News Column

Fitch: Corporate Finance Issuers Rarely Default from Investment-Grade Rating

June 25, 2014



NEW YORK--(BUSINESS WIRE)-- Defaults by corporate finance issuers rated investment grade are exceptionally rare, with such defaults clustering around recessions, according to a Fitch Ratings report.

Fitch conducted a study of defaulted corporate issuers which had Fitch investment-grade ratings within five years of default. There were 89 such defaults by corporate issuers, representing 31.6% of Fitch's total defaults between 2000 and 2013. Of these, 85% were in the 'BBB' ratings category within five years prior to default, and 60% of the same pool were downgraded to speculative-grade at least two years prior to default.

Fitch's analysis found that defaults are generally clustered within industries during recessions or industry-specific stress events. Approximately 67% of defaults occurred during the recessions of 2001 and 2009, which were preceded by a rapid collapse in asset prices principally equity in the tech, telecom and utility sectors in 2001 and U.S.-based residential mortgages in 2008. Liquidity declined dramatically in these assets, with a negative impact on issuers' ability to restructure capital.

Fitch's analysis found that defaulted industrial companies often endure multiple years of credit deterioration, defaulting on an average of 731 days after reaching the 'BB' rating category. Defaults by financial institutions were quicker, an average 297 days. As credit intermediaries, financial institutions are subject to more cliff risk than industrials.

Fitch's credit ratings frameworks include both quantitative and qualitative metrics and demonstrate the relative risk of default. Fitch notes that quantitative metrics alone are not sufficiently predictive of default during systemic crisis, particularly for financial institutions. These metrics were not materially different than peers during 2008 and 2009, since liquidity and contagion can overwhelm historical factors.

The full report 'Drivers of Investment-Grade Defaults' is available at 'www.fitchratings.com' or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Dynamics of Investment-Grade Defaults (Analysis of Infrequent Events)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750441

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Eileen A Fahey, +1 312-368-5468

Regional Credit Officers, Americas

Fitch Ratings, Inc.

70 W Madison St.

Chicago, IL 60602

or

James E Moss, +1 312-368-3213

Managing Director

or

Media Relations:

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters