The global structured finance trailing 12-month default rate rose sharply through 2024, reaching a high of 3.5% in May 2024--the highest level in nearly eight years. The headline figure began to ease in the second half of the year, ending 2024 at 2.7%. However, it is up nearly 6x from the end of 2022, when it was at a 15-year low of 0.5%.

The rise in global structured finance defaults in 2024 was primarily driven by legacy U.S. RMBS transactions, representing 93% of the year's defaults.

S&P Global Ratings had 34,243 ratings outstanding on global structured finance securities at the start of 2024. The sector's global average change in credit quality (ACCQ) (see definition in Appendix I) remained positive despite the rising default rate, ending the year at +0.03 notch and marking 42 consecutive months of positive 12-month-trailing ACCQ readings (see chart 1). However, this figure is below the +0.20 notch exhibited at the end of 2023, as notch changes in both upgrades and downgrades largely mirrored one another.

The upgrade rate (the proportion of upgrades among all ratings outstanding) fell 39% to a low of 7.6% in 2024 from 12.4% the prior year. However, this is still well above the one-year average of 4.2%. The downgrade rate (measured as the proportion of downgrades, including defaults, among all ratings outstanding) increased to 4.8%, from 3.3% the prior year.

By region and sector, U.S. commercial mortgage-backed securities (CMBS) had the highest downgrade rate. It was 16.1%, and was the only sector in 2024 to outpace its historical average of 12.0%. This also broke the streak of European CMBS leading downgrade rates the previous four years.

Seven of the 12 region-sector breakouts had higher downgrade rates in 2024 than the prior year, while the other five declined marginally. With the exception of U.S. CMBS, all downgrade rates were well below their respective long-term averages.

In the U.S., upgrade rates declined sharply in the RMBS and ABS sectors, while those for structured credit, single-name synthetics, and CMBS modestly improved in 2024. Although overall credit quality (as measured by ACCQ) had been improving since mid-2021, it hit a turning point in 2023 and became relatively stagnant. It was last year when the metric fully reversed its improving trend, falling 0.15 notches from the beginning of the year.

Credit Performance: The Downgrade Rate Rose To A Four-Year High

The overall credit performance (as measured by the ACCQ) of global structured finance securities we rate remained positive through 2024, albeit less so than in prior years:

• We raised 7.6% of our ratings on global structured finance securities that were active at the beginning of the year, down from the five-year high of 12.4% in 2023, and the lowest level since 2020, when it reached just 3.7%.
• The annual default rate rose sharply to 2.7% in 2024, from 1.3% in 2023.
• Legacy U.S. RMBS transactions (pre-2009) accounted for all the U.S. RMBS defaults, and 93% of the year's total defaults.
• Downgrades climbed to 4.8% from 3.3% the previous year, marking a four-year high. This is the first year where more than 50% of all downgrades were defaults.

The ACCQ for global structured finance was +0.03 rating notch at the end of 2024, down from +0.20 rating notch at the end of 2023. This measure has been positive since July 2021--even as the default rate rose sharply in 2024. The ACCQ is now negatively correlated with the default rate by only 40% over the trailing 10 years, compared with 67% at the end of 2023 and 91% at the end of 2022. This suggests that an increase in downgrades or decrease in upgrades doesn't necessarily go hand-in-hand with an uptick in defaults and vice versa (see chart 1).

On a 12-month-trailing basis, the default rate had been on a broad downtrend since mid-2016, with a small bump in late 2020. But it changed course in 2023 when it rose sharply to 1.3%, from a 15-year low of 0.5% in 2022, and the hefty rise continued into 2024 (see chart 2).

The 12-month-trailing default rate for investment-grade ratings ('BBB-' or higher) started and ended the year at 0.02%. Four defaults occurred across the sub-'AAA' investment-grade categories in 2024. Meanwhile, the speculative-grade ('BB+' or lower) 12-month-trailing default rate ended the year at 9.8%, the highest year-end reading since 2013 when it was 14.5%, and more than double the year-end level of 2023 when it was 4.3%.

Both the investment- and speculative-grade structured finance securities' default rates ticked up in the third quarter when the speculative-grade rate peaked at 11.9% and the investment-grade rate peaked at 0.03%.

Region and sector comparisons

Despite the uptick in defaults, structured finance credit performance in 2024 was positive across most regions and sectors. Globally, CMBS was the only sector where downgrades outpaced upgrades, while by region this occurred only in emerging markets, excluding Latin America and Asia-Pacific. Like the previous three years, there were no rating actions on Japanese structured finance issues in 2024. There were also no rating actions on Canadian structured finance issues in 2024.

Globally, the U.S. CMBS sector had the highest downgrade rate, at 16.1%, followed by the European CMBS sector at 11.8%. The elevated CMBS downgrade rates were largely due to the continued stress in the commercial real estate sector resulting in sharp declines in property valuations in the underlying collateral.

The U.S. CMBS sector was the only one where this figure exceeded its respective one-year average downgrade rate (see chart 3 and table 1). In fact, downgrade rates held below their one-year averages for all sectors except U.S. CMBS in 2024 (see chart 3 and table 1).

Most sectors faced elevated downgrade rates relative to 2023. U.S. structured credit, U.S. ABS, and Australasia were the exceptions, as their downgrade rates decreased from 2023. U.S. RMBS, U.S. CMBS, and European CMBS were the only sector-region combinations where downgrades outpaced upgrades.

