When looking at the historical statistics in our S&P Capital IQ CreditPro® database, we find that we have experienced low corporate default rates for the last 7 years. As Figure 1 depicts, the corporate credit quality has much improved compared to the downturn year of 2009, which denoted a default rate of more than 10% and $600 billion in defaulted debt. Despite the improvement since then, we are seeing a slight increase in the number of issuers defaulting in 2015, a year which ended up with a global default rate of 2.75% compared to 1.43% in 2014.
Figure 1: Annual Speculative Default Rates
In looking at the data in more granular detail, 94 companies defaulted throughout 2015, of which, 11 defaulted in December, almost twice as many as compared to only 6 in January 2015. Almost half of them came from the energy sector which, not surprisingly, was the sector with the most defaults during 2015 with as many as 37 companies defaulting throughout 2015.
Figure 2: Number of Defaults by Industry
Even though the largest number of defaults belonged to the energy sector, the two largest individual defaults (measured in total debt outstanding) during December 2015 were actually not energy companies. In fact, the number one default in our database was Arch Coal, Inc., a producer of thermal and metallurgical coal, which had, as of their 10Q Q3 2015 filing, $5.1 billion in total debt outstanding.The second largest default belonged to the global digital media company, Getty Images Inc. with $2.8 billion in outstanding debt with the company completing an exchange of $234 million worth of 7% senior unsecured notes (due 2020) at 36% discount to par.
It’s worth mentioning that five of the companies had been assigned selective defaults (see Figure 3). This includes Getty Images (mentioned in the previous paragraph); Bank PJSC Commercial Bank PrivatBank; Abengoa S.A. (a provider of technology solutions in the energy and environment sectors and generator of electricity from renewable resources); Heckler & Koch GmbH (the German manufacturer of infantry weapon systems); and Cognor SA, which produces and distributes steel products.
Figure 3: The 11 Companies that Defaulted in December
Moving over to recovery information:
When US companies file for Bankruptcy under chapter 11, propose a plan for reorganization, or when a distressed exchange occurs, we track “the recovery” of these defaults in our LossStats database, which is also part of the CreditPro product. This database includes recovery data for more than 4,000 defaulted instruments. Our approach is measured in terms of ultimate recovery on an instrument level, which is the value of the settlement received by holding an instrument through its emergence from default. To put it simply, the recovery is based on the amount received in settlement divided by the principal default amount.
Recovery on the issuer or company level is referred to as the overall recovery and is the weighted average discounted recovery of all defaulted instruments of a given issuer at the time of emergence. The average overall recovery was 67%, measured across all the issuers that emerged in 2015.
Figure 4: Overall Recovery
If you are interested in more default research and data, information about Credit Pro, or the Global Fixed Income Research group’s research that is available on the Global Credit Portal or the S&P Capital IQ Platform, please contact us.