global weakest links and default rates: the weakest links tally...

Default, Transition, and Recovery:

Global Weakest Links And Default Rates: TheWeakest Links Tally Decreases To 192, BelyingGrowing Risk In Emerging MarketsNovember 6, 2018

Key Takeaways

- The global weakest links tally decreased to 192 as of Oct. 22, 2018, from 196 as of Sept.17, with 12 additions and 16 removals.

- Although both the global and U.S. tallies have decreased since the beginning of the year,the weakest links tally in emerging markets has increased, namely in Asia-Pacific andLatin America, indicating higher default risk among these issuers.

- The consumer products sector leads the weakest links tally with 36, followed by mediaand entertainment with 29 and retail and restaurants with 22.

- Oil and gas and financial institutions account for the largest year-over-year decreases inweakest links, down by 16 and 11, respectively.

- The global trailing-12-month speculative-grade corporate default rate increased to2.27% in September from 2.23% in August.

The global weakest links tally decreased to 192 as of Oct. 22, 2018, following 16 removals and 12additions since Sept. 17. The weakest links tally has been declining in the U.S. region, whereeconomic conditions remain favorable, though risks are increasing (see chart 1). Risk amongChinese real estate developers, however, as well as among Latin American consumer productsand service companies, has increased the weakest links tallies in both Asia-Pacific and LatinAmerica and subsequently emerging markets overall. Since January 2018, Asia-Pacific and LatinAmerican weakest links have increased by 100% and 43%, respectively.

In Europe, the weakest links tally has also increased, particularly over the past six months (to itscurrent tally of 22 issuers from 16 issuers in May 2018), as risks in the region have increased dueto the uncertainty of the final Brexit bill, the European Central Bank's course for interest rates,and Italy's growing deficit.

Default, Transition, and Recovery:

Global Weakest Links And Default Rates: TheWeakest Links Tally Decreases To 192, BelyingGrowing Risk In Emerging MarketsNovember 6, 2018

GLOBAL FIXED INCOME RESEARCH

Diane Vazza

New York

(1) 212-438-2760

[email protected]

Sudeep K Kesh

New York

(1) 212-438-7982

[email protected]

Nicole Serino

New York

+ 1 (212) 438 1396

[email protected]

RESEARCH CONTRIBUTOR

Nivritti Mishra Richhariya

CRISIL Global Analytical Center, anS&P Global Ratings affiliate, Mumbai

www.spglobal.com/ratingsdirect November 6, 2018 1

mailto: [email protected]






Despite this month's decrease, the global weakest links tally is higher than its 10-year monthlyaverage of 178 weakest links. The U.S. leads the weakest links tally with 141 issuers.

Chart 1

Weakest links (defined as issuers rated 'B-' or lower by S&P Global Ratings with negative outlooksor ratings on CreditWatch with negative implications) have historically had default rates eighttimes higher than those of the broader speculative-grade (rated 'BB+' or lower) segment over thepast decade. The relatively low number of weakest links signals a broad expectation for lowdefaults globally. The 192 global weakest links have total rated debt worth approximately $276billion.

We cross-referenced a list of the top 250 corporate obligations held in rated U.S. cash flowcollateralized loan obligations (CLOs) in our weakest links research, and we found that 12 of those250 companies are weakest links. The consumer products sector and retail and restaurants sectordominate the list with nine of the 12. The ratings on these 12 issuers range from 'B-' to 'CCC'. Fourare rated 'B-', seven are rated 'CCC+', and one is rated 'CCC' (see table 1).


Default, Transition, and Recovery: Global Weakest Links And Default Rates: The Weakest Links Tally Decreases To 192, Belying Growing Risk InEmerging Markets

Table 1

Weakest Links Listed In The Top 250 Corporate Obligors In Outstanding Rated U.S.Cash Flow CLOs

OrganizationRank in U.S. CLO

transactions Outlook/CreditWatch Applied rating Sector/subsector

PetSmart Inc. 42 Negative CCC Retail/restaurants

Petco Holdings Inc. 68 Negative CCC+ Retail/restaurants

FrontierCommunications Corp.

71 Negative CCC+ Telecommunications

Serta SimmonsBedding LLC

88 Negative B- Consumer products

Acosta Inc. 110 Negative CCC+ Consumer products

Revlon Inc. 113 Negative CCC+ Consumer products

New Academy HoldingCo. LLC

128 Negative CCC+ Retail/restaurants

Alphabet Holding Co.Inc.

156 Negative B- Consumer products

Solenis InternationalLLC

211 Negative B- Chemicals, packaging, andenvironmental services

CEC Entertainment Inc. 221 Negative B- Retail/restaurants

Blackboard Inc. 223 Negative CCC+ High technology

Del Monte Foods Inc. 246 Negative CCC+ Consumer products

CLO--Collateralized loan obligation. Data as of Oct. 22, 2018. Source: S&P Global Fixed Income Research.

This Month's Weakest Links

Among speculative-grade issuers, weakest links account for the largest share of defaults,particularly during periods of economic stress. During the 2001-2002 economic downturn, morethan half of weakest links defaulted within 12 months, and nearly 65% defaulted within threeyears. By contrast, about 10% of all speculative-grade-rated issuers defaulted within 12 months,and about 23% defaulted within three years.

Default rates among weakest links are typically more volatile than those among allspeculative-grade issuers over both one- and three-year time frames, and they are about eighttimes higher on average globally. In the U.S. and emerging markets, they are nine times higher onaverage, while in other developed markets, they are six times higher on average, and in Europe,they are eight times higher.

As of Sept. 30, 2018, the trailing-36-month weakest links default rate was 44.2%, compared witha speculative-grade default rate of 8.0% (see chart 2). In addition, the trailing-12-month weakestlinks default rate was 23.8%, compared with a speculative-grade default rate of 2.3%. Due to thesmall sample size of weakest link issuers, the weakest links default rate is notably volatile. Toprovide more effective analysis, we have taken the mean 12-month default rates for weakest linksby each region (see table 2).



Chart 2

Table 2

12-Month Default Rates By Region

(%)

Region Weakest links default rate All speculative-grade default rate

Global 24.28 2.27

U.S. 26.03 2.71

Europe 24.63 1.95

Emerging markets 17.75 1.42

Other developed 31.71 3.23

Data as of Sept. 30, 2018. Source: S&P Global Fixed Income Research.