Upgrades were the most prominent in Australasian structured finance, with an upgrade rate of 21.9% in 2024, well above the one-year average of 6.3%. Upgrade rates in 2024 rose above their respective one-year averages for half of the region-sector combinations we analyze. Structured finance in "other" regions (outside the U.S., Europe, Australasia, and Japan) had a marked increase in its upgrade rate, a 15.8 percentage point increase relative to the previous year. U.S. and European ABS and U.S. RMBS sectors also had double-digit upgrade rates in 2024.

The U.S. RMBS sector had the highest annual default rate in 2024, at 6.9%, followed by the European CMBS sector at 3.4%, and were above their one-year averages of 4.7% and 2.9%, respectively (see chart 4). The next-highest annual default rate in 2024 was in the U.S. CMBS sector, at 1.4%. The U.S. RMBS sector also accounted for the most defaults by number, with 851.

The only non-U.S. defaults came from European CMBS, structured credit, and Latin America, while there were no defaults among U.S. single-name synthetics--the only such sector in the U.S. The default rate was below the long-term average for all region-sector groupings except U.S. RMBS, Europe CMBS, and "other" (see table 1).

Regions.   By region, Latin America had the highest upgrade rate in 2024, at 28.8%, well above its one-year average of 11.9%, propelled by upgrades in the RMBS and ABS sectors (see table 1). In all regions except "other emerging markets," Canada, and Japan, upgrades outpaced downgrades in 2024 (Asia excluding Japan had no rated securities at the start of 2024).

The downgrade rate was the highest in "other emerging markets," at 14.3%, up from 3.4% in 2023 and still slightly below its one-year average of 14.4%. The relatively small population of 35 outstanding ratings at the start of 2024 largely explains the rapid change in the downgrade rate. The upgrade rate in Latin America rose to 28.8% in 2024 from 7.1% the prior year.

The ACCQ across regions outside of Japan and other emerging markets broadly increased. These regions reported an upgrade rate of 7.4% and downgrade rate of 4.8%. There were five defaults from outside the U.S. and Europe in 2024, and the regions with no defaults accounted for a total of 1,907 rated securities at the start of the year.

Sectors. By sector, ABS had the highest upgrade rate globally in 2024, at 13.5%, well above its one-year average of 6.0%, followed closely by single-name synthetics at 12.5% (long-term average of 5.5%). While 2024 upgrades outpaced downgrades in the structured credit sector by a wide margin in 2024, its upgrade rate of 3.5% was below its one-year average of 7.2%.

Only in the CMBS sector did downgrades outpace upgrades. CMBS had a downgrade rate of 15.7% in 2024, well above the one-year average of 12.5%.

RMBS and single-name synthetics were the only sectors to record a default rate higher than their respective one-year averages. In 2024, their default rates were 5.4% and 0.9%, compared with one-year averages of 4.4% and 0.6%, respectively.

Rating categories

The 'AA', 'A', 'BBB', and 'BB' rating categories all had upgrade rates exceeding 10% in 2024, with the 'BB' category recording the highest upgrade rate at 14.2%, much higher than its long-term average of 9.8%. The 'CC' category had the highest downgrade rate in 2024, at 57.9%.

The overall investment-grade upgrade rate was 7.3% in 2024, above the one-year average of 3.8%, while the downgrade rate of 1.7% was also well below the one-year average of 10.3%. The investment-grade default rate mirrored 2023 and was 0.02% in 2024, the same as in 2023 though still well below its one-year average of 0.23%.

Apart from the 'CC' rating category, downgrades were highest in the 'CCC' rating category, at 7.7%, followed by 'B' at 7.2%. Defaults were highest in the 'CC' and 'CCC' rating categories, at 57.9% and 6.8%, respectively. The 'CC' category accounted for more than 79.3% of total defaults in 2024, up from 68.7% the previous year. The overall speculative-grade upgrade rate was 8.3% in 2024, while the downgrade rate was 13.1% and the default rate was 9.8%--all improvements, compared with their respective one-year averages.

Table 1

Vintages

Structured finance credit performance varies based on the year of issuance, or vintage, of the securities. The fundamental credit characteristics and economic conditions surrounding a transaction's vintage can influence its subsequent credit behavior.

Only seven of the 25 vintages we analyze (Pre-2000, 2000, 2010, 2015, 2017, and 2022) recorded higher upgrade rates in 2024 than in 2023. The 2000 vintage had the highest upgrade rate, at 19.4%. Of the vintages with more than 1,000 outstanding ratings at the start of the year (11), only two (2017 and 2022) had higher upgrade rates in 2024 than in 2023.

The post-global financial crisis vintages (2010 onward) have both a higher weighted average upgrade rate and a lower downgrade rate than pre-crisis vintages. The post-crisis upgrade rate was 8.0%, and the downgrade rate was 2.4% in 2024, compared with 6.4% and 11.9%, respectively, for the pre-crisis vintages.

The 2006 vintage recorded the highest default rate, at 25.0%, followed closely by the 2007 vintage, at 24.2%, despite the relatively large cohort of more than 3,000 rated tranches for these two vintages at the beginning of the year. Both vintages had default rate increases upwards of 16 percentage points relative to 2023, where each vintage recorded a default rate of just 8.0%. These two vintages accounted for 83.3% of all defaults (by count) in 2024. In addition, the defaults in these two vintages also exceeded their respective one-year average default rates of 9.8% in 2006 and 10.6% in 2007. The 2005-2008 vintages exhibited the highest one-year average default rates, given their performance during the financial crisis.

