Key Takeaways
- The U.S. distress ratio more than doubled over the last month to 9.2% as of July 5, from 4.3% as of June 3, 2022.
- The pace at which the market is repricing risk into bonds is accelerating as 84% of the increase in distressed debt over the last month came from issuers that did not have any distressed debt in June.
- The retail sector leads the distress ratio at 17.7% as some consumer-facing companies show signs of stress.
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--increased to 9.2% as of July 5, 2022, from 4.3% as of June 3. The ratio is now at its highest level since October 2020 and has surpassed its five-year average of 7.3%, as investors price in a higher risk amid a growing concern of rising inflation and a potential slowdown in the U.S. economy.
Roughly, movements in the distress ratio run parallel to movements in the U.S. default rate with several months lead time. Multiple headwinds including tighter financing, lower growth prospects, and geopolitical tensions intensifying supply chain pressures all weigh on lower-rated U.S. issuers and is expected to push the U.S. default rate to 3% by the first quarter of 2023 ( see "Global Credit Conditions Q3 2022: Resurfacing Credit Headwinds", June 30, 2022).
Chart 1
Consumer Driven Sectors Pricing Signals Stress
The retail and restaurants sector continues to lead the distress ratio at 17.7% in July, up from 16% in June with 20 distressed issues. In addition, the media and entertainment sector led with the largest increase in the number of distress issues last month, increasing by 21 distress issues since June (see chart 2). Together, the retail and media sectors account for nearly one-third of all distressed debt ($37.2) as investors weight the risk of persistently high inflation and the slowdown of global economic growth on lower rated consumer-driven issuers.
Table 1
Distribution of S&P Global Distress Ratio By Industry | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sector | Distressed Ratio * (%) | Debt Based Distressed Ratio § (%) | Number of Distresssed Issues | Distress ratio (%) (previous mnonth) | Number of Distresssed Issues (previous month) | Monthly (%) Change In Distress Ratio | Monthly Change In Number of Distressed Issues | |||||||||
Retail/restaurants | 17.7 | 15.2 | 20 | 16 | 18 | 1.8 | 2 | |||||||||
Forest products and building materials | 17.2 | 14.7 | 11 | 3 | 2 | 14.1 | 9 | |||||||||
Capital goods | 15.3 | 13.7 | 9 | 7 | 4 | 8.6 | 5 | |||||||||
Health care | 14.9 | 15.3 | 13 | 11 | 10 | 3.5 | 3 | |||||||||
Aerospace and defense | 14.3 | 11.7 | 5 | 11 | 4 | 3.2 | 1 | |||||||||
Chemicals, packaging and environmental services | 14.0 | 15.1 | 15 | 2 | 2 | 12.1 | 13 | |||||||||
Homebuilders/real estate Co. | 13.3 | 13.9 | 10 | 3 | 2 | 10.6 | 8 | |||||||||
Media and entertainment | 12.9 | 14.4 | 38 | 6 | 17 | 7.2 | 21 | |||||||||
Automotive | 11.8 | 18.5 | 9 | 5 | 4 | 6.5 | 5 | |||||||||
Telecommunications | 11.7 | 9.2 | 13 | 3 | 3 | 9.0 | 10 | |||||||||
High technology | 10.2 | 11.5 | 9 | 6 | 5 | 4.6 | 4 | |||||||||
Transportation | 8.6 | 5.3 | 3 | 6 | 2 | 3.0 | 1 | |||||||||
Consumer products | 5.6 | 5.0 | 8 | 2 | 3 | 3.5 | 5 | |||||||||
Insurance | 5.4 | 2.6 | 2 | 5 | 2 | 0.0 | 0 | |||||||||
Utilities | 4.5 | 2.8 | 7 | 2 | 4 | 2.3 | 3 | |||||||||
Financial institutions | 4.0 | 6.3 | 11 | 2 | 4 | 2.5 | 7 | |||||||||
Oil and gas | 1.5 | 1.1 | 3 | 1 | 2 | 0.4 | 1 | |||||||||
*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 July 5, 2022. Source: S&P Global Ratings Research. |
Chart 2
Most Distressed Debt Has Come From Newly Added Issuers
With the increase in the distress ratio, the amount of distressed debt also jumped $115.5 billion, up from $49.2 billion in June. Over 80% of the increase in distressed debt came from issuers that previously did not have issues trading at distressed levels and account for $57.3 billion of additional distressed debt since June 3 (see chart 3), a sign of an overall repricing of market risk. Some of these issuers include satellite T.V. provider DISH DBS Corp. with four distressed issues amounting to $6.5 billion in distressed debt, and cruise operator Royal Caribbean Cruises Ltd., with five issues trading at distressed levels, amounting to $4.5 billion in distressed debt.