The number of weakest links has declined significantly from the record high of 300 in April 2009,when credit markets were much more volatile. Weakest links are lower-rated issuers, so it is nosurprise that many defaulting companies were previously weakest links. During the 2001recession, a sharp rise in defaults accompanied the rise in weakest links. More recently, amongpublicly rated companies, weakest links were 70 of the 87 defaulters (excluding nine confidentiallyrated issuers) in 2017, 105 of the 148 in 2016, 71 of the 98 in 2015, 42 of the 52 in 2014, 50 of the65 in 2013, and 45 of the 63 in 2012. So far in 2018 (through Oct. 22), 52 of 60 defaulters werepreviously weakest links.

As of Sept. 30, 2018, weakest links accounted for 5.55% of speculative-grade issuers globally (see



chart 3). Since the third quarter of 2016, the ratio of weakest links to total speculative-gradeissuers has declined as the number of rated speculative-grade issuers has increased and thenumber of weakest links has decreased (see chart 4).

When we look at the reasons behind the recent decrease in weakest links, we notice that in 2009,2015, and 2016, defaults, largely due to economic stress, were the primary reason for issuersbeing removed from the weakest links tally. On the other hand, for the years directly following aperiod of economic stress, including 2010 and 2017, outlook and CreditWatch changes andupgrades were the primary reasons for weakest link removals (see chart 5).

Chart 3



Chart 4

Chart 5

Since our last report, we removed 16 issuers from our list of weakest links (see table 3), eight ofwhich are from the U.S. region (which includes Bermuda and the Cayman Islands). By sector,utilities led weakest link removals with five, followed by oil and gas with four. In the U.S. oil andgas sector, access to the capital markets and pricing terms have significantly improved, but



volatile oil prices may limit some of the sector's attractiveness from an investing standpoint. Thisvolatility, along with significant maturities in the next couple of years, could prove problematic foran industry still recovering from its recent downturn. Five of the 16 issuers removed haddefaulted.

The eight removals from the U.S. region were spread across the utility sector, with three; the oiland gas sector, with two; and the capital goods, consumer products, and retail and restaurantssectors, with one each. Out of the remaining eight removals, four belong to the Eastern Europe,Middle East, and Africa (EEMEA) region; two belong to Latin America; one belongs to Canada; andone belongs to Europe. These issuers were from the financial institutions, oil and gas, utility, andhigh technology sectors.

Table 3

Weakest Link Removals

Issuer Sector Region Reason for removal

FR Dixie Acquisition Corp. Capital goods U.S. Default

Northern Oil and Gas Inc. Oil and gas U.S. Change in outlook or CreditWatch

REGION Investment Co. AO Financial institutions EEMEA Rating withdrawn

Southcross Holdings Borrower L.P. Utility U.S. Change in outlook or CreditWatch

Ensco PLC Oil and gas Europe Change in outlook or CreditWatch

W&T Offshore Inc. Oil and gas U.S. Upgraded and change in outlook orCreditWatch

International Bank ofSaint-Petersburg

Financial institutions EEMEA Default

Vestel Elektronik Sanayi Ve TicaretA.S.

High technology EEMEA Downgraded and change in outlook orCreditWatch

Azure Midstream Energy LLC Utility U.S. Rating withdrawn

David's Bridal Inc. Consumer products U.S. Selective default

Offshore Drilling Holding S.A. Utility Latin America Change in outlook or CreditWatch

Sears Holdings Corp. Retail/restaurants U.S. Default

Prowler Acquisition Corp. Utility U.S. Change in outlook or CreditWatch

Andino Investment Holding S.A.A. Utility Latin America Change in outlook or CreditWatch

AsiaCredit Bank JSC Financial institutions EEMEA Rating withdrawn

Jupiter Resources Inc. Oil and gas Canada Default

EEMEA--Eastern Europe, Middle East, and Africa. Data as of Oct. 22, 2018. Source: S&P Global Fixed Income Research.

Meanwhile, we added 12 issuers to our list of weakest links (see table 3), eight of which are fromthe U.S., followed by two from Latin America and one each from Europe and EEMEA. The mediaand entertainment and chemicals, packaging, and environmental services sectors led theadditions with three each. Of the total additions, eight were either downgraded or downgradedwith a change in outlook or CreditWatch, and another three were added after the outlooks wererevised to negative or the ratings were placed on CreditWatch with negative implications.



Table 4

Weakest Link Additions

Issuer Sector Region Reason for addition

UFS Holdings Inc. Chemicals, packaging, andenvironmental services

U.S. Downgraded and change in outlookor CreditWatch

Blackboard Inc. High technology U.S. Change in outlook or CreditWatch

Fort Dearborn Holding Co.Inc.

Chemicals, packaging, andenvironmental services

U.S. Change in outlook or CreditWatch

Anchor Glass Container Corp. Chemicals, packaging, andenvironmental services

U.S. Downgraded and change in outlookor CreditWatch

Avatar Holdco LLC Media and entertainment U.S. Downgraded and change in outlookor CreditWatch

Diamond ResortsInternational Inc.

Media and entertainment U.S. Downgraded

Metrogas S.A. Utility LatinAmerica

Downgraded and change in outlookor CreditWatch

Southcross Energy PartnersL.P.

Utility U.S. Parent

CMC di Ravenna SocietaCooperativa

Capital goods Europe Downgraded

Dogus Holding A.S. Financial institutions EEMEA Downgraded

S.A. Usina Coruripe Acucar eAlcool

Consumer products LatinAmerica

Downgraded

Information Resources Inc. Media and entertainment U.S. Change in outlook or CreditWatch


Of the issuers that became weakest links, the largest share (24.61%) were downgraded to 'B-'from 'B'. This one-notch downgrade is common among weakest links; approximately 36.65% ofweakest links were previously rated one notch higher (see tables 5 and 6). Meanwhile, 25.65% ofweakest links resulted from a multiple-notch downgrade, and 22.51% of weakest links gainedthat status because of a revised outlook or CreditWatch status.