Ratings Performance: Ratings Have Historically Differentiated Default Rates

Our structured finance ratings reflect our views on securities' creditworthiness, focusing on the likelihood of default rather than the chances of an upgrade or downgrade. Our ratings also consider credit stability as a secondary factor.

Across global structured finance, upgrade and downgrade rates in 2024 were generally differentiated by the ratings at the beginning of the year. Downgrade rates were generally higher for lower rating categories, ranging from 57.9% for securities rated 'CC' to 0.8% for securities rated 'AAA' (see chart 7). Only the 'CC' category exhibited a downgrade rate higher than its one year average of 38.2% (there were no 'C' rated tranches at the start of the year). Upgrade rates decreased across the ratings spectrum in 2024. The 'BBB' category had the most marked decline in upgrade rate, to 10.2% in 2024 from 24.4% in 2023.

We typically expect default rates to be lower for higher-rated securities, provided that observations are made over sufficiently long time frames and large samples. Over shorter time frames or smaller samples, this relationship may not always hold, and default rates can also vary over time.

For global structured finance, higher-rated securities were clearly associated with lower weighted average one-year default rates between 1976 and 2024 (see chart 8). Default rates in 2024 were generally higher at lower rating categories. There were four defaults from the four investment-grade rating categories in 2024. Securities we rated in the 'BB' category at the beginning of the year had a default rate of 0.12%, contrasting with a default rate of 57.9% for those in the 'CC' category. The 2024 'CC' default rate reading is extremely high but was still lower than the corresponding rate of 64.6% in 2009.

To better understand how our structured finance ratings have rank-ordered creditworthiness over time, we can calculate cumulative default rates by rating category for various time horizons. This approach constructs average multiyear cumulative default rates by first aggregating across static pools the period-to-period one-year marginal default rates that are conditional on the securities' survival (nondefault) in the prior one-year period (see Appendix I for more details). This approach differs from the calculations we use in constructing the weighted average multiyear default and transition rates elsewhere in this study, where default rates are not conditional on survival.

The cumulative default rates (conditional on survival) based on our full data history--from the beginning of 1976 to the end of 2024--show that lower ratings have generally been associated with higher default rates and vice versa (see table 2). In other words, ratings appear to have successfully rank-ordered creditworthiness over each time horizon.

Table 2

Default rates calculated on a rolling basis for a given horizon (for example, five years) further demonstrate that this ratings-based rank ordering has generally remained in place over time, even as absolute default rates have fluctuated with differing levels of credit stress. For example, the five-year-trailing 'AAA' default rate for global structured finance was 0.13% at the end of 2024, marginally higher than 0.07% the year before. This was the fourth consecutive year that this metric has increased.

By contrast, the five-year-trailing 'B' default rate was 4.6%, down from 5.8% at the end of 2023, and well off the peak of 81.7% in 2012 (see chart 9).

We also calculate Gini coefficients to quantify the rank-ordering power of our ratings in relation to securities' observed default propensity. The Gini coefficient is a summary metric that can range from zero to 100%--the closer to 100%, the higher the rank-ordering power of the ratings under observation (see Appendix I for more details).

In 2024, the one-year Gini coefficient for defaults of rated global structured finance securities was 96.1%, up from 91.0% the previous year. The three-year Gini coefficient also increased, and was 92.7% for 2024, compared with 85.1% in 2023. The five-year Gini coefficient at the end of 2024 was 87.2%, up from 78.6% in 2023. These improvements further illustrate the rank-ordering power of our ratings (see chart 10).

This follows the pronounced dip in Gini coefficients amid the 2008-2009 financial crisis. During this period, a relatively large number of defaults in certain sectors--such as U.S. RMBS and U.S. structured credit--coincided with fewer defaults among lower-rated securities from other sectors, lowering the Gini coefficients.

We also calculated sector-specific historical one-year Gini coefficients. For all sectors, the Gini coefficients have returned to 80%-100% since the end of 2011, after a decline in 2007 (see chart 11). In 2024, the Gini coefficient for global RMBS crossed the 90% mark for the first time since 2009, ending at about 94.4%, up from 87.5% the previous year. The CMBS sector was the only sector to report a lower Gini coefficient than in 2023, with the figure for CMBS falling to 87.3% from 87.4% the previous year.

The Gini coefficient metric is useful but has some significant shortcomings. A value of 100% would be attained only if all defaults occurred among securities rated below some critical rating threshold, with no defaults among securities rated higher than this threshold.

However, in a diverse sample of rated securities--such as global structured finance--sector- and region-specific credit stresses of different severity and likelihood may cause higher-rated securities in more stressed sectors or regions to default. At the same time, lower-rated securities in less stressed sectors or regions may not default. This effect would lower the reported Gini coefficient, despite reflecting the sample composition rather than a decline in ratings' accuracy.

Regions And Sectors In Detail

U.S. RMBS

The recovery in overall ACCQ for U.S. RMBS ended in 2024, closing the year at -0.03 notch, the lowest since June 2021, when it reached the same level (chart 12). On a 12-month-trailing basis, the U.S. RMBS default rate increased significantly, to 6.9%, from 2.9% in 2023 (see chart 13). Of the 12,382 securities outstanding within the U.S. RMBS sector at the start of 2024, 851 defaulted (see table 3).

