Default, Transition, and Recovery: 2023 Annual European Corporate Default And Rating Transition Study

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This Month In Credit: 2024 Data Companion

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Credit Trends: Risky Credits: U.S. And Canadian Risky Credits Drop For Third Straight Quarter Amid Sector Divergences

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Credit Trends: Risky Credits: Defaults Have Driven A Decline In European Risky Credits

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Credit Trends: Risky Credits: Emerging Markets: Issuance Activity And Deleveraging Plans

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15 Jul, 2024 | 15:10
APAC, United States of America, Latin America, EMEA

Sector Credit Markets Research Default Transition & Recovery
Tags Americas Latin America APAC EMEA
Topic Confronting Credit Headwinds

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Table of Contents

Defaults Almost Doubled In 2023

S&P Global Ratings' European corporate default tally nearly doubled to 30 in 2023 from 17 in 2022 as inflation and higher interest rates weighed on some issuers' earnings and cash flow. The tally includes the defaults of companies from both financial and nonfinancial sectors (see chart 1).

Financing conditions were more challenging for lower-rated issuers: All European corporate defaulters with active ratings at the start of the year were speculative-grade issuers (rated 'BB+' or lower), with over two-thirds rated 'CCC+' or lower.

Consequently, the speculative-grade default rate climbed to 3.5% in 2023, its highest since 2020, from 2.2% the year before.

Chart 1

Of the 30 total European corporate defaults in 2023, 27 were from companies assigned active ratings at the start of the year, while three defaults were from companies not rated when the year began. This resulted in an overall default rate (including both investment-grade and speculative-grade issuers and excluding those not rated at the start of the year) of 1.6%, slightly higher than 1.0% in 2022.

Sectors exposed to consumer spending accounted for a significant share of defaults (11), with the consumer/service sector showing eight defaults and the leisure time/media sector accounting for three. The health care/chemicals sector followed with six defaults.

Based on country of incorporation, defaults in 2023 were distributed across 10 countries. Defaulters incorporated in Luxembourg, Germany, and the U.K. accounted for 57% of total defaults.

Although credit quality improved in 2023, with more upgrades as a percentage of issuers (12.0%) than downgrades (7.1%), the proportion of speculative-grade issuers rated 'B-' or lower remained elevated by year-end, at 30%. In addition, for the 14th year in a row, no corporate issuers that we rated investment-grade ('BBB-' or higher) at the beginning of the year defaulted during the year (see table 1).

Table 1

European corporate default summary
Year	Total defaults*	Investment-grade defaults	Speculative-grade defaults	Default rate (%)	Investment-grade default rate (%)	Speculative-grade default rate (%)	Total debt outstanding (bil. $)
1991	1	0	1	0.76	0.00	50.00
1992	0	0	0	0.00	0.00	0.00
1993	1	0	1	0.51	0.00	20.00
1994	0	0	0	0.00	0.00	0.00
1995	1	0	1	0.31	0.00	9.09
1996	0	0	0	0.00	0.00	0.00
1997	0	0	0	0.00	0.00	0.00
1998	0	0	0	0.00	0.00	0.00
1999	6	0	6	0.91	0.00	6.32	0.9
2000	4	1	3	0.54	0.16	2.56	0.6
2001	13	1	11	1.44	0.14	8.46	2.7
2002	23	1	18	2.05	0.13	12.59	16.2
2003	9	2	6	0.83	0.25	3.73	13.7
2004	3	0	3	0.30	0.00	1.62	1.3
2005	2	0	2	0.19	0.00	0.95	0.0
2006	4	0	4	0.37	0.00	1.81	0.0
2007	2	0	2	0.18	0.00	0.96	0.5
2008	9	1	5	0.54	0.11	2.51	80.1
2009	22	1	16	1.50	0.11	8.12	39.7
2010	4	0	2	0.18	0.00	1.02	9.3
2011	4	0	4	0.35	0.00	1.59	5.0
2012	9	0	7	0.59	0.00	2.23	19.7
2013	16	0	11	0.90	0.00	2.87	17.8
2014	6	0	5	0.37	0.00	0.97	1.7
2015	16	0	13	0.87	0.00	2.11	10.6
2016	15	0	12	0.80	0.00	1.95	22.0
2017	17	0	16	1.07	0.00	2.60	11.9
2018	13	0	12	0.80	0.00	1.96	22.3
2019	15	0	15	0.95	0.00	2.25	26.0
2020	42	0	38	2.34	0.00	5.41	110.3
2021	14	0	13	0.80	0.00	1.83	7.0
2022	17	0	17	1.01	0.00	2.20	17.6
2023	30	0	27	1.60	0.00	3.52	32.8
Average	10	0	8	0.70	0.03	4.89	18.8
Median	6	0	5	0.59	0.00	2.20	11.9
Standard deviation	10	0	9	0.59	0.06	9.11	25.3
Minimum	0	0	0	0.00	0.00	0.00	0.0
Maximum	42	2	38	2.34	0.25	50.00	110.3
*This column includes companies that were no longer rated at the time of default. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Our credit ratings continue to serve as effective indicators of relative creditworthiness. The one-year Gini coefficient--a measure of the rank-ordering power of ratings--for European corporate defaulters was 93.6% in 2023, up from 82.2% in 2022. From 1981 to 2023, the one-year weighted average Gini coefficient was 89.9%, the three-year average was 85.0%, and the five-year average was 82.6%.

We base this study on our public and confidential issuer credit ratings on both nonfinancial and financial companies, but we exclude credit estimates, which we typically base on private information we receive from investors. We include European industrials, utilities, financial institutions--including banks, brokerages, asset managers, and other financial entities--and insurance companies.

We base our calculations of default and transition rates on the number of issuer credit ratings rather than the affected debt volumes. Where we refer to the weighted average values of certain statistics across different periods, we weight the statistics for each period by the number of issuer credit ratings outstanding at the beginning of each period. Further details on our calculation approaches and the terminology we use in this study, including a list of the European countries that we included, are in Appendix I. Further details on the Gini coefficient methodology are in Appendix II.

2023 Observations

Below are key observations from our review of European corporate defaults and rating transitions in 2023:

Of the European defaulters in 2023, 47% were from two sectors: consumer/service and health care/chemicals, with eight and six defaults, respectively.
Nonetheless, the forest and building products/homebuilders sector had the highest default rate in 2023, at 3.53%, closely followed by consumer/service at 3.25%.
The 30 defaults came from 10 different countries across Europe, with companies incorporated in Luxembourg, the U.K., and Germany accounting for 57% of defaults.
As of Jan. 1, 2023, we publicly rated 23 of the European corporate issuers that defaulted over the course of the year.
All defaulted issuers were rated speculative-grade at the time of default. Two issuers defaulted twice in the year.
France-based Casino Guichard - Perrachon S.A. had the highest debt of the year's publicly rated European corporate defaulters at the time of its default, at $8.9 billion (see "Casino Guichard - Perrachon Downgraded To 'D' On Missed Interest Payment And Expected General Default; Ratings Withdrawn," Aug. 31, 2023).
We estimate the volume of outstanding debt associated with European corporate defaulters in 2023 was $32.8 billion, almost double the $17.6 billion in 2022. Globally, there were 153 defaulters that accounted for about $222.4 billion in debt in 2023.
The European nonfinancial default rate increased to 2.2% in 2023 from 1.4% in 2022, while the financial default rate was flat at just 0.2%.
The European speculative-grade corporate default rate rose to 3.5% in 2023 from 2.2% in 2022--below the 4.5% in the U.S. but in line with the 3.7% globally (see chart 2). However, it was ahead of the emerging markets default rate, which fell to 2.1% in 2023.
For the 30 European defaults in 2023, the average time to default from initial rating was 4.4 years, down from 4.7 years in 2022 but above the long-term average of 4.3 years.
Of the 30 defaults in 2023, 63% resulted from distressed exchanges, 30% from missed interest or principal payments, and the remainder from Chapter 11 and foreign bankruptcy.
Despite an increase in defaults, upgrades exceeded downgrades as a percentage of total issuers, and the downgrade ratio declined for a third consecutive year.
At year-end 2023, speculative-grade issuers accounted for 43.6% of all European corporate ratings, lower than 45.6% at the end of 2022 but up considerably from 17.9% at the end of 2009 (see chart 3).
No European corporate entities that we rated higher than 'B' at the beginning of 2023 defaulted during the year.
Once again, default rates from the lowest ratings ('CCC'/'C') far exceeded those from any other rating category (see table 3).

Table 2

2023 publicly rated European corporate defaults
Company name	Reason for default	Country	Industry	Debt amount (mil. $)	Default date	Rating 1 year prior to default	Rating 3 years prior to default	First rating	Date of first rating
Missouri TopCo Ltd.	Distressed exchange	U.K.	Consumer/service	349.0	1/31/2023	CCC+	-	CCC-	8/6/2020
Altisource Portfolio Solutions S.A.	Distressed exchange	Luxembourg	Financial institutions	0.0	2/22/2023	CCC+	B	B+	11/5/2012
Foodco Bondco SAU	Missed interest	Spain	Consumer/service	630.8	2/22/2023	CCC+	B	B	10/16/2019
Technicolor Creative Studios	Missed interest	France	Leisure time/media	586.2	3/14/2023	-	-	B	10/21/2022
Mallinckrodt plc	Distressed exchange	Ireland	Health care/chemicals	3,601.0	3/16/2023	-	-	B-	6/17/2022
Flint HoldCo S.a.r.l.	Missed principal	Luxembourg	Health care/chemicals	137.7	3/23/2023	CCC+	CCC+	B+	10/29/2014
Toro Private Holdings I Ltd.	Distressed exchange	U.K.	Transportation	3,680.0	3/31/2023	CCC+	-	CCC+	10/2/2020
Covis Finco S.a.r.l	Distressed exchange	Switzerland	Health care/chemicals	1,189.8	4/6/2023	B	-	B	3/7/2022
Adler Group S.A. (ADO Group Ltd.)	Distressed exchange	Luxembourg	Real estate	3,939.6	4/17/2023	B-	BBB-	BBB-	11/28/2018
Frigoglass SAIC	Distressed exchange	Greece	Consumer/service	235.8	5/5/2023	CCC	B-	B-	2/2/2018
CatLuxe S.a.r.l. (CatLuxe Acquistion S.a.r.l.)	Distressed exchange	Luxembourg	Consumer/service	235.9	5/8/2023	CCC	-	CCC	3/1/2021
Venator Materials PLC	Chapter 11	U.K.	Health care/chemicals	975.0	5/18/2023	B-	B-	B-	4/24/2020
Mallinckrodt plc	Missed interest	Ireland	Health care/chemicals	3,601.0	7/18/2023	-	-	CCC	3/23/2023
Takko Fashion S.a.r.l.	Distressed exchange	Luxembourg	Consumer/service	464.7	8/8/2023	CCC-	-	CCC-	8/19/2020
Casino Guichard - Perrachon S.A.	Missed interest	France	Consumer/service	8,972.6	8/31/2023	B	B	BBB+	5/12/1999
Haya Holdco 2 PLC	Distressed exchange	Spain	Consumer/service	342.9	9/11/2023	CCC+	-	CCC+	6/14/2022
Ideal Standard International S.A.	Distressed exchange	Luxembourg	Forest and building products/homebuilders	325.0	9/21/2023	CCC+	-	B-	9/14/2021
Tele Columbus AG	Missed interest	Germany	Telecommunications	422.4	11/27/2023	B-	B-	B+	3/11/2015
Praesidiad Group Ltd.	Distressed exchange	U.K.	Aerospace/automotive/capital goods/metal	293.5	11/28/2023	CCC+	CCC+	B	11/28/2017
Tullow Oil PLC	Distressed exchange	U.K.	Energy and natural resources	0.0	12/5/2023	B-	CCC+	BB	10/25/2013
Lecta Ltd.	Distressed exchange	Luxembourg	Forest and building products/homebuilders	344.8	12/11/2023	CCC+	CCC+	CCC+	10/27/2020
Wittur International Holding GmbH	Distressed exchange	Germany	Transportation	595.9	12/21/2023	CCC+	B-	B	5/1/2015
Signa Development Selection AG	Foreign bankruptcy	Austria	Forest and building products/homebuilders	272.5	12/22/2023	B	-	B	7/13/2021
SK Neptune Husky Intermediate IV S.a r.l.	Missed principal/interest	Switzerland	Health care/chemicals	0.0	12/28/2023	B-	-	B	1/31/2022
		Total		31,196
Table does not include confidentially rated defaulters or their associated debt amounts. Initial ratings for these companies are those immediately following a prior distressed exchange. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 3

