(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
- The number of European companies rated 'CCC+' and below has fallen by three since the start of 2024, and at 48 issuers, is on a par with the five-year average.
- European risky credits' outstanding debt surged by 45% to €80.1 billion from €55.1 billion at the start of 2024, primarily due to the downgrade of French telecoms company Altice France S.A. to 'CCC+'.
- The negative bias rose to 63.0% as of March 31, 2024, from 58.3% at the end of 2023, in line with the long-term average and signaling future rating pressure.
- Two-thirds of removals from the risky credits category in the first quarter of 2024 were due to defaults and rating withdrawals, while new additions were mostly due to refinancing issues.
The Number Of Risky Credits Has Declined Marginally
There were 48 risky credit issuers at the end of the first quarter of 2024, down from 51 as of year-end 2023 (see chart 1). Changes in the number of risky credits mostly reflect downward migration within the 'CCC+' and below rating category rather than upgrades from this category. This continues the trend that started at year-end 2023.
Close to 67% of removals from the risky credits category were due to defaults--primarily reflecting companies' need to restructure their debt--and rating withdrawals, rather than improvements in operating performance (see chart 2). Europe is the only region in which the number of year-to-date defaults is above the 2023 year-to-date tally. Defaults in the region remain at their highest since 2008 (see "Global Defaults Are Still High Despite Dipping In March," published April 16, 2024).
Chart 1
Chart 2
Debt Surged In The First Quarter Of 2024
Debt increased to €80.1 billion as of March 31, 2024, from €55.1 billion as of Dec. 31, 2023, soaring by 45%. The rise was mainly due to the downgrade of French telecoms company Altice France S.A. to 'CCC+' with a developing outlook. Altice France alone added close to €23.8 billion to the risky credits' total debt. Management has guided for weaker earnings and cash flow prospects for 2024 than it expected. This has increased the likelihood of tender offers, as well as the risk of a distressed exchange, and--in the absence of a distressed exchange--the risk that the company will not deleverage sufficiently to achieve a sustainable leverage profile.
In total, three telecoms companies contributed about €25.8 billion of the total debt amount (see chart 3). The next largest contributors were the chemicals, packaging, and environmental services sector, with debt of €10.7 billion across four issuers, and the oil and gas sector, with €8.3 billion across two issuers. These three sectors account for 55% of risky credits' outstanding debt.
The risky credits also remain concentrated geographically, with the U.K. and France accounting for 55% of the total debt outstanding as of March 31, 2024.
Chart 3
The Negative Bias Rose To 63% As Of The End Of First-Quarter 2024
This compares to 58.3% as of Dec. 31, 2023. Most of the downward transitions to the risky credits category were of highly leveraged companies with negative free operating cash flow or liquidity or refinancing issues because of lower demand or production (see chart 4).
Weaker consumer sentiment and inflation also continue to weigh on operating conditions in some sectors, and the combination of the two is likely to mean further downward rating transitions and subsequent defaults for some risky credits (see chart 5). We expect a modest increase of the European trailing-12-month speculative-grade corporate default rate over the summer, before it stabilizes by year-end 2024 (see "European Speculative-Grade Default Rate To Stabilize At 3.5% By December 2024," published Feb. 15, 2024).
Chart 4
Chart 5
Speculative-Grade Bond Issuance More Than Doubled To Above €45 Billion In First-Quarter 2024
This was thanks to constructive market conditions (see chart 6). A combination of stable interest rates, tighter spreads, and investor demand allowed many companies to address their upcoming maturities well ahead of time. This included the first 'CCC' rated bond issuances by two U.K.-based nonbank financial institutions in the past four years. The trends for speculative-grade issuance diverge as bond issuances lag leveraged loan issuances and focus on the higher end of the speculative-grade rating spectrum.
Primary activity may slow in the second quarter of 2024. A sharp pullback in U.S rate-cut expectations and increasing tensions in the Middle East have recently weakened investor sentiment and financing costs and could staunch primary market activity in the second quarter of 2024.