Table 5

Weakest Links: Current Rating Versus Previous Rating

(%)

Rating B- CCC+ CCC CCC- CC C

BB+ 0.00 0.00 0.00 0.00 0.00 0.00

BB 0.00 0.00 0.00 0.00 0.00 0.00

BB- 0.00 0.00 0.00 0.00 0.00 0.00

B+ 1.57 0.52 0.52 0.00 0.00 0.00

B 24.61 10.47 4.19 0.00 1.05 0.00

B- 19.37 8.90 4.71 1.57 0.52 0.00

CCC+ 0.00 3.14 2.62 0.52 0.00 0.00

CCC 0.00 0.00 0.00 0.52 0.00 0.00



Table 5

Weakest Links: Current Rating Versus Previous Rating (cont.)

(%)

Rating B- CCC+ CCC CCC- CC C

CCC- 0.00 0.00 0.00 0.00 0.00 0.00

CC 0.00 0.00 0.00 0.00 0.00 0.00

C 0.00 0.00 0.00 0.00 0.00 0.00

SD 0.52 5.76 2.62 1.05 1.05 0.00

D 0.00 0.52 0.00 0.00 0.00 0.00

Other* 2.09 0.52 1.05 0.00 0.00 0.00

*Entities that are newly rated or were previously not rated. SD--Selective default. Data as of Oct. 22, 2018. Source: S&P Global Fixed IncomeResearch.

Table 6

Matrix Summary

(%)

Magnitude of rating change Upgraded Downgraded Unchanged*

One notch 0.00 36.65 --

Multiple notches 0.00 25.65 --

Unchanged* -- -- 22.51

Note: Excludes transition to/from 'D', 'SD' (selective default), newly rated, and not rated. *Only CreditWatch or outlook changed. Data as of Oct.22, 2018. Source: S&P Global Fixed Income Research.

The consumer products sector leads the overall weakest links tally with 36, followed by the mediaand entertainment sector with 29 and the retail and restaurants sector with 22 (see chart 6).Together, the consumer products, media and entertainment, and retail and restaurants sectorsaccount for 45.3% of weakest links. Of the 36 weakest links in consumer products, 28 (78%) arebased in the U.S. Even after years of cost cutting due to increased competition from onlineretailers and shifts in consumer tastes, U.S. consumer goods companies are still facing pressureon profit margins.



Chart 6

The risks associated with ratings are typically monotonic, meaning a decrease in ratingcorresponds with a subsequent increase in credit risk, which is not necessarily symmetric at lowrating levels. For example, according to our "2017 Annual Global Corporate Default Study," roughly53.6% of global corporate issuers rated 'B-' remained at that rating level over a one-year period,compared with just 43.5% in the 'CCC' and lower rating categories.

Current geopolitical factors, including political uncertainty related to a potential trade warbetween the world's biggest economies (the U.S. and China) and Britain's exit from the EU, havecreated market volatility, which could negatively affect ratings at the lowest end of the ratingsscale. Should tides change for the worse, we can expect the lowest-rated companies to faceadditional downgrades or even defaults, while ratings at the upper end of the spectrum should bebetter placed to navigate these uncertainties. The number of weakest links has decreased on ayear-over-year basis, to 192 in October from 205 at this time last year.

The U.S. region held 73% of weakest links (with 141) as of Oct. 22 (see table 7), the sameproportion as a year ago. The consumer products, retail and restaurants, and media andentertainment sectors together account for more than 50% of the U.S.-based weakest links. Byvolume, the 141 U.S.-based weakest links account for $218 billion, or 79.2%, of the total debt ofweakest links. Europe has the second-highest concentration of weakest links, with 22 (11%) andtotal debt of $44 billion.

Weakest links either decreased or remained stable on a month-over-month basis in October in all



regions except for Europe, where the tally increased by one. As of Oct. 22, the U.S. regionaccounted for the highest year-over-year decrease in weakest links, down to 141 from 150; thetally is lower than its one-year monthly average of 144 but higher than its five-year monthlyaverage of 125.

Table 7

Geographical Distribution Of Weakest Links

Region Total number Current distribution (%) Distribution 12 months ago (%)

U.S. 141 73.44 73.17

Europe 22 11.46 10.24

Latin America 10 5.21 3.90

EEMEA 7 3.65 6.34

Canada 6 3.13 3.41

Asia-Pacific 6 3.13 2.93

Total 192 100 100


Chart 7



Monthly Movements In Default Rates

The global trailing-12-month speculative-grade corporate default rate increased to 2.27% inSeptember from 2.23% in August (see chart 8). The U.S. speculative-grade corporate default ratedecreased to 2.71% in September from 2.79% in August. The European speculative-grade defaultfell to 1.95% from 1.96%, while the emerging markets default rate rose to 1.42% from 1.19%,boosted by an increase in the default rate of the Latin America region (see chart 9).

Chart 8



Chart 9

Among U.S.-based industries, the energy sector has the highest default rate, at 8.00%, althoughthis rate has dropped considerably from 12.85% last year. The other sectors with high defaultrates are consumer services, at 4.91%, and forest products and homebuilders, at 3.13% (see table9).

Table 9

Trailing-12-Month Corporate Default Rates By Industry (U.S. Speculative-GradeIssuers Only)*

(%) Sept. 30, 2018 Aug. 31, 2018 Six months ago 12 months ago

Financial

Financial institutions 2.13 2.11 2.13 1.06

Insurance 1.64 1.64 1.67 0.00

Nonfinancial

Aerospace/auto/capital goods/metals 1.28 1.30 2.59 1.74

Consumer/service 4.91 5.28 5.88 3.19

Energy and natural resources 8.00 8.09 10.17 12.85

Forest and buildingproducts/homebuilders

3.13 3.16 3.30 0.00

Health care/chemicals 1.99 2.01 1.53 2.01

High tech/computers/office equipment 0.54 0.55 0.56 1.84

Leisure time/media 1.78 1.78 3.49 2.56

Real estate 0.00 0.00 0.00 0.00

Telecommunications 2.67 2.74 1.32 0.00



Table 9

Trailing-12-Month Corporate Default Rates By Industry (U.S. Speculative-GradeIssuers Only)* (cont.)

