Automotive | 4.1 | 4.9 | 3 | 1950 | (25) | |||||||
Capital goods | 3.2 | 3.2 | 2 | 1065 | -33.3 | |||||||
Chemicals, packaging, and environmental services | 1.0 | 0.5 | 1 | 300 | ||||||||
Consumer products | 1.3 | 0.6 | 2 | 575 | -66.7 | |||||||
Financial institutions | 0.7 | 0.7 | 2 | 559 | 0.0 | |||||||
Health care | 4.8 | 3.8 | 5 | 3322 | 66.7 | |||||||
High technology | 1.1 | 0.6 | 1 | 375 | 0.0 | |||||||
Homebuilders/real estate Co. | 2.6 | 1.9 | 2 | 600 | 0.0 | |||||||
Insurance | 5.4 | 2.6 | 2 | 550 | 0.0 | |||||||
Media and entertainment | 3.9 | 4.6 | 12 | 9731 | -7.7 | |||||||
Oil and gas | 1.1 | 0.6 | 2 | 511 | 0.0 | |||||||
Retail/restaurants | 4.5 | 2.3 | 5 | 1269 | -28.6 | |||||||
Telecommunications | 2.7 | 1.2 | 3 | 1500 | 0.0 | |||||||
Utility | 3.2 | 1.3 | 6 | 1473 | 0.0 | |||||||
Total | 2.4 | 2.1 | 51 | 25824 | -12 | |||||||
*S&P Global distress ratio is defined as the number of speculative-grade issues with option-adjusted spreads above 1,000 basis points to the total number of speculative-grade issues. Data as of Apr. 19, 2022. Source: S&P Global Ratings Research. Distribution of distressed credits is defined as the distribution, by sector, within all speculative-grade issues with option-adjusted spreads above 1,000 basis points. §Outstanding debt amount associated with distressed issues divided by the total debt outstanding of speculative-grade issues. |
Table 2
List of Distressed Credits By Issuers | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sector/company | Issuer ratings are for a related entity | Issue count | Outstanding amount ($ in millions) | Rating | Outlook/ CreditWatch | |||||||||
Aerospace and defense | ||||||||||||||
Wesco Aircraft Holdings Inc. | 3 | 2044 | CCC+ | Negative | ||||||||||
Automotive | ||||||||||||||
Cooper-Standard Automotive Inc. | Yes | 1 | 400 | CCC+ | Negative | |||||||||
Ford Motor Co. | 2 | 1550 | BB+ | Positive | ||||||||||
Capital goods | ||||||||||||||
Ahern Rentals Inc. | 1 | 550 | CCC | Developing | ||||||||||
Aptim Corp. | 1 | 515 | CCC+ | Stable | ||||||||||
Chemicals, packaging, and environmental services | ||||||||||||||
Schenectady International Group Inc. | Yes | 1 | 300 | B- | Positive | |||||||||
Consumer Products | ||||||||||||||
Fossil Group Inc. | 1 | 125 | B | Stable | ||||||||||
Revlon Consumer Products Corp. | 1 | 450 | CCC- | Negative | ||||||||||
Financial institutions | ||||||||||||||
CNG Holdings Inc. | 1 | 259 | CCC+ | Stable | ||||||||||
Navient Corp. | 1 | 300 | BB- | Stable | ||||||||||
Health care | ||||||||||||||
Air Methods Corp. | 1 | 500 | B- | Stable | ||||||||||
Endo Finco Inc. | Yes | 1 | 941 | CCC+ | Negative | |||||||||
Envision Healthcare Corp. | 1 | 1026 | CCC | Negative | ||||||||||
Lannett Co. Inc. | 1 | 350 | CCC+ | Negative | ||||||||||
U.S. Renal Care Inc. | 1 | 505 | B- | Stable | ||||||||||
High technology | ||||||||||||||
Pitney Bowes Inc. | 1 | 375 | BB | Stable | ||||||||||
Homebuilders/Real Estate Co. | ||||||||||||||
Diversified Healthcare Trust | 2 | 600 | BB- | Negative | ||||||||||
Insurance | ||||||||||||||
Assurant Inc. | 1 | 250 | BBB | Stable | ||||||||||
Unum Group | 1 | 300 | BBB | Stable | ||||||||||
Media and entertainment | ||||||||||||||
AMC Entertainment Holdings Inc. | 3 | 1646 | CCC+ | Positive | ||||||||||
AMC Entertainment Inc. | Yes | 1 | 98 | CCC+ | Positive | |||||||||
Diamond Sports Group LLC | 2 | 4784 | CCC+ | Negative | ||||||||||
Exela Intermediate LLC | Yes | 2 | 1004 | CCC- | Negative | |||||||||
National CineMedia LLC | 1 | 230 | B- | Stable | ||||||||||
Skillz Inc. | 1 | 300 | CCC+ | Stable | ||||||||||
Staples Inc. | 1 | 1000 | B | Negative | ||||||||||
WeWork Cos. LLC | 1 | 669 | CCC+ | Negative | ||||||||||
Oil and gas | ||||||||||||||
Global Marine Inc. | Yes | 1 | 261 | CCC | Negative | |||||||||
KLX Energy Services Holdings Inc. | 1 | 250 | CCC+ | Stable | ||||||||||
Retail/Restaurants | ||||||||||||||
99 cents only stores LLC | 1 | 350 | CCC+ | Negative | ||||||||||
Party City Holdings Inc. | 1 | 23 | B | Stable | ||||||||||
QVC Inc. | 2 | 660 | BB- | Stable | ||||||||||
Rite Aid Corp. | 1 | 236 | B- | Stable | ||||||||||
Telecommunications | ||||||||||||||
United States Cellular Corp. | 3 | 1500 | BB | Stable | ||||||||||
Utility | ||||||||||||||
Summit Midstream Finance Corp. | Yes | 1 | 259 | B | Stable | |||||||||
Talen Energy Supply LLC | 5 | 1213 | CCC | Negative | ||||||||||
Data as of April 19, 2022. The list excludes companies with confidential ratings. Source: S&P Global Ratings Research. |
Related Research
- A Bump In April Defaults Pushes The Global Tally To Nearly 40% Of 2021 Full Year Total, May 4, 2022
- Global Credit Conditions Q2 2022: Confluence Of Risks Halts Positive Credit Momentum, March 31, 2022
- U.S. And European Refinancing: Strong Issuance In 2021 Fueled Lengthening Maturities, Feb. 28, 2022
This report does not constitute a rating action.
Primary Credit Analyst: | Nicole Serino, New York + 1 (212) 438 1396; nicole.serino@spglobal.com |
Senior Director: | Patrick Drury Byrne, Dublin (00353) 1 568 0605; patrick.drurybyrne@spglobal.com |
Research Assistant: | Tanya Dias, Mumbai |
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