Annual European corporate default rates by rating modifier (%)
	AAA	AA+	AA	AA-	A+	A	A-	BBB+	BBB	BBB-	BB+	BB	BB-	B+	B	B-	CCC/C
1981	0.00	N/A	0.00	N/A	N/A	0.00	N/A	N/A	0.00	N/A	0.00	N/A	N/A	N/A	N/A	N/A	N/A
1982	0.00	N/A	0.00	N/A	0.00	0.00	N/A	N/A	0.00	N/A	0.00	N/A	N/A	N/A	N/A	N/A	N/A
1983	0.00	N/A	0.00	N/A	0.00	0.00	0.00	N/A	0.00	N/A	0.00	N/A	N/A	N/A	N/A	N/A	N/A
1984	0.00	0.00	0.00	N/A	0.00	0.00	0.00	N/A	0.00	N/A	N/A	0.00	0.00	N/A	N/A	N/A	N/A
1985	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	N/A	N/A	N/A	0.00	0.00	N/A	N/A	N/A	N/A
1986	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	N/A	N/A	N/A	0.00	0.00	N/A	N/A	N/A	N/A
1987	0.00	0.00	0.00	0.00	N/A	0.00	0.00	N/A	0.00	N/A	0.00	0.00	N/A	0.00	N/A	N/A	N/A
1988	0.00	0.00	0.00	0.00	N/A	0.00	0.00	N/A	0.00	N/A	0.00	0.00	N/A	0.00	N/A	N/A	N/A
1989	0.00	0.00	0.00	0.00	N/A	0.00	0.00	N/A	0.00	N/A	0.00	N/A	N/A	0.00	N/A	N/A	N/A
1990	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	N/A	N/A	0.00	N/A	N/A	0.00	N/A	N/A	N/A
1991	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	N/A	N/A	0.00	N/A	N/A	N/A	N/A	100.00	N/A
1992	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	0.00	N/A	N/A	N/A	N/A	N/A	N/A
1993	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	N/A	0.00	50.00	N/A	N/A
1994	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	N/A	N/A	0.00	N/A	0.00
1995	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A	0.00	33.33	0.00	0.00
1996	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1997	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A
1998	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	N/A
1999	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	4.55	0.00	0.00	9.09	18.18	50.00
2000	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	3.45	0.00	0.00	0.00	0.00	0.00	10.53	33.33
2001	0.00	0.00	0.00	0.00	0.00	0.89	0.00	0.00	0.00	0.00	0.00	0.00	7.69	6.45	15.38	13.33	42.86
2002	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.93	0.00	0.00	0.00	3.03	6.90	11.76	9.09	44.44	75.00
2003	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.04	1.96	0.00	0.00	0.00	0.00	0.00	0.00	60.00
2004	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	42.86
2005	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.08	0.00	0.00	0.00	14.29
2006	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.82	2.44	5.56	16.67
2007	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	4.55	25.00
2008	0.00	0.00	0.00	0.00	0.00	0.00	0.64	0.00	0.00	0.00	0.00	0.00	0.00	2.94	2.78	11.11	25.00
2009	0.00	0.00	0.00	0.00	0.00	0.58	0.00	0.00	0.00	0.00	0.00	0.00	2.94	0.00	19.23	11.76	57.14
2010	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	10.53
2011	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.63	3.85	14.29
2012	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.17	0.00	0.00	3.70	25.00
2013	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.33	0.00	12.82	25.00
2014	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.32	4.08	3.57
2015	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.02	1.61	34.48
2016	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.48	5.26	13.79
2017	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.53	1.61	28.57
2018	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.59	2.82	18.42
2019	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.00	0.44	1.10	34.38
2020	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.70	2.04	2.07	6.48	46.81
2021	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.39	0.00	0.00	13.64
2022	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.56	1.28	0.00	0.81	1.44	13.92
2023	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.40	2.60	29.33
Average	0.00	0.00	0.00	0.00	0.00	0.03	0.02	0.03	0.03	0.17	0.00	0.27	0.83	0.87	4.99	8.89	26.92
Median	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.53	3.26	25.00
Standard deviation	0.00	0.00	0.00	0.00	0.00	0.16	0.10	0.16	0.17	0.70	0.00	0.95	1.93	2.32	11.03	19.33	19.18
Minimum	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Maximum	0.00	0.00	0.00	0.00	0.00	0.89	0.64	0.93	1.04	3.45	0.00	4.55	7.69	11.76	50.00	100.00	75.00
N/A--Not applicable. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Chart 2

Chart 3

Table 4

Annual European corporate default rates by industry (%)
Year	Aerospace/auto/capital goods/metals	Consumer/service	Energy and natural resources	Financial institutions	Forest and building products/homebuilders	Health care/chemicals	High tech/computers/office equipment	Insurance
1991	0.00	0.00	0.00	0.00	N/A	0.00	33.33	0.00
1992	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1993	0.00	0.00	0.00	0.00	0.00	0.00	14.29	0.00
1994	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1995	0.00	0.00	0.00	0.68	0.00	0.00	0.00	0.00
1996	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1997	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1998	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1999	2.44	0.00	0.00	0.00	0.00	0.00	0.00	0.00
2000	2.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
2001	4.55	1.54	0.00	0.00	0.00	2.50	0.00	0.98
2002	2.63	1.41	0.00	0.33	0.00	2.08	0.00	0.92
2003	0.00	1.30	3.57	0.00	0.00	0.00	0.00	0.88
2004	2.25	0.00	0.00	0.00	0.00	0.00	0.00	0.00
2005	0.00	1.25	0.00	0.00	0.00	0.00	0.00	0.00
2006	1.83	0.00	0.00	0.00	0.00	0.00	0.00	0.00
2007	1.01	1.54	0.00	0.00	0.00	0.00	0.00	0.00
2008	0.00	4.55	0.00	0.28	0.00	1.89	0.00	0.00
2009	2.30	3.39	0.00	0.28	2.86	1.92	12.50	0.00
2010	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
2011	0.00	0.00	0.00	0.00	2.78	1.85	0.00	0.00
2012	0.96	0.00	2.38	0.00	0.00	0.00	0.00	0.00
2013	0.89	0.00	2.00	0.31	5.00	0.00	0.00	0.00
2014	0.00	2.48	3.57	0.00	0.00	0.00	0.00	0.00
2015	0.71	0.00	7.69	1.22	1.92	0.00	0.00	0.00
2016	1.43	0.00	10.34	0.30	1.72	0.00	0.00	0.00
2017	0.78	3.92	5.45	0.30	1.61	1.83	2.08	0.00
2018	1.53	1.83	3.45	0.92	0.00	0.00	0.00	0.00
2019	2.88	2.66	3.17	0.00	0.00	2.31	0.00	0.00
2020	0.72	5.24	10.77	0.00	1.59	1.37	5.08	0.00
2021	0.69	1.88	1.64	0.29	0.00	0.00	0.00	0.00
2022	0.66	0.85	4.48	0.29	1.23	1.31	1.61	0.00
2023	1.94	3.25	1.69	0.31	3.53	3.18	0.00	0.00
Weighted average	1.13	1.71	2.92	0.19	1.07	0.90	1.07	0.07
Average	0.98	1.12	1.82	0.17	0.70	0.61	2.09	0.08
Median	0.71	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Standard deviation	1.14	1.53	2.98	0.29	1.28	0.99	6.52	0.27
Minimum	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Maximum	4.55	5.24	10.77	1.22	5.00	3.18	33.33	0.98
	Leisure time/media	Real estate	Telecom	Transportation	Utility
1991	0.00	N/A	0.00	0.00	0.00
1992	0.00	N/A	0.00	0.00	0.00
1993	0.00	N/A	0.00	0.00	0.00
1994	0.00	N/A	0.00	0.00	0.00
1995	0.00	0.00	0.00	0.00	0.00
1996	0.00	0.00	0.00	0.00	0.00
1997	0.00	0.00	0.00	0.00	0.00
1998	0.00	0.00	0.00	0.00	0.00
1999	0.00	0.00	0.00	17.86	0.00
2000	0.00	0.00	2.63	7.41	0.00
2001	5.71	0.00	6.67	3.45	0.00
2002	2.86	0.00	23.40	0.00	0.82
2003	0.00	0.00	8.33	2.78	0.79
2004	0.00	0.00	0.00	0.00	0.78
2005	0.00	0.00	0.00	2.44	0.00
2006	0.00	0.00	1.85	2.27	0.00
2007	0.00	0.00	0.00	0.00	0.00
2008	0.00	0.00	0.00	2.13	0.00
2009	7.32	7.69	6.67	2.50	0.00
2010	4.35	0.00	0.00	0.00	0.00
2011	4.17	0.00	0.00	0.00	0.00
2012	3.85	0.00	1.75	4.00	0.00
2013	5.56	0.00	1.56	4.17	0.00
2014	0.00	0.00	0.00	0.00	0.00
2015	0.99	0.00	0.00	1.56	0.00
2016	0.94	0.00	1.52	0.00	0.00
2017	0.00	0.00	1.64	0.00	0.00
2018	0.98	0.00	1.64	0.00	0.00
2019	0.93	0.00	0.00	0.00	0.00
2020	5.77	1.61	1.64	6.67	0.00
2021	2.94	0.00	0.00	4.35	0.00
2022	4.76	0.00	0.00	1.39	0.00
2023	1.92	1.41	1.64	2.86	0.00
Weighted average	2.09	0.42	2.11	2.17	0.09
Average	1.61	0.37	1.85	1.99	0.07
Median	0.00	0.00	0.00	0.00	0.00
Standard deviation	2.26	1.46	4.41	3.51	0.23
Minimum	0.00	0.00	0.00	0.00	0.00
Maximum	7.32	7.69	23.40	17.86	0.82
Includes investment-grade- and speculative-grade-rated entities. N/A--Not applicable. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Most New Issuers Are Rated Speculative-Grade

The count of active corporate ratings in Europe has increased considerably since the 2008-2009 financial crisis, in large part because of the increase in newly rated issuers (see table 5). New speculative-grade issuers have made up most of the annual totals since 2010. For the purposes of our default studies, we consider issuers that have reemerged from a prior default to be new issuers once they are assigned post default ratings.

Table 5

Rating classification of new European corporate ratings*
	First rating
Year	AAA	AA	A	BBB	BB	B	CCC/C	Total	% IG	% SG
1981	2	0	0	0	0	0	0	2	100.0	0.0
1982	5	0	1	0	0	0	0	6	100.0	0.0
1983	6	2	1	0	1	0	0	10	90.0	10.0
1984	4	3	0	0	0	0	0	7	100.0	0.0
1985	1	2	2	0	0	0	0	5	100.0	0.0
1986	9	1	1	1	0	0	0	12	100.0	0.0
1987	4	7	2	0	0	0	0	13	100.0	0.0
1988	3	9	1	0	0	0	0	13	100.0	0.0
1989	3	15	4	0	0	1	0	23	95.7	4.3
1990	11	14	11	0	0	0	0	36	100.0	0.0
1991	4	13	9	2	1	0	0	29	96.6	3.4
1992	4	13	14	7	0	2	0	40	95.0	5.0
1993	7	16	22	9	0	1	0	55	98.2	1.8
1994	4	18	37	13	2	4	0	78	92.3	7.7
1995	1	9	19	12	5	2	0	48	85.4	14.6
1996	9	24	40	18	7	3	0	101	90.1	9.9
1997	3	22	33	31	14	12	0	115	77.4	22.6
1998	4	32	52	19	23	27	1	158	67.7	32.3
1999	3	27	46	35	24	22	0	157	70.7	29.3
2000	3	20	46	39	17	21	0	146	74.0	26.0
2001	3	26	51	51	27	7	0	165	79.4	20.6
2002	1	11	31	28	28	13	1	113	62.8	37.2
2003	0	4	22	37	17	22	0	102	61.8	38.2
2004	3	5	45	25	32	33	1	144	54.2	45.8
2005	1	16	29	28	15	39	2	130	56.9	43.1
2006	1	12	24	24	11	26	1	99	61.6	38.4
2007	3	17	38	18	24	19	1	120	63.3	36.7
2008	0	20	44	14	10	10	2	100	78.0	22.0
2009	0	6	28	18	8	14	14	88	59.1	40.9
2010	0	7	19	12	14	49	7	108	35.2	64.8
2011	1	3	15	20	25	62	6	132	29.5	70.5
2012	0	3	12	27	22	63	4	131	32.1	67.9
2013	0	4	28	26	30	127	13	228	25.4	74.6
2014	0	3	16	31	32	132	4	218	22.9	77.1
2015	0	2	14	26	28	77	5	152	27.6	72.4
2016	0	1	13	27	19	72	11	143	28.7	71.3
2017	0	1	11	38	30	100	7	187	26.7	73.3
2018	0	3	16	34	43	124	3	223	23.8	76.2
2019	0	3	16	20	26	109	9	183	21.3	78.7
2020	0	5	8	24	19	66	19	141	26.2	73.8
2021	0	0	6	26	32	112	13	189	16.9	83.1
2022	0	2	4	28	14	89	11	148	23.0	77.0
2023	0	1	7	24	11	47	15	105	30.5	69.5
Total	103	402	838	792	611	1,507	150	4,403	48.5	51.5
*Includes issuers that are assigned a new rating after default as well as those companies that receive a rating for the first time. Excludes rating as of 12/31/1980. IG--Investment-grade. SG--Speculative-grade. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Cumulative Default Rates

As interest rates tightened and geopolitical risks heightened in 2023, cumulative default rates for nonfinancial companies exceeded their long-term averages across one-, three-, and 10-year default horizons. Similarly, default rates among financial institutions remained above their one-, three-, and 10-year averages in 2023 (see table 6).

