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Global defaults in 2020 could exceed 2009 record: Fitch

(ATF) The tally of corporate defaults in the first five months of the year has already topped 2019’s full year total – indicating the deep impact of the coronavirus pandemic on the global economy, a study by Fitch Ratings said.

It said that at the current pace, the annual volume of corporate defaults could exceed the record set during the global financial crisis in 2009.

In January to May 2020, 28 non-financial corporate defaults were recorded in the Fitch-rated portfolio, compared to 25 in all of 2019.

“Our assessment suggests that the pandemic fallout will erase more than US$5 trillion in revenue from our global corporate portfolio in 2020, or around 20% of the revenue generated by these companies in 2019,” it said in its Global Corporate Finance 2019 Transition and Default Study.

“This puts significant strain on the credit profiles of affected issuers, and the rate of defaults is likely to remain high throughout 2020. At the current pace, the record annual volume of corporate defaults that occurred during the global financial crisis in 2009 could be topped by the end of 2020.”

$5 trillion in revenue wiped out

The rating agency estimates the coronavirus pandemic had wiped out over US$5 trillion in revenue from the rated companies in its portfolio in 2020, equivalent to a fifth of the revenues they earned in 2019.

“This puts significant strain on the credit profiles of affected issuers, and the rate of defaults is likely to remain high throughout 2020,” it said.

Fitch said the transportation sector bore most of the defaults brunt as the airline industry is one of the worst hit by the coronavirus pandemic, with the number of flights still well below the pre-crisis levels in most economies.

“Although we expect travel restrictions to gradually relax, we anticipate social distancing measures to be implemented at airports and in aircraft cabins, which will delay recoveries in customer confidence and in airlines’ cost and operational efficiency.

“Oil and gas, as well as metals and mining, companies suffered from significant commodity price drops, leading to increased default numbers,” it said.

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai

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