(Finance) – After a year marked by one of the deepest recessions in the last 100 years, 2021 proved to be a economic recovery year better than expecteddespite the persistent pandemic. As in most recovery periods, the delinquencies decreased compared to the previous year, with the global default rate of speculative-grade (i.e. low-rated) companies falling below 2% for only the eighth time in the past 41 years, settling at 1.7% . Furthermore, the credit quality improved significantly in 2021, with a downgrade rate at historic lows (5.5%) and an upgrade rate at the highest (10.2%). This is what emerges from the S&P Global Ratings report “2021 Annual Global Corporate Default and Rating Transition Study”, on the trend of ratings and defaults at a global level.
The most fragile sectors
Broadly in line with the previous six years, two sectors drove delinquencies in 2021: i consumer servicesL’energy and natural resources (with 29 defaults combined, or 40% of the total). Defaults have declined in almost all sectors and only financial institutions have experienced the same number of defaults in 2021 as in 2020 (four). Despite the decline in absolute defaults, the transport and real estate sectors still had annual default rates above their long-term averages in 2021, but only by around 0.5 percentage points in both cases.
Default rates
Characteristic of a year of economic recovery, most of the insolvencies have occurred focused on the lowest ratings: All rated defaults started the year in category “B” or lower. Furthermore, of the 60 companies subject to default in 2021 and rated at the beginning of the year, 50 (83%) were in the CCC / C category. Even at the CCC / C level, the default rate of 11% for 2021 was still significantly below the long-term average (28.3% over the period 1981-2020).
Upgrade and downgrade rates improved substantially in 2021, producing the Lowest downgrade / upgrade ratio ever recorded. The downgrade rate fell to an all-time low of 5.5% and last year was the first since 2013 with an upgrade rate of over 10% (10.2%).
Geographic analysis
Of the 72 corporate defaults in 2021, the majority (40) came from companies in the United States and associated tax havens (Bermuda and Cayman Islands). Europe follows with 14 defaults, Latin America with nine and Asia-Pacific with seven. The remaining two defaults came from Canada.
The type of insolvencies
The selective insolvencies accounted for 60% of all defaults in 2021. Bad trade (which are typically selective defaults) accounted for 56.9% of all defaults, far more than interest or missed payments (29.2%). Various forms of bankruptcy accounted for only 11% of all defaults. Consistent with the decline in the number of defaults, the volume of debt affected from defaults, it fell to $ 66.3 billion in 2021 from $ 353.4 billion the previous year. The biggest default in 2021 has come since China Evergrande Groupwith $ 11 billion (16.6%) of default-hit debt for the year.