Table 6

Cumulative European corporate default rates by sector (%)
	Financial institutions			Insurance			All financials			All nonfinancials
Year	One-year	Three-year	10-year	One-year	Three-year	10-year	One-year	Three-year	10-year	One-year	Three-year	10-year
1991	0.00	N/A	N/A	0.00	N/A	N/A	0.00	N/A	N/A	1.96	N/A	N/A
1992	0.00	N/A	N/A	0.00	N/A	N/A	0.00	N/A	N/A	0.00	N/A	N/A
1993	0.00	0.00	N/A	0.00	0.00	N/A	0.00	0.00	N/A	1.22	1.96	N/A
1994	0.00	0.00	N/A	0.00	0.00	N/A	0.00	0.00	N/A	0.00	0.00	N/A
1995	0.68	0.00	N/A	0.00	0.00	N/A	0.52	0.00	N/A	0.00	1.22	N/A
1996	0.00	0.93	N/A	0.00	0.00	N/A	0.00	0.69	N/A	0.00	0.00	N/A
1997	0.00	0.68	N/A	0.00	0.00	N/A	0.00	0.52	N/A	0.00	0.00	N/A
1998	0.00	0.00	N/A	0.00	0.00	N/A	0.00	0.00	N/A	0.00	0.00	N/A
1999	0.00	0.00	N/A	0.00	0.00	N/A	0.00	0.00	N/A	1.84	0.00	N/A
2000	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.04	1.63	1.96
2001	0.00	0.00	0.00	0.98	1.10	0.00	0.25	0.30	0.00	2.51	4.60	0.00
2002	0.33	0.00	0.00	0.92	1.98	0.00	0.48	0.56	0.00	3.31	6.49	1.22
2003	0.00	0.34	0.93	0.88	2.94	2.63	0.23	1.02	1.38	1.30	8.43	0.00
2004	0.00	0.33	0.68	0.00	1.83	2.13	0.00	0.73	1.04	0.54	5.06	0.79
2005	0.00	0.00	0.00	0.00	0.88	1.96	0.00	0.23	0.47	0.34	2.04	1.92
2006	0.00	0.00	0.00	0.00	0.00	2.82	0.00	0.00	0.78	0.65	1.26	3.52
2007	0.00	0.00	0.00	0.00	0.00	3.85	0.00	0.00	1.00	0.34	1.01	6.12
2008	0.28	0.00	0.00	0.00	0.00	3.30	0.18	0.00	0.90	0.87	1.47	8.28
2009	0.28	0.88	0.00	0.00	0.00	2.97	0.17	0.59	0.84	2.89	3.21	8.83
2010	0.00	0.56	0.34	0.00	0.00	2.94	0.00	0.37	1.02	0.37	3.65	9.79
2011	0.00	0.28	0.33	0.00	0.00	1.83	0.00	0.17	0.73	0.67	3.61	6.23
2012	0.00	0.00	0.32	0.00	0.00	0.88	0.00	0.00	0.47	1.08	2.04	3.53
2013	0.31	0.30	0.30	0.00	0.00	0.00	0.19	0.18	0.22	1.44	2.51	3.06
2014	0.00	0.30	0.30	0.00	0.00	0.00	0.00	0.18	0.21	0.61	2.92	3.52
2015	1.22	1.57	1.54	0.00	0.00	0.00	0.74	0.94	1.06	0.95	3.17	4.57
2016	0.30	1.20	2.06	0.00	0.00	0.00	0.19	0.73	1.38	1.14	2.19	5.57
2017	0.30	1.52	1.97	0.00	0.00	0.00	0.19	0.92	1.29	1.54	3.28	6.61
2018	0.92	0.61	1.68	0.00	0.00	0.00	0.59	0.37	1.04	0.91	3.21	6.32
2019	0.00	0.61	1.46	0.00	0.00	0.00	0.00	0.38	0.89	1.40	3.69	4.45
2020	0.00	0.92	1.51	0.00	0.00	0.00	0.00	0.59	0.90	3.40	4.93	6.20
2021	0.29	0.00	1.51	0.00	0.00	0.00	0.20	0.00	0.92	1.08	5.42	6.77
2022	0.29	0.30	1.57	0.00	0.00	0.00	0.20	0.20	0.94	1.36	5.46	6.77
2023	0.31	0.88	1.81	0.00	0.00	0.00	0.21	0.59	1.10	2.16	3.69	6.57
Average	0.17	0.39	0.76	0.08	0.28	1.05	0.13	0.33	0.77	1.12	2.84	4.69
Median	0.00	0.30	0.34	0.00	0.00	0.00	0.00	0.23	0.90	1.04	2.92	5.07
Standard deviation	0.29	0.48	0.77	0.27	0.72	1.38	0.20	0.33	0.42	0.94	2.07	2.76
Minimum	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Maximum	1.22	1.57	2.06	0.98	2.94	3.85	0.74	1.02	1.38	3.40	8.43	9.79
"All financials" refers to financial institutions and insurance combined. N/A--Not applicable. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Our default studies all show a clear negative correspondence between ratings and defaults: The higher the issuer credit rating, the lower the observed default frequency, and vice versa. This relationship holds over time (see chart 4 and tables 7-8). For example, on average, from 1981 to 2023, European corporate issuers rated in the 'AA' category had a 0% default rate in the following year, a 0.02% default rate in the second year, and a 0.05% default rate in the third year. By comparison, issuers rated in the 'B' category recorded, on average, default rates of 1.79% in the first year, 4.73% in the second, and 7.48% in the third.

Europe has historically had fewer entities rated in the 'CCC'/'C' category than other regions, and as such, the cumulative average default rate for this category might be less meaningful. The European region did not have a significant proportion of speculative-grade ratings until 1996, so European cumulative average default rates are only now starting to fall more in line with the rates elsewhere.

Chart 4

Table 7

Comparison of corporate cumulative average default rates (1981-2023) (%)
	--Time horizon (years)--
From/to	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Y9	Y10
Europe
AAA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA	0.00	0.02	0.05	0.10	0.14	0.20	0.22	0.25	0.28	0.28
A	0.03	0.06	0.09	0.13	0.20	0.26	0.33	0.35	0.37	0.38
BBB	0.05	0.14	0.25	0.37	0.48	0.66	0.82	0.98	1.15	1.30
BB	0.35	1.13	1.90	2.59	3.40	4.09	4.72	5.18	5.58	5.98
B	1.79	4.73	7.48	9.78	11.78	13.28	14.40	15.18	15.86	16.41
CCC/C	25.00	35.29	40.84	44.95	46.90	47.49	47.83	48.23	48.23	48.80
Investment-grade	0.03	0.08	0.13	0.20	0.27	0.36	0.45	0.51	0.57	0.62
Speculative-grade	2.78	5.36	7.48	9.20	10.69	11.79	12.64	13.25	13.77	14.23
All rated	0.82	1.58	2.19	2.69	3.12	3.45	3.71	3.89	4.04	4.17
Global
AAA	0.00	0.03	0.13	0.23	0.34	0.44	0.49	0.57	0.62	0.68
AA	0.02	0.05	0.11	0.19	0.28	0.38	0.46	0.53	0.60	0.67
A	0.05	0.12	0.20	0.30	0.41	0.53	0.68	0.80	0.93	1.07
BBB	0.14	0.39	0.67	1.02	1.38	1.73	2.03	2.33	2.62	2.90
BB	0.57	1.79	3.19	4.58	5.88	7.08	8.12	9.08	9.93	10.69
B	2.98	6.99	10.55	13.44	15.75	17.60	19.05	20.20	21.23	22.19
CCC/C	25.97	35.93	41.40	44.47	46.64	47.67	48.76	49.45	50.05	50.62
Investment-grade	0.08	0.22	0.38	0.58	0.78	0.99	1.18	1.37	1.54	1.72
Speculative-grade	3.52	6.77	9.56	11.83	13.70	15.22	16.47	17.51	18.43	19.27
All rated	1.49	2.89	4.11	5.13	5.99	6.70	7.29	7.80	8.25	8.66
Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 8

European corporate cumulative average default rates by rating modifier (1981-2023) (%)
	Time horizon (years)
Rating	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Y9	Y10
AAA	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA+	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA	0.00	0.00	0.00	0.07	0.15	0.22	0.30	0.38	0.46	0.46
AA-	0.00	0.04	0.09	0.14	0.18	0.23	0.23	0.23	0.23	0.23
A+	0.00	0.00	0.04	0.04	0.04	0.04	0.04	0.04	0.04	0.04
A	0.05	0.11	0.14	0.16	0.20	0.29	0.39	0.43	0.43	0.43
A-	0.03	0.05	0.08	0.17	0.32	0.38	0.48	0.52	0.56	0.60
BBB+	0.03	0.13	0.27	0.37	0.41	0.54	0.76	0.99	1.24	1.45
BBB	0.03	0.07	0.14	0.18	0.27	0.50	0.60	0.66	0.71	0.84
BBB-	0.10	0.27	0.39	0.64	0.91	1.13	1.29	1.46	1.64	1.75
BB+	0.00	0.09	0.28	0.49	0.93	1.65	2.05	2.20	2.20	2.20
BB	0.24	0.75	1.20	1.68	2.39	2.50	2.74	3.00	3.43	3.92
BB-	0.80	2.50	4.14	5.51	6.77	8.02	9.26	10.21	10.99	11.69
B+	0.86	2.74	4.94	6.53	8.32	9.25	9.99	10.50	11.19	11.85
B	1.40	3.64	5.86	8.44	10.30	11.90	13.16	14.26	14.76	15.26
B-	3.87	9.92	14.74	17.68	20.50	23.00	24.64	25.36	26.45	26.78
CCC/C	25.00	35.29	40.84	44.95	46.90	47.49	47.83	48.23	48.23	48.80
Investment-grade	0.03	0.08	0.13	0.20	0.27	0.36	0.45	0.51	0.57	0.62
Speculative-grade	2.78	5.36	7.48	9.20	10.69	11.79	12.64	13.25	13.77	14.23
All rated	0.82	1.58	2.19	2.69	3.12	3.45	3.71	3.89	4.04	4.17
Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Downgrade Ratio Continues To Decline

In 2023, upgrades increasingly outnumbered downgrades, lowering the downgrade-to-upgrade ratio to 0.59, from 0.63 in 2022. Since reaching its fifth-highest historical reading of 7.44 in 2020, the downgrade ratio has continuously fallen (see table 9). As a result, the ratio of 'B-' and lower ratings to total speculative-grade ratings declined to 30% in 2023 from 33% at the end of 2020 but remained above the 22% at the end of 2019.

