Connect with us

Top Stories

European defaults back on the rise as economy stalls and refinancing proves problematic



paul watters

A deteriorating economic environment, tighter bank lending, and the end of temporary relief for borrowers in distress may all contribute to an increasing default rate in 2012, says Paul Watters, Primary Credit Analyst at Standard & Poor’s in London

Uncertainties surrounding European sovereign debt, scarce and expensive debt finance, and the prospect of more than €69 billion of speculative-grade debt maturing over the next two years could drive the European corporate default rate above 6% over the coming quarters.paul watters

Our base-case European speculative-grade default forecast of 6.1% for the full year would equate to 41 companies in our rated universe defaulting by the end of the year, up from 4.8% at the end of 2011. However, in a downside scenario, the default rate may climb to 8.4% or even higher if the economic and financing environment deteriorates further due to a deeper or more protracted recession in Europe.                        

Increasing defaults at the end of 2011
The increase in the default rate to 4.8% in the fourth quarter of 2011 follows a low of 3.7% at the end of the third quarter, which S&P believes marks another turning point in the default cycle. During the 12 months to the end of December 2011, 34 companies defaulted on €19.5 billion of funded debt. Of these, the majority (30) were in S&P’s private credit estimate portfolio, accounting for €15.5 billion of the total debt.                            
From a value perspective, the trailing 12-month rate of defaults by volume of debt outstanding stood at 3.1% at the end of 2011, up from a low of 1.9% at the end of the second quarter of 2011, a little above the 2.9% level that S&P calculated for the end of the fourth quarter in 2010. This is based on S&P’s estimate of the outstanding amount of funded debt, including loans and bonds of €623 billion for those EU30 public and private companies in their datasets, using the latest available accounts.

Within this total, S&P estimates that outstanding loans from private companies in their datasets have fallen to €245 billion, compared with about €354 billion in 2009. We believe this reduction reflects a combination of three factors — prepayments, where leveraged buyouts (LBOs) have been acquired by trade buyers, refinancing of loans in the speculative-grade bond market and restructurings involving loan write-offs and loans no longer held within collateralized loan obligation (CLO) portfolios.

Three reasons marking a turning point
S&P believes that the renewed uncertainty regarding the solvency of certain eurozone sovereigns in the European Economic and Monetary Union (eurozone) since last summer marks a turning point for corporate defaults for at least three reasons.
Firstly, S&P's economists have scaled back their base-case economic forecasts for the eurozone, as well as the U.K. They expect a shallow recession in the first half of 2012 in the eurozone, with countries enduring austerity measures dragging on the still positive growth that is anticipated in Germany and other Northern European countries.                        
Secondly – just as relevant for the default outlook given the high percentage of highly leveraged companies in S&P’s speculative-grade portfolio that still need to refinance over the next two to three years — is the fragile condition of the banking industry that has become more evident over the past few months. Specifically, this includes:

  • An excessive dependence on European Central Bank liquidity due to the freezing up of the interbank market;
  • The limited ability of even top-tier banks to raise unsecured funding in the debt capital markets;
  • The requirement that banks achieve core Tier 1 equity targets of 9% by the end of June 2012. This is prompting a rapid reduction of risk-weighted assets for many major European banks, including the sales of non core businesses; and
  • Banks shifting business priorities back to their core market(s).

Thirdly and somewhat related to the second factor, S&P sees signs that the phoney war of forbearance may be coming to an end. The policy of temporary relief by senior lenders for borrowers in distress is reaching its limits given the proximity to principal maturity dates in 2013-2014 and the pressure on banks to improve the quality of assets on their balance sheets.
For S&P, this implies that senior bank lenders are increasingly likely to adopt a more robust stance to disposing of non core assets or taking appropriate remedial action to address loan exposures — where underperforming businesses with over leveraged balance sheets have approaching maturities. It was always S&P’s view that the default rate over the past two years was artificially depressed by the accommodating behaviour of senior lenders more interested in minimizing book losses while at the same time capitalizing on amendment fees and higher spreads.