Chart 6
Risky Credits Have Addressed Their Near-Term Debt Maturities, But Keep A Close Eye On 2026 And Beyond
Even though risky credits' annual debt maturities rise through to 2026, we have started to see some reductions in riskier, near-term speculative-grade debt maturities. This has alleviated some near-term refinancing concerns. Telecoms, health care, and chemicals, packaging, and environmental services are the three sectors with the highest amount of speculative-grade nonfinancial corporate debt maturing in 2025 and 2026.
In 2025, refinancing risk will affect 16% of the total outstanding debt rated 'CCC+' and below, jumping to 23% in 2026 and 26% in 2027 (see chart 7). This suggests a gradual rise in refinancing risk, as issuers generally seek to refinance debt at least 12-24 months before the maturity date.
Chart 7
Table 1
| European issuers rated 'CCC' and below as of March 31, 2024 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company | Sector | Debt amount (mil. €) | Rating | Outlook/CreditWatch | Outlook or CreditWatch | Country | New to list | Date of addition to 'CCC/C' | ||||||||||
|
Altice France S.A. |
Telecommunications | 23,840.5 | CCC+ | Developing | Outlook | France | New | Mar. 28, 2024 | ||||||||||
|
Transocean Ltd. |
Oil and gas | 7,230.6 | CCC+ | Stable | Outlook | Switzerland | Oct. 10, 2022 | |||||||||||
|
Trinseo PLC |
CP&ES | 5,429.7 | CCC+ | Negative | Outlook | Ireland | May 26, 2023 | |||||||||||
|
Samhallsbyggnadsbolaget i Norden AB (publ) |
Home/RE | 4,690.6 | CCC | Negative | Outlook | Sweden | Mar. 28, 2024 | |||||||||||
|
SK Mohawk Holdings S.a.r.l. |
CP&ES | 3,283.7 | CCC | Negative | Outlook | Germany | Apr. 21, 2023 | |||||||||||
|
Vedanta Resources Ltd. |
Metals, mining, and steel | 2,749.1 | CCC+ | Stable | Outlook | U.K. | New | Jan. 15, 2024 | ||||||||||
|
Castle Intermediate Holding V Ltd. |
Media and entertainment | 2,158.9 | CCC+ | Negative | Outlook | U.K. | Dec. 8, 2022 | |||||||||||
|
Mitel Networks (International) Ltd. |
High technology | 2,069.2 | CCC | Negative | Outlook | U.K. | Nov. 28, 2022 | |||||||||||
|
PHM Netherlands Bidco B.V. |
Forest | 1,972.1 | CCC+ | Negative | Outlook | Netherlands | Oct. 27, 2023 | |||||||||||
|
Atos SE |
High technology | 1,896.2 | CCC | Negative | Outlook | France | New | Feb. 9, 2024 | ||||||||||
|
Toro Private Holdings I Ltd. |
Transportation | 1,716.8 | CCC+ | Stable | Outlook | U.K. | Jan. 24, 2024 | |||||||||||
|
Metinvest B.V. |
Metals, mining, and steel | 1,668.7 | CCC+ | Negative | Outlook | Netherlands | Aug. 4, 2023 | |||||||||||
|
Hurtigruten Newco AS |
Media and entertainment | 1,515.1 | CCC | Negative | Outlook | Norway | New | Mar. 22, 2024 | ||||||||||
|
Flint Group Topco Ltd. |
CP&ES | 1,462.4 | CCC+ | Stable | Outlook | Jersey | Oct. 30, 2023 | |||||||||||
|
Carestream Dental Technology Parent Ltd. |
Health care | 1,258.0 | CCC- | Negative | Outlook | U.K. | Sep. 5, 2023 | |||||||||||
|
Keter Group B.V. |
Consumer products | 1,172.9 | CC | Negative | Outlook | Netherlands | Mar. 15, 2023 | |||||||||||
|
Selecta Group B.V. |
Consumer products | 1,085.9 | CCC+ | Stable | Outlook | Netherlands | Oct. 30, 2020 | |||||||||||
|
CGG |
Oil and gas | 1,046.2 | CCC+ | Positive | Outlook | France | Mar. 15, 2021 | |||||||||||
|
F-Brasile SpA |
Aerospace and defense | 934.2 | CCC+ | Positive | Outlook | Italy | Jun. 3, 2022 | |||||||||||
|
Vue Entertainment International Ltd. |
Media and entertainment | 932.4 | CCC+ | Negative | Outlook | U.K. | Feb. 23, 2024 | |||||||||||
|
CD&R Vialto UK Intermediate 3 Ltd. |
Media and entertainment | 896.3 | CCC+ | Negative | Outlook | U.K. | Dec. 13, 2023 | |||||||||||