(%) Sept. 30, 2018 Aug. 31, 2018 Six months ago 12 months ago

Transportation 0.00 0.00 0.00 6.98

Utilities 0.00 0.00 0.00 7.14

Note: The U.S. default rate includes issuers incorporated in U.S. tax havens--e.g., Bermuda and the Cayman Islands. Data as of Sept. 30, 2018.Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

As of Oct. 22, the 2018 global corporate default tally totaled 60 (excluding eight confidentialdefaults), accounting for $118 billion in debt, and 37 of the 60 defaulted issuers are from the U.S.region. At this point last year, 67 publicly rated issuers had defaulted (with debt totaling $56billion). In total, 96 issuers defaulted in 2017 (totaling $104.6 billion), 162 in 2016 ($239.8 billion),106 in 2015 ($107.9 billion), 60 in 2014 ($91.5 billion), 79 in 2013 ($97 billion), and 85 in 2012($86.7 billion).

Since our last weakest links report, eight publicly rated issuers defaulted.

Table 10

Global Corporate Defaults This Reporting Period*

Company Country IndustryDebt

(mil. $) Default date From ToWeakestlink

Legacy Reserves L.P. U.S. Energy and natural resources 850 9/21/2018 CC SD Yes

Jupiter Resources Inc. Canada Energy and natural resources 1,125 10/1/2018 CCC+ D Yes

China Huayang Economicand Trade Group Co. Ltd.

China Aerospace/auto/capitalgoods/metals

0 10/2/2018 B+ SD No

Astaldi SpA Italy Aerospace/auto/capitalgoods/metals

869 10/2/2018 CCC- D No

FR Dixie Acquisition Corp. U.S. Aerospace/auto/capitalgoods/metals

280 10/10/2018 CCC D Yes

Sears Holdings Corp. U.S. Consumer/service 2,045 10/15/2018 CCC- D Yes

David's Bridal Inc. U.S. Consumer/service 790 10/16/2018 CCC- SD Yes

International Bank ofSaint-Petersburg

Russia Financial institutions 0 10/17/2018 B- D Yes

*Excludes confidential issuers. SD--Selective default. Data as of Oct. 22, 2018. Sources: S&P Global Fixed Income Research and S&P GlobalMarket Intelligence's CreditPro®.

S&P Global Market Intelligence reports that in the leveraged loan segment, the trailing-12-monthinstitutional loan default rate (based on the number of loans) fell to 1.59% in September from1.71% in August (see chart 10). The leveraged loan default rate has declined significantly since2009 because of stabilizing credit markets and increased economic activity. The loan distressratio (the percentage of loans trading below 80 cents on the dollar) fell to 2.16% in Septemberfrom 2.17% in August.



Chart 10

U.S. Speculative-Grade Default Forecast

S&P Global Fixed Income Research expects the U.S. trailing-12-month speculative-gradecorporate default rate to decrease to 2.25% by June 2019 from 3% in June 2018 and 3.9% in June2017 (see chart 11). Our forecast is lower than the current default rate, and nearly all leadingindicators of future defaults point to a falling default rate.

However, the current favorable credit cycle, fed by loose monetary policy and marked by some ofthe lowest borrowing costs in the past 30 years, is showing signs of age. The Federal Reserve hasbeen gradually raising interest rates, which has led to a slow increase in borrowing costs forcorporate issuers, particularly this year. And while speculative-grade bond issuance has beenfalling off relative to last year, leveraged loan issuance remains on track for anotherrecord-setting year. This shift from fixed-coupon bonds to floating-rate loans has coincided withthe Fed's rate increases as investors demand more protection from rising rates. Still, covenantsremain easy on most leveraged loans, giving a final push to extend the current credit cycle for a bitlonger (see "Despite An Aging Credit Cycle, The U.S. Speculative-Grade Corporate Default RateCould Fall To 2.25% By June 2019," Aug. 27, 2018).



Chart 11

Macroeconomic Sources Of Default Rates

The U.S. speculative-grade composite spread tightened to 396 basis points (bps) as of Oct. 22,2018, lower than 407 bps as of Oct. 23, 2017, and in line with the downward trend that hasprevailed since 2016. The speculative-grade composite spread reached a peak of 947 bps inFebruary 2016. The U.S. investment-grade composite spread also contracted in October, to 151bps as of Oct. 22 from 150 bps in our last report, but is higher than the spread of 144 bps as of Oct.23, 2017.

The U.S. distress ratio expanded to 5.8% as of Sept. 13, 2018, from 5.7% as of Aug. 15. The retailand restaurants sector led with the most new distressed issues in the month, all from J.C. PenneyCo. Inc., and the sector now leads with a distress ratio of 16.1%. Over the past 10 years, thehighest U.S. distress ratios have been concentrated among six sectors: oil and gas; metals,mining, and steel; retail and restaurants; consumer products; financial services; andtelecommunications. So far in 2018, the U.S. distress ratio has been relatively stable, averaging5.6%. An overall decrease in the distress ratios of the oil and gas, consumer products, and retailand restaurants sectors since the start of the year has offset an increase in the distress ratios ofthe high technology and telecommunications sectors (see "Distressed Debt Monitor: J.C. PenneyBoosts The Retail Sector's Distress Ratio To The Lead," Sept. 27, 2018).



Table 11

Historical Default Cycle Characteristics

--Default cycle----Default rate

(%)-- --Default rate change (%)--

Trough Peak Length (years) At trough At peak Trough to peak 12 months after trough

5/31/1989 7/31/1991 2.17 2.64 12.54 9.90 3.81

3/31/1995 3/31/1996 1.00 1.68 4.06 2.38 2.38

4/30/1997 4/30/2002 5.00 1.31 10.82 9.51 1.71

12/31/2007 11/30/2009 1.90 1.00 11.50 10.50 3.09

Average 2.52 1.66 9.73 8.07 2.75

Source: S&P Global Fixed Income Research.

The U.S. economy grew at an annualized rate of 4.2% in the second quarter of 2018, according tothe "third" estimate released by the Bureau of Economic Analysis. In the first quarter of 2018, realGDP increased 2.2%. Industrial production rose by 0.3% in September, which is about the samerate of change as in the previous two months. The unemployment rate--historically a laggingindicator--declined to 3.7% in September from 3.9% in August.

