(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 financial and nonfinancial corporates rated 'CCC+' and lower is now in line with the five-year average, after declining to 46 in the second quarter of 2024, from 48 in the first quarter.
- Removals from the risky credits cohort largely resulted from upgrades that followed improved operating metrics. They were not driven by defaults and withdrawals, as was the case in the first quarter, which signals a more positive ratings momentum.
- Risk is concentrated in the chemicals, consumer products, and media and entertainment sectors, which account for 33% of risky credits. Close to one-third of the risky credits cohort's total debt was concentrated in the telecommunications sector in the second quarter.
The Second Quarter Brought Some Relief
The number of European issuers rated 'CCC+' and lower continued to decline to 46 as of June 2024, compared with 48 as of March 2024 and 52 as of June 2023 (see chart 1). It is now in line with the five-year average. Risky credits only accounted for 8.3% of the speculative-grade universe as of June 30, 2024, compared with 9.2% at the same time last year. Yet negative bias remained elevated at 59.1% as of June 30, 2024, even though it decreased from 63.0% in the first quarter and falls short of the five-year average.
Chart 1
Most additions to the risky credits cohort resulted from an increase in refinancing risk. Even though financing conditions have eased in the first half of 2024, many borrowers are dealing with higher financing costs, while the full effect of higher interest rates is increasingly affecting some lower-rated companies. The two main reasons for downward transitions to the risky credits cohort included:
- High leverage, with companies struggling with negative free operating cash flows, liquidity shortages, or refinancing issues (see chart 2); and
- Previously defaulted issuers being rerated to the 'CCC' rating category after completing their debt restructuring.
Chart 2
Issuers continue to struggle with higher leverage and lower interest coverage ratios (see charts 3 and 4). Higher interest rates have increased the incentive to reduce debt, particularly for risky credits that have unsustainable capital structures. However, under current conditions, the leeway to reduce debt remains limited. As a result, these issuers' median debt to EBITDA remained broadly unchanged. The combined negative effects of weaker operating performance and higher interest rates continue to impair risky credits. We downgraded some issuers within the 'CCC' rating category in the second quarter and affirmed the ratings on other issuers that had already been in this category for a long period due to operational vulnerabilities.
Chart 3
Chart 4
For the first time since the second quarter of 2023, upgrades--not defaults and withdrawals--accounted for most removals from the risky credits cohort in the second quarter of 2024. 56% of removals from risky credits were upgrades to 'B-' due to improved operating performance and credit metrics, compared with 33% in the first quarter of 2024 and 63% in the second quarter of 2023. Two out of five upgrades were related to the consumer products sector, while we upgraded one issuer each from the oil and gas, aerospace and defense, and capital goods sectors. We note, however, that the number of defaults in Europe remains elevated. The defaults of four issuers constituted another main reason for removals in the second quarter of 2024. In comparison, the number of defaults was four in the first quarter of 2024 and eight in the second quarter of 2023.
We expect interest rates in Europe will fall, albeit unevenly. Tailwinds from stronger-than-expected economic growth and corporate earnings should help reduce the default rate to 3.75% by March 2025, compared with 4.3% in May 2024 (see "The European Speculative-Grade Default Rate Should Level Out At 3.75% By March 2025," published May 22, 2024).
Five sectors accounted for 50% of issuers rated 'CCC+' and lower and 62% of total debt in the risky credits cohort (see chart 5). These sectors comprise chemicals (5 issuers), consumer products (5), media and entertainment (5), financial institutions (4), and telecommunications (4). Most of the risky credits issuers struggle to refinance their highly levered capital structures in light of still elevated interest rates. Some of them announced plans to review their capital structures and reduce debt amounts, which led to their downgrade to the risky credits cohort. Almost one-third of the risky credits cohort's total debt comes from the telecommunications sector, especially from France-based Altice France S.A., whose debt amounts to €24 billion. The 'CCC+' rating on Altice France reflects weaker cash flow prospects and sustainability concerns. With 53.2%, most European issuers rated 'CCC+' and lower are based in France and the U.K. and contribute €43.7 billion to the risky credit cohort's total debt.