|
Aston Midco Ltd. |
High technology | 872.3 | CCC+ | Stable | Outlook | U.K. | Nov. 17, 2023 | |||||||||||
|
Biscuit Holding S.A.S. |
Consumer products | 803.8 | CCC+ | Stable | Outlook | France | Oct. 4, 2022 | |||||||||||
|
Tosca IoM Ltd. |
Telecommunications | 800.1 | CCC+ | Developing | CreditWatch | U.K. | New | Feb. 26, 2024 | ||||||||||
|
Oriflame Investment Holding Plc |
Consumer products | 758.5 | CCC | Negative | Outlook | Jersey | Sep. 8, 2023 | |||||||||||
|
Sprint HoldCo B.V. |
Media and entertainment | 703.9 | CCC+ | Negative | Outlook | Netherlands | Dec. 21, 2023 | |||||||||||
|
BVI Holdings Mayfair Ltd. |
Health care | 604.0 | CCC+ | Negative | Outlook | U.K. | Dec. 10, 2021 | |||||||||||
|
McLaren Group Ltd. |
Automotive | 573.5 | CCC | Negative | Outlook | U.K. | Apr. 16, 2020 | |||||||||||
|
Farfetch Ltd. |
Retail | 555.0 | CC | Negative | Outlook | U.K. | Dec. 4, 2023 | |||||||||||
|
Mangrove Luxco III |
Capital goods | 544.8 | CCC+ | Negative | Outlook | Luxembourg | Dec. 23, 2020 | |||||||||||
|
Mavenir Private Holdings II Ltd. |
Telecommunications | 541.1 | CCC | Negative | Outlook | U.K. | Jan. 27, 2023 | |||||||||||
|
Venator Materials PLC |
CP&ES | 508.7 | CCC+ | Negative | Outlook | U.K. | New | Jan. 26, 2024 | ||||||||||
|
Pro.Gest SpA |
Forest | 498.6 | CCC | Negative | Outlook | Italy | Jun. 9, 2020 | |||||||||||
|
Ecotone HoldCo III SAS |
Consumer products | 489.3 | CCC+ | Stable | Outlook | Netherlands | Apr. 21, 2023 | |||||||||||
|
Financiere Labeyrie Fine Foods |
Consumer products | 454.2 | CCC+ | Stable | Outlook | France | Dec. 9, 2022 | |||||||||||
|
GHD Verwaltung GesundHeits GmbH Deutschland GmbH |
Health care | 439.4 | CCC+ | Stable | Outlook | Germany | Oct. 6, 2022 | |||||||||||
|
Branicks Group AG |
Home/RE | 399.6 | CCC | Negative | Outlook | Germany | New | Jan. 24, 2024 | ||||||||||
|
AFE S.A. |
Financial institutions | 324.7 | CCC+ | Stable | Outlook | U.K. | Feb. 21, 2024 | |||||||||||
|
Compact Bidco B.V. |
Forest | 299.7 | CCC+ | Negative | Outlook | Netherlands | Sep. 1, 2023 | |||||||||||
|
Bright Bidco B.V. |
Automotive | 277.5 | CCC+ | Negative | Outlook | Netherlands | Apr. 25, 2023 | |||||||||||
|
Standard Profil Automotive GmbH |
Automotive | 274.7 | CCC+ | Stable | Outlook | Germany | May 5, 2022 | |||||||||||
|
Altisource Portfolio Solutions S.A. |
Financial institutions | 210.0 | CCC+ | Stable | Outlook | Luxembourg | Feb. 24, 2023 | |||||||||||
|
Bahia de las Isletas, S.L. |
Transportation | 194.2 | CCC+ | Stable | Outlook | Spain | New | Mar. 20, 2024 | ||||||||||
|
Ferrexpo PLC |
Metals, mining, and steel | 0.0 | CCC | Negative | Outlook | U.K. | Dec. 19, 2023 | |||||||||||
|
gategroup Holding AG |
Transportation | 0.0 | CCC+ | Stable | Outlook | Switzerland | May 19, 2021 | |||||||||||
|
Arvos LuxCo S.a.r.l. |
Capital goods | 0.0 | CC | Negative | Outlook | Luxembourg | Feb. 24, 2021 | |||||||||||
|
DTEK Renewables B.V. |
Utilities | 0.0 | CCC- | Negative | Outlook | Netherlands | Jul. 25, 2023 | |||||||||||
|
NOVIS Insurance Co. |
Insurance | 0.0 | CCC | Negative | CreditWatch | Slovakia | Jun. 12, 2023 | |||||||||||
| Data as of March 31, 2024. Exchange rate as of March 29, 2024. CP&ES--Chemicals, packaging, and environmental services. Forest--Forest products and building materials. Home/RE--Homebuilders/real estate companies. Retail--Retail and restaurants. Source: S&P Global Ratings Credit Research And Insights. | ||||||||||||||||||
Our Approach
- Charts and tables include issuers rated 'CCC', 'CC', and 'C' with an outlook/CreditWatch status of negative, stable, positive, or developing.
