(Editor's Note: Our "Risky Credits" series focuses on European corporate issuers rated 'CCC+' and lower. Because many defaults are of companies in those categories, ratings with negative outlooks or on CreditWatch negative are even more important to monitor.)
Key Takeaways
- Risky credits fell in the first quarter of 2023, partially due to a decline in new additions to the category (five issuers) but also due to a rise in defaults and rating withdrawals, which reached 10 compared with three issuers in the fourth-quarter of 2022.
- Refinancing risk and weak operating performance remain the main factors of downgrades to 'CCC+' and below, with the former driving most of the European defaults.
- Consumer products and media and entertainment continue to have the highest number of risky credits, but migration to 'CCC+' and below is starting to pick up in other sectors.
Chart 1
No relief for issuers rated 'CCC+' and below. As of March 31, 2023, 48 issuers were rated 'CCC+' and below, down from 54 on Dec. 31, 2022 (chart 1). Despite this seemingly positive trend, the reality is somewhat different with the reduction in numbers primarily due to defaults (five issuers) and withdrawals (five issuers).
From a positive standpoint, there were only five new additions to the risky credits cohort in first-quarter 2023 (chart 2) compared with 15 new additions in fourth-quarter 2022. Most of the downgrades to risky credit status in first-quarter 2023 were attributable to refinancing risk (three issuers), and weak operating performance (two issuers), in particular for lower-rated companies.
It is also notable that only one issuer was upgraded from 'CCC+' or below compared with three entities a quarter earlier. This issuer was upgraded to 'B-' due to stronger-than-expected performance in first-quarter 2023.
Chart 2
Downward rating migration to 'CCC+' and below is spreading to more sectors. Consistent with the theme of 2022, consumer products and media and entertainment continue to lead the tally of risky credits with 18 issuers in the first quarter. However, the rating migration to 'CCC+' and below has been gradually spreading to other sectors such as health care and telecommunications, each of which contributed one issuer to the total.
Chart 3
Multinotch downgrades to 'B-' and below remain elevated. In the first quarter of 2023, the share of multinotch downgrades (two notches or more) to 'B-' and below represented close to 36% of all downgrades to 'B-' and below. This is one of the highest ratios since the start of the pandemic although the absolute number of multinotch downgrades (five issuers) is still below figures in first-quarter 2022 (eight issuers) and in second-quarter 2020 (16 issuers).
Chart 4
The default count is growing, primarily due to selective defaults, which accounted for six out of seven defaults in the first quarter of 2023. Distressed exchanges (four defaults) and missed principal payments (three) were the reasons behind corporate defaults in first-quarter 2023.
We expect the European speculative-grade corporate default rate to rise to 3.25% by December 2023 from 2.2% in December 2022 as slowing economic growth and elevated interest rates and input costs weigh on profit margins (see "Default, Transition, and Recovery: The European Speculative-Grade Corporate Default Rate Could Rise To 3.25% By December 2023, Amid Uncertain Backdrop," published Feb. 16, 2023, on RatingsDirect).
Tightening financing conditions remain a risk for issuers rated 'CCC+' and below. This will both affect new financing requirements and make it more challenging for issuers to refinance outstanding debt with an immediate focus on forthcoming 2023 and 2024 maturities. Floating-rate issuers will feel this pressure more acutely and these entities account for 67% of debt rated in the 'B' category and 43% of debt in the 'CCC' category. Telecommunications, media and entertainment, and CP&ES (chemicals, packaging, and environmental services) are the three sectors with the highest amount of speculative-grade nonfinancial corporate debt maturing in 2023 and 2024.
Chart 5
Debt volume of risky credits remains broadly unchanged. In first-quarter 2023, the volume of risky credit debt dropped by close to €10 billion due to rating withdrawals and defaults while new inflow added €9.5 billion to the total volume.
The oil and gas sector continues to have the highest debt volume among risky credits with debt rising to €10.8 billion as of March 31, 2023, from €9.4 billion as of Dec. 31, 2022 (chart 6). The increase was primarily due to new debt issuance by Transocean Inc. (CCC/Negative/--), Cayman Islands-based subsidiary of Transocean Ltd., in January 2023. Though it shows that debt markets started the year on a better footing, this momentum may be difficult to sustain in the future. The market turbulence has led to more deals being put on hold. So far in April there has been no issuance by 'CCC' rated companies, due to investors' risk aversion.