Table 9

Summary of European corporate rating activity (%)*
Year	Issuers	Upgrades (%)	Downgrades (%)§	Defaults (%)	Withdrawn ratings (%)	Changed ratings (%)	Unchanged ratings (%)	Downgrade/upgrade ratio†
1981	11	0.00	9.09	0.00	0.00	9.09	90.91	N/A
1982	13	0.00	0.00	0.00	7.69	7.69	92.31	N/A
1983	18	0.00	11.11	0.00	0.00	11.11	88.89	N/A
1984	28	3.57	17.86	0.00	0.00	21.43	78.57	5.00
1985	35	2.86	2.86	0.00	0.00	5.71	94.29	1.00
1986	40	10.00	5.00	0.00	0.00	15.00	85.00	0.50
1987	52	1.92	1.92	0.00	3.85	7.69	92.31	1.00
1988	63	9.52	3.17	0.00	3.17	15.87	84.13	0.33
1989	74	8.11	1.35	0.00	1.35	10.81	89.19	0.17
1990	96	1.04	10.42	0.00	1.04	12.50	87.50	10.00
1991	132	2.27	18.18	0.76	0.00	21.21	78.79	8.00
1992	161	1.86	18.63	0.00	1.86	22.36	77.64	10.00
1993	198	1.52	12.63	0.51	2.53	17.17	82.83	8.33
1994	247	3.64	14.17	0.00	3.24	21.05	78.95	3.89
1995	319	6.27	15.05	0.31	0.31	21.94	78.06	2.40
1996	368	7.34	11.68	0.00	3.80	22.83	77.17	1.59
1997	457	6.78	8.75	0.00	5.47	21.01	78.99	1.29
1998	546	6.59	10.26	0.00	8.42	25.27	74.73	1.56
1999	661	6.35	13.16	0.91	11.04	31.47	68.53	2.07
2000	744	7.39	13.58	0.54	7.66	29.17	70.83	1.84
2001	832	6.01	16.35	1.44	7.21	31.01	68.99	2.72
2002	927	5.07	20.28	2.05	6.04	33.44	66.56	4.00
2003	966	5.07	17.08	0.83	6.31	29.30	70.70	3.37
2004	1,002	6.89	6.29	0.30	7.49	20.96	79.04	0.91
2005	1,071	10.92	10.36	0.19	10.36	31.84	68.16	0.95
2006	1,084	12.36	9.78	0.37	7.29	29.80	70.20	0.79
2007	1,100	13.91	8.18	0.18	9.09	31.36	68.64	0.59
2008	1,117	6.80	19.25	0.54	6.71	33.30	66.70	2.83
2009	1,130	3.63	23.81	1.50	8.76	37.70	62.30	6.56
2010	1,101	7.08	12.72	0.18	5.54	25.52	74.48	1.79
2011	1,150	10.26	18.52	0.35	7.04	36.17	63.83	1.81
2012	1,192	6.80	22.90	0.59	7.72	38.00	62.00	3.37
2013	1,225	8.82	13.39	0.90	5.55	28.65	71.35	1.52
2014	1,368	9.94	9.06	0.37	7.02	26.39	73.61	0.91
2015	1,487	9.28	11.16	0.87	8.20	29.52	70.48	1.20
2016	1,502	8.92	9.92	0.80	9.05	28.70	71.30	1.11
2017	1,497	11.69	6.21	1.07	10.82	29.79	70.21	0.53
2018	1,503	10.11	7.65	0.80	9.25	27.81	72.19	0.76
2019	1,577	7.86	7.86	0.95	7.10	23.78	76.22	1.00
2020	1,627	2.40	17.82	2.34	6.64	29.19	70.81	7.44
2021	1,616	9.47	6.93	0.80	7.18	24.38	75.62	0.73
2022	1,681	9.3	5.8	1.01	7.79	23.91	76.09	0.63
2023	1,685	12.0	7.1	1.60	6.94	27.66	72.34	0.59
Weighted average		8.25	11.98	0.82	7.41	28.46	71.54	1.45
Average		6.55	11.33	0.54	5.50	23.92	76.08	1.73
Median		6.80	10.42	0.37	6.71	25.27	74.73	1.53
Standard deviation		3.68	5.85	0.59	3.37	8.44	8.44	1.59
Minimum		0.00	0.00	0.00	0.00	5.71	62.00	0.17
Maximum		13.91	23.81	2.34	11.04	38.00	94.29	1.71
*This table compares the net change in ratings from the first to the last day of each year. All intermediate ratings are disregarded. §Excludes downgrades to 'D', shown separately in the default column. †Downgrades to 'D' excluded in this metric. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Typically, nonfinancial companies have higher credit deterioration than financial services companies in a given year, and this remained true in 2023 (see chart 5). The discrepancy is largely because there are more nonfinancial companies with ratings at the lowest end of the speculative-grade category, which are more volatile.

Chart 5

Generally, European investment-grade companies tend to exhibit greater credit stability (as measured by the frequency of rating transitions) than their speculative-grade counterparts. About 94.9% of European corporate entities rated in the 'AA' category at the beginning of 2023 were still rated in that category at the end of the year, whereas the comparable measure for companies rated in the 'B' category was 78.7% (see table 10).

Table 10

2023 corporate transition rates: Europe versus global
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
Europe
AAA	100.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA	0.00	94.94	2.53	0.00	0.00	0.00	0.00	0.00	2.53
A	0.00	0.51	95.90	0.77	0.00	0.00	0.00	0.00	2.82
BBB	0.00	0.00	3.36	90.36	0.67	0.45	0.22	0.00	4.93
BB	0.00	0.00	0.00	8.88	80.84	3.27	0.47	0.00	6.54
B	0.00	0.00	0.00	0.00	3.97	78.71	5.01	1.04	11.27
CCC/C	0.00	0.00	0.00	0.00	0.00	12.00	40.00	29.33	18.67
Global
AAA	100.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
AA	0.00	96.81	1.42	0.00	0.00	0.00	0.00	0.00	1.77
A	0.00	0.15	96.79	1.02	0.00	0.00	0.00	0.00	2.04
BBB	0.00	0.00	1.61	92.59	1.02	0.43	0.11	0.11	4.14
BB	0.00	0.00	0.17	3.92	85.42	3.75	0.33	0.17	6.25
B	0.00	0.00	0.00	0.10	4.29	78.96	5.89	1.24	9.51
CCC/C	0.00	0.00	0.00	0.00	0.00	7.32	47.56	30.79	14.33
NR--Not rated. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

The 2023 pattern correlates with the long-term ratings behavior trend among all global rated issuers. This study--in line with our previous default studies--confirms that higher ratings are generally more stable than lower ratings. On average, of all of the European corporate issuers that we rated in the 'A' category, 88.6% retained ratings in the same category after one year, whereas only 74.1% of those rated in the 'B' category remained in the same rating category a year later (see table 11). Lower ratings also tend to exhibit less stability than higher ratings over multiyear time horizons (see table 12).

Table 11

Average one-year transition rates (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
Europe
AAA	87.20	9.03	0.46	0.00	0.00	0.00	0.11	0.00	3.20
	(8.75)	(7.61)	(1.37)	(0.00)	(0.00)	(0.00)	(0.80)	(0.00)	(4.60)
AA	0.25	86.59	9.37	0.50	0.00	0.00	0.00	0.00	3.29
	(0.63)	(7.03)	(6.42)	(1.11)	(0.00)	(0.00)	(0.00)	(0.00)	(2.35)
A	0.01	1.67	88.58	4.92	0.13	0.03	0.00	0.03	4.63
	(0.04)	(1.72)	(4.98)	(3.42)	(0.31)	(0.39)	(0.00)	(0.08)	(1.90)
BBB	0.00	0.06	3.80	86.34	3.06	0.26	0.09	0.05	6.35
	(0.00)	(1.14)	(1.95)	(4.84)	(2.55)	(0.47)	(0.25)	(0.18)	(2.84)
BB	0.00	0.00	0.08	5.21	75.67	6.38	0.35	0.35	11.95
	(0.00)	(0.00)	(0.54)	(2.58)	(6.52)	(3.33)	(0.89)	(0.76)	(4.38)
B	0.00	0.00	0.02	0.18	4.62	74.13	5.01	1.79	14.25
	(0.00)	(0.00)	(0.18)	(0.44)	(3.04)	(6.03)	(3.02)	(2.82)	(4.70)
CCC/C	0.00	0.00	0.00	0.16	0.00	13.51	44.72	25.00	16.61
	(0.00)	(0.00)	(0.00)	(0.55)	(0.00)	(8.91)	(14.98)	(14.56)	(8.06)
Global
AAA	87.26	8.94	0.51	0.03	0.10	0.03	0.05	0.00	3.08
	(7.36)	(7.16)	(0.81)	(0.13)	(0.26)	(0.17)	(0.34)	(0.00)	(2.45)
AA	0.46	87.62	7.57	0.45	0.05	0.06	0.02	0.02	3.76
	(0.53)	(5.16)	(4.20)	(0.66)	(0.18)	(0.20)	(0.06)	(0.07)	(1.71)
A	0.02	1.50	89.22	4.72	0.24	0.10	0.01	0.05	4.13
	(0.08)	(1.06)	(3.98)	(2.21)	(0.37)	(0.23)	(0.06)	(0.10)	(1.67)
BBB	0.00	0.07	3.08	87.13	3.28	0.41	0.09	0.14	5.79
	(0.03)	(0.14)	(1.60)	(4.03)	(1.65)	(0.63)	(0.19)	(0.23)	(1.48)
BB	0.01	0.02	0.10	4.46	78.58	6.39	0.52	0.57	9.34
	(0.05)	(0.08)	(0.23)	(1.91)	(4.60)	(3.09)	(0.66)	(0.77)	(2.16)
B	0.00	0.02	0.06	0.15	4.46	75.02	4.85	2.98	12.46
	(0.00)	(0.07)	(0.18)	(0.19)	(2.03)	(3.80)	(2.63)	(2.91)	(2.30)
CCC/C	0.00	0.00	0.08	0.14	0.43	13.33	44.98	25.97	15.07
	(0.00)	(0.00)	(0.36)	(0.55)	(0.81)	(7.39)	(8.44)	(11.65)	(4.51)
Note: Numbers in parentheses are weighted standard deviations. NR--Not rated. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 12

Average three-year transition rates (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
AAA	64.98	23.31	2.41	0.00	0.00	0.00	0.11	0.00	9.18
	(15.49)	(12.50)	(3.43)	(0.00)	(0.00)	(0.00)	(0.85)	(0.00)	(9.19)
AA	0.66	65.07	21.94	2.27	0.31	0.00	0.02	0.05	9.67
	(1.36)	(11.66)	(9.63)	(2.39)	(0.53)	(0.00)	(0.12)	(0.15)	(4.18)
A	0.02	3.84	70.20	11.47	0.76	0.15	0.08	0.09	13.40
	(0.09)	(3.08)	(8.82)	(4.50)	(1.39)	(0.54)	(0.31)	(0.19)	(3.78)
BBB	0.00	0.18	9.24	65.67	6.05	0.92	0.25	0.26	17.44
	(0.00)	(2.08)	(2.86)	(8.61)	(3.14)	(0.97)	(0.50)	(0.69)	(5.51)
BB	0.00	0.00	0.40	11.49	45.21	10.44	0.65	1.94	29.87
	(0.00)	(0.00)	(0.83)	(3.87)	(8.97)	(3.72)	(1.04)	(2.40)	(7.42)
B	0.00	0.00	0.00	0.56	7.89	39.42	6.14	7.76	38.23
	(0.00)	(0.00)	(0.00)	(1.04)	(4.40)	(7.67)	(2.63)	(5.87)	(8.17)
CCC/C	0.00	0.00	0.00	0.20	0.61	15.51	9.59	41.22	32.86
	(0.00)	(0.00)	(0.00)	(0.83)	(1.94)	(10.94)	(7.69)	(15.11)	(13.05)
Global
AAA	65.94	21.92	2.29	0.31	0.21	0.08	0.10	0.13	9.03
	(11.93)	(12.14)	(1.68)	(0.75)	(0.46)	(0.29)	(0.41)	(0.36)	(5.27)
AA	1.06	67.83	17.90	1.87	0.31	0.19	0.02	0.11	10.70
	(0.87)	(9.39)	(6.08)	(1.43)	(0.49)	(0.43)	(0.07)	(0.18)	(3.76)
A	0.05	3.52	71.74	10.84	1.01	0.36	0.07	0.20	12.21
	(0.09)	(2.18)	(7.66)	(3.00)	(1.01)	(0.56)	(0.13)	(0.26)	(3.48)
BBB	0.01	0.22	7.62	67.66	6.46	1.34	0.23	0.69	15.76
	(0.05)	(0.36)	(2.99)	(7.77)	(2.07)	(1.23)	(0.33)	(0.87)	(3.17)
BB	0.01	0.04	0.40	10.11	50.01	10.99	1.11	3.25	24.08
	(0.05)	(0.12)	(0.63)	(3.50)	(7.80)	(2.69)	(0.83)	(3.23)	(3.44)
B	0.00	0.02	0.15	0.60	8.80	42.79	5.41	10.82	31.41
	(0.04)	(0.09)	(0.39)	(0.71)	(3.56)	(4.96)	(2.01)	(6.69)	(4.60)
CCC/C	0.00	0.00	0.09	0.42	1.36	16.49	10.46	41.50	29.68
	(0.00)	(0.00)	(0.42)	(1.03)	(1.45)	(6.69)	(5.55)	(12.17)	(7.54)
Note: Numbers in parentheses are weighted standard deviations. NR--Not rated. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

The transitions at the rating modifier level (that is, including the "+" or "-" identifiers) also generally exhibit the same relationship, although differences in sample sizes occasionally create slight variations between adjacent rating levels (see table 13).