The subprime subsector, which accounts for the largest share of U.S. RMBS securities, had the highest default rate, 19.4% in 2024, up from 5.8% the previous year, and nearly reaching the 2009 default rate of 20.5%. The subprime downgrade rate more than doubled to 21.7% in 2024 from 9.3% in 2023. The subprime upgrade rate was also up year over year in 2024, increasing to 8.6% from 8.0% in 2023.

Among the subsectors with more than 1,000 outstanding ratings at the start of the year, the alt-A sector (representing 10.7% of U.S. RMBS ratings at the start of the year) recorded the second-highest default rate at 11.1%.

The sharp increase in defaults in U.S. RMBS in 2024, particularly in the subprime and alt-A subsectors, was mainly due to S&P Global Ratings' downgrades of 'CC' rated classes to 'D' because of interest shortfalls or missed interest payments during 2024 remittance periods. Our main rationale for these downgrades is the ultimate repayment of missed interest is unlikely at higher rating levels.

For the prime subsector, which accounts for the second-largest portion of U.S. RMBS, the default rate ticked up to 0.6% in 2024 from 0.4% the year before. Meanwhile, the downgrade rate fell to 1.0% from 3.1%. However, the upgrade rate also fell, to 1.5% from 7.5% in 2023.

Apart from the subprime subsector, the closed-end second subsector is the only one to have an improved upgrade rate in 2024, increasing to 13.6%, from 9.1% in 2023. However, this subsector also recorded the second-highest default rate (among U.S. RMBS) at 18.2%. It's also noteworthy to mention this sector accounted for less than 0.2% of outstanding U.S. RMBS ratings at the beginning of 2024.

Credit performance was largely negative across transaction vintages in U.S. RMBS, as only the 2000, 2006, and 2008 vintages recorded improvements in upgrade rates in 2023. Pre-crisis vintages from 2000 through 2008 accounted for all but one of the defaults in 2024 (the remaining one was from the 2010 vintage, though backed by pre-2009 originated mortgage loans). Vintages prior to 2000 also recorded two defaults in 2024. The 2007 vintage once again exhibited the highest default rate in 2024, at 37.1%, and the highest downgrade rate, at 37.9%. The 2017 vintage recorded the highest upgrade rate in 2024, at 34.4%.

The majority (99.9%) of U.S. RMBS defaults in 2024 were from the 'CCC' and 'CC' rating categories, which constituted about 26.6% of our U.S. RMBS ratings at the beginning of 2024. The 'CCC' and 'CC' rating categories were the only categories with increasing default rates in 2024. However, the scale of these increases was such that the speculative-grade default rate increased to 15.6% in 2024 from just 5.8% in 2023.

All rating category default rates were well below their respective one-year averages, which are elevated by the extreme peaks of the financial crisis, except for 'CC' rated issues. Its default rate climbed to 62.6% in 2024, well above its long-term average of 38.7%.

Table 3

U.S. structured credit

The ACCQ for U.S. structured credit remained steady but positive in 2024, at +0.05 notch in December 2024, slightly above the +0.02 notch at the end of 2023. The U.S. structured credit 12-month-trailing default rate briefly plunged to 0.01% in July 2024, but ended the year at 0.07%. It was 0.13% at the end of the previous year (see chart 15). The sector's downgrade rate dropped slightly to 0.7% in 2024 from 0.8% in 2023 and remained well below the one-year average of 15.3%. Meanwhile, the upgrade rate nearly doubled to 2.8% in 2024 from 1.5% the previous year.

The U.S. structured credit default rate spiked in 2011 after many ratings on collateralized debt obligation (CDO) tranches backed by other structured finance securities defaulted, notably U.S. subprime RMBS. At that time, in our view these securities had minimal realistic prospects of repayment, and many were unlikely to receive any future principal payments because of the ongoing collateral deterioration of the RMBS and other securities backing the transactions.

The overall U.S. structured credit sector remains polarized between collateralized loan obligations (CLOs), which have historically performed very well, and other transactions that performed poorly after 2007, but now constitute only a small portion of our active ratings. CLOs grew to 99.1% of the U.S. structured credit sector at the beginning of 2024 (see table 4). The CLO subsector's upgrade rate almost doubled to 2.9% in 2024 from 1.5% in 2023. There were five CLO defaults in 2024--compared with eight in 2023--yielding an annual default rate of 0.1%, on par with the one-year average.

Other U.S. structured credit makes up about 0.8% of overall U.S. structured credit ratings and had no defaults in 2024.

The U.S. structured credit CDO subsector made up the lowest share of outstanding ratings at the beginning of 2024, with just 0.1% of the total rating belonging to it. Both the U.S. structured credit SF CDO and U.S. structured credit other subsectors had no rating actions in 2024.

For vintages with more than 200 ratings outstanding at the beginning of 2024, the highest upgrade rate was in the 2017 vintage, at 15.0%. CLO transactions in this vintage are now amortizing, increasing the relative credit enhancement for the rated securities, and raising their creditworthiness, all else being equal.

Of the five defaults in U.S. structured credit in 2024, four were rated 'CCC', and one 'CC' at the beginning of the year.