Chart 5
The Maturity Wall Will Increase From 2026
Constructive financing conditions in the first half of 2024 enabled many risky credits to refinance upcoming debt. Upcoming maturities over 2024-2025 remain manageable for speculative-grade issuers (see chart 6). As of July 1, 2024, only 3% of the debt we rated 'CCC+' or lower had a maturity date in 2024. We note, however, that the risky credits cohort's debt maturities will reach €22.8 billion in 2026 and €24.3 billion in 2027, which account for 22% and 23%, respectively, of outstanding debt. Over the next 24 months, the majority of the risky credits cohort's nonfinancial corporate debt will mature in three sectors, namely telecommunications, consumer products, and chemicals, packaging, and environmental services.
Chart 6
High activity in primary markets in the first half of 2024 enabled speculative-grade nonfinancial companies to reduce maturities in 2025. Speculative-grade issuances amounted to €43.5 billion in the second quarter of 2024, compared with €45 billion in the first quarter. Yet the number of issuances at the lower end of the rating spectrum remained low in the second quarter of 2024, with only one issuance of €300 million in the 'CCC/C' category, compared with €1.4 billion in the first quarter.
Table 1
| European issuers rated 'CCC' and lower | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company | Sector | Debt amount (mil. €) | Rating | Outlook/CreditWatch | Outlook or CreditWatch | Country | Date of addition to the risky credits cohort | |||||||||
|
Altice France S.A. |
Telecommunications | 24,031 | CCC+ | Developing | Outlook | France | 28/03/2024 | |||||||||
|
Transocean Ltd. |
Oil and gas | 5,901 | CCC+ | Stable | Outlook | Switzerland | 26/09/2023 | |||||||||
|
Trinseo PLC |
CP&ES | 5,483 | CCC+ | Negative | Outlook | Ireland | 26/05/2023 | |||||||||
|
Samhallsbyggnadsbolaget i Norden AB (publ) |
Home/RE | 4,707 | CCC | Negative | Outlook | Sweden | 28/03/2024 | |||||||||
|
Intrum AB (publ)* |
Financial institutions | 3,856 | CCC | Negative | Outlook | Sweden | 24/06/2024 | |||||||||
|
Loparex Midco B.V. |
FP&BM | 3,744 | CCC+ | Negative | Outlook | Netherlands | 12/04/2024 | |||||||||
|
SK Mohawk Holdings, SARL |
CP&ES | 3,316 | CCC | Negative | Outlook | Germany | 20/09/2023 | |||||||||
|
Vedanta Resources Ltd. |
Metals, mining, and steel | 2,776 | CCC+ | Stable | Outlook | U.K. | 15/01/2024 | |||||||||
|
Castle Intermediate Holding V Ltd. |
Media and entertainment | 2,177 | CCC+ | Negative | Outlook | U.K. | 08/12/2022 | |||||||||
|
Mitel Networks (International) Ltd |
High technology | 2,090 | CCC | Negative | Outlook | U.K. | 05/07/2023 | |||||||||
|
Atos SE |
High technology | 1,903 | CCC- | Negative | Outlook | France | 11/04/2024 | |||||||||
|
Toro Private Holdings I Ltd, |
Transportation | 1,734 | CCC+ | Stable | Outlook | U.K. | 24/01/2024 | |||||||||
|
Metinvest B.V. |
Metals, mining, and steel | 1,683 | CCC+ | Negative | Outlook | Netherlands | 04/08/2023 | |||||||||
|
Hurtigruten Newco AS |
Media and entertainment | 1,523 | CCC | Negative | Outlook | Norway | 22/03/2024 | |||||||||
|
Flint Group Topco Ltd. |
CP&ES | 1,471 | CCC+ | Stable | Outlook | Jersey | 30/10/2023 | |||||||||
|
Carestream Dental Technology Parent Ltd. |
Health care | 1,270 | CCC- | Negative | Outlook | U.K. | 01/03/2024 | |||||||||
|
Selecta Group B.V. |
Consumer products | 1,089 | CCC+ | Stable | Outlook | Netherlands | 30/10/2020 | |||||||||
|
CD&R Vialto UK Intermediate 3 Ltd. |