Table 13

One-year weighted average transition rates for European corporates by rating modifier (1981-2023) (%)
From/to	AAA	AA+	AA	AA-	A+	A	A-	BBB+	BBB	BBB-	BB+	BB	BB-	B+	B	B-	CCC	D	NR
AAA	87.20	6.74	1.60	0.69	0.11	0.34	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.11	0.00	3.20
	8.75	6.55	2.60	1.63	0.54	1.04	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.80	0.00	4.60
AA+	1.09	78.66	13.55	2.80	0.47	0.47	0.31	0.16	0.00	0.16	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.34
	3.05	13.32	10.99	4.46	1.28	1.39	1.07	0.74	0.00	0.73	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	3.18
AA	0.14	1.53	79.74	9.92	3.47	1.11	0.42	0.28	0.07	0.07	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	3.26
	0.68	2.53	13.51	9.28	5.47	1.80	0.78	0.82	0.48	0.29	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	3.78
AA-	0.09	0.04	3.31	77.99	11.20	2.31	0.87	0.22	0.31	0.09	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	3.57
	0.37	0.24	3.73	9.01	6.96	3.22	1.67	0.51	1.14	0.43	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	3.06
A+	0.00	0.03	0.24	4.80	77.37	9.70	1.80	0.41	0.24	0.10	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	5.31
	0.00	0.16	0.67	5.30	10.26	6.71	1.63	0.79	0.79	0.31	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	2.85
A	0.00	0.11	0.08	0.37	6.02	77.36	8.44	1.87	0.63	0.21	0.03	0.03	0.00	0.05	0.00	0.00	0.00	0.05	4.76
	0.00	0.47	0.28	1.18	4.54	8.46	5.99	2.13	1.17	0.48	0.15	0.15	0.00	0.83	0.00	0.00	0.00	0.19	2.92
A-	0.03	0.00	0.08	0.10	0.52	7.00	77.62	7.86	1.74	0.70	0.18	0.08	0.05	0.03	0.00	0.00	0.00	0.03	3.98
	0.12	0.00	0.23	0.31	2.26	4.50	7.37	4.06	3.26	0.89	0.51	0.27	0.21	0.73	0.00	0.00	0.00	0.13	2.37
BBB+	0.00	0.00	0.00	0.06	0.19	0.56	7.43	76.12	8.21	1.30	0.43	0.40	0.12	0.09	0.03	0.00	0.06	0.03	4.96
	0.00	0.00	0.00	0.31	0.44	1.46	4.04	8.05	4.81	1.62	0.71	0.79	0.30	0.37	0.17	0.00	0.23	0.17	2.82
BBB	0.00	0.03	0.03	0.00	0.07	0.27	0.87	8.10	74.61	6.93	1.41	0.60	0.17	0.07	0.17	0.07	0.03	0.03	6.53
	0.00	1.85	0.26	0.00	0.28	0.69	1.00	4.97	7.51	3.97	2.11	1.01	0.34	0.27	0.47	0.28	0.26	0.19	4.27
BBB-	0.00	0.00	0.05	0.00	0.10	0.16	0.21	0.89	11.43	70.04	5.79	1.67	0.52	0.21	0.21	0.00	0.21	0.10	8.40
	0.00	0.00	0.29	0.00	0.52	0.54	0.67	0.99	5.64	7.77	4.76	2.79	1.09	0.57	0.74	0.00	0.71	0.53	4.03
BB+	0.00	0.00	0.00	0.00	0.08	0.00	0.08	0.42	0.59	12.47	63.18	8.70	2.43	1.00	0.42	0.08	0.17	0.00	10.38
	0.00	0.00	0.00	0.00	0.33	0.00	1.46	1.12	1.35	6.07	11.10	5.91	3.89	1.50	1.03	0.37	0.83	0.00	5.72
BB	0.00	0.00	0.00	0.00	0.00	0.00	0.08	0.24	0.08	1.54	12.24	61.35	7.29	2.27	0.57	0.08	0.57	0.24	13.45
	0.00	0.00	0.00	0.00	0.00	0.00	0.50	0.91	1.67	2.46	6.28	9.03	4.50	2.61	1.20	0.49	1.63	0.84	7.56
BB-	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.32	0.32	1.36	11.25	59.22	10.93	2.95	0.56	0.32	0.80	11.97
	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.97	0.88	3.32	5.50	9.97	5.32	2.43	1.11	0.81	1.70	5.59
B+	0.00	0.00	0.00	0.00	0.00	0.06	0.00	0.12	0.06	0.12	0.62	2.28	10.17	56.29	12.02	2.22	1.48	0.86	13.69
	0.00	0.00	0.00	0.00	0.00	0.47	0.00	0.53	0.22	0.46	0.80	4.81	5.07	8.30	5.78	2.85	2.96	2.01	6.47
B	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.04	0.04	0.08	0.08	0.12	1.13	6.33	62.41	10.17	3.15	1.40	15.07
	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.12	0.26	0.40	0.42	0.88	1.43	4.18	8.88	5.50	2.78	2.98	5.17
B-	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.08	0.00	0.00	0.00	0.33	1.07	10.30	57.41	13.67	3.87	13.26
	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.84	0.00	0.00	0.00	0.88	1.35	4.33	10.13	7.30	5.84	6.95
CCC/C	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.16	0.00	0.00	0.00	0.00	0.16	1.55	11.80	44.72	25.00	16.61
	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.55	0.00	0.00	0.00	0.00	0.91	2.28	7.53	14.98	14.56	8.06
Note: Numbers in parentheses are weighted standard deviations. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Time To Default Shows Strong Positive Relationship With Credit Quality

Corporate entities with higher original ratings generally experienced a longer time to default than their counterparts with lower original ratings (see table 14). For example, European corporate entities that we initially rated in the 'B' category but that later defaulted took an average of 4.1 years to default--less than the average of 7.5 years for defaulting entities we originally rated in the 'A' category.

For the corporate entities that defaulted in 2023, an average of 4.4 years elapsed between the initial rating date and the default date--slightly more than the long-term average of 4.3 years.

Table 14

Time to default from original rating for European corporate defaulters
Original rating	Defaults	Average years from original rating*	Median years from original rating	Standard deviation of years from original rating
AAA	N.A.	N.A.	N.A.	N.A.
AA	1	8.42	8.42	N.A.
A	11	7.54	6.25	4.28
BBB	20	9.04	7.33	6.33
BB	54	5.86	4.92	4.19
B	172	4.05	3.58	2.57
CCC/C	60	1.5	1.2	1.7
Total	318	4.33	3.19	3.71
*Or Dec. 31, 1980, whichever is greater. N.A.--Not available. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

For the entire history of European corporate defaults (318 for 1981-2023), the average time to default across all rating categories is 4.3 years, compared with 5.9 years globally (see chart 6). The relationship between the initial rating and the time to default is less clear in Europe partly because of smaller sample sizes. In the 43 years ended in 2023, for instance, 1,885 companies with initial ratings in the 'B' category defaulted globally, and only 172 were from Europe. In 2023, just over half of the defaulters in Europe were initially rated in the 'B' category.

As expected, the average time to default for postoriginal ratings (in other words, excluding initial ratings) also shows that higher-rated corporate issuers generally take longer to default. However, the time to default is somewhat shorter than from initial ratings (see chart 7).

Chart 6

Chart 7

Gini Coefficients And Lorenz Curves

A quantitative analysis of ratings performance shows that our European corporate issuer credit ratings continue to correlate with the level of default risk across different time horizons.

To measure ratings performance, we plot the cumulative share of defaulters against the cumulative share of issuers by rating in a Lorenz curve, which visually represents the ratings' rank-ordering power and is summarized quantitatively by the Gini coefficient (see definitions and methodology in Appendix I).

Over the long term, the European corporate weighted average one-year Gini coefficient was 89.9%, the three-year average was 85.0%, and the five-year average was 82.6% (see table 15 and charts 8-10).

Table 15

Corporate Gini coefficients by region (%)
	--Time horizon--
Region	One-year	Three-year	Five-year	Seven-year
Global
Weighted average	82.63	75.17	71.66	69.18
Average	85.57	78.74	74.58	71.58
Standard deviation	(5.37)	(5.00)	(5.23)	(5.20)
U.S.
Weighted average	80.51	72.40	68.86	66.35
Average	84.52	76.58	72.13	68.99
Standard deviation	(6.68)	(6.43)	(6.43)	(6.03)
Europe
Weighted average	89.95	84.99	82.58	79.76
Average	91.35	87.22	82.47	77.17
Standard deviation	(4.95)	(5.19)	(5.96)	(10.17)
Note: Numbers in parentheses are standard deviations. Averages and standard deviations for Europe are from 1996-2023. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

The Gini coefficients decline as the time horizon lengthens because longer times allow for more opportunities for credit degradation among higher-rated entities. In the one-year Lorenz curve for European corporate issuers, for example, 97.5% of defaults were in speculative-grade rating categories, while the speculative-grade segment accounted for only 28.9% of all European corporate issuers (see chart 8).

The five-year Lorenz curve shows speculative-grade issuers accounted for 92.6% of defaulters and only 25.0% of the entire sample (see chart 10). If the rank ordering of ratings had little predictive value, the cumulative share of defaulting entities and the cumulative share of all entities would be nearly the same, producing a Gini coefficient close to 0%.

Chart 8

Chart 9

Chart 10

Appendix I: Calculation Approach And Definitions

This long-term corporate default and rating transition study uses S&P Global Market Intelligence's CreditPro® database of long-term local currency issuer credit ratings. The analysis excludes public information (pi) ratings and ratings based on the guarantee of another company or government entity. We also do not include short-term issuer credit ratings. We do not require all issuers with debt that we rate to have an issuer credit rating. Therefore, if an issuer has rated debt but not an issuer credit rating, we assign a proxy rating so the CreditPro® corporate dataset accurately represents the complete universe of ratings. The local currency senior unsecured rating is the preferred debt rating used for the proxy because this rating is usually consistent with the issuer credit rating. In a small number of cases, we use the subordinated debt rating or the senior secured rating as the proxy.

An issuer credit rating is a forward-looking opinion about an obligor's overall creditworthiness. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation because it does not take into account the nature and provisions of any single obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and enforceability of the obligation. Issuer credit ratings can be either long-term or short-term.

Our ongoing enhancement of the database used to generate this study could lead to outcomes that differ to some degree from those reported in previous studies. However, each annual default and transition study reports statistics back to Dec. 31, 1980, and is therefore self-contained and effectively supersedes all previous editions.

Issuers included in this study

This study analyzes the rating histories of 4,414 European companies that we rated as of Dec. 31, 1980, or that we first rated between that date and Dec. 31, 2023. These include industrials, utilities, financial institutions, and insurance companies in the region with long-term local currency ratings. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subjects of separate default and transition studies, and we exclude them from this study.

For the purposes of this study, Europe consists of Austria, Belgium, the British Virgin Islands, Bulgaria, the Channel Islands, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Ireland, the Isle of Man, Italy, Jersey, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Monaco, Montenegro, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the U.K.

To avoid overcounting, we exclude subsidiaries with debt that is fully guaranteed by a parent or with default risk that we consider identical to that of a parent. The latter case arises for companies with obligations that are not legally guaranteed by a parent but that have operating or financing activities that are so entwined with those of the parent that a default of one and not the other would be highly unlikely, in our view. At times, however, a parent's guarantee might not have yet covered some of these subsidiaries, or the relationship that combines the default risk of parent and subsidiary might have come to an end or might not have begun. We include such subsidiaries in the dataset for the period during which they had distinct and separate risk of default.

Issuers with withdrawn ratings

We withdraw ratings when an entity's entire debt is paid off or when the program or programs that we rate are terminated and the relevant debt extinguished. We may also withdraw ratings at the issuer's request, as a result of a merger or acquisition, or when a company no longer provides all of the information we require to continue surveillance on the ratings.

Definition of default

For the purposes of this study, we deem 'D' (default), 'SD' (selective default), and 'R' (regulatory intervention) issuer credit ratings to be defaults. We assume the default takes place on the earliest of the date we revised the rating(s) to 'D', 'SD', or 'R'; the date the issuer missed a debt payment; the date a distressed exchange offer was announced; or the date the debtor filed for bankruptcy.

An obligor rated 'SD' or 'D' is in default on one or more of its financial obligations, including rated and unrated financial obligations but excluding hybrid instruments classified as regulatory capital or in nonpayment according to terms. We consider an obligor to be in default unless we believe that such payments will be made within five business days of the due date in the absence of a stated grace period, or within the earlier of the stated grace period or 30 calendar days.