Table 4

U.S. ABS

Credit performance for the U.S. ABS sector remained positive in 2024, as it has for over the last decade since May 2013. The annual ACCQ for 2024 continued its upward trajectory, peaking twice at +0.36 notch in March and June before ending the year at +0.24 notch, down from +0.35 notch in 2023 (see chart 16). The 12-month-trailing default rate has historically remained very low and decreased to 0.1% in 2024, down from 0.4% the year prior (see chart 17).

The U.S. ABS sector is the third-largest structured finance sector in the U.S. by number of outstanding ratings--behind RMBS and structured credit--accounting for 17.2% of U.S. securities at the start of 2024. The majority of these securities fall within the auto and student loan subsectors (see table 5). The U.S. ABS upgrade rate was 12.2% in 2024, down from 15.7% in 2023, but still more than double the one-year average of 6.0%. The downgrade rate halved to 0.8% in 2024 from 1.6% in 2023 and remained well below its one-year average of 4.7%. The annual default rate for ABS was 0.1% in 2024.

The only U.S. ABS defaults in 2024 were in the manufactured housing subsector (five), from all the rating categories classified as risky credits (rated 'CCC' and below) (see table 5). The default rate in the manufactured housing subsector fell to 10.0% in 2024 from 11.1% in 2023. This sector also makes up the smallest proportion of outstanding ratings in U.S. ABS, at just 1.1%, and is driving the elevated default rate relative to other subsectors.

The speculative-grade downgrade rate of 3.8% exceeded the investment-grade downgrade rate of 0.5% in 2024, with each remaining well below their respective long-term averages. ABS manufactured housing accounted for the highest downgrade rate in the U.S. at 14.0%. The downgrade rates of all U.S. ABS subsectors remained below their one-year averages.

Along with the highest downgrade rate, U.S. ABS manufactured housing accounted for the highest upgrade rate, at 28.0% in 2024. This was also a result of the smaller rated population at the beginning of the year.

The U.S. ABS auto subsector had yet another wave of upgrades in 2024, yielding the second-highest upgrade rate of all the U.S. ABS subsectors, at 21.4%. However, it is down from the 29.9% upgrade rate recorded in 2023, though well above the one-year average of 15.3%. Several other subsectors had upgrade rates above their respective one-year averages, except for credit card, tobacco settlement, and timeshare ABS (all of which had no upgrades in 2024).

Table 5

U.S. CMBS

In U.S. CMBS, the ACCQ remained negative at the end of 2024 at -0.53 notch. This metric has remained negative for 64 consecutive months as of year-end 2024, marking the longest such streak since 2014, when the metric remained negative for 70 months. This figure worsened from the previous year's close of -0.33 notch (see chart 18). The 12-month-trailing default rate for U.S. CMBS rose to 1.4% in 2024 from 1.3% the previous year (see chart 19).

The upgrade rate was negligible at 0.3%, albeit this was an increase from 0.03% in 2023. Meanwhile, the downgrade rate increased significantly year-over-year to 16.1% in 2024 from 9.4% in 2023, surpassing the one-year average of 12.0%. U.S. CMBS downgrades in 2024 were largely concentrated in office-backed single-borrower transactions due to sharp valuation declines and deteriorating leasing conditions.

There were a total of 36 defaults within U.S. CMBS in 2024, unchanged from the previous year (see table 6). The defaults were spread across the single-borrower (23), conduit/fusion (eight), and large loans/floaters (five) subsectors, yielding default rates of 2.3%, 0.5%, and 6.5%, respectively. Defaults were spread among the 2015, 2016, 2018, 2019, and 2020 vintages in 2024, with 2018 contributing to 11 defaults.

Most U.S. CMBS defaults in 2024 resulted from interest shortfalls, which accumulated to the point that we expected them to remain outstanding for the foreseeable future until the specialty serviced loans are resolved.

The single borrower downgrade rate was the highest, at 33.7%, up from 17.1% the previous year, while the large loan/floaters downgrade rate eased to 18.2% in 2024 from 28.7% in 2023.

The U.S. CMBS conduit/fusion downgrade rate was 4.8% in 2024, above the 3.3% recorded in 2023. Downgrade rates for the conduit/fusion and CMBS "other" subsectors remained below their respective one-year averages, while the downgrade rate for the single-borrower and large loans/floaters subsectors was above their long-term averages. Downgrades were largely spread across vintages from 2012 onward, with the 2016 vintage having the highest downgrade rate of 56.1%.

Higher downgrade activity in the U.S. CMBS sector overall was largely because of the ongoing effects of higher interest rates, e-commerce, and increase in remote working from the pandemic--which has produced unprecedented levels of stress on the commercial real estate (CRE) sector. Higher borrowing costs have diminished the possibility of refinancing in the sector, and property valuations have declined considerably over the past several years, affecting the credit quality of the underlying collateral in U.S. CMBS transactions.

All the CMBS upgrades were in the single borrower subsector, which had an upgrade rate of 0.8%, up from 0.0% in 2023. Each of the subsectors' upgrade rates were well below the long-term average.

Table 6

Europe

Credit performance across European structured finance sectors has historically been more positive than that of U.S. counterparts, and that remained true in 2024. Although the ACCQ fell to +0.10 notch from +0.20 notch the previous year, it managed to stay positive throughout the year, having turned positive back in March 2021 (see chart 20). The 12-month-trailing default rate increased to 0.2% from 0.1% the previous year (see chart 21).