According to the Bureau of Labor Statistics, total nonfarm payroll employment edged up by134,000 in September. The manufacturing Purchasing Managers' Index (PMI) contracted to 59.8from 61.3 in August. New orders contracted to 61.8 in September from 65.1 in August, and theproduction index increased to 63.9 from 63.3. The employment index widened to 58.8 from 58.5.Supplier deliveries fell to 61.1 from 64.5, and inventories contracted to 53.3.



Chart 12

In the eurozone, seasonally adjusted GDP rose by 0.4% in the second quarter of 2018, comparedwith the first quarter. In August 2018, the unemployment rate was 8.1%, down from 8.2% in July2018 and from 9.0% in August 2017. Month over month, seasonally adjusted industrial productionrose by 1.0% in the euro area in August; industrial production increased by 0.9% in August 2018 ascompared with August 2017 (see chart 13). The eurozone PMI for the manufacturing sector fell to53.2 in September from 54.6 in August, indicating the concern in the region over global trade andtariffs.



Chart 13

Monitoring The Pipeline Of Low-Rated Issuance

In the fourth quarter of 2018 through Oct. 22, 22 issues ($13 billion) came to market, as comparedwith 123 issues ($68 billion) in the third quarter, 183 issues ($87 billion) in the second quarter, and211 issues ($112 billion) in the first quarter. In the fourth quarter of 2017, 243 issues ($124 billion)came to market, compared with 208 issues ($113 billion) in the third quarter, 240 issues ($121billion) in the second quarter, and 283 issues ($151 billion) in the first quarter. In total, 974 issuesworth $510 billion came to market globally in 2017, which is significantly higher than the total of622 issues worth $351 billion in full-year 2016.

In the U.S., eight issues ($4 billion) came to market in the fourth quarter of 2018 through Oct. 22,compared with 62 issues ($37 billion) in the third quarter, 69 issues ($38 billion) in the secondquarter, and 95 issues ($54 billion) in the first quarter. In the fourth quarter of 2017, 112 issues($57 billion) came to market, compared with 99 issues ($55 billion) in the third quarter, 105 issues($52 billion) in the second quarter, and 130 issues ($73 billion) in the first quarter. Issuance in2017 was stronger than in 2016, with 446 issues ($237 billion) coming to market in 2017 and 316issues ($188 billion) coming to market in 2016.

In Europe, 11 issues ($8 billion) came to market in the fourth quarter of 2018 through Oct. 22,compared with 42 issues ($25 billion) in the third quarter, 63 issues ($33 billion) in the secondquarter, and 63 issues ($37 billion) in the first quarter. European issuance was higher in 2017 thanin 2016.

As a proportion of total speculative-grade issuance, new issues rated 'B-' or lower during thetrailing six months widened to 28.24% in September from 22.92% in August (see chart 14). In



September, 38.46 % of new U.S. speculative-grade issues were rated 'B-' or lower; on an annualbasis, it was 25.56% in 2017, 16.77% in 2016, 22.45% in 2015, 30.38% in 2014, 30.73% in 2013,and 32.88% in 2012.

Chart 14

We closely monitor the issues S&P Global Ratings rates 'B-' or lower because, in our view, thesedemonstrate investors' appetite (or lack thereof) for absorbing riskier assets. Issuers rated at thisend of the ratings spectrum are usually more prone to default and are often the first to lose accessto financing when market liquidity recedes. Over the long term (1981-2017), an average of 7.17%of all global issuers rated 'B-' defaulted within 12 months, and the average default rate was muchhigher for issuers rated lower than 'B-'.

The average 12-month transition to default declines for higher-rated issuers (for example, 2.08%for issuers rated 'B+' and 0.99% for issuers rated 'BB-'). A spike in issuance rated 'B-' or lower in1997-1999 led to an increase in defaults in 2001. During this period, the share ofspeculative-grade-rated companies with issues rated 'B-' or lower consistently exceeded 30%. Anincrease in issues rated 'B-' or lower in 2003-2007 was an early warning of the credit deteriorationand default risk in 2008 and 2009. For more details, please see "2017 Annual Global CorporateDefault Study And Rating Transitions," published April 5, 2018.



Table 12

Issuers Rated 'B-' Or Lower With Negative Outlooks Or Ratings On CreditWatch With Negative Implications

RatingOutlook/CreditWatchplacement Subsector Issuer

Parentcompany

Newto thelistthismonth

Outlook/CreditWatchchange

Debt(mil.US$) Country Region

B- CreditWatch negative Capital goods CMC di RavennaSocietaCooperativa

Yes 659 Italy Europe

B- CreditWatch negative Consumer products The Talbots Inc. Yes 585 U.S. U.S.

B- CreditWatch negative Financialinstitutions

Dogus HoldingA.S.

Yes - Turkey EEMEA

B- CreditWatch negative Homebuilders/realestate companies

O1 PropertiesLtd.

579 Cyprus Europe

B- CreditWatch negative Media andentertainment

DeluxeEntertainmentServices GroupInc.

880 U.S. U.S.

B- CreditWatch negative Media andentertainment

InformationResources Inc.

Yes 1,250 U.S. U.S.

B- CreditWatch negative Metals, mining, andsteel

PetropavlovskPLC

- Russia EEMEA

B- CreditWatch negative Oil and gas CanbriamEnergy Inc.

350 Canada Canada

B- Outlook negative Automotive AP ExhaustIntermediateHoldings LLC

630 U.S. U.S.

B- Outlook negative Automotive SK HoldCo LLC 1,370 U.S. U.S.

B- Outlook negative Automotive Tesla Inc. 5,078 U.S. U.S.

B- Outlook negative Capital goods Aptim Corp. 515 U.S. U.S.

B- Outlook negative Capital goods CLISA-CompaniaLatinoamericanadeInfraestructura& Servicios S.A.

318 Argentina LatinAmerica

B- Outlook negative Capital goods CrosbyWorldwide Ltd.

- U.K. Europe

B- Outlook negative Capital goods Great LakesDredge & DockCorp.

325 U.S. U.S.

B- Outlook negative Consumer products AlphabetHolding Co. Inc.

3,800 U.S. U.S.

B- Outlook negative Consumer products Fetch HoldcoLLC

- U.S. U.S.

B- Outlook negative Consumer products Frigoglass SAIC 204 Greece Europe

B- Outlook negative Consumer products Grupo KaltexS.A. de C.V.