- Data represents rating actions on financial and nonfinancial corporate issuers in Europe.
- We base our calculations on the country of incorporation and the ratings on the parent, and we only use public ratings unless stated differently in the report.
- Risky credits are corporate issuers rated in the 'CCC+' and below rating category.
- Negative bias is the share of issuers with ratings that either have negative outlooks or are on CreditWatch with negative implications.
Related Research
- Global Credit Markets Update Q2 2024: Encouraging Signs Amid The Unease, April 30, 2024
- April 2024 "This Month In Credit" Published: Rising Upgrades Face Renewed Challenges, April 29, 2024
- Global Financing Conditions: First-Quarter Issuance Surge Will Taper Off Amid Increasing Risks, April 25, 2024
- Q2 2024 Global Refinancing Update: Window Of Opportunity May Be Closing, April 24, 2024
- Altice France S.A. Downgraded To 'CCC+' On Weaker Cash Flow Prospects And Sustainability Concerns; Outlook Developing, April 19, 2024
- Default, Transition, and Recovery: Global Defaults Are Still High Despite Dipping In March, April 16, 2024
- Ratings Performance Insights: Q1 2024, April 16, 2024
- Global Credit Conditions Update: Geopolitical Risks Rise On Iran-Israel Conflict Expansion Despite Immediate Reprieve, April 15, 2024
- Research Update: Norway-Based Cruise Ship Operator Hurtigruten Newco AS Assigned 'CCC' Rating; Outlook Negative, March 22, 2024
- Research Update: Bahia de las Isletas Upgraded To 'CCC+' From 'SD' After Debt Restructuring, Outlook Stable; Secured Debt Rated 'B-', March 20, 2024
- Research Update: Branicks Group AG Downgraded To 'CCC' On Remaining Near-Term Refinancing Risk; Outlook Negative, March 12, 2024
- European Speculative-Grade Default Rate To Stabilize At 3.5% By December 2024, Feb. 15, 2024
- Research Update: French IT Service Provider Atos SE Downgraded To 'CCC' On Greater Refinancing Risk; Outlook Negative, Feb. 9, 2024
- Risky Credits: Europe Continues To Walk A Fine Line, Feb. 7, 2024
- Research Update: Venator Materials Upgraded To 'CCC+' Post-Chapter 11 Emergence; Outlook Negative; New Debt Rated, Jan. 26, 2024
- Research Update: Vedanta Resources Ltd. Upgraded To 'CCC+' From 'SD' Following Maturity Extensions; Outlook Stable, Jan. 15, 2024
- Research Update: Tosca Services LLC Downgraded To ‘CCC+’ From ‘B-’ On Sustained Negative Free Operating Cash Flow; Outlook Is Negative, July 17, 2023
This report does not constitute a rating action.
| Primary Credit Analyst: | Ekaterina Tolstova, Frankfurt +49 173 6591385; ekaterina.tolstova@spglobal.com |
| Secondary Contact: | Patrick Drury Byrne, Dublin (00353) 1 568 0605; patrick.drurybyrne@spglobal.com |
| Research Contributor: | Amol Nakashe, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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