Media and entertainment | 905 | CCC+ | Negative | Outlook | U.K. | 13/12/2023 | |||||||||
|
Aston Midco Ltd |
High technology | 881 | CCC+ | Stable | Outlook | U.K. | 17/11/2023 | |||||||||
|
La Financiere Atalian SAS* |
Consumer products | 838 | CCC+ | Stable | Outlook | France | 25/04/2024 | |||||||||
|
Tosca IoM Ltd. |
Telecommunications | 809 | CCC+ | Developing | Creditwatch | U.K. | 26/02/2024 | |||||||||
|
Index Holdco Sarl* |
Capital goods | 792 | CCC+ | Stable | Outlook | Luxembourg | 10/04/2024 | |||||||||
|
Oriflame Investment Holding Plc |
Consumer products | 764 | CCC | Negative | Outlook | Jersey | 14/03/2024 | |||||||||
|
iQera Group SAS* |
Financial institutions | 734 | CCC+ | Negative | Outlook | France | 26/04/2024 | |||||||||
|
Sprint HoldCo B.V. |
Media and entertainment | 706 | CCC+ | Negative | Outlook | Netherlands | 21/12/2023 | |||||||||
|
HSE Finance S.a.r.l.* |
Retail | 631 | CCC+ | Stable | Outlook | Luxembourg | 25/06/2024 | |||||||||
|
BVI Holdings Mayfair Ltd. |
Health care | 606 | CCC+ | Negative | Outlook | U.K. | 10/12/2021 | |||||||||
|
McLaren Group Ltd. |
Automotive | 579 | CCC | Negative | Outlook | U.K. | 13/12/2022 | |||||||||
|
Mavenir Private Holdings II Ltd. |
Telecommunications | 546 | CCC | Negative | Outlook | U.K. | 28/07/2023 | |||||||||
|
Vue Entertainment International Ltd. |
Media and entertainment | 516 | CCC+ | Negative | Outlook | U.K. | 23/02/2024 | |||||||||
|
Venator Materials PLC |
CP&ES | 514 | CCC+ | Negative | Outlook | U.K. | 26/01/2024 | |||||||||
|
Tele Columbus AG* |
Telecommunications | 504 | CCC+ | Negative | Outlook | Germany | 08/04/2024 | |||||||||
|
Ecotone HoldCo III SAS |
Consumer products | 490 | CCC+ | Stable | Outlook | Netherlands | 21/04/2023 | |||||||||
|
Financiere Labeyrie Fine Foods |
Consumer products | 456 | CCC+ | Stable | Outlook | France | 09/12/2022 | |||||||||
|
GHD Verwaltung GesundHeits GmbH Deutschland GmbH |
Health care | 441 | CCC+ | Stable | Outlook | Germany | 06/10/2022 | |||||||||
|
Branicks Group AG |
Home/RE | 401 | CCC | Negative | Outlook | Germany | 12/03/2024 | |||||||||
|
AFE S.A. |
Financial institutions | 325 | CCC+ | Stable | Outlook | U.K. | 21/02/2024 | |||||||||
|
Bright Bidco B.V. |
Automotive | 280 | CCC+ | Negative | Outlook | Netherlands | 25/04/2023 | |||||||||
|
Standard Profil Automotive GmbH |
Automotive | 276 | CCC+ | Stable | Outlook | Germany | 05/05/2022 | |||||||||
|
Altisource Portfolio Solutions S.A. |
Financial institutions | 212 | CCC+ | Stable | Outlook | Luxembourg | 24/02/2023 | |||||||||
|
Bahia de las Isletas, S.L. |
Transportation | 194 | CCC+ | Stable | Outlook | Spain | 20/03/2024 | |||||||||
|
Ferrexpo PLC |
Metals, mining, and steel | 0 | CCC | Negative | Outlook | U.K. | 19/12/2023 | |||||||||
|
gategroup Holding AG |
Transportation | 0 | CCC+ | Positive | Outlook | Switzerland | 19/05/2021 | |||||||||
|
Ignition Topco BV* |
CP&ES | 0 | CCC+ | Stable | Outlook | Netherlands | 20/06/2024 | |||||||||
|
DTEK Renewables B.V. |
Utilities | 0 | CCC- | Negative | Outlook | Netherlands | 14/06/2022 | |||||||||
|
NOVIS Insurance Co. |
Insurance | 0 | CCC | Negative | Creditwatch | Slovak Republic | 12/06/2023 | |||||||||
| Data as of June 30, 2024. CP&ES--Chemicals, packaging, and environmental services. FP&BM--Forest products and building materials. Home/RE--Homebuilders/real estate companies. Retail--Retail and restaurants. *New to the risky credits cohort. 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.