320 Mexico LatinAmerica



Table 12

Issuers Rated 'B-' Or Lower With Negative Outlooks Or Ratings On CreditWatch With NegativeImplications (cont.)


Parentcompany




B- Outlook negative Consumer products KronosAcquisitionHoldings Inc.

2,290 U.S. U.S.

B- Outlook negative Consumer products Lands' End Inc. 515 U.S. U.S.

B- Outlook negative Consumer products PesqueraExalmar S.A.A.

261 Peru LatinAmerica

B- Outlook negative Consumer products RGIS HoldingsLLC

460 U.S. U.S.

B- Outlook negative Consumer products S.A. UsinaCoruripe Acucare Alcool

Yes - Brazil LatinAmerica

B- Outlook negative Consumer products Serta SimmonsBedding LLC

9,150 U.S. U.S.

B- Outlook negative Consumer products SunOpta Inc. - Canada Canada

B- Outlook negative Chemicals,packaging, andenvironmentalservices

Anchor GlassContainer Corp.

Yes 800 U.S. U.S.


ArubaInvestments Inc.

739 U.S. U.S.


Fort DearbornHolding Co. Inc.

Yes 625 U.S. U.S.


MonitchemHoldco 2 S.A.

786 Luxembourg Europe


SolenisInternationalLLC

4,935 U.S. U.S.


UFS HoldingsInc.

Yes 254 U.S. U.S.

B- Outlook negative Financialinstitutions

Banco Fibra S.A. - Brazil LatinAmerica


Banco Pine S.A. - Brazil LatinAmerica


Diamond BankPLC

200 Nigeria EEMEA



Table 12



Parentcompany





Nurbank JSC 44 Kazakhstan EEMEA


OCWENFinancial Corp.

1,035 U.S. U.S.


StearnsHoldings LLC

250 U.S. U.S.


TMX Finance LLC 900 U.S. U.S.


Turkiston Bank - Uzbekistan EEMEA

B- Outlook negative Health care Aenova HoldingGmbH

1,364 Germany Europe

B- Outlook negative Health care AveannaHealthcare LLC

AveannaHealthcareHoldings Inc.

996 U.S. U.S.

B- Outlook negative Health care BioClinicaHolding I L.P.

2,620 U.S. U.S.

B- Outlook negative Health care CDRH ParentInc.

1,590 U.S. U.S.

B- Outlook negative Health care Lannett Co. Inc. 1,060 U.S. U.S.

B- Outlook negative Health care Medical DepotHoldings Inc.

1,194 U.S. U.S.

B- Outlook negative Health care Quorum HealthCorp.

880 U.S. U.S.

B- Outlook negative Health care Turnstone Midco2 Ltd.

- U.K. Europe

B- Outlook negative High technology ArtesynEmbeddedTechnologiesInc.

250 U.S. U.S.

B- Outlook negative High technology Diebold NixdorfInc.

4,126 U.S. U.S.

B- Outlook negative High technology LexmarkInternational Inc.

LexmarkInternationalII LLC

1,580 U.S. U.S.

B- Outlook negative Homebuilders/realestate companies

GuoruiProperties Ltd.

400 China Asia/Pacific


HydooInternationalHolding Ltd.

160 CaymanIslands

U.S.


PT LippoKarawaci Tbk.

835 Indonesia Asia/Pacific



Table 12



Parentcompany





Yida ChinaHoldings Ltd.

300 China Asia/Pacific

B- Outlook negative Media andentertainment

ALM Media LLC 265 U.S. U.S.


Avatar HoldcoLLC

Yes - U.S. U.S.


Bioplan USA Inc. 1,040 U.S. U.S.


Decade HoldingCo. Inc.

1,120 U.S. U.S.


DiamondResortsInternational Inc.

Yes 1,990 U.S. U.S.


EncompassDigital MediaInc.

340 U.S. U.S.


Extreme ReachInc.

550 U.S. U.S.


Intralot S.A. 1,147 Greece Europe


LD IntermediateHoldings Inc.

930 U.S. U.S.


PGX HoldingsInc.

555 U.S. U.S.


RentPath LLC 1,167 U.S. U.S.


Tornante - MDPJoe Holding LLC

135 U.S. U.S.


TravelexHoldings Ltd.

530 U.K. Europe


Urban One Inc. 1,035 U.S. U.S.

B- Outlook negative Oil and gas CompaniaGeneral deCombustiblesS.A.

300 Argentina LatinAmerica

B- Outlook negative Oil and gas Era Group Inc. 200 U.S. U.S.

B- Outlook negative Oil and gas Gulf Finance LLC 1,150 U.S. U.S.

B- Outlook negative Oil and gas HalconResources Corp.

625 U.S. U.S.



Table 12



Parentcompany




B- Outlook negative Oil and gas Parker DrillingCo.

585 U.S. U.S.

B- Outlook negative Oil and gas Pioneer EnergyServices Corp.

175 U.S. U.S.

B- Outlook negative Oil and gas Transocean Ltd. 9,346 Switzerland Europe

B- Outlook negative Retail/restaurants Belk Inc. 1,500 U.S. U.S.

B- Outlook negative Retail/restaurants Beverages &More Inc.

190 U.S. U.S.

B- Outlook negative Retail/restaurants California PizzaKitchen Inc.

365 U.S. U.S.

B- Outlook negative Retail/restaurants CECEntertainmentInc.

1,015 U.S. U.S.

B- Outlook negative Retail/restaurants Penney (J.C.) Co.Inc.

6,568 U.S. U.S.

B- Outlook negative Retail/restaurants PHD GroupHoldings LLC

511 U.S. U.S.

B- Outlook negative Retail/restaurants Pier 1 ImportsInc.

200 U.S. U.S.

B- Outlook negative Retail/restaurants Red LobsterIntermediateHoldings LLC

380 U.S. U.S.

B- Outlook negative Telecommunications Global EagleEntertainmentInc.

500 U.S. U.S.

B- Outlook negative Telecommunications IridiumCommunicationsInc.

360 U.S. U.S.

B- Outlook negative Telecommunications Tele ColumbusAG

1,737 Germany Europe

B- Outlook negative Transportation InternationalSeaways Inc.

1,150 MarshallIslands

Asia/Pacific

B- Outlook negative Transportation QualityDistribution Inc.

650 U.S. U.S.

B- Outlook negative Transportation United StatesShipping Corp.