Chart 6
Chart 7
Chart 8
Table 1
Current gross leverage comparison by type of owner (median) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Business risk profile | Rating | Number | Debt to EBITDA | Interest cover | % of total # | |||||||
Fair | CCC+ | 5 | 11.4x | 1.9x | 11% | |||||||
CCC | 1 | 7.0x | 1.8x | 2% | ||||||||
Weak | CCC+ | 31 | 10.9x | 1.5x | 66% | |||||||
CCC | 4 | 4.5x | 0.2x | 9% | ||||||||
CCC- | 1 | 10.7x | NM | 2% | ||||||||
Vulnerable | CCC+ | 5 | 11.9x | 1.4x | 11% | |||||||
47 | 11.3x | 1.7x | ||||||||||
N.M.--Not meaningful. Data as of April 15, 2023. Source: S&P Global Ratings Credit Research and Insights. |
Table 2
'CCC' and below rated issuers in Europe as of March 31, 2023 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Company | Sector | Debt amount, mil. € | Rating | Outlook/CreditWatch | Outlook or CreditWatch | Country | ||||||||
Transocean Ltd. |
Oil & Gas | 9,742 | CCC | Negative | OL | Switzerland | ||||||||
Casino Guichard - Perrachon S.A. |
Retail/Restaurants | 9,687 | CCC+ | Developing | OL | France | ||||||||
Mallinckrodt plc |
Health Care | 4,929 | CCC | Negative | OL | Ireland | ||||||||
Keter Group B.V. |
Consumer Products | 3,252 | CCC | Developing | CW | Netherlands | ||||||||
HNVR Midco Ltd. |
Media & Entertainment | 2,406 | CCC+ | Positive | OL | United Kingdom | ||||||||
Castle Intermediate Holding V Limited |
Media & Entertainment | 2,149 | CCC+ | Negative | OL | United Kingdom | ||||||||
Mitel Networks (International) Ltd |
High Technology | 2,058 | CCC+ | Negative | OL | United Kingdom | ||||||||
Venator Materials PLC |
Chemicals, Packaging & Environmental Services | 1,794 | CCC- | Negative | OL | United Kingdom | ||||||||
Richmond UK Holdco Ltd. |
Media & Entertainment | 1,529 | CCC+ | Negative | OL | United Kingdom | ||||||||
Aston Martin Lagonda Global Holdings PLC |
Automotive | 1,307 | CCC+ | Stable | OL | United Kingdom | ||||||||
Covis Finco S.a r.l |
Health Care | 1,142 | CCC+ | Stable | OL | Switzerland | ||||||||
Selecta Group B.V. |
Consumer Products | 1,083 | CCC+ | Stable | OL | Netherlands | ||||||||
CGG |
Oil & Gas | 1,043 | CCC+ | Positive | OL | France | ||||||||
F-Brasile S.p.A |
Aerospace & Defense | 929 | CCC+ | Negative | OL | Italy | ||||||||
Lernen Bondco PLC |
Consumer Products | 880 | CCC+ | Stable | OL | United Kingdom | ||||||||
Biscuit Holding S.A.S. |
Consumer Products | 802 | CCC+ | Negative | OL | France | ||||||||
Bock Capital Bidco B.V. |
High Technology | 772 | CCC+ | Stable | OL | Netherlands | ||||||||
Comet Bidco Limited |
Media & Entertainment | 743 | CCC+ | Negative | OL | United Kingdom | ||||||||
Vue Entertainment International Ltd |
Media & Entertainment | 740 | CCC+ | Stable | OL | United Kingdom | ||||||||
Amphora Intermediate II Limited |
Consumer Products | 682 | CCC+ | Negative | OL | United Kingdom | ||||||||
Wittur International Holding GmbH |
Capital Goods | 652 | CCC+ | Negative | OL | Germany | ||||||||
BVI Holdings Mayfair Limited |
Health Care | 603 | CCC+ | Negative | OL | United Kingdom | ||||||||
Journey Personal Care Holdings Ltd. |
Consumer Products | 598 | CCC+ | Negative | OL | United Kingdom | ||||||||
McLaren Group Ltd. |
Automotive | 570 | CCC | Negative | CW | United Kingdom | ||||||||
eDreams ODIGEO S.A. |
Media & Entertainment | 553 | CCC+ | Positive | OL | Spain | ||||||||
Mangrove Luxco III Sarl |
Capital Goods | 545 | CCC+ | Negative | OL | Luxembourg | ||||||||
Mavenir Private Holdings II Ltd. |
Telecommunications | 538 | CCC+ | Negative | OL | United Kingdom | ||||||||
Takko Fashion S.a.r.l. |
Consumer Products | 508 | CCC- | Negative | OL | Luxembourg | ||||||||
Pro.Gest SpA |
Forest Products & Building Materials | 498 | CCC+ | Stable | OL | Italy | ||||||||
Labeyrie Fine Foods SAS |
Consumer Products | 453 | CCC+ | Stable | OL | France | ||||||||
GHD Verwaltung GesundHeits GmbH Deutschland GmbH |
Health Care | 438 | CCC+ | Stable | OL | Germany | ||||||||
Haya Holdco 2 PLC |
Consumer Products | 367 | CCC+ | Stable | OL | Spain | ||||||||
Ideal Standard International S.A. |
Forest Products & Building Materials | 324 | CCC+ | Negative | OL | Luxembourg | ||||||||