The annual default rate for European structured finance in 2024 remained below the one-year average of 0.9% (see table 7). The overall upgrade rate fell to 7.9% in 2024 from 11.7% in 2023 and slipped slightly below its one-year average of 8.0%. The overall downgrade rate for European structured finance was 2.2% in 2024, up from 1.4% in 2023, though still well below the one-year average of 12.8%.

The European structured finance sector consists of a variety of subsectors. In terms of default rate, the structured credit CDO subsector was the worst performing in 2024, mirroring the previous three years, with a default rate of 5.9%, just above the one-year average of 5.2%, though sharply down from 19.0% in 2023. There was one default from the European structured credit CDO sector, though there were only 17 ratings outstanding at the beginning of the year.

By volume, CMBS led defaults with seven, yielding a default rate of 3.4%. The elevated default tally for European CMBS largely owed to higher interest rates, increasing the challenge of refinancing commercial mortgage loans. There was one more default from other structured credit securities excluding CLOs and CDOs in 2024. Meanwhile, there were no defaults within European ABS, RMBS, or single-name synthetics in 2024.

All the defaults were from speculative-grade rating categories, namely the 'CCC', 'B', and 'BB' categories. There were seven defaults from the 'CCC' rating category, leading to a 9.6% default rate in 2024, lower than its one-year average rate of 10.3%. The 'BB' and 'B' categories each recorded a default in 2024, yielding default rates of 0.2% for both rating categories. There were no defaults from investment-grade tranches in 2024 compared to one in 2023.

Downgrades rose across a few European sectors in 2024 (all three RMBS subsectors, ABS auto, CLOs, and single-name synthetics). Downgrades were most prominent in European single-name synthetics and CMBS subsectors in 2024, which had downgrade rates of 13.3% and 11.8%, respectively. European CDOs recorded the most improved downgrade rate, 5.9% in 2024 from 19.0% in 2023, while the single-name synthetics subsector's downgrade rate deteriorated the worst, climbing to 13.3% from 0.0%. The European ABS downgrade rate increased to 2.2% in 2024 from 1.1% in 2023. While the single-name synthetics downgrade rate was driven more by the small number of outstanding ratings at the beginning of the year (15), downgrades in the nonconforming RMBS space were largely concentrated in the U.K. Meanwhile, CMBS downgrades largely owed to the continued stress in the CRE sector, where in Europe interest coverage has declined even as the underlying properties generate stable net operating income.

Only the RMBS prime, CMBS, ABS Auto, ABS consumer, and ABS Other subsectors reported upgrade rates higher than their respective one-year averages in 2024. European RMBS upgrades declined in comparison to 2023, to 11.4% from 19.9%, largely due to the RMBS nonconforming subsector's upgrade rate of just 5.1%. It is the only one of the three RMBS subsectors to have an upgrade rate below 10% last year. The European structured credit CLO upgrade rate was well below its one-year average of 11.4%, at 5.4% in 2024. The ABS upgrade rate of 13.7% was the highest among the European subsectors, propped up by upgrades in the auto (15.6%) and ABS other (14.4%) subsectors. However, the overall reading is down from 17.2% the year prior.

Upgrades were spread across the vintages in 2024. The majority of downgrades in European structured finance were within the speculative-grade segment, in stark contrast to 2023. The 'CCC' rating category had the highest downgrade rate in 2024, at 11.0%, up from 2.7% the year prior, but well below its long-term average of 20.3%. The downgrade 'CCC' downgrade rate was well above the next-highest speculative-grade category of 'B', at 5.3%. Overall investment- and speculative-grade upgrade rates declined to 8.5% and 6.0%, from 13.1% and 7.1% in 2023, respectively.

Table 7

Outside U.S. and Europe

Outside the U.S. and Europe, the ACCQ improved in 2024, at +0.34 notch, up from +0.15 notch at the end of 2023 (see chart 22). This was primarily driven by elevated upgrade rates in Australasia and Latin America. With five defaults in 2024, the 12-month-trailing default rate for all regions outside the U.S. and Europe reached 0.2% by the end of the year, up from 0.04% in 2023, when just one default outside the U.S. and Europe was recorded.

Structured finance ratings outside the U.S. and Europe accounted for 6.8% of outstanding ratings at the start of 2024. The upgrade rate reached 20.1% in 2024, up more than 10 percentage points from 9.8% the previous year. still well above its one-year average of 6.5%. The downgrade rate also rose slightly in 2024, to 1.7% from 1.2% in 2023, and still well below its one-year average of 4.6%.

The majority of ratings outstanding at the start of the year were concentrated in Australasia, Latin America and Japan, specifically within the RMBS sector. Downgrades in 2024 were primarily concentrated in emerging markets and Latin America, with rates of 14.3%, and 8.4% respectively. However, they remained shy of their respective one-year averages of 14.4% and 11.8%, respectively (see table 8)..

However, upgrades were also most pronounced in Latin America in 2024, yielding an upgrade rate of 28.8%, up sharply from 7.1% the prior year. There were no rating actions in Canada or Japan in 2024. In addition, there were no downgrades in the Australasian subsectors in 2024. Downgrades were largely concentrated among issuers rated in the 'CC' and 'CCC' categories at the beginning of the year.

In 2024, the highest upgrade rate outside the U.S. and Europe was in Australasia ABS, at 22.6%, compared with a one-year average of 9.7%. Upgrades were also elevated in the Australasia RMBS sector, with an upgrade rate of 21.8%, compared with its long-term average of 7.0%. There were no upgrades in emerging markets last year.