220 U.S. U.S.

B- Outlook negative Utilities FerrellgasPartners L.P.

3,464 U.S. U.S.

B- Outlook negative Utilities Metrogas S.A. Yes - Argentina LatinAmerica



Table 12



Parentcompany




CCC+ CreditWatch negative Retail/restaurants GNC HoldingsInc.

1,254 U.S. U.S.

CCC+ Outlook negative Aerospace anddefense

PhotonisTechnologiesSAS

287 France Europe

CCC+ Outlook negative Capital goods GalapagosHolding S.A.

1,128 Luxembourg Europe

CCC+ Outlook negative Capital goods North AmericanLifting HoldingsInc.

655 U.S. U.S.

CCC+ Outlook negative Consumer products Acosta Inc. 2,865 U.S. U.S.

CCC+ Outlook negative Consumer products BoparanHoldings Ltd.

1,101 U.K. Europe

CCC+ Outlook negative Consumer products CTI FoodsHolding Co. LLC

510 U.S. U.S.

CCC+ Outlook negative Consumer products Del Monte FoodsInc.

970 U.S. U.S.

CCC+ Outlook negative Consumer products Flavors HoldingsInc.

400 U.S. U.S.

CCC+ Outlook negative Consumer products Indra HoldingsCorp.

245 U.S. U.S.

CCC+ Outlook negative Consumer products J. Crew GroupInc.

ChinosIntermediateHoldings AInc.

2,067 U.S. U.S.

CCC+ Outlook negative Consumer products Lanai Holdings IIIInc.

2,655 U.S. U.S.

CCC+ Outlook negative Consumer products Never Slip TopcoInc.

283 U.S. U.S.

CCC+ Outlook negative Consumer products PyxusInternational Inc.

995 U.S. U.S.

CCC+ Outlook negative Consumer products Revlon Inc. 2,750 U.S. U.S.

CCC+ Outlook negative Consumer products StoneMorPartners L.P.

350 U.S. U.S.

CCC+ Outlook negative Consumer products TOMS Shoes LLC 307 U.S. U.S.

CCC+ Outlook negative Consumer products Winebow GroupLLC

360 U.S. U.S.

CCC+ Outlook negative Financialinstitutions

Corp GroupBanking S.A.

InversionesCorpGroupInterholdLtda.

500 Chile LatinAmerica



Table 12



Parentcompany





SheridanInvestmentPartners I LLC

SheridanHolding Co. ILLC

900 U.S. U.S.


SheridanInvestmentPartners II L.P.

SheridanHolding Co. IILLC

1,188 U.S. U.S.

CCC+ Outlook negative Health care CommunityHealth SystemsInc.

23,352 U.S. U.S.

CCC+ Outlook negative Health care Envigo HoldingsInc.

410 U.S. U.S.

CCC+ Outlook negative Health care New MillenniumHoldco Inc.

1,200 U.S. U.S.

CCC+ Outlook negative High technology Blackboard Inc. Yes 1,673 U.S. U.S.

CCC+ Outlook negative High technology PacteraTechnologyInternationalLtd.

HNA GroupCo. Ltd.

- China Asia/Pacific

CCC+ Outlook negative Homebuilders/realestate companies

HovnanianEnterprises Inc.

1,968 U.S. U.S.


OceanwideHoldings Co. Ltd.

1,000 China Asia/Pacific


Sunshine 100China HoldingsLtd.

- CaymanIslands

U.S.

CCC+ Outlook negative Media andentertainment

Affinion GroupHoldings Inc.

1,873 U.S. U.S.


Black Press Ltd. - Canada Canada


CPI Card GroupInc.

435 U.S. U.S.


GK Holdings Inc. 225 U.S. U.S.


Mood MediaCorp.

376 U.S. U.S.


TES GlobalFinancial S.a.r.l


CCC+ Outlook negative Metals, mining, andsteel

Nyrstar N.V. 975 Belgium Europe

CCC+ Outlook negative Oil and gas CaliforniaResources Corp.

7,821 U.S. U.S.



Table 12



Parentcompany




CCC+ Outlook negative Oil and gas EmberResources Inc.

115 Canada Canada

CCC+ Outlook negative Oil and gas EP Energy LLC 11,700 U.S. U.S.

CCC+ Outlook negative Oil and gas FloatelInternationalLtd.

650 Bermuda U.S.

CCC+ Outlook negative Oil and gas ION GeophysicalCorp.

121 U.S. U.S.

CCC+ Outlook negative Oil and gas SBP Holding L.P. 705 U.S. U.S.

CCC+ Outlook negative Retail/restaurants 99 cents onlystores LLC

684 U.S. U.S.

CCC+ Outlook negative Retail/restaurants BluestemBrands Inc.

BluestemGroup Inc.

580 U.S. U.S.

CCC+ Outlook negative Retail/restaurants Guitar CenterHoldings Inc.

946 U.S. U.S.

CCC+ Outlook negative Retail/restaurants New AcademyHolding Co. LLC

1,825 U.S. U.S.

CCC+ Outlook negative Retail/restaurants P.F. Chang'sChina Bistro Inc.

620 U.S. U.S.

CCC+ Outlook negative Retail/restaurants Petco HoldingsInc.

3,200 U.S. U.S.

CCC+ Outlook negative Retail/restaurants SAL AcquisitionCorp.

2,220 U.S. U.S.

CCC+ Outlook negative Retail/restaurants SSH HoldingsInc. d/b/aSpencer Spirit

670 U.S. U.S.

CCC+ Outlook negative Telecommunications Cell C (Pty) Ltd. 184 South Africa EEMEA

CCC+ Outlook negative Telecommunications FrontierCommunicationsCorp.

19,153 U.S. U.S.

CCC+ Outlook negative Telecommunications Gogo Inc. 1,052 U.S. U.S.

CCC+ Outlook negative Telecommunications Intelsat S.A. 17,385 Luxembourg Europe

CCC+ Outlook negative Telecommunications Premiere GlobalServices Inc.

1,330 U.S. U.S.

CCC+ Outlook negative Transportation CommercialBarge Line Co.

ACL I Corp. 1,150 U.S. U.S.

CCC+ Outlook negative Utilities ESKOM HoldingsSOC Ltd.

