Global corporate default tally reaches new heights with energy and natural resources leading
Global corporate defaults rose to their highest point in 2016 last week, only exceeded by the same point in the year in 2009, after the financial crisis, according to S & P Global Ratings, the ratings agency that is part of S&P Global Inc (NYSE:SPGI).
Its Global Fixed Income research has published a report that points out that energy and natural resources is the sector with the highest concentration of defaults out of a total 117 as of late August this year. The list is dominated by U.S. issuers.
“The last time the global tally was higher at this point in the year was in 2009, when it reached 213 during the financial crisis,” said Diane Vazza, head of S&P Global Fixed Income Research last week in New York.
“Two-thirds percent as of July 31, 2016,” said Ms. Vazza. She added that this was due in part to the large number of U.S. issuers rated by the agency.
Energy and natural resources has 56 percent of the 117 defaults worldwide, across 65 issuers. U.S. issuers dominate with 77 percent or 50 defaults, it points out.
As of July 31, 2016, the global speculative-grade default rate for the energy and natural resources sector was 17.2 percent, according to Ms. Vazza and the report. This is “more than seven times higher than the default rate of all other sectors” she said.
Three of the four defaults in the last week of were by U.S. based oil and gas issuers, says the report. So far this year some 78 of the defaulting issuers are based in the United States, with 21 in emerging markets and nine each in other developed nations (Australia, Canada, Japan and New Zealand) and Europe.
“In 2015, 73 issuers defaulted during this period; 42 were based in the U.S., 15 in emerging markets, 12 in Europe, and four in the other developed countries,” said Ms. Vazza.
Media reports earlier this year have flagged that investors could be hurt badly by the next wave of corporate defaults.
Bank of America Corp strategists (NYSE:BAC) are among those who have suggested that losses on bonds from defaulted companies are likely to be higher than in previous cycles, because U.S. issuers have more debt relative to their assets.
But so far figures on defaults have failed to dampen investor appetite for corporate debt.
Separately, Goldman Sachs (NYSE:GS) has just begun pushing a computer program that allows investors to trade in U.S corporate bond market – worth $8.4 trillion - without ever having to communicate with a human being at the investment bank, the Financial Times reports.
“Money managers and traders have in recent weeks started receiving automated messages from the Goldman Sachs Algorithm, or GSA, offering prices at which to buy and sell highly rated corporate bonds,” said the FT.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com