Chart 3
Table 3
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 | ||||||||||||
PM General Purchaser LLC | 1 | 600 | B- | Stable | ||||||||
Triumph Group Inc. | 1 | 500 | CCC+ | Negative | ||||||||
Wesco Aircraft Holdings Inc. | 3 | 2044 | CCC+ | Negative | ||||||||
Automotive | ||||||||||||
Carvana Co. | 5 | 5725 | CCC+ | Positive | ||||||||
Cooper-Standard Automotive Inc. | Yes | 1 | 400 | CCC+ | Negative | |||||||
Ford Motor Co. | 2 | 1550 | BB+ | Positive | ||||||||
Wheel Pros Inc. | 1 | 365 | B- | Negative | ||||||||
Capital goods | ||||||||||||
Aptim Corp. | 1 | 515 | CCC+ | Stable | ||||||||
Artera Services LLC | 1 | 986 | B- | Negative | ||||||||
ASP Unifrax Holdings Inc. | 1 | 400 | B- | Negative | ||||||||
Brand Industrial Services Inc. | 1 | 1000 | B- | Negative | ||||||||
JPW Industries Holdings Corp. | Yes | 2 | 280 | B | Stable | |||||||
Maxim Crane Works Holdings Capital LLC | 1 | 303 | B- | Stable | ||||||||
OT Merger Corp. | 1 | 300 | B- | Stable | ||||||||
Tutor Perini Corp. | 1 | 500 | B+ | Stable | ||||||||
Chemicals, packaging and environmental services | ||||||||||||
Ardagh Holdings USA Inc. | Yes | 2 | 1800 | B+ | Stable | |||||||
Foxtrot Escrow Issuer LLC | Yes | 1 | 762 | B- | Stable | |||||||
FXI Holdings Inc. | 1 | 505 | B- | Stable | ||||||||
Iris Holding Inc. | 1 | 400 | B | Negative | ||||||||
Kobe US Midco 2 Inc. | Yes | 1 | 200 | B- | Stable | |||||||
LABL Inc. | 2 | 1150 | B- | Stable | ||||||||
Lummus Technology Holdings V LLC | 1 | 460 | B+ | Stable | ||||||||
Mauser Packaging Solutions Holding Co. | 1 | 1350 | B- | Stable | ||||||||
Olympus Water US Holding Corp. | Yes | 1 | 400 | B- | Stable | |||||||
PMHC II Inc. | 1 | 756 | B- | Stable | ||||||||
Schenectady International Group Inc. | Yes | 1 | 300 | B- | Positive | |||||||
Trident TPI Holdings Inc. | 1 | 345 | B- | Stable | ||||||||
Venator Materials LLC | Yes | 1 | 375 | B- | Stable | |||||||
Consumer products | ||||||||||||
Allied Universal Holdco LLC | Yes | 1 | 1050 | B | Stable | |||||||
Grubhub Holdings Inc. | Yes | 1 | 500 | CCC+ | Developing | |||||||
H-Food Holdings LLC | 1 | 350 | B- | Negative | ||||||||
Kronos Acquisition Holdings Inc. | 1 | 525 | B- | Negative | ||||||||
P&L Development LLC | Yes | 1 | 465 | CCC+ | Negative | |||||||
Signal Parent Inc. | 1 | 300 | B | Stable | ||||||||
SWF Holdings I Corp. | 1 | 625 | B- | Stable | ||||||||
TKC Holdings Inc. | 1 | 675 | B- | Stable | ||||||||
Financial institutions | ||||||||||||
CNG Holdings Inc. | 1 | 259 | CCC+ | Stable | ||||||||
Curo Group Holdings Corp. | 1 | 700 | B- | Stable | ||||||||
Enova International Inc. | 1 | 375 | B | Stable | ||||||||
Freedom Mortgage Corp. | 4 | 2089 | B | Stable | ||||||||
LD Holdings Group LLC | 2 | 1100 | B | Negative | ||||||||
Navient Corp. | 1 | 300 | BB- | Stable | ||||||||
World Acceptance Corp. | 1 | 300 | B | Stable | ||||||||
Forest products and building materials | ||||||||||||