We assign a 'D' rating when we believe that the default will be a general default and that the obligor will fail to pay all or almost all of its obligations as they come due. We assign an 'SD' rating when we believe the obligor has selectively defaulted on a specific issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. We also lower our rating on an obligor to 'D' or 'SD' if it is conducting a distressed exchange offer, whereby one or more financial obligations are either repurchased for an amount of cash or replaced by other instruments with a total value that is less than par.

An obligor rated 'R' is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others.

When an issuer defaults, we commonly subsequently withdraw the 'D' or 'SD' rating. For the purposes of this study, if an issuer defaults, we end its rating history at 'D'. If any defaulting entity reemerges from bankruptcy--or otherwise restructures its defaulted debt instruments, thereby reestablishing regular, timely payment on all its debts--we reenter this issuer into the database as a new entity. Its rating history after the default event is included in all calculations as entirely separate from its rating history prior to the earlier default.

Many practitioners use statistics from this default study to estimate "probability of default" and "probability of rating transition," based on observed historical default and transition frequencies. It is important to note that we do not ascribe a specific default probability to each rating category.

Calculations

Static pool methodology. S&P Global Ratings Credit Research & Insights conducts its default studies on the basis of groups of ratings called static pools. For the purposes of this study, we form static pools by grouping issuers by rating category at the beginning of each year, quarter, or month that the database covers. Each static pool is followed from that point forward. We assign all companies included in the study to one or more static pools. When an issuer defaults, we assign that default to all of the static pools to which the issuer belonged.

We use the static pool methodology to avoid certain pitfalls in estimating default rates, such as by ensuring that default rates account for rating migration and can be calculated across multiperiod time horizons. Some methods for calculating default and rating transition rates might charge defaults against only the initial rating on the issuer, ignoring more recent rating changes that supply more current information. Other methods may calculate default rates using only the most recent year's default and rating data, which may yield comparatively low default rates during periods of high rating activity because they ignore prior years' default activity.

The pools are static in the sense that their membership remains constant over time. Each static pool can be viewed as a buy-and-hold portfolio. Because errors, if any, are corrected in each update and because the criteria for inclusion or exclusion of companies in the default study are subject to minor revisions as time goes by, it is not possible to compare static pools across different studies. Therefore, every update revises results to the same starting date of Dec. 31, 1980, to avoid continuity problems.

Entities with ratings we have withdrawn or discontinued--that is, revised to not rated (NR)--are surveilled with the aim of capturing a potential default. Because static pools only include entities with active ratings as of the beginning date of a given pool, we exclude companies with withdrawn ratings, as well as those that have defaulted, from subsequent static pools. If the rating on an entity is withdrawn after the start date of a particular static pool and the entity subsequently defaults, we will include it in that static pool as a default and categorize it in the rating category of which it was a member at that time.

For instance, the 2001 static pool consists of all companies rated as of 12:01 a.m. on Jan. 1, 2001. Adding those companies first rated in 2001 to the surviving members of the 2001 static pool forms the 2002 static pool. All rating changes that took place are reflected in the newly formed 2002 static pool through the ratings on these entities as of 12:01 a.m. on Jan. 1, 2002.

Consider the following example: An issuer is originally rated 'BB' in mid-2000, and we downgrade the company to 'B' in 2002. This is followed by a rating withdrawal in 2003 and a default in 2004. We would include this hypothetical company in the 2001 and 2002 static pools with the 'BB' rating, which it held at the beginning of those years. Likewise, we would include it in the 2003 static pool with the 'B' rating. It would not be part of the 2004 static pool because it was not rated as of the first day of that year, and we would not include it in any pool after the last day of 2004 because we had withdrawn our rating on the company by then. Yet each of the three static pools in which we include this company (2001-2003) would record its 2004 default at the appropriate time horizon.

Default rate calculation. We calculate annual default rates for each static pool, first in units and later as percentages of the issuers in each rating category. We combined these percentages to obtain cumulative default rates for the 43 years the study covers.

Issuer-weighted default rates. We base all default rates that appear in this study on the number of issuers rather than the currency amounts affected by defaults or rating changes. Although currency amounts provide information about the portion of the market that is affected by defaults or rating changes, issuer-weighted averages are more useful measures of the performance of ratings.

Average cumulative default rate calculation. In this study, we also calculate and present average cumulative default rates for different time horizons. For example, table 7 shows that the one-year average cumulative default rate for 'A' rated European corporate issuers is 0.03% and the three-year average is 0.09%.

We first consider the static pool of ratings at the beginning of each calendar year. For each static pool, we calculate the marginal default rates for each calendar year after the static pool's formation. These one-year marginal default rates are "conditional on survival." For example, the marginal default rate for the third year is equal to the number of defaults during the third year divided by the number of ratings from the static pool that had "survived" (in other words, not moved to 'D') by the beginning of the third year.

We then average the marginal default rates for each time horizon across static pools, weighting by the number of surviving ratings at the beginning of each time horizon, to give an average marginal default rate per time horizon, as well as average marginal survival rates (equal to one minus the average marginal default rate). Finally, the average cumulative default rate for each time horizon is calculated as one minus the product of marginal survival rates up to that time horizon.

Transition analysis

Transition rates compare the issuer credit ratings at the beginning of a period with the ratings at the end of the period. To compute one-year rating transition rates by rating category, we compare the rating on each entity at the end of a particular year with the rating at the beginning of the same year. An issuer that remained rated for more than one year was counted as many times as the number of years it was rated. For instance, an issuer rated from the middle of 1984 to the middle of 1991 would appear in the seven consecutive one-year transition matrices from 1985 to 1991. If the rating on the issuer was withdrawn in the middle of 1991, it would be included in the column representing transitions to NR in the 1991 transition matrix. Similarly, if it defaulted in the middle of 1991, it would be included in the column representing transitions to 'D' in the 1991 one-year transition matrix.

All 1981 static pool members still rated on Jan. 1, 2023, had 43 one-year transitions, while companies first rated on Jan. 1, 2023, had only one. Each one-year transition matrix displays all rating movements between rating categories from the beginning of the year through year-end. For each rating listed in the matrix's leftmost column, there are nine ratios listed in the rows, corresponding to the rating categories from 'AAA' to 'D', plus NR.

The only ratings considered in these calculations are those on entities at the beginning of each static pool and those at the end. All rating changes that occur in between are ignored. For example, if an entity was rated 'A' on Jan. 1, 2014, downgraded to 'BBB' in the middle of the year, and then upgraded to 'A' later in the year (with no other subsequent rating changes), this entity would be included only in the percentage of issuers that began the year as 'A' and ended the year as 'A'. This approach also applies to transition matrices that span longer time horizons. If an issuer defaults or the rating is withdrawn in the middle of the year, then we would consider it either rated 'D' or not rated as of Dec. 31 of that particular year.

Multiyear transitions

We also calculate multiyear transitions for periods of two to 10 years. In this case, we compare the rating at the beginning of the multiyear period with the rating at the end. For example, three-year transition matrices are the result of comparing ratings at the beginning of the years 1981-2021 with the ratings at the end of the years 1983-2023. Otherwise, the methodology is identical to the one we use for single-year transitions.

We calculate average transition matrices on the basis of the multiyear matrices just described. These average matrices are a true summary, the ratios of which represent the historical incidence of the ratings listed in the first column changing to the ones listed in the top row over the course of the multiyear period. Transition matrices that present averages over multiple time horizons are also calculated as issuer-weighted averages.

Rating modifiers

We use rating modifiers ("+" and "-") to calculate the upgrade and downgrade rates, as well as the magnitude of rating changes, throughout this study. However, some transition tables may show only full rating categories for practical reasons. In other words, the use of a rating category suggests that transitions to, for example, 'AA-' from 'AA' or to 'BBB-' from 'BBB+' are not considered rating transitions because the rating remained within the rating category.

Standard deviations

Many of the tables and charts in this study display averages of default rates, transition rates, and Gini coefficients. Often these are issuer-weighted averages. Default and transition rates can fluctuate depending on many circumstances specific to particular time frames, industries, and geographic regions. As a supplement to many of the averages and time series we present in this study, we also show standard deviations to provide a gauge of the dispersion of data behind the averages.

For the transition matrices, the standard deviation for each cell in a given matrix is a weighted standard deviation, calculated using the data from each of the underlying static pool years that contribute to the averages, weighted by that static pool year's issuer base for each rating level. For example, in the average one-year transition matrix, each cell's weighted standard deviation is calculated from the series of that particular cell in each of the 43 static pools beginning with the 1981 static pool and ending with the 2023 static pool. The squared difference between each static pool's transition rate and the weighted average--which is the data point in each cell--is multiplied by each static pool's weight. These weights are based on each static pool rating level's contribution to the 43-year total issuer base for each rating level. We then divide this by the ratio of the total number of nonzero weights minus one and the total number of nonzero weights.

We derive Gini coefficients' standard deviations from the time series for all of their constituent annual static pools. As an example, we calculate the standard deviation for the seven-year weighted average global Gini coefficient from the time series of all available seven-year Gini coefficients by static pool. In this case, these are the seven-year Gini coefficients beginning with the 1981 static pool through the 2017 static pool. We calculated standard deviations for Gini coefficients in this study as the standard deviations of a sample, rather than as the standard deviations of a population.

Appendix II: Gini Coefficient Methodology

We calculate Gini coefficients as one way to quantify our ratings' rank-ordering power of creditworthiness, based on observed default rates.

To measure relative ratings performance, we use the Lorenz curve as a graphical representation of the proportionality of a distribution, and we summarize this via the Gini coefficient. For this study, the Lorenz curve is plotted with the x-axis showing the cumulative share of issuers, arranged by rating level, while the y-axis represents the cumulative share of defaulters, also arranged by rating level. For both axes of the Lorenz curve, the observations are ordered from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA'). As an example, if 'CCC'/'C' rated entities made up 10% of the total population of issuers at the start of the time frame examined (x-axis) and 50% of the defaulters (y-axis), then the coordinate (10, 50) would be the first point on the curve.

We illustrate the procedure for calculating the Gini coefficient in chart 11. Area B is bounded by the random curve and the Lorenz curve, while area A is bounded by the Lorenz curve and the ideal curve. The Gini coefficient is defined as area B divided by the sum of area A and area B. The Gini coefficient can therefore range from 0% (if the Lorenz curve follows the random curve) to 100% (if the Lorenz curve follows the ideal curve). In general, therefore, the higher the Gini coefficient, the greater the link between our ratings and observed default propensity.

If our ratings only randomly approximated default propensity, the Lorenz curve would fall along the diagonal shown as the random curve in chart 11, and the Gini coefficient would be 0%. On the other hand, if all defaults occurred only among the lowest-rated issuers, with no defaults among the higher-rated issuers, the Lorenz curve would lie along the line shown as the ideal curve in chart 11, and the Gini coefficient would be 100%. Typically, the observed Lorenz curve falls between the ideal and random curves, and we use the Gini coefficient as a summary statistic to quantify its proximity to the ideal curve.