Many private credit estimate companies face debt restructuring
Over the past two years many speculative-grade companies — with reasonable operating performance and leverage, and that have public ratings and access to debt capital markets — have been proactive in improving their liquidity position by tapping into the liquid speculative-grade bond market to term out any debt maturities coming due over the next two years.
    In contrast, most companies with private credit estimates are heavily reliant on either internally generated cash flow or debt financing from leveraged counter parties, namely banks and CLOs. Yet, banks currently face the challenges of higher funding costs and a more demanding regulatory environment.
    Existing CLO investors, meanwhile, will have declining capacity to refinance debt of their portfolio companies as they reach the end of their reinvestment periods by 2014. Therefore, in S&P’s view many of the most vulnerable companies have little choice but to trundle on relying on senior lenders to amend covenants as required and to hope that economic and debt market conditions will improve sufficiently to facilitate a viable refinancing before going-concern issues arise.                
S&P believes many of these most vulnerable companies will require debt restructurings a year or more before their term debt matures in 2013-2014. Indeed, as of the end of December 2011, almost 50% of S&P’s private credit estimate portfolio had scores of 'b-' or 'ccc', up from 45% at the end of 2010. A substantial portion of about 55% of the 167 credit estimates that have defaulted since the end of 2007 remain highly vulnerable to defaulting again, meaning that they have a credit estimate of 'b-' or lower.    Consequently, combining both quantitative and qualitative factors into their assessment, and taking account of the more challenging economic outlook for the next one to two years, S&P has slightly revised upward their corporate default projections for 2012.

Top Stories

U.S. inauguration turns poet Amanda Gorman into best seller



U.S. inauguration turns poet Amanda Gorman into best seller 1

WASHINGTON (Thomson Reuters Foundation) – The president’s poet woke up a superstar on Thursday, after a powerful reading at the U.S. inauguration catapulted 22-year-old Amanda Gorman to the top of Amazon’s best-seller list.

Hours after Gorman’s electric performance at the swearing-in of President Joe Biden and Vice President Kamala Harris, her two books – neither out yet – topped’s sales list.

“I AM ON THE FLOOR MY BOOKS ARE #1 & #2 ON AMAZON AFTER 1 DAY!” Gorman, a Los Angeles resident, wrote on Twitter.

Gorman’s debut poetry collection ‘The Hill We Climb’ won top spot in the online retail giant’s sale charts, closely followed by her upcoming ‘Change Sings: A Children’s Anthem’.

While poetry’s popularity is on the up, it remains a niche market and the overnight adulation clearly caught Gorman short.

“Thank you so much to everyone for supporting me and my words. As Yeats put it: ‘For words alone are certain good: Sing, then’.”

Gorman, the youngest poet in U.S. history to mark the transition of presidential power, offered a hopeful vision for a deeply divided country in Wednesday’s rendition.

“Being American is more than a pride we inherit. It’s the past we step into and how we repair it,” Gorman said on the steps of the U.S. Capitol two weeks after a mob laid siege and following a year of global protests for racial justice.

“We will not march back to what was. We move to what shall be, a country that is bruised, but whole. Benevolent, but bold. Fierce and free.”

The performance stirred instant acclaim, with praise from across the country and political spectrum, from the Republican-backing Lincoln Project to former President Barack Obama.

“Wasn’t @TheAmandaGorman’s poem just stunning? She’s promised to run for president in 2036 and I for one can’t wait,” tweeted former presidential candidate Hillary Clinton.

A graduate of Harvard University, Gorman says she overcame a speech impediment in her youth and became the first U.S. National Youth Poet Laureate in 2017.

She has now joined the ranks of august inaugural poets such as Robert Frost and Maya Angelou.

Her social media reach boomed, with her tens of thousands of followers ballooning into a Twitter fan base of a million-plus.

“I have never been prouder to see another young woman rise! Brava Brava, @TheAmandaGorman! Maya Angelou is cheering—and so am I,” tweeted TV host Oprah Winfrey.

Gorman’s books are both due out in September.