Table 8

Appendix I: Terminology, Data Selection, And Calculation Approaches

This appendix details the data selection, calculations, and terminology we use in this report.

This global structured finance default and rating transition study uses our database of long-term global scale issue credit ratings. We do not include national and regional scale ratings, such as those we may assign in Argentina, Brazil, Mexico, Taiwan, and Japan, which are not comparable between countries. The analysis also excludes public information ("pi") ratings, issuer credit ratings, and short-term issue ratings, such as those on asset-backed commercial paper conduits.

Our ongoing enhancement of the database used to generate this study occasionally leads to changes in the reported statistics from one edition of the study to the next. However, each study includes statistics for previous years, ensuring that the study is self-consistent and effectively supersedes all previous editions.

Issues included in this study

This study analyzes the rating histories of 266,317 global structured finance instruments that S&P Global Ratings first rated between 1973 and Dec. 31, 2024. The term "structured finance" in this report refers to ABS, CMBS, RMBS, structured credit, and single-name synthetic transactions. For some analyses, we break down these sectors further into subsectors.

Sector definitions

ABS includes underlying collateral types such as credit card receivables, student loans, and auto loans and leases. The sector also includes manufactured housing, franchise loans, 12b-1 transactions, and corporate securitizations.

RMBS includes transactions backed by subprime mortgage loans, as well as home equity loan transactions and re-REMICS.

Structured credit includes CLOs, both cash and synthetic CDOs backed by exposures to corporate credit or other structured finance securities, and market-value CDOs and other leveraged funds. We also include transactions backed by loans to small and midsize enterprises in the structured credit sector.

CMBS also includes re-REMICS, as well as some CDOs primarily collateralized by commercial real estate loans. Single-name synthetic transactions are also referred to as "repackaged transactions" (or "repacks"), especially in Europe. The definition of a repack in this instance is an issue backed by a single credit, where the rating on the note is directly linked to that on the underlying credit.

In this study, we no longer include structured covered bonds, which we previously treated as a separate sector.

Regional definitions

This study presents rating transitions for global structured finance transactions. In some analyses, we segment default and transition statistics by region. This study presents rating transitions for global structured finance transactions. In some analyses, we segment default and transition statistics by region. In defining a transaction's region, we primarily use the location in which the instrument's underlying assets are domiciled. In some cases, the domicile of assets may fail to provide additional insights into the region, especially when a transaction is backed by assets from more than one country. As such, we may also consider the transaction's issuer country (unless this is a tax haven such as the Cayman Islands).

In table 1 of the study, the "Asia (excluding Japan)" region includes transactions with collateral from Hong Kong, Singapore, Korea, and Taiwan, as well as other locations in the region. The "other emerging markets" region includes emerging market countries that are not included in other regions, such as Turkiye and South Africa.

Vintage definition

In this report, we classify a security's vintage based on the date when we first assigned a rating. Usually this is close to the security's original issuance date. However, in some cases, we may first assign a rating to a security some time after closing.

Rating transitions

Our rating transition statistics use a "static pool" approach. To calculate the transition statistics over a given period (or "transition window"), we consider the static pool of ratings outstanding at the beginning of that period. The transition statistics for that static pool of ratings are then based on the movements in ratings between the start and end of the transition window.

For instance, we calculate the 2024 transition rates by determining the ratings on each security outstanding at the start of 2024 and determining the ratings on those same securities at the end of 2024. We then calculate statistics such as upgrade, downgrade, and stability rates, equivalent to the proportions of securities in the static pool with ratings that moved up, down, or remained the same, respectively, over the transition window. During this process, we count each security only once, even if the security experienced more than one rating change during the transition window being observed. In other words, we use the ratings at the start and end of the transition window to calculate the transition rates, disregarding any interim rating changes.

Rating modifiers

We use rating modifiers ("+" and "-") to calculate the upgrade, downgrade, and stability rates quoted in the text, tables, and charts throughout this study. However, the transition matrices in Appendix II of this report show only the less granular, full rating categories for practical reasons. In other words, we count transitions such as to 'AA+' from 'AA' as an upgrade and to 'BBB-' from 'BBB+' as a downgrade in the transition statistics we cite in this report. However, in the corresponding transition matrices, these transitions would appear in the cells corresponding to a stable rating category classification, such as 'AA' to 'AA' or 'BBB' to 'BBB'.

Rating discontinuance or withdrawal

We may discontinue ratings when, for example, a rated obligation's payments have been made in full in accordance with its terms or when a rated issue matures. Ratings may also be withdrawn because of a lack of sufficient information of satisfactory quality or at the issuer's request. In these cases, the rating may change to not rated (NR). When we withdraw or discontinue ratings within the transition window under consideration, we may either derive our reported statistics by classifying the rating transition as a move to NR (the "NR-included" approach) or--for some other analyses--we may classify the transition as a move to the last rating before withdrawal or discontinuance (the "NR-adjusted" approach).

In the text of this report, when we refer to upgrade and downgrade rates, for example, we use the latter approach. In the tables and charts, we clarify the approach used in the footnotes. We do not include a security with a withdrawn rating at the beginning of a transition window in the transition and default rate calculations for that period.

