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More companies have defaulted in 2024 than at any other start of the year since the global financial crisis, according to S&P Global Ratings, as inflationary pressures and high interest rates continue to weigh on the world’s riskiest borrowers.
According to the ratings agency, the global number of corporate defaults this year stands at 29, the highest year-to-date number since the 36 recorded in the same period in 2009.
Subdued consumer demand, rising wages and high interest rates, which have hit the most indebted companies, have contributed to the rise in the number of companies struggling to repay their debt, S&P said.
“What is happening is exactly what has happened since [Federal Reserve] started raising interest rates” in March 2022, said Torsten Slok, chief economist at investment group Apollo. “Default rates are rising. . . because higher interest rates continue to hit highly indebted companies harder and harder.”
Companies that defaulted in February included US ferry and cruise operator Hornblower, US software group GoTo and British film group Vue Entertainment International.
While the majority of defaults have occurred in the United States, the eight defaults in Europe since January are double the number in any year since 2008, and more than double the number recorded in the same period in 2023.
Three US healthcare companies – Radiology Partners, Pluto Acquisition and Cano Health – defaulted last month, partly due to the implementation of the No Surprises Act, which took effect in 2022 and places a cap on the amount that providers they can charge for treatments that patients did not have. choose and for which they are not insured, S&P said.
Fourteen, or about half, of the companies that have defaulted this year around the world have been classified by S&P as “distressed exchanges” – arrangements 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 costly bankruptcy proceedings.
According to S&P analyst Ekaterina Tolstova, consumer-sensitive stocks are most exposed to the risk of further defaults in 2024. Chemicals and healthcare companies could also be at risk in the coming months, given the high concentration in the sectors of incumbent companies with a low rating and negative cash flow, he added.
However, the improving macroeconomic outlook and the hope that interest rates will fall in the second half of the year mean that S&P expects the European default rate to stabilize at around 3.5% by the end of the year, in in line with the 2023 figure.