(Finance) – The number of high-risk companies (issuers with ratings equal to or lower than “CCC+”) fell to 50 from 52 in Europe between June and September 2023, but remained above the average of the last five years 45. He states it S&P Global Ratings in a new analysis on the topic, which finds that the risk of insolvency for high-risk companies in Europe is increasing, with the number of European insolvencies which since the beginning of the year has reached the second highest level since 2008.
The decline in high-risk companies follows seven additions and nine removals as of June 30, 2023. Five of the seven additions concern issuers that have been downgraded to “CCC+” or lower due to increased refinancing and liquidity risks, as higher interest rates make it difficult for some issuers with lower rating honor or refinance your debt.
Of the nine removals, four issuers defaulted and three of these issuers subsequently requested the withdrawal of their ratings. In addition to this there were three other rating withdrawals. Additionally, S&P upgraded two issuers to the “B-” category from the “CCC” category, compared to five upgrades in the previous quarter. Improved operational performance remained the primary reason for these upgrades.
The total amount of debt in circulation among European risky credits fell to €55.5 billion in the third quarter of 2023 from €62.3 billion in the second quarter of 2023, mainly due to the default of two issuers. However, the volume of debt remains at near-high levels compared to pre-pandemic lows.
S&P expects an increase in default risk for high-risk European companies as the year-to-date European default count is at the second highest level since 2008, and also considering thehigh number of issuers with “B-” ratings and negative outlook compared to long-term averages.
“The number of such issuers has recently increased significantly, reaching the highest level in the last two years – reads the report – Many of the weakest issuers come from consumer-facing sectors, such as consumer products, media and entertainment. Both of these sectors rely on resilient consumer spending, which is under pressure due to inflation and high interest rates.”