On Aug. 14, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based midstream energy company Martin Midstream Partners L.P. to 'SD' from 'CC' after the issuer announced the completion of the distressed exchange of US$364.5 million senior unsecured notes due in 2021. Throughout the 40-year span, only eight companies initially rated 'AAA' have ever defaulted. Defaults increased in many sectors in 2020, though the consumer services and energy and natural resources sectors once again led the global default tally, together accounting for almost 54% of the total. Average and standard deviation for Europe calculated for the period 1996-2020 due to sample size considerations. On Nov. 9, 2020, we withdrew the issuer credit ratings on the company at its request. We included such subsidiaries for the period during which they had a distinct and separate risk of default. For example, among defaulters that were rated 'B' at origination, the default rate climbs to a high of 18.3% in the third year and decelerates thereafter. Moody's | Better decisions 3Q 2021 Investor Presentation 2 . The one-year Gini in 2020 was well above the one-year weighted average (since 1981) Gini ratio of 82.8% and was higher than the median annual Gini ratio over the last 40 years of 85.7% (see table 2 and chart 30). On May 27, 2020, S&P Global Ratings withdrew its ratings on the issuer. KIS Research and revenue from providing ESG research, data and assessments. On May 11, 2020, we withdrew the ratings on the issuer. Investment-grade-rated issuers globally tend to exhibit greater ratings stability (as measured by the frequency of rating transitions) than those rated speculative grade (see table 20). Later, on Sept. 16, 2020, we withdrew the issuer credit ratings on the company at its request. Includes investment-grade and speculative-grade entities. Nearly 88% of sovereign ratings were unchanged in 2021, and this was the . Later, on Dec. 10, 2020, we raised the issuer credit rating to 'CCC+' from 'SD' after the company completed debt repurchases on favorable terms. On Oct. 14, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Argentina-based Banco Hipotecario S.A. to 'SD' from 'CC' after the issuer announced that 46.7% of the bondholders of its outstanding US$279.8 million series 29 notes due on Nov. 30, 2020, accepted the exchange offer originally launched in early September. We use rating modifiers (plus and minus signs) to calculate upgrade and downgrade percentages, as well as the magnitude of rating changes, throughout this study. In light of our expectation of a continued economic recovery and accommodative funding conditions in the coming year, Moody's Analytics Credit Transition Model projects the global default rate will fall to 1.7% at the end of this year. ( 2007 ), we approximate the issuers' industry distress if the median stock returns of the firms in the same industry are less than -30%. The average number of notches for an upgrade moved to 1.19 in 2020, while downgrades remained at an average of 1.46 notches--the highest rate since 2010 (when the average was 1.52 notches) (see chart 8). These tables can also be constructed for each rating category. This nonpayment was considered a general default, and the company was not expected to be able to pay most of its obligations. These are calculated in the same way as the default column in table 20, though table 20 shows the one-year default rates for each rating category for 2020 exclusively. On Dec. 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Houston-based oil and gas exploration and production company Callon Petroleum Co. to 'SD' from 'CC' following a distressed exchange wherein it exchanged US$217 million of new 9% second-lien notes due 2025 for US$389 million of its existing unsecured notes. The rating action followed the company's distressed exchange after repaying only a portion of amount outstanding on its 1.5-lien notes. On July 2, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Texas-based oil and gas exploration and production company Denbury Resources Inc. to 'D' from 'CCC+'. The exchange occurred at a weighted average ratio of approximately US$557 per US$1,000 of principal exchanged plus a total of 1.76 million warrants with a strike price of US$5.60. Estimated 5-year default probabilities are on average 67% higher than default probabilities obtained using the standard 40% recovery assumption. Earlier, on April 8, 2020, we lowered the issuer credit rating on Fieldwood to 'CCC' from 'B-', reflecting the issuer's weak credit metrics, constrained liquidity, and the potential that it may breach covenants on its first-lien term loan. On June 4, 2020, we withdrew the ratings on the issuer because of insufficient information to continue the surveillance of the ratings. Earlier, on March 20, 2020, we lowered the ratings to 'CC' from 'CCC-' based on our view that the issuer has an unsustainable capital structure and weak liquidity. Subsequently, we withdrew the ratings due to insufficient information. S&P Global Ratings does not require all issuers with rated debt to have an issuer credit rating. However, despite posting the 10th-highest annual default rate in 2020, the global Gini ratio finished closer to the middle of the annual distribution (18th), based on 40 years of observations. Transition rates compare issuer credit ratings at the beginning of a period with ratings at the end of the period. Note: Excludes confidentially rated defaults. On Sept. 21, 2020, S&P Global Ratings lowered the long-term issuer credit rating on Norway-based oilfield services provider PGS ASA to 'SD' from 'CCC' after it missed a principal repayment. Earlier, on April 16, 2020, we lowered our long-term issuer credit rating on Diamond Offshore Drilling to 'CC' from 'CCC+' after the issuer missed an interest payment due on April 15 on the senior notes due 2039, and hired advisers to evaluate alternatives for its capital restructuring. On Oct. 20, 2020, S&P Global Ratings raised its issuer credit ratings to 'B-' from 'D' after the issuer announced it had completed a debt restructuring transaction, resulting in US$400 million of debt reduction. In Europe, by contrast, the share of speculative-grade ratings remains in the minority. Some countries can be included in multiple regions, and S&P Global Ratings does not have corporate ratings within every country. These marginal averages are then used to calculate the cumulative average default rates in the row directly beneath them, as explained in the "Average cumulative default rate" section above. Of the 28 defaults from companies that were not rated at the