- Our analysis of changes in the risky credits cohort (see chart 2) was more detailed in this report than in the previous publication (see "Risky Credits: External Risks Overshadow Positive Developments In Emerging Markets," published May 2, 2024.)
Glossary
- Negative bias--The share of issuers with ratings that either have negative outlooks or are on CreditWatch with negative implications.
- Risky credits--Corporate issuers rated 'CCC+' and below.
- Speculative-grade--Issuers rated 'BB+' and lower.
Related Research
- Credit Conditions Europe Q3 2024: Keep Calm, Carry On, June 25, 2024
- The European Speculative-Grade Default Rate Should Level Out At 3.75% By March 2025, May 22, 2024
- Risky Credits: European Debt Surged To €80 Billion In Q1 2024, May 2, 2024
- Global Financing Conditions: First-Quarter Issuance Surge Will Taper Off Amid Increasing Risks, April 25, 2024
Related Rating Actions
- Pro.Gest SpA Downgraded To 'SD' On Missed Payment, June 25, 2024
- German Tele-Retailer HSE Finance Downgraded To 'CCC+' On Unsustainable Capital Structure; Outlook Stable, June 25, 2024
- Intrum Downgraded To 'CCC' On Increased Likelihood Of A Distressed Exchange After Capital Structure Update, June 24, 2024
- Ignition Topco B.V., Parent Of IGM Resins, Upgraded To 'CCC+' From 'D' Following Debt Restructuring; Outlook Stable, June 20, 2024
- Biscuit Holding Upgraded To 'B-' On Better-Than-Expected Profitability And Credit Metrics; Outlook Stable, June 5, 2024
- Compact Bidco B.V. (Consolis) Ratings Lowered To 'SD' From 'CCC-' On Missed Coupon Payment And Debt Restructuring, May 21, 2024
- F-Brasile Upgraded To 'B-' On Improving Operating Performance And Credit Metrics; Outlook Positive, May 13, 2024
- Mangrove Luxco III Upgraded To 'B-' On Improved Operating Performance And Lower Leverage; Outlook Negative, May 10, 2024
- Farfetch Ltd. Downgraded To 'D'; All Ratings Withdrawn, May 10, 2024
- Keter Group B.V. Upgraded To 'B' From 'SD' On Implementation Of Debt Restructuring; Outlook Stable, April 30, 2024
- Various Rating Actions Taken On Distressed Debt Purchasers On New Criteria And Sector Review; Ratings Removed From UCO, April 26, 2024
- La Financiere Atalian SAS Upgraded To 'CCC+' From 'D' Following Debt Restructuring; Outlook Stable, April 25, 2024
- Index Holdco Sarl Assigned 'CCC+' Rating After Debt Restructuring; Outlook Stable, April 10, 2024
- German Cable Operator Tele Columbus AG Upgraded To 'CCC+' On Completion Of Debt Restructuring; Outlook Negative, April 8, 2024
- Seismic Services And Tech Group CGG Upgraded To 'B-' On Expected Strengthening In Financial Performance; Outlook Stable, April 5, 2024
- Industrial Heat Exchange Solutions Provider Arvos LuxCo S.a.r.l. Downgraded To 'D' On Distressed Exchange, April 5, 2024
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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