6,580 South Africa EEMEA



Table 12



Parentcompany




CCC Outlook negative Capital goods ChinaAutomationGroup Ltd.

30 CaymanIslands

U.S.

CCC Outlook negative Capital goods NESCO LLC 1,050 U.S. U.S.

CCC Outlook negative Capital goods Sprint IndustrialHoldings LLC

241 U.S. U.S.

CCC Outlook negative Consumer products CDR HRBHoldings Inc.

250 U.S. U.S.

CCC Outlook negative Consumer products Charlotte RusseInc.

90 U.S. U.S.

CCC Outlook negative Consumer products CROSSMARKHoldings Inc.

530 U.S. U.S.

CCC Outlook negative Consumer products EvergreenAcqCo1 L.P.d/b/a Savers

715 U.S. U.S.

CCC Outlook negative Consumer products HT IntermediateHoldings Corp.

355 U.S. U.S.

CCC Outlook negative Consumer products Iconix BrandGroup Inc.

- U.S. U.S.

CCC Outlook negative Consumer products New Look RetailGroup Ltd.

1,650 U.K. Europe

CCC Outlook negative Consumer products USJ Acucar eAlcool S/A

275 Brazil LatinAmerica

CCC Outlook negative Chemicals,packaging, andenvironmentalservices

STIInfrastructureSarl


CCC Outlook negative Financialinstitutions

SterlingMid-HoldingsLtd.

745 Jersey Europe

CCC Outlook negative High technology Eastman KodakCo.

420 U.S. U.S.

CCC Outlook negative High technology Triple PointGroup HoldingsInc.

435 U.S. U.S.

CCC Outlook negative Media andentertainment

CheckoutHolding Corp.

1,510 U.S. U.S.


Fuse Media Inc. 484 U.S. U.S.


Lago Resort &Casino

290 U.S. U.S.



Table 12



Parentcompany





MontreignOperating Co.LLC

EmpireResorts, Inc.

520 U.S. U.S.

CCC Outlook negative Metals, mining, andsteel

Wolverine FuelsLLC

385 U.S. U.S.

CCC Outlook negative Oil and gas Legacy ReservesL.P.

1,400 U.S. U.S.

CCC Outlook negative Oil and gas PerpetualEnergy Inc.

26 Canada Canada

CCC Outlook negative Oil and gas Sable PermianResources LandLLC

SablePermianResourcesHoldings LLC

5,534 U.S. U.S.

CCC Outlook negative Retail/restaurants Fresh MarketInc. (The)

925 U.S. U.S.

CCC Outlook negative Retail/restaurants Neiman MarcusGroup LLC (The)

NeimanMarcusGroup LTDLLC

125 U.S. U.S.

CCC Outlook negative Retail/restaurants Payless Inc. 1,400 U.S. U.S.

CCC Outlook negative Retail/restaurants PetSmart Inc. 8,200 U.S. U.S.

CCC Outlook negative Retail/restaurants Steak n ShakeInc.

BiglariHoldings Inc.

220 U.S. U.S.

CCC Outlook negative Telecommunications iQor HoldingsInc.

780 U.S. U.S.

CCC Outlook negative Utilities Public PowerCorp. S.A.

3,128 Greece Europe

CCC Outlook negative Utilities SouthcrossEnergy PartnersL.P.

SouthcrossHoldingsBorrower LP

Yes 450 U.S. U.S.

CCC- Outlook negative Capital goods API HeatTransfer Co.

265 U.S. U.S.

CCC- Outlook negative Consumer products FULLBEAUTYBrands HoldingsCorp.

FULLBEAUTYBrands Inc.

1,165 U.S. U.S.

CCC- Outlook negative Consumer products PFS HoldingCorp.

390 U.S. U.S.

CCC- Outlook negative Media andentertainment

Johnston PressPLC

293 U.K. Europe

CCC- Outlook negative Metals, mining, andsteel

Imperial MetalsCorp.

325 Canada Canada



Table 12



Parentcompany




CCC- Outlook negative Oil and gas HornbeckOffshoreServices Inc.

1,125 U.S. U.S.

CCC- Outlook negative Oil and gas MIE HoldingsCorp.

500 CaymanIslands

U.S.

CC Outlook negative Financialinstitutions

CommunityChoice FinancialInc.

437 U.S. U.S.

CC Outlook negative Media andentertainment

LBI Media Inc. LBI MediaHoldings Inc.

327 U.S. U.S.

CC Outlook negative Media andentertainment

MonitronicsInternational Inc.

1,685 U.S. U.S.

CC Outlook negative Oil and gas Ultra PetroleumCorp.

2,175 U.S. U.S.

CC Outlook negative Utilities EmpireGenerating Co.LLC

460 U.S. U.S.


Related Research

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- David's Bridal Inc. Downgraded To 'SD' From 'CCC-' On Skipped Interest Payment, Oct. 16, 2018

- Sears Holdings Corp. Downgraded To 'D' On Bankruptcy Filing, Oct. 15, 2018

- FR Dixie Acquisition Corp. Ratings Lowered To 'D' Following Missed Interest And PrincipalPayments On Credit Facility, Oct. 10, 2018

- China Huayang Economic and Trade Group Co. Ltd. Rating Lowered To 'SD' From 'B+' On MissedPrincipal And Coupon Payments, Oct. 2, 2018

- Italy-Based Engineering And Construction Group Astaldi SpA Downgraded To 'D' On ApplyingFor Composition With Creditors, Oct. 2, 2018

- Jupiter Resources Inc. Downgraded To 'D' From 'CCC+' On Missed Interest Payment, Oct. 1,2018

- Legacy Reserves L.P. Rating Lowered To 'SD' From 'CC' On Distressed Debt Exchange; IssueRating Lowered To 'D', Sept. 21, 2018



- Turkey Long-Term Foreign Currency Rating Lowered To 'B+' On Implications Of Extreme LiraVolatility; Outlook Stable, Aug. 17, 2018

- U.S. Midyear Corporate Outlook: Peak, Plateau, Or Peril? As The Cycle Matures, A StableOutlook For Now, Aug. 6, 2018

- Global Refinancing Study--Over $11 Trillion In Rated Corporate Debt Is Set To Mature Through2023, July 26, 2018

This report does not constitute a rating action.





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