Global defaults hit six-year peak of $78b this year
Figures are the latest sign financial stress is beginning to rise for corporate borrowers
Companies have defaulted on $78 billion (Dh286.3 billion) worth of debt so far this year, according to Standard & Poor’s, with 2015 set to finish with the highest number of worldwide defaults since 2009. The figures are the latest sign financial stress is beginning to rise for corporate borrowers, led by US oil and gas companies.
The rising tide of defaults comes as investors reassess their exposure to companies, who have borrowed heavily in recent years against the backdrop of central bank policy suppressing interest rates.
Without a rebound in oil and commodity prices, and the Federal Reserve seen lifting its policy rate higher for the first time in nine years, strategists predict a further rise in corporate defaults for 2016.
The amount of debt owed by US companies relative to the size of their profits has been increasing, according to Alberto Gallo, macro credit strategist for RBS, with the proportion of the most indebted borrowers rising since mid- 2014.
“This tail of highly-levered borrowers is likely to be vulnerable to rising rates,” he said in a note to clients.
Corporate defaults occur when a borrower misses the payment on a bond, or files for bankruptcy protection from creditors, and the number of borrowers with a credit rating to do so in 2015 passed the century mark on Monday, according to S&P.
Bank Uralsib was forced to cancel four outstanding subordinated debts worth 21 billion roubles ($300 million; Dh1.16 billion) after receiving a package of 81 billion roubles from Russia’s Deposit Insurance Authority.
China Fishery Group, which failed to repay a $31 million instalment of a $650 million loan facility due earlier this month, took the total for defaults to 101. Abengoa began insolvency proceedings this week after investors lost patience with the heavily-indebted renewable energy firm in a process which could represent the largest ever Spanish corporate default.