By region, the current year-to-date default tallies are 14 in the U.S., one in the emerging markets, and one in the other developed region (Australia, Canada, Japan, and New Zealand).
So far this year, distressed exchanges account for six defaults, Chapter 11 filings account for five, missed interest or principal payments are responsible for four, and the remaining defaulted issuer is confidential.
Of the global corporate defaulters in 2010, 42% of issues with available recovery ratings had recovery ratings of '6' (indicating our expectation for negligible recovery of 0%-10%), 8% of the issues had recovery ratings of '5' (modest recovery prospects of 10%-30%), 25% had recovery ratings of '4' (average recovery prospects of 30%-50%), and 17% had recovery ratings of '3' (meaningful recovery prospects of 50%-70%). And for the remaining two rating categories, none of the issues had recovery ratings of '2' (substantial recovery prospects of 70%-90%) and 8% of issues had recovery ratings of '1' (very high recovery prospects of 90%-100%).
"Ultimate recovery rates displayed considerable cyclicality in 2009, in sync with the ebb and flow of liquidity," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.
A particular instrument's position in the capital structure, its security and collateral, company-specific issues, and economic and credit market conditions are the main factors that influence a recovery rate. Preliminary data for 2009 suggest that the shock to liquidity from events such as the Lehman Brothers' bankruptcy in the fall of 2008 severely affected exit valuations of defaulted securities, as well as the values of nondefaulted securities. Recoveries, which had experienced a golden age of extremely high rates during 2003-2007, dropped precipitously in 2009, in line with our expectations.
"By early 2009, recovery rates dropped to 39% for loans and revolving credit facilities and 34% for bonds, on a mean discounted basis in the first four months, from 74% and 51%, respectively, for all of 2008," said Ms. Vazza. "The rebound in capital market sentiment boosted recovery rates later in the year, and by July 2009, recovery rates began to increase from these troughs."
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