The number of defaults registered in the first five months of 2020 has already exceeded the 2019 full-year number, said Fitch Ratings recently.
At the current rate, the annual volume of corporate defaults could exceed the record set during the global financial crisis in 2009, the credit rating agency noted.
In the first five months of 2020, 28 non-financial corporate defaults were recorded in the Fitch-rated portfolio, compared to 25 in all of 2019, the company observed.
The corporate sector has been under pressure since the coronavirus crisis and related lockdowns expanded globally, said Fitch adding that while the most stringent levels of lockdown are easing in many jurisdictions, the centre of the pandemic has now shifted to South America where more defaults are expected.
“Our assessment suggests that the pandemic fallout will erase more than US$ 5 trillion in revenue from our global corporate portfolio in 2020, or around 20% of the revenue generated by these companies in 2019,” said Fitch. “This puts significant strain on the credit profiles of affected issuers, and the rate of defaults is likely to remain high throughout 2020. At the current pace, the record annual volume of corporate defaults that occurred during the global financial crisis in 2009 could be topped by the end of 2020.
All defaulters had speculative-grade issuer default ratings (IDR) at the beginning of 2020, with the vast majority concentrated in the 'CCC'-'C' range, according to the company.
More than half of defaults happened in North America, which is reflective of the composition of the global corporate Fitch-rated portfolio by region, said the rating agency, adding that Latin America has the second-largest number of defaults in 2020 due to increased refinancing pressures on speculative-grade issuers in the region.
The transportation sector defaults were concentrated in the airline industry, which is one of the industries worst hit by the coronavirus pandemic, with the number of flights still well below the pre-crisis levels in most economies, Fitch pointed out.
“Although we expect travel restrictions to gradually relax, we anticipate social distancing measures to be implemented at airports and in aircraft cabins, which will delay recoveries in customer confidence and in airlines' cost and operational efficiency,” the firm said.
Oil and gas, as well as metals and mining, companies suffered from significant commodity price drops, leading to increased default numbers, the firm added.