Praesidiad Group Ltd. |
Capital Goods | 316 | CCC+ | Negative | OL | United Kingdom | ||||||||
adapa GmbH |
Chemicals, Packaging & Environmental Services | 305 | CCC+ | Stable | OL | Germany | ||||||||
MB Aerospace Holdings II Corp. |
Aerospace & Defense | 281 | CCC+ | Stable | OL | United Kingdom | ||||||||
Standard Profil Automotive GmbH |
Automotive | 274 | CCC+ | Negative | OL | Germany | ||||||||
Frigoglass SAIC |
Consumer Products | 259 | CC | Negative | OL | Greece | ||||||||
Lecta Ltd. |
Forest Products & Building Materials | 255 | CCC+ | Stable | OL | Luxembourg | ||||||||
Altisource Portfolio Solutions S.A. |
Financial Institutions | 209 | CCC+ | Stable | OL | Luxembourg | ||||||||
Odyssey Europe Holdco S.a r.l |
Media & Entertainment | 200 | CCC+ | Positive | OL | Luxembourg | ||||||||
Amigo Loans Ltd. |
Financial Institutions | 57 | CCC | Developing | OL | United Kingdom | ||||||||
PGS ASA |
Oil & Gas | - | CCC+ | Positive | CW | Norway | ||||||||
gategroup Holding AG |
Transportation | - | CCC+ | Stable | OL | Switzerland | ||||||||
Arvos LuxCo S.a.r.l. |
Capital Goods | - | CCC | Negative | OL | Luxembourg | ||||||||
Ignition Topco BV |
Chemicals, Packaging & Environmental Services | - | CCC+ | Stable | OL | Netherlands | ||||||||
Promotora de Informaciones S.A. |
Media & Entertainment | - | CCC+ | Stable | OL | Spain | ||||||||
DTEK Renewables B.V. |
Oil & Gas | - | CCC- | Negative | CW | Netherlands | ||||||||
OL--Outlook, CW--CreditWatch. Data as of March 31, 2023. Source: S&P Global Ratings Credit Research And Insights. |
Related Research
- Credit Conditions Europe Q2 2023: Costs Rising To Cure Inflation, Mar. 28, 2023
- Default, Transition, and Recovery: The European Speculative-Grade Corporate Default Rate Could Rise To 3.25% By December 2023, Amid Uncertain Backdrop, Feb. 16, 2023
- This Month In Credit, April 27 2023
Related Rating Actions
- Toro Private Holdings (Travelport) Downgraded To 'SD' On Distressed Debt Exchange, Mar. 31, 2023
- Parent To IGM Resins Downgraded To 'CCC+' On Weaker Credit Metrics; Outlook Stable, Mar. 24, 2023
- Mallinckrodt PLC Upgraded To 'CCC' From 'SD' Following Distressed Exchange; Outlook Negative, Mar. 23, 2023
- Flint Downgraded To 'SD' On Missed Revolver Payment; First-Lien Term Loan Downgraded To 'CC', Second Lien To 'C', Mar. 23, 2023
- Adler Pelzer 'CCC+' Ratings Withdrawn At The Company's Request, Mar. 17, 2023
- Keter Group B.V. Downgraded To 'CCC'; Rating Placed On CreditWatch Developing Pending Refinancing, Mar. 15, 2023
- Vantiva S.A. 'CCC+/C' Ratings Withdrawn At The Company's Request, Mar. 15, 2023
- Technicolor Creative Studios Downgraded To 'D', Mar. 14, 2023
- Norican Global A/S Ratings Raised To 'B' After Successful Refinancing; Ratings Withdrawn At The Issuer's Request, Mar. 02, 2023
- Telepizza Group Subsidiary Foodco Bondco SAU Downgraded To 'SD' (Selective Default) On Standstill Agreement, Feb. 22, 2023
- Ellaktor S.A. 'CCC+' Ratings Affirmed And Off CreditWatch On Notes Repayment; Outlook Positive; Ratings Withdrawn, Feb. 08, 2023
- Missouri TopCo, Parent Of Matalan, Downgraded To 'SD' From 'CCC-' On Recapitalization Close; Debt Ratings Lowered To 'D', Jan. 31, 2023
- Mavenir Private Holdings II Ltd. Downgraded To 'CCC+' On Underperformance, Cash Flow Deficits; Outlook Negative, Jan. 28, 2023
- Vue Entertainment International Ltd. Assigned 'CCC+' Rating After Restructuring; Outlook Stable, Jan. 27, 2023
- Thame and London Ltd. (Travelodge) Upgraded To 'B-' From 'CCC+' On Strong Trading Performance; Outlook Stable, Jan. 27, 2023
- ESPG AG 'CCC' Ratings Withdrawn At The Issuer's Request, Jan. 13, 2023
This report does not constitute a rating action.
Credit Markets Research: | Ekaterina Tolstova, Dubai +971 (0) 547923598; ekaterina.tolstova@spglobal.com |
Patrick Drury Byrne, Dublin (00353) 1 568 0605; patrick.drurybyrne@spglobal.com | |
Leveraged Finance Europe: | Marta Stojanova, London + 44 20 7176 0476; marta.stojanova@spglobal.com |
Research Contributor: | Yogesh Kumar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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