S&P Global Ratings has noted that more companies have defaulted on their debt in 2024 than in any start to the year since the global financial crisis.
This trend is attributed to persistent inflationary pressures and elevated interest rates, which are placing significant burdens on the most vulnerable borrowers worldwide.
According to a Financial Times report, this year’s global tally of corporate defaults stands at 29, the highest year-to-date count since the 36 recorded during the same period in 2009, according to the rating agency.
Subdued consumer demand, rising wages, and high interest rates, which hurt more indebted companies, had all contributed to the increase in the number of companies struggling to repay their debt, S&P said.
- “What’s going on is exactly what’s been going on since the [Federal Reserve] began to raise interest rates” in March 2022, said Torsten Slok, chief economist at investment group Apollo.
- “Default rates are rising . . . because higher interest rates continue to bite harder and harder on highly levered companies.”
Companies to have defaulted in February included US ferry and cruise operator Hornblower, US software group GoTo, and UK cinema group Vue Entertainment International.
According to the report, although the majority of defaults were in the US, Europe’s eight since January is twice as many as in any year since 2008 and more than double the number seen in the same period of 2023.
Three US healthcare companies — Radiology Partners, Pluto Acquisition, and Cano Health — defaulted last month, in part due to the implementation of the No Surprises Act, which came into force in 2022 and caps the amount that providers can charge for treatments that patients did not choose and for which they are not insured, S&P said.
Distressed exchanges
The report said fourteen, or roughly half, of the companies that have defaulted across the globe this year were classified by S&P as “distressed exchanges” — agreements that typically involve creditors receiving assets worth less than the face value of their debt, in a scenario that can help borrowers and private equity sponsors avoid expensive bankruptcy proceedings.
Consumer-sensitive stocks are most exposed to the potential for further defaults in 2024, according to S&P analyst Ekaterina Tolstova.
Chemical and healthcare companies may also be at risk over the coming months given the sectors’ high concentration of poorly rated incumbent companies with negative cash flow, she added.
However, an improving macroeconomic outlook and hopes that interest rates will decline in the second half of the year mean S&P expects Europe’s default rate to stabilize at about 3.5% by year-end — in line with 2023’s figure.