BCPE Ulysses Intermediate Inc. | Yes | 1 | 400 | B- | Stable | |||||||
Cornerstone Building Brands Inc. | 1 | 500 | B+ | Stable | ||||||||
CP Atlas Buyer Inc. | 1 | 510 | B- | Stable | ||||||||
LBM Acquisition LLC | 1 | 820 | B- | Stable | ||||||||
New Enterprise Stone & Lime Co. Inc. | 1 | 267 | B | Stable | ||||||||
Oscar AcquisitionCo LLC | 1 | 585 | B | Stable | ||||||||
Park River Holdings Inc. | 2 | 740 | B- | Stable | ||||||||
Victors Intermediate Holding II Corp. | Yes | 1 | 550 | B- | Stable | |||||||
Werner FinCo L.P. | 1 | 265 | B- | Stable | ||||||||
White Cap Parent LLC | Yes | 1 | 300 | B | Stable | |||||||
Health care | ||||||||||||
Air Methods Corp. | 1 | 500 | B- | Stable | ||||||||
Bausch Health Americas Inc. | Yes | 2 | 2250 | B | Negative | |||||||
CHS/Community Health Systems Inc. | Yes | 3 | 2957 | B- | Stable | |||||||
Endo Finco Inc. | Yes | 1 | 941 | CC | Negative | |||||||
Lannett Co. Inc. | 1 | 350 | CCC+ | Negative | ||||||||
Par Pharmaceutical Inc. | Yes | 1 | 2015 | CC | Negative | |||||||
Prime Healthcare Services Inc. | 1 | 610 | B- | Stable | ||||||||
Radiology Partners Inc. | Yes | 1 | 710 | B- | Stable | |||||||
Tennessee Merger Sub Inc. | Yes | 1 | 714 | B- | Stable | |||||||
U.S. Renal Care Inc. | 1 | 505 | B- | Stable | ||||||||
High technology | ||||||||||||
Avaya Inc. | 1 | 750 | B- | Negative | ||||||||
CommScope Inc. | 2 | 1700 | B- | Stable | ||||||||
Diebold Nixdorf Inc. | 2 | 1100 | CCC+ | Negative | ||||||||
LogMeIn Inc., | 1 | 750 | B | Stable | ||||||||
Pitney Bowes Inc. | 1 | 375 | BB | Stable | ||||||||
Rackspace Technology Global Inc. | 1 | 550 | B | Stable | ||||||||
Veritas US Inc. | Yes | 1 | 1750 | B- | Stable | |||||||
Homebuilders/real estate co. | ||||||||||||
Diversified Healthcare Trust | 2 | 600 | BB- | Negative | ||||||||
Five Point Operating Co. L.P. | Yes | 1 | 600 | B- | Stable | |||||||
New Home Co. Inc. (The) | 1 | 250 | B- | Stable | ||||||||
Service Properties Trust | 6 | 2725 | B+ | Negative | ||||||||
Insurance | ||||||||||||
Assurant Inc. | 1 | 250 | BBB | Stable | ||||||||
Unum Group | 1 | 300 | BBB | Stable | ||||||||
Media and entertainment | ||||||||||||
Allen Media LLC | 1 | 640 | B | Stable | ||||||||
AMC Entertainment Holdings Inc. | 3 | 1646 | CCC+ | Positive | ||||||||
AMC Entertainment Inc. | Yes | 1 | 98 | CCC+ | Positive | |||||||
Audacy Capital Corp. | 2 | 1010 | B- | Negative | ||||||||
Beasley Mezzanine Holdings LLC | 1 | 300 | B- | Negative | ||||||||
Castle US Holding Corp. | Yes | 1 | 300 | B- | Stable | |||||||
Cengage Learning Inc. | Yes | 1 | 620 | B- | Stable | |||||||
Centerfield Media Parent Inc. | 1 | 785 | B | Stable | ||||||||
Clear Channel Outdoor Holdings Inc. | 2 | 2050 | CCC+ | Stable | ||||||||
ClubCorp Holdings Inc. | 1 | 425 | CCC+ | Stable | ||||||||
CMG Media Corp. | 1 | 1015 | B | Stable | ||||||||
Diamond Sports Group LLC | 2 | 4784 | CCC+ | Negative | ||||||||