Chart 11

Appendix III: Detailed Cumulative Default And Transition Data

Table 16

Static pool cumulative corporate default rates among all European ratings (1981-2023) (%)
Rating: All rated
		Time horizon (years)
Year	Issuers	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Y9	Y10	Y11	Y12	Y13	Y14	Y15
1981	11	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1982	13	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1983	18	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1984	28	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1985	35	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1986	40	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1987	52	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1988	63	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1989	74	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1990	96	0.00	1.04	1.04	1.04	1.04	1.04	1.04	1.04	1.04	1.04	1.04	1.04	1.04	1.04	1.04
1991	132	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76	0.76
1992	161	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1993	198	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51	0.51
1994	247	0.00	0.40	0.40	0.40	0.40	0.40	0.40	0.40	0.81	0.81	0.81	0.81	0.81	0.81	0.81
1995	319	0.31	0.31	0.31	0.31	0.31	0.31	0.31	0.94	0.94	0.94	0.94	0.94	0.94	0.94	0.94
1996	368	0.00	0.00	0.00	0.00	0.00	0.00	0.82	0.82	1.09	1.09	1.09	1.09	1.09	1.09	1.09
1997	457	0.00	0.00	0.00	0.00	0.00	0.88	1.75	1.97	1.97	1.97	1.97	1.97	1.97	1.97	1.97
1998	546	0.00	0.73	0.73	1.28	2.20	2.93	3.30	3.30	3.30	3.30	3.30	3.30	3.30	3.30	3.30
1999	661	0.91	1.36	2.42	3.33	4.08	4.39	4.39	4.54	4.54	4.54	4.54	4.54	4.54	4.54	4.54
2000	744	0.54	1.75	3.63	4.30	4.57	4.57	4.70	4.84	4.84	4.97	4.97	4.97	4.97	4.97	5.11
2001	832	1.44	3.85	4.93	5.17	5.29	5.41	5.53	5.53	5.65	5.65	5.65	5.65	5.65	5.77	6.25
2002	927	2.05	2.91	3.13	3.24	3.45	3.56	3.67	3.78	3.78	3.78	3.88	3.99	4.10	4.53	4.64
2003	966	0.83	1.04	1.24	1.45	1.55	1.66	1.97	1.97	1.97	2.17	2.28	2.38	2.80	2.90	3.21
2004	1,002	0.30	0.50	0.70	0.80	1.10	1.50	1.50	1.50	1.70	1.80	1.80	2.20	2.30	2.59	2.59
2005	1,071	0.19	0.47	0.56	0.84	1.31	1.49	1.68	1.87	2.05	2.05	2.52	2.61	2.80	2.80	2.89
2006	1,084	0.37	0.55	0.83	1.57	1.75	2.03	2.31	2.58	2.58	3.04	3.23	3.41	3.41	3.41	3.41
2007	1,100	0.18	0.82	2.00	2.09	2.36	2.73	3.00	3.00	3.45	3.64	3.82	3.82	3.82	3.91	3.91
2008	1,117	0.54	1.97	2.06	2.33	2.78	3.13	3.22	3.67	3.85	4.03	4.03	4.03	4.30	4.30	4.30
2009	1,130	1.50	1.59	1.86	2.30	2.65	2.74	3.19	3.45	3.63	3.63	3.63	3.89	3.89	3.89	3.98
2010	1,101	0.18	0.54	1.00	1.45	1.54	2.09	2.45	2.63	2.63	2.63	2.91	2.91	2.91	3.00	N/A
2011	1,150	0.35	0.78	1.39	1.65	2.52	2.87	3.04	3.04	3.04	3.65	3.65	3.74	3.83	N/A	N/A
2012	1,192	0.59	1.34	1.68	2.60	3.02	3.27	3.36	3.44	4.03	4.11	4.19	4.28	N/A	N/A	N/A
2013	1,225	0.90	1.31	2.20	2.61	3.10	3.27	3.43	4.00	4.16	4.24	4.41	N/A	N/A	N/A	N/A
2014	1,368	0.37	1.24	1.61	2.27	2.56	2.92	3.80	3.95	4.17	4.39	N/A	N/A	N/A	N/A	N/A
2015	1,487	0.87	1.61	2.42	2.89	3.56	4.71	4.84	5.11	5.38	N/A	N/A	N/A	N/A	N/A	N/A
2016	1,502	0.80	1.73	2.20	3.06	4.26	4.53	4.79	5.19	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2017	1,497	1.07	1.67	2.54	4.07	4.34	4.61	5.08	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2018	1,503	0.80	1.80	3.46	3.86	4.46	5.06	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2019	1,577	0.95	2.98	3.68	4.31	5.01	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2020	1,627	2.34	3.07	3.81	4.49	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2021	1,616	0.80	1.67	2.72	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2022	1,681	1.01	2.26	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2023	1,685	1.60	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Summary statistics
Marginal average		0.82	0.76	0.62	0.51	0.44	0.34	0.27	0.19	0.16	0.13	0.10	0.09	0.08	0.08	0.08
Cumulative average		0.82	1.58	2.19	2.69	3.12	3.45	3.71	3.89	4.04	4.17	4.26	4.34	4.42	4.49	4.57
Standard deviation		0.59	0.99	1.34	1.58	1.74	1.80	1.82	1.85	1.84	1.83	1.84	1.84	1.85	1.88	1.96
Median		0.37	0.77	1.00	1.37	1.54	1.58	1.75	1.92	1.97	1.88	1.80	1.53	1.09	1.06	1.04
Minimum		0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Maximum		2.34	3.85	4.93	5.17	5.29	5.41	5.53	5.53	5.65	5.65	5.65	5.65	5.65	5.77	6.25
N/A--Not applicable.

Table 17

Static pool cumulative corporate default rates among investment-grade European ratings (1981-2023) (%)
Rating: Investment-grade
		Time horizon (years)
Year	Issuers	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Y9	Y10	Y11	Y12	Y13	Y14	Y15
1981	10	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1982	12	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1983	17	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1984	26	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1985	33	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1986	38	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1987	49	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1988	60	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1989	72	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1990	93	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1991	130	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1992	159	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1993	193	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1994	243	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.41	0.41	0.41	0.41	0.41	0.41	0.41
1995	308	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.32	0.32	0.32	0.32	0.32	0.32	0.32	0.32
1996	351	0.00	0.00	0.00	0.00	0.00	0.00	0.28	0.28	0.57	0.57	0.57	0.57	0.57	0.57	0.57
1997	434	0.00	0.00	0.00	0.00	0.00	0.23	0.92	1.15	1.15	1.15	1.15	1.15	1.15	1.15	1.15
1998	503	0.00	0.00	0.00	0.20	0.60	1.19	1.59	1.59	1.59	1.59	1.59	1.59	1.59	1.59	1.59
1999	566	0.00	0.00	0.18	0.53	1.06	1.41	1.41	1.59	1.59	1.59	1.59	1.59	1.59	1.59	1.59
2000	627	0.16	0.32	0.64	1.12	1.44	1.44	1.59	1.59	1.59	1.59	1.59	1.59	1.59	1.59	1.75
2001	702	0.14	0.43	1.14	1.42	1.42	1.57	1.57	1.57	1.57	1.57	1.57	1.57	1.57	1.71	2.28
2002	784	0.13	0.64	0.77	0.77	0.89	0.89	1.02	1.02	1.02	1.02	1.02	1.15	1.28	1.79	1.91
2003	805	0.25	0.25	0.25	0.25	0.25	0.37	0.62	0.62	0.62	0.62	0.75	0.87	1.37	1.49	1.49
2004	817	0.00	0.00	0.00	0.00	0.12	0.37	0.37	0.37	0.37	0.49	0.49	0.98	1.10	1.10	1.10
2005	861	0.00	0.00	0.00	0.12	0.35	0.35	0.35	0.35	0.46	0.46	0.93	1.05	1.05	1.05	1.05
2006	863	0.00	0.00	0.00	0.23	0.23	0.23	0.23	0.35	0.35	0.81	0.81	0.81	0.81	0.81	0.81
2007	891	0.00	0.22	0.45	0.45	0.45	0.45	0.45	0.45	0.90	0.90	0.90	0.90	0.90	0.90	0.90
2008	918	0.11	0.33	0.33	0.33	0.33	0.44	0.44	0.87	0.87	0.87	0.87	0.87	0.87	0.87	0.87
2009	933	0.11	0.11	0.11	0.11	0.21	0.21	0.64	0.64	0.64	0.64	0.64	0.64	0.64	0.64	0.75
2010	904	0.00	0.00	0.00	0.11	0.11	0.55	0.55	0.55	0.55	0.55	0.55	0.55	0.55	0.66	N/A
2011	898	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.11	0.11	0.11	0.22	N/A	N/A
2012	878	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.11	0.23	0.23	0.34	N/A	N/A	N/A
2013	842	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.12	0.24	0.24	0.36	N/A	N/A	N/A	N/A
2014	853	0.00	0.00	0.00	0.00	0.00	0.12	0.23	0.35	0.35	0.47	N/A	N/A	N/A	N/A	N/A
2015	870	0.00	0.00	0.00	0.00	0.00	0.23	0.34	0.34	0.46	N/A	N/A	N/A	N/A	N/A	N/A
2016	886	0.00	0.00	0.00	0.00	0.23	0.23	0.23	0.34	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2017	881	0.00	0.00	0.00	0.11	0.11	0.11	0.11	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2018	891	0.00	0.00	0.11	0.11	0.11	0.11	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2019	911	0.00	0.00	0.00	0.00	0.11	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2020	924	0.00	0.00	0.00	0.11	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2021	904	0.00	0.00	0.00	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2022	909	0.00	0.00	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2023	917	0.00	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Summary statistics
Marginal average		0.03	0.05	0.05	0.07	0.07	0.09	0.09	0.06	0.06	0.05	0.04	0.06	0.05	0.06	0.06
Cumulative average		0.03	0.08	0.13	0.20	0.27	0.36	0.45	0.51	0.57	0.62	0.66	0.72	0.77	0.83	0.89
Standard deviation		0.06	0.14	0.24	0.31	0.38	0.44	0.50	0.52	0.53	0.53	0.55	0.57	0.60	0.65	0.72
Median		0.00	0.00	0.00	0.00	0.00	0.06	0.11	0.30	0.35	0.37	0.36	0.38	0.41	0.49	0.41
Minimum		0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Maximum		0.25	0.64	1.14	1.42	1.44	1.57	1.59	1.59	1.59	1.59	1.59	1.59	1.59	1.79	2.28
N/A--Not applicable.

Table 18

Static pool cumulative corporate default rates among speculative-grade European ratings (1981-2023) (%)
Rating: Speculative-grade
		Time horizon (years)
Year	Issuers	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Y9	Y10	Y11	Y12	Y13	Y14	Y15
1981	1	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1982	1	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1983	1	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1984	2	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1985	2	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1986	2	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1987	3	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1988	3	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1989	2	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1990	3	0.00	33.33	33.33	33.33	33.33	33.33	33.33	33.33	33.33	33.33	33.33	33.33	33.33	33.33	33.33
1991	2	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00
1992	2	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
1993	5	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00	20.00
1994	4	0.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00	25.00
1995	11	9.09	9.09	9.09	9.09	9.09	9.09	9.09	18.18	18.18	18.18	18.18	18.18	18.18	18.18	18.18
1996	17	0.00	0.00	0.00	0.00	0.00	0.00	11.76	11.76	11.76	11.76	11.76	11.76	11.76	11.76	11.76
1997	23	0.00	0.00	0.00	0.00	0.00	13.04	17.39	17.39	17.39	17.39	17.39	17.39	17.39	17.39	17.39
1998	43	0.00	9.30	9.30	13.95	20.93	23.26	23.26	23.26	23.26	23.26	23.26	23.26	23.26	23.26	23.26
1999	95	6.32	9.47	15.79	20.00	22.11	22.11	22.11	22.11	22.11	22.11	22.11	22.11	22.11	22.11	22.11
2000	117	2.56	9.40	19.66	21.37	21.37	21.37	21.37	22.22	22.22	23.08	23.08	23.08	23.08	23.08	23.08
2001	130	8.46	22.31	25.38	25.38	26.15	26.15	26.92	26.92	27.69	27.69	27.69	27.69	27.69	27.69	27.69
2002	143	12.59	15.38	16.08	16.78	17.48	18.18	18.18	18.88	18.88	18.88	19.58	19.58	19.58	19.58	19.58
2003	161	3.73	4.97	6.21	7.45	8.07	8.07	8.70	8.70	8.70	9.94	9.94	9.94	9.94	9.94	11.80
2004	185	1.62	2.70	3.78	4.32	5.41	6.49	6.49	6.49	7.57	7.57	7.57	7.57	7.57	9.19	9.19
2005	210	0.95	2.38	2.86	3.81	5.24	6.19	7.14	8.10	8.57	8.57	9.05	9.05	10.00	10.00	10.48
2006	221	1.81	2.71	4.07	6.79	7.69	9.05	10.41	11.31	11.31	11.76	12.67	13.57	13.57	13.57	13.57
2007	209	0.96	3.35	8.61	9.09	10.53	12.44	13.88	13.88	14.35	15.31	16.27	16.27	16.27	16.75	16.75
2008	199	2.51	9.55	10.05	11.56	14.07	15.58	16.08	16.58	17.59	18.59	18.59	18.59	20.10	20.10	20.10
2009	197	8.12	8.63	10.15	12.69	14.21	14.72	15.23	16.75	17.77	17.77	17.77	19.29	19.29	19.29	19.29
2010	197	1.02	3.05	5.58	7.61	8.12	9.14	11.17	12.18	12.18	12.18	13.71	13.71	13.71	13.71	N/A
2011	252	1.59	3.57	6.35	7.54	11.51	13.10	13.89	13.89	13.89	16.27	16.27	16.67	16.67	N/A	N/A
2012	314	2.23	5.10	6.37	9.87	11.46	12.42	12.74	13.06	14.97	14.97	15.29	15.29	N/A	N/A	N/A
2013	383	2.87	4.18	7.05	8.36	9.92	10.44	10.97	12.53	12.79	13.05	13.32	N/A	N/A	N/A	N/A
2014	515	0.97	3.30	4.27	6.02	6.80	7.57	9.71	9.90	10.49	10.87	N/A	N/A	N/A	N/A	N/A
2015	617	2.11	3.89	5.83	6.97	8.59	11.02	11.18	11.83	12.32	N/A	N/A	N/A	N/A	N/A	N/A
2016	616	1.95	4.22	5.36	7.47	10.06	10.71	11.36	12.18	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2017	616	2.60	4.06	6.17	9.74	10.39	11.04	12.18	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2018	612	1.96	4.41	8.33	9.31	10.78	12.25	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2019	666	2.25	7.06	8.71	10.21	11.71	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2020	703	5.41	7.11	8.82	10.24	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2021	712	1.83	3.79	6.18	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2022	772	2.20	4.92	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
2023	768	3.52	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Summary statistics
Marginal average		2.78	2.65	2.24	1.86	1.64	1.23	0.97	0.70	0.59	0.54	0.41	0.26	0.24	0.22	0.24
Cumulative average		2.78	5.36	7.48	9.20	10.69	11.79	12.64	13.25	13.77	14.23	14.59	14.81	15.02	15.20	15.40
Standard deviation		8.22	10.04	10.35	10.54	10.86	10.92	10.92	11.14	11.33	11.54	11.72	11.93	12.13	12.31	12.51
Median		1.81	3.97	6.18	7.58	9.09	10.58	11.18	12.18	12.32	12.62	13.71	14.50	13.71	13.64	13.57
Minimum		0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Maximum		50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00	50.00
N/A--Not applicable.