Third on Amazon’s best selling list was another picture book linked to politics and projecting hope: ‘Ambitious Girl’ by Vice-President Kamala Harris’ niece, Meena Harris.

(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Lyndsay Griffiths. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit

Continue Reading

Top Stories

Why brands harnessing the power of digital are winning in this evolving business landscape



Why brands harnessing the power of digital are winning in this evolving business landscape 2

By Justin Pike, Founder and Chairman, MYPINPAD

Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.

As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.

As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?

Digital is an essential survival tool, and even more so in a COVID world

No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.

In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.

Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.

The challenges that rapid digital transformation brings to businesses

Justin Pike

Justin Pike

Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.

Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.

The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.

As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.

But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.

A digital world post-COVID

Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.

There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.

Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.

Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.

Continue Reading

Top Stories

Brexit responsible for food supply problems in Northern Ireland, Ireland says



Brexit responsible for food supply problems in Northern Ireland, Ireland says 3

LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.

British ministers have sought to play down the disruption of Brexit in recent days.

“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.

The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.

(Reporting by Guy Faulconbridge; Editing by Tom Hogue)

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

The Beaconsoft story and introducing its one-of-a-kind digital campaign intelligence platform 4 The Beaconsoft story and introducing its one-of-a-kind digital campaign intelligence platform 5
Interviews1 day ago

The Beaconsoft story and introducing its one-of-a-kind digital campaign intelligence platform

By Nigel Bridges, founding CEO of Beaconsoft Limited What were you doing prior to setting up Beaconsoft? Before setting up...

Top 8 Tax Scams to Watch Out For 6 Top 8 Tax Scams to Watch Out For 7
Finance2 days ago

Top 8 Tax Scams to Watch Out For

It is tax time and that means finding the best way to file your taxes and to get a refund...

Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards® 8 Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards® 9
Technology2 days ago

Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards®

Global Banking & Finance Review has awarded Hisham Itani the Chairman and CEO of Resource Group, Technology CEO of the...

Euro zone business activity shrank in January as lockdowns hit services 10 Euro zone business activity shrank in January as lockdowns hit services 11
Business2 days ago

Euro zone business activity shrank in January as lockdowns hit services

By Jonathan Cable LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to...

Volkswagen's profit halves, but deliveries recovering 12 Volkswagen's profit halves, but deliveries recovering 13
Business2 days ago

Volkswagen’s profit halves, but deliveries recovering

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car...

Global chip shortage hits China's bitcoin mining sector 14 Global chip shortage hits China's bitcoin mining sector 15
Business2 days ago

Global chip shortage hits China’s bitcoin mining sector

By Samuel Shen and Alun John SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines...

Iran's oil exports rise 'significantly' despite sanctions, minister says 16 Iran's oil exports rise 'significantly' despite sanctions, minister says 17
Business2 days ago

Iran’s oil exports rise ‘significantly’ despite sanctions, minister says

DUBAI/LONDON (Reuters) – Iran’s oil exports have climbed in recent months and its sales of petroleum products to foreign buyers...

Nissan to source more UK batteries as part of Brexit deal 'opportunity' 18 Nissan to source more UK batteries as part of Brexit deal 'opportunity' 19
Business2 days ago

Nissan to source more UK batteries as part of Brexit deal ‘opportunity’

By Costas Pitas LONDON (Reuters) – Nissan will source more batteries from Britain to avoid tariffs on electric cars after...

Muted recovery for UK retailers in December ends worst year on record 20 Muted recovery for UK retailers in December ends worst year on record 21
Business2 days ago

Muted recovery for UK retailers in December ends worst year on record

By David Milliken and Andy Bruce LONDON (Reuters) – British retailers struggled to recover in December from a partial coronavirus...

Chinese phone maker Honor partners with key chip suppliers after Huawei split 22 Chinese phone maker Honor partners with key chip suppliers after Huawei split 23
Business2 days ago

Chinese phone maker Honor partners with key chip suppliers after Huawei split

By David Kirton SHENZHEN, China (Reuters) – Chinese budget phone maker Honor said on Friday it had signed partnerships with...

Newsletters with Secrets & Analysis. Subscribe Now