S&P Global Ratings: Selective Defaults Increase

Selective defaults have increased in recent years, which can create a “slippery slope” to future defaults, reported S&P Global Ratings, New York.

In a new non-rating action report, A Rise In Selective Defaults Presents A Slippery Slope, S&P said selective defaults are up to more than 66% of defaults in 2022 from just 25% in 2008.

“While the out-of-court restructurings may offer a temporary reprieve, out-of-court, often lender-led restructurings do not necessarily result in permanent solutions–because more than one-third of issuers that initially selectively defaulted have subsequently re-defaulted,” noted Nicole Serino, associate director of credit research and insights with S&P Global Ratings.

“Additionally, the more selective defaults an issuer has, the greater the chance of further defaults, either by way of a selective default or a general default, with the data highlighting that after an issuer’s third selective default, there is a 43.7% chance the issuer will default again within 48 months,” the report said.

S&P Global Ratings noted rising selective defaults has permeated through most sectors and regions. “Europe has had the highest percentage of selective defaults since 2008, representing 66% of total defaults in the region,” the report said.