The ratings agency says that its latest study demonstrates that credit
ratings continue to serve as effective indicators of relative credit
risk. Findings from the report include.
- 16 corporates defaulted in 2013, up from nine in 2012 and the highest since 2009 – all but two of these defaulters were initially rated BB+ or lower. Norske Skogindustrier ASA was initially rated BBB in 2001 and downgraded to B+ over three years prior to default. Irish Bank Resolution Corp was initially rated A in 2007 and downgraded to CCC+ over a year prior to default.
- Higher-rated companies generally take a longer time to default than their lower-rated counterparts. S&P bases this assessment on examining the data for European issuers using their original ratings as the reference point. For example, 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 nonfinancial and financial sectors. While 13% of the nonfinancial companies were downgraded at the end of the year, 12% had higher ratings. On the other hand, 16% of financial companies were downgraded in 2013, while only 4% were upgraded.
- As of year-end 2013, issuers rated BB+ or lower by S&P accounted for 38.0% of all ratings in Europe, compared with 31.4% as of year-end 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 US$17.8bn, compared with US$19.7bn in 2012, US$5.0bn in 2011, US$9.3bn in 2010, and US$38.7bn in 2009. The 81 global defaulters accounted for a total of US$100.5bn.