Table 19

One-year weighted average European corporate transition matrix (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
AAA	87.20	9.03	0.46	0.00	0.00	0.00	0.11	0.00	3.20
	(8.75)	(7.61)	(1.37)	(0.00)	(0.00)	(0.00)	(0.80)	(0.00)	(4.60)
AA	0.25	86.59	9.37	0.50	0.00	0.00	0.00	0.00	3.29
	(0.63)	(7.03)	(6.42)	(1.11)	(0.00)	(0.00)	(0.00)	(0.00)	(2.35)
A	0.01	1.67	88.58	4.92	0.13	0.03	0.00	0.03	4.63
	(0.04)	(1.72)	(4.98)	(3.42)	(0.31)	(0.39)	(0.00)	(0.08)	(1.90)
BBB	0.00	0.06	3.80	86.34	3.06	0.26	0.09	0.05	6.35
	(0.00)	(1.14)	(1.95)	(4.84)	(2.55)	(0.47)	(0.25)	(0.18)	(2.84)
BB	0.00	0.00	0.08	5.21	75.67	6.38	0.35	0.35	11.95
	(0.00)	(0.00)	(0.54)	(2.58)	(6.52)	(3.33)	(0.89)	(0.76)	(4.38)
B	0.00	0.00	0.02	0.18	4.62	74.13	5.01	1.79	14.25
	(0.00)	(0.00)	(0.18)	(0.44)	(3.04)	(6.03)	(3.02)	(2.82)	(4.70)
CCC/C	0.00	0.00	0.00	0.16	0.00	13.51	44.72	25.00	16.61
	(0.00)	(0.00)	(0.00)	(0.55)	(0.00)	(8.91)	(14.98)	(14.56)	(8.06)
Note: Numbers in parentheses are weighted standard deviations. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 20

Two-year weighted average European corporate transition matrix (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
AAA	75.60	16.72	1.26	0.00	0.00	0.00	0.11	0.00	6.30
	(13.06)	(10.93)	(2.48)	(0.00)	(0.00)	(0.00)	(0.85)	(0.00)	(7.74)
AA	0.49	74.85	16.64	1.35	0.14	0.00	0.00	0.02	6.51
	(1.06)	(10.30)	(8.91)	(1.84)	(0.35)	(0.00)	(0.00)	(0.11)	(3.24)
A	0.01	2.96	78.60	8.68	0.40	0.09	0.03	0.06	9.16
	(0.05)	(2.49)	(7.70)	(4.45)	(0.88)	(0.43)	(0.18)	(0.13)	(2.93)
BBB	0.00	0.12	6.90	75.03	4.93	0.59	0.20	0.14	12.10
	(0.00)	(1.65)	(2.83)	(7.21)	(3.24)	(0.87)	(0.55)	(0.38)	(4.26)
BB	0.00	0.00	0.26	8.91	57.93	9.46	0.55	1.15	21.74
	(0.00)	(0.00)	(0.72)	(3.06)	(8.08)	(4.01)	(1.03)	(1.77)	(5.65)
B	0.00	0.00	0.02	0.41	7.10	54.20	6.41	4.81	27.07
	(0.00)	(0.00)	(0.19)	(0.76)	(4.16)	(7.86)	(3.04)	(4.89)	(7.08)
CCC/C	0.00	0.00	0.00	0.18	0.70	17.40	21.09	34.80	25.83
	(0.00)	(0.00)	(0.00)	(0.77)	(1.81)	(11.64)	(11.89)	(14.07)	(10.88)
Note: Numbers in parentheses are weighted standard deviations. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 21

Three-year weighted average European corporate transition matrix (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
AAA	64.98	23.31	2.41	0.00	0.00	0.00	0.11	0.00	9.18
	(15.49)	(12.50)	(3.43)	(0.00)	(0.00)	(0.00)	(0.85)	(0.00)	(9.19)
AA	0.66	65.07	21.94	2.27	0.31	0.00	0.02	0.05	9.67
	(1.36)	(11.66)	(9.63)	(2.39)	(0.53)	(0.00)	(0.12)	(0.15)	(4.18)
A	0.02	3.84	70.20	11.47	0.76	0.15	0.08	0.09	13.40
	(0.09)	(3.08)	(8.82)	(4.50)	(1.39)	(0.54)	(0.31)	(0.19)	(3.78)
BBB	0.00	0.18	9.24	65.67	6.05	0.92	0.25	0.26	17.44
	(0.00)	(2.08)	(2.86)	(8.61)	(3.14)	(0.97)	(0.50)	(0.69)	(5.51)
BB	0.00	0.00	0.40	11.49	45.21	10.44	0.65	1.94	29.87
	(0.00)	(0.00)	(0.83)	(3.87)	(8.97)	(3.72)	(1.04)	(2.40)	(7.42)
B	0.00	0.00	0.00	0.56	7.89	39.42	6.14	7.76	38.23
	(0.00)	(0.00)	(0.00)	(1.04)	(4.40)	(7.67)	(2.63)	(5.87)	(8.17)
CCC/C	0.00	0.00	0.00	0.20	0.61	15.51	9.59	41.22	32.86
	(0.00)	(0.00)	(0.00)	(0.83)	(1.94)	(10.94)	(7.69)	(15.11)	(13.05)
Note: Numbers in parentheses are weighted standard deviations. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 22

Five-year weighted average European corporate transition matrix (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
AAA	48.10	30.80	5.07	0.58	0.00	0.00	0.00	0.00	15.46
	(17.11)	(11.61)	(4.90)	(1.15)	(0.00)	(0.00)	(0.00)	(0.00)	(11.44)
AA	0.67	49.89	29.17	3.59	0.55	0.07	0.02	0.15	15.89
	(1.15)	(12.91)	(9.77)	(2.54)	(0.83)	(0.20)	(0.14)	(0.31)	(4.90)
A	0.03	4.89	57.00	14.72	1.48	0.24	0.11	0.21	21.32
	(0.13)	(3.49)	(9.91)	(5.03)	(1.64)	(0.37)	(0.43)	(0.34)	(4.79)
BBB	0.00	0.34	11.46	51.98	6.48	1.36	0.37	0.52	27.49
	(0.00)	(2.58)	(2.31)	(9.97)	(3.04)	(1.09)	(0.67)	(0.86)	(7.71)
BB	0.00	0.04	0.78	13.68	29.83	9.24	0.92	3.42	42.10
	(0.00)	(0.57)	(1.17)	(4.27)	(8.01)	(2.48)	(0.95)	(3.19)	(8.17)
B	0.00	0.00	0.00	1.34	7.32	21.69	3.29	12.92	53.44
	(0.00)	(0.00)	(0.00)	(1.46)	(3.93)	(4.51)	(1.93)	(5.83)	(7.00)
CCC/C	0.00	0.00	0.00	0.56	1.97	8.45	1.69	46.20	41.13
	(0.00)	(0.00)	(0.00)	(1.64)	(3.64)	(6.35)	(2.61)	(16.15)	(13.64)
Note: Numbers in parentheses are weighted standard deviations. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 23

Seven-year weighted average European corporate transition matrix (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
AAA	36.27	34.30	7.76	1.51	0.00	0.00	0.00	0.00	20.16
	(17.12)	(11.72)	(4.54)	(2.07)	(0.00)	(0.00)	(0.00)	(0.00)	(11.73)
AA	0.62	39.48	32.80	4.45	0.65	0.16	0.03	0.23	21.59
	(0.78)	(11.25)	(8.78)	(2.39)	(0.79)	(0.36)	(0.16)	(0.41)	(5.42)
A	0.02	5.28	46.64	16.85	2.03	0.25	0.05	0.36	28.51
	(0.11)	(3.34)	(9.51)	(4.86)	(1.65)	(0.36)	(0.11)	(0.50)	(5.29)
BBB	0.00	0.50	12.58	42.47	5.61	1.40	0.49	0.92	36.04
	(0.00)	(2.85)	(2.18)	(8.89)	(2.40)	(0.91)	(0.71)	(1.00)	(8.01)
BB	0.00	0.04	1.50	13.63	21.08	7.71	0.63	4.92	50.50
	(0.00)	(0.62)	(2.85)	(5.29)	(6.64)	(2.02)	(0.69)	(3.61)	(8.29)
B	0.00	0.00	0.00	2.13	6.60	13.16	1.53	15.54	61.05
	(0.00)	(0.00)	(0.00)	(1.80)	(3.20)	(2.93)	(1.11)	(6.00)	(6.92)
CCC/C	0.00	0.00	0.00	0.35	2.81	4.21	1.40	45.61	45.61
	(0.00)	(0.00)	(0.00)	(1.34)	(3.41)	(4.56)	(2.34)	(16.76)	(15.35)
Note: Numbers in parentheses are weighted standard deviations. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Table 24

10-year weighted average European corporate transition matrix (1981-2023) (%)
From/to	AAA	AA	A	BBB	BB	B	CCC/C	D	NR
AAA	22.66	35.63	12.50	2.57	0.00	0.00	0.00	0.00	26.64
	(13.38)	(8.67)	(5.78)	(2.16)	(0.00)	(0.00)	(0.00)	(0.00)	(10.84)
AA	0.48	28.62	34.16	6.75	0.71	0.17	0.00	0.31	28.79
	(0.89)	(8.63)	(6.97)	(3.27)	(0.80)	(0.32)	(0.00)	(0.46)	(5.50)
A	0.00	5.17	34.93	18.71	2.45	0.38	0.00	0.48	37.87
	(0.00)	(3.18)	(8.30)	(4.76)	(1.75)	(0.53)	(0.00)	(0.56)	(6.32)
BBB	0.00	0.68	12.41	32.62	5.09	1.22	0.61	1.49	45.89
	(0.00)	(3.29)	(2.29)	(7.64)	(2.58)	(0.84)	(0.79)	(0.92)	(6.41)
BB	0.00	0.06	2.32	11.25	13.85	6.11	0.51	6.95	58.96
	(0.00)	(0.73)	(4.96)	(5.45)	(5.42)	(2.28)	(0.66)	(3.92)	(7.98)
B	0.00	0.00	0.00	1.93	6.15	7.44	0.70	18.68	65.11
	(0.00)	(0.00)	(0.00)	(1.28)	(2.89)	(2.59)	(0.58)	(7.52)	(7.02)
CCC/C	0.00	0.00	0.00	1.12	3.93	2.25	0.00	48.88	43.82
	(0.00)	(0.00)	(0.00)	(3.20)	(5.20)	(4.58)	(0.00)	(20.75)	(19.74)
Note: Numbers in parentheses are weighted standard deviations. Sources: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence's CreditPro.

Related Research

2023 Annual Global Corporate Default And Rating Transition Study, March 28, 2024

This report does not constitute a rating action.

Credit Research & Insights:	Nick W Kraemer, FRM, New York + 1 (212) 438 1698; nick.kraemer@spglobal.com
	Erik Wisentaner, London; erik.wisentaner@spglobal.com
Research Contributor:	Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai

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Sector
Credit Markets Research Default Transition & Recovery
Tags
Americas Latin America APAC EMEA
Topic
Confronting Credit Headwinds

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