An interesting report is out from Standard & Poor’s on Friday, entitled “The Devil is in the Details: Understanding the Variation in Corporate Default Rates and Rating Transitions.” Now doesn’t that sound exciting?
(Ahem)
The thrust of the piece is that while it’s obvious global corporate default rates increase overall in times of crisis, they do not necessarily rise at the same levels across sectors, regions and ratings-classes. For instance, and perhaps predictably, the default rate for AAA- and AA-rated corporates tends to be much lower than for speculative grade-rated stuff.
Variations in the default rate are most interesting on a sectoral basis, we think.
To wit, here’s S&P’s table of global default rates by sector for every year since 1981. The bold numbers represent years in which the sector’s annual default rate exceeded the weighted annual average for the past 27 years, which is shown at the end of the table.
The most interesting line is of course the latest one, for the 12 months ended May 2009, which shows that financial institutions are actually suffering a lot less than industries like aerospace and consumer companies in terms of defaults. On the whole though, default rates in the period exceeded their long-term averages in all but two sectors — telecoms and utilities. Unsurprisingly, building materials and leisure/media set default rate records in the period.
Full report available in The Long Room.
Related links:
Brace yourselves for record defaults – FT Alphaville
Corporate credit bears – FT Alphaville