EU default rates hit record high in Q2, says S&P

Rating agency Standard and Poor’s (S&P) said speculative-grade default rates in the European Union (EU) soared to a record high in the second quarter. The EU recorded a default rate of 5.11% in the second quarter, surpassing both the global and US default rates, which were 2.54% and 2.39% respectively.

According to the S&P report, the default rate remained high due to a spike in speculative-grade issuance in previous years combined with the challenging environment faced by telecommunications issuers. The report projected that default rates would remain high for the remainder of the year but will fall off next year after many of the weaker companies have defaulted.

“Most of the credit deterioration in the first half was attributable to telecommunications and media issuers. The rising default rates affirm our downbeat expectation with regard to credit quality,” said S&P in a statement.

S&P added that the “typical three-year lag between issuance since 1999 will lead to reduced default volume next year", but also warned that “improvements in corporate credit quality will be constrained if balance sheet repairs, exacerbated by uncertain cashflows and highly volatile equity markets, take longer than expected".