Corporate defaults are happening at fastest pace since financial crisis, according to S&P

By Joseph Adinolfi

Companies around the world are defaulting on their debt at the fastest pace since the global financial crisis as high interest rates and stubborn inflation continue to take their toll, according to a report from S&P Global Ratings.

According to S&P, the number of corporate defaults has climbed to 29 since the start of the year, the most highest tally at this point in a year since 2009. While the majority of defaults occurred in the U.S., an uptick in European bankruptcies is alarming analysts.

Since January, eight European companies have defaulted, more than double the three defaults that had been seen by this point in 2023. By comparison, 17 defaults occurred in the U.S., slightly less than the 18 seen at this juncture from last year. While the U.S. has seen a plurality of defaults, Europe has seen companies fail to make payments on their debt obligations at twice the rate of any year since 2008.

By sector, 40% of defaults in February have involved companies in the health care or media and entertainment spaces. Given their weak outlook, S&P Global expects more media and health-care companies, along with makers of consumer products, to see more defaults going forward.

Outside the U.S. and Europe, four companies have defaulted since the start of the year. These include Canadian commercial real-estate solutions and services company Avison Young and Argentina-based infrastructure service provider CLISA - Compania Latinoamericana deInfraestructura & Servicios S.A. - both of which defaulted in February.

Among the other companies that defaulted in February are U.S.-based radiology operator Radiology Partners Holdings, U.S.-based tool manufacturer Apex Tool Group and U.K.-based cinema operator Vue Entertainment International.

AMC Entertainment Holdings Inc. was also included on S&P's list of companies in default after the ratings agency downgraded its debt to "selective default," claiming that a series of debt exchanges engaged in by the company were tantamount to default.

Analysts at S&P Global expect a weak European consumer to contribute to an elevated pace of defaults through the end of the year.

"Given the still-high total of lower-rated companies in the region, we expect European defaults to remain elevated over the near term, adding to a slight rise in defaults rates over the summer," according to the report's authors.

So-called distressed exchanges remained a major driver of defaults this year. They were involved in 14 of the 29 defaults recorded by S&P Global so far this year. That's the highest number during the first two months of a year since 2008.

A distressed exchange is typically sought by private equity-backed companies and their lenders to try and avoid bankruptcy proceedings by handing over assets typically worth less than the debt owed.

-Joseph Adinolfi

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03-14-24 1453ET

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