Some 16 European corporates defaulted on their debts in 2013, up from nine in 2012 and the highest number since 2009, a new study shows.
Research from rating agency Standard & Poor’s (S&P) found that all but two of these defaulters were initially rated ‘BB+’ or lower. Norwegian paper company Norske Skogindustrier was initially rated BBB in 2001 and downgraded to B+ over three years prior to default. Meanwhile, Irish Bank Resolution Corporation was initially rated A in 2007 and downgraded to CCC+ over a year before it defaulted.
Higher-rated companies generally take a longer time to default than their lower-rated counterparts, S&P said. It revealed that ‘B’ rated European entities took an average of about three years to default –less than the average of 5.7 years to default for ‘A’ rated entities.
Upgrade and downgrade activity varied widely between non-financial and financial sectors. While 13% of the non-financial companies were downgraded at the end of 2013, 12% had higher ratings. On the other hand, 16% of financial companies were downgraded in 2013, while only 4% were upgraded.
At the end of 2013, issuers rated ‘BB+’ or lower by S&P accounted for 38% of all ratings in Europe, compared with 31.4% at the end of 2012.
European credit stability improved in 2013. The percentage of unchanged ratings increased to 72.04% from 62.08% in 2012 and 64.46% in 2011. The downgrade-to-upgrade ratio for all European companies in 2013 was 1.47%, markedly lower than the 3.25% ratio in 2012.
Overall, the volume of debt affected by European defaults in 2013 was $17.8bn, compared with $19.7bn in 2012, $5bn in 2011, $9.3bn in 2010 and $38.7bn in 2009.
Sally Percy is editor of The Treasurer