S&P Global sees U.S., European corporate default rates doubling

LONDON (Reuters) – The COVID-19 shock will double company default rates across the United States and Europe over the next 9 months, ratings agency S&P Global said on Tuesday, although it noted that the record downgrade pace of recent months was now slowing.

S&P predicted U.S. corporate default rates to rise to 12.5% from 6.2% and saw Europe’s rate going to 8.5% from 3.8%

This year’s crisis has already seen over 2,000 companies’ or countries’ ratings or ‘outlook’ scores cut and nearly $400 billion worth of debt drop into ‘junk’ territory, but the months ahead will shift focus to defaults and survival.

Alexandra Dimitrijevic, S&P’s Global Head of Research said that with the number of firms on downgrade warnings at record levels — 37% of companies S&P rates and 30% of the banks — and credit quality dropping, default rates are set to jump.

“One third of speculative-grade companies are rated B- or below in Europe, which is up 10 percentage points compared to before the (COVID) crisis. so that is why we expect the default rate to effectively double”.

The firm’s base case is that a coronavirus vaccine will be globally available by the middle of next year.

In a situation where it takes longer and more lockdowns are required, U.S. default rates could be as high as 15%. The optimistic scenario is for a 4% rate, it added.