Treatment of 'AAA' ratings

In this study, we include the ratings history of all securities with original ratings of 'AAA', which we term the "uncollapsed" approach. This represents a change in methodology from editions of the study published before 2018. In these previous editions, for each structured finance transaction, we generally included only one of the securities that we originally rated 'AAA', terming this the "collapsed" approach. This was because historically, some transactions had a disproportionate number of 'AAA' rated tranches that were likely to exhibit similar or identical credit performance. By including only one such security per transaction, we aimed to avoid overweighting their behavior in aggregate performance statistics.

However, we now include all securities' rating histories, regardless of the original ratings, for completeness and consistency with some of our other reporting on ratings performance--for example, in regulatory submissions. The effects of altering the treatment of 'AAA' ratings on some example summary statistics are shown in Appendix III.

Treatment of 'D' ratings

Default counts and default rate statistics in this report are based on securities with ratings we lowered to 'D'. For the purposes of this report, when a rating has moved to 'D', we consider this a terminal state and do not, for example, include such a security in any transition windows that start on a subsequent date. In practice, however, some securities with ratings that have migrated to 'D' may later be assigned a different rating. This can occur, for example, if the defaulted security is subsequently restructured to different terms, such as a lower coupon. In these cases, we treat the security's post-default ratings history as if it were for a new security, beginning from the date that the rating changed from 'D'. Where we segment statistics by vintage, however, we continue to base the vintage on the date we originally assigned a rating to the security.

Average change in credit quality calculation

Certain analyses in this study refer to the "average change in credit quality" of a set of structured finance securities over a given transition window. We define the average change in credit quality as the average number of notches by which ratings changed during the stated transition window, where we take the average across all ratings in the set under consideration (for example, a particular region or sector). In this averaging, we count downgrades as a negative number of notches, whereas we count upgrades as a positive number. We consider stable ratings to have undergone a transition of zero notches. We believe this measure acts as a useful summary of the credit performance of, for example, a given sector, since it combines the relative number of ratings undergoing transition with the severity of that transition.

Weighted average transition and default rate calculation

For weighted average transition rates (including default rates), we calculate the individual transition rates for different static pools. We then calculate a single averaged transition rate, weighted by the number of ratings in each static pool. We use this technique, for example, to determine the five-year weighted average transition rates, by analyzing the transition rates for different static pools over different five-year periods and then aggregating them.

Average cumulative default rate calculation

In this report, we also calculate and present average cumulative default rates for different time horizons. For example, table 2 shows that the one-year average cumulative default rate for 'A' rated global structured finance has been 0.38% and the three-year average has been 5.47%.

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 the number of defaults during the third year divided by the number of ratings from the static pool that had "survived" (that is, 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 of each time horizon is calculated as one minus the product of marginal survival rates up to that time horizon.

We note that this approach differs from the calculations we use in constructing the weighted average multiyear default and transition rates included elsewhere in this study (and as described above), where default rates are not conditional on survival.

Gini coefficient calculation

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

We first construct a Lorenz curve, which plots the cumulative proportion of all structured finance ratings per rating level on the x-axis against the cumulative proportion of defaults per rating level on the y-axis (see chart 24). For both axes of the Lorenz curve, the observations are ordered from the low end of the ratings scale ('C') to the high end ('AAA').

If our structured finance ratings only randomly approximated default propensity, the Lorenz curve would fall along the diagonal, shown as the random curve in chart 24. On the other hand, if all defaults occurred only among the lowest-rated securities, with no defaults among the higher-rated securities, the Lorenz curve would lie along the ideal curve in chart 24. 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.

The procedure for calculating the Gini coefficient is illustrated in chart 24. 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 zero (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 the securities' observed default propensity.

Appendix II: Detailed Default And Transition Statistics

Tables 9-52 provide various default and transition rate statistics for global structured finance securities and major structured finance subsectors.

Global structured finance

Table 9

Table 10

Table 11

Table 12

Table 13

U.S. RMBS

Table 14

Table 15

Table 16

Table 17

Table 18

U.S. structured credit

Table 19

Table 20

Table 21

Table 22

Table 23

U.S. ABS

Table 24

Table 25

Table 26

Table 27

Table 28

U.S. CMBS

Table 29

Table 30

Table 31

Table 32

Table 33

Europe

Table 34

Table 35

Table 36

Table 37

Table 38

Other regions

Table 39

Table 40

Table 41

Table 42

Table 43

Global RMBS

Table 44

Table 45

Table 46

Table 47

Table 48

Global structured credit

Table 49

Table 50

Table 51

Table 52

Table 53

Global ABS

Table 54

Table 55

Table 56

Table 57

Table 58

Global CMBS

Table 59

Table 60

Table 61

Table 62

Table 63

[Do we want to include the additional cuts we did last year for the IVPs? If in the code, we should -- See Tables 64-72 from last year's study

Appendix III: Comparison Of Alternative Treatments For 'AAA' Ratings

As detailed in Appendix I, this study uses the "uncollapsed" approach to the treatment of securities with original ratings of 'AAA', rather than the "collapsed" approach, which was used in studies published before 2018. Charts 25-28 illustrate the resulting differences in some example summary statistics.

Related Publications

Related Criteria

• U.S. Structured Finance Asset Isolation And Special-Purpose Entity Criteria, May 15, 2019
• Credit Stability Criteria, May 3, 2010
• Understanding S&P Global Ratings' Rating Definitions, June 3, 2009

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