Standard & Poor's have been talking to me for a while now, and sent a note yesterday that is quite intriguing. It's justifying their analysis of course, but when you think everyone goes on about credit rating agencies being at fault, we should sometimes pause to consider.
Here's what the note says:
- Between 1981 and 2010, the average five-year default rate for investment grade corporate issuers has been 1.2%, compared with 17.5% for speculative grade companies.
- Between 2008 and 2010, during the height of the financial crisis, the global average three-year default rate for investment grade corporate issuers was 0.9%, compared with 13.9% for speculative grade companies.
- None of the 2010 defaulters began the year rated investment grade. Of those that did default, 87.3% were rated 'B-' or lower at the start of the year.
- Default rates fell sharply in all regions relative to 2009, with 81 defaults among rated companies and financial institutions globally in 2010, down from the record high of 265 in 2009.
- Credit stability also increased in 2010, with the proportion of unchanged ratings reaching 72.7% – a six-year high.
- At the end of December 2010, the global speculative grade default rate fell to 2.8%, with breakouts of 3.3% in the U.S., 1.0% in Europe and 1.2% in emerging markets. The investment grade default rate was zero.
If you want to know more, click here to download the study: 2010 Annual Global Corporate Default Study And Rating Transitions and, for the European study, click here: 2010 Annual European Corporate Default Study And Rating Transitions