(Finance) – The number of European companies classified in the category of “CCC” rating by S&P Global Ratings is dropped by 20% to 52 at 31 December 2021, from an all-time high of 65 in April 2021. This was stated by the rating agency in a new report on the subject, noting that this decline is mainly due to six upgrades and two downgrades in the CCC rating category. With this decrease, the amount of debt classified in the “CCC” category fell to $ 87 billion from $ 101 billion in the same period last year, remaining above the 12-month average of $ 80 billion. Despite the increase in upgrades, the number of European CCC-rated companies remains close to double the pre-pandemic total and 58% of these issuers have negative outlook or negative implications for creditwatch, indicating further downgrades in the future.
S&P highlights that all companies active in the sectors hotel, gaming and leisure they have been hit hard by restrictions on social distancing across Europe. “However, pent-up consumer demand, vaccine campaigns and the ability of issuers to enhance liquidity have contributed to coping with heavily indebted capital structures,” the report reads.
While the percentage of “CCC” rated issuers in Europe declined in the fourth quarter, companies with high debt burdens and the inability to generate free operating cash flow are still struggling to improve credit quality. “The uncertainty surrounding Covid-19 and subsequent travel restrictions continue to cast a shadow on the recovery trajectory, despite ample evidence of pent-up demand, accommodative debt capital markets and a higher pace of vaccination,” says the rating agency. There percentage of issuers with “CCC” rating in the United States and Canada it fell to 8.7% of total rated issuers, from a peak of 17% in May 2020, while Europe recorded a negligible improvement to 10.3% from 12.5%.
The the pace of defaults in 2021 has slowed each quarter, with only one default in the fourth quarter and eight in the first quarter. With this decline, the 12-month default rate in the region fell to 1.8% in December 2021 (the lowest default rate since 2016) from 6.1% in March 2021. “We expect delinquencies to continue to slow down in the short term before recovering, raising the speculative-grade default rate to 2.5% in September 2022, ”S&P says.