Exela Intermediate LLC | Yes | 2 | 1004 | CCC- | Negative | |||||||
Full House Resorts Inc. | 1 | 410 | B- | Stable | ||||||||
iHeartCommunications Inc. | 1 | 1450 | B+ | Stable | ||||||||
MajorDrive Holdings IV LLC | Yes | 1 | 525 | B | Negative | |||||||
Mohegan Tribal Gaming Authority | 1 | 1175 | B- | Stable | ||||||||
National CineMedia LLC | 2 | 630 | B- | Stable | ||||||||
Royal Caribbean Cruises Ltd. | 5 | 4450 | B | Negative | ||||||||
Shutterfly LLC | 1 | 750 | B- | Stable | ||||||||
Skillz Inc. | 1 | 300 | CCC+ | Stable | ||||||||
Spanish Broadcasting System Inc. | 1 | 310 | B- | Stable | ||||||||
Staples Inc. | 2 | 3000 | B | Negative | ||||||||
Viking Cruises Ltd. | 2 | 700 | CCC+ | 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 | ||||||||
W&T Offshore Inc. | 1 | 552 | CCC+ | Stable | ||||||||
Retail/restaurants | ||||||||||||
99 cents only stores LLC | 1 | 350 | CCC+ | Negative | ||||||||
At Home Group Inc. | 1 | 500 | B | Negative | ||||||||
Bed Bath & Beyond Inc. | 3 | 1195 | B- | Negative | ||||||||
Fossil Group Inc. | 1 | 125 | B | Stable | ||||||||
GPS Hospitality Holding Co. LLC | 1 | 400 | B- | Negative | ||||||||
Liberty Interactive LLC | Yes | 4 | 1253 | BB- | Negative | |||||||
Michaels Cos. Inc. (The) | 1 | 1300 | B | Stable | ||||||||
Party City Holdings Inc. | 3 | 830 | B- | Negative | ||||||||
QVC Inc. | 2 | 660 | BB- | Negative | ||||||||
Rite Aid Corp. | 3 | 1504 | CCC+ | Negative | ||||||||
Telecommunications | ||||||||||||
DISH DBS Corp. | 4 | 6499 | B- | Stable | ||||||||
Intrado Corp. | 1 | 685 | CCC+ | Stable | ||||||||
Northwest Fiber LLC | 2 | 550 | B- | Stable | ||||||||
United States Cellular Corp. | 3 | 1500 | BB | Stable | ||||||||
Viasat Inc. | 2 | 1100 | BB- | Stable | ||||||||
Zayo Group Holdings Inc. | 1 | 1080 | B | Negative | ||||||||
Transportation | ||||||||||||
Azul Investments LLP | Yes | 2 | 1000 | CCC+ | Stable | |||||||
Carriage Purchaser Inc. | 1 | 300 | B | Stable | ||||||||
Utilities | ||||||||||||
Calumet Specialty Products Partners L.P. | 2 | 875 | B- | Stable | ||||||||
CSI Compressco L.P. | 1 | 155 | B- | Stable | ||||||||
NGL Energy Finance Corp. | Yes | 3 | 1171 | B | Negative | |||||||
Summit Midstream Finance Corp. | Yes | 1 | 259 | B | Stable | |||||||
Data as of July 5, 2022. The list excludes companies with confidential ratings. Source: S&P Global Ratings Research. |
Related Research
- This Week In Credit: Retail Is Testing Ratings Resilience As Risk Rises, July 5, 2022
- Global Credit Conditions Q3 2022: Resurfacing Credit Headwinds, June 30, 2022
This report does not constitute a rating action.
Credit Markets Research: | Nicole Serino, New York + 1 (212) 438 1396; nicole.serino@spglobal.com |
Ratings Performance Research: | Nick W Kraemer, FRM, New York + 1 (212) 438 1698; nick.kraemer@spglobal.com |
Research Contributor: | Tanya Dias, Mumbai; tanya.dias@spglobal.com |
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