beginning of 2020, 11 were companies that had ratings withdrawn before the beginning of 2020 and 17 were companies that were first rated by S&P Global Ratings after Jan. 1, 2020. On April 6, 2020, S&P Global Ratings lowered its long-term issuer credit rating on New Zealand-based nonbank financier FE Investments Ltd. to 'D' from 'CCC'. We calculated average transition matrices on the basis of the multiyear matrices just described. All rating changes that took place are reflected in the newly formed 1982 static pool through the ratings on these entities as of 12:00:01 a.m. on Jan. 1, 1982. It shows the ratio of actual rank-ordering performance to theoretically perfect rank ordering. As a result, the noteholders received less than the original promise. Four other sectors' speculative-grade proportions are greater than 70%, and telecommunications reached nearly 68% at the end of 2020. The issuer announced that it completed an amend-and-extend transaction for all of its US$100 million senior term loans due in February 2022 and most of its US$300 million junior term loans. NAIC - Supporting Insurance, Regulators, & Public Interest However, the speculative-grade share of both the financial and nonfinancial sectors has been growing in recent years. The issuer was also in talks with its lenders and noteholders for a comprehensive financial restructuring. Source: Moody's Investors Service, "Moody's Corporate Default & Recovery Rates Study 2019" Senior Secured Loans Equity Unsecured Debt (ie, high yield bonds) Subordinated Bonds Senior Unsecured Bonds Loans 28.0% 47.0% 80.0% Recovery Rate 100% 80% 60% 40% 20% 0% 1 Source: S&P Global Market Intelligence, Wells Fargo, March 31, 2020 On Feb. 25, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Canada-based oilfield services provider Calfrac Well Services Ltd. to 'SD' from 'CC' after the company completed a distressed exchange on the U.S. dollar unsecured notes due in 2026. On April 30, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Australia-based airline company Virgin Australia Holdings Ltd. to 'D' from 'CC' after the company filed for Chapter 15 bankruptcy and announced it would not pay the coupon on its US$425 million senior unsecured notes because of a moratorium on all creditor payments. S&P Global Ratings had previously withdrawn its ratings on Techniplas. We view the nonpayment of interest as akin to default on the senior secured notes. Neglecting the randomness of the distribution of recovery rate may underestimate the risk. As one measure of ratings performance, the cumulative share of defaulters was plotted against the cumulative share of issuers by rating in a Lorenz curve to visually render the accuracy of its rank ordering (for definitions and methodology, refer to Appendix II). Likewise, it would be included in the 1989 and 1990 pools with the 'B' rating. Export PDF Export CSV Email . The default rates in the columns of these tables, associated with each static pool year, are calculated in the same way as they would be for individual years' one-year transition matrices. Meaningfully lower yoy default rates in 2021 are expected for the energy and retail industries, which produced a significant volume of defaults over the prior five years. We calculated all default rates on an issuer-weighted basis. On July 29, 2020, S&P Global Ratings raised the issuer credit rating to 'CCC' following the issuer's completion of the distressed exchange. On March 18, 2020, S&P Global Ratings raised its ratings on the issuer to 'CCC' from 'SD', reflecting our view that there was a possibility of additional debt restructuring. This study limits the reporting of default rates to the 15-year time horizon. Earlier, on Feb. 27, 2020, we revised our outlook on the issuer to negative from stable because of high refinancing risks given the high leverage and significant portion of debt maturing in 2022. On June 16, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Alta-based frac sand producer and supplier Source Energy Services Ltd. to 'D' from 'CCC-' after the issuer missed the interest payment due on June 15, and we believed the company was unlikely to make the interest payment within the 60-day grace period. On Oct. 28, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Sweden-based passenger flight transportation services company SAS AB to 'SD' from 'CC' after the issuer completed a distressed debt restructuring of its SEK2,250 million senior unsecured bond due 2022 into about 547 million common shares, at SEK1.16 per share. Of the 198 companies that defaulted in 2020 that were rated at the start of the year, all but 12 were in the 'B' category or lower, and 57% were in the 'CCC'/'C' category, leading to a one-year global Gini ratio of 86.1%. The transaction was approved by 100% of lenders, and it provided the issuer with additional liquidity. On Sept. 24, 2020, we raised the issuer credit rating to 'CCC' from 'SD'. The majority (94%) began the year rated in the 'B' or 'CCC'/'C' category (57% 'CCC'/'C' and 37% 'B'). On March 17, 2020, S&P Global Ratings lowered its long-term issuer credit rating on Georgia-based data center operator Internap Corp. to 'D' from 'CCC+' after the issuer, along with its subsidiaries, filed for Chapter 11 bankruptcy with the Southern District of New York. On May 15, 2020, S&P Global Ratings lowered its issuer credit rating on Colorado-based oil and gas exploration and production company Extraction Oil & Gas Inc. to 'D' from 'CC' after the issuer missed the interest payment on its 7.375% senior notes due 2024. The issuer entered into an agreement with the majority of its lenders for recapitalization of its funded debt. The issuer submitted a prepackaged plan. A major difference between financial and nonfinancial companies is the incidence of default. Earlier, on April 20, 2020, we lowered our issuer credit rating on Valaris to 'CCC-' from 'CCC+' following the collapse in oil prices that led to a sharp drop in demand for all oilfield services, and the offshore activity that was expected to be weak over at least the next two years, given the higher cost, higher operating risk, and longer payback periods for offshore projects relative to onshore plays. Over each time span, lower ratings correspond to higher default rates (see chart 4 and chart 25), and this relationship holds true when broken out by rating modifier (see tables 24 and 26) and by region (see table 25). Since 1981, the 'B' rating category has accounted for 1,735 defaults (56% of the total from initial rating), well more than double the number of defaulters from the 'BB' category (see tables 10 and 12).