Moody's - Strong financial support provides life extension to expanded US, EMEA Caa-rated universe
Research Announcement:
Moody's - Strong financial support provides
life extension to expanded US, EMEA Caa-rated universe
New York, April 01, 2021 --
• Default cycle less severe than prior recession, despite lower credit ratings
• The percentage of companies rated Caa has surged since the onset of the coronavirus pandemic
• A large proportion of Caas are LBOs, some of which will struggle to recover due to their high
indebtedness at the onset of the pandemic
The number of US and EMEA companies rated Caa and below has grown exponentially since
the coronavirus pandemic took hold early last year, Moody’s Investors Service says in research
published today. Despite the surge, however, broad financial support is stronger than in the past, and
together with lax documentation and macroeconomic growth helps moderate default cycle.
“Among rated US and EMEA companies, the percentage rated Caa has surged since the beginning
of 2020,” said Christina Padgett, a Moody’s Associate Managing Director. “But at the same time,
unprecedented government support and other liquidity lifelines help ensure a larger number remain
out of default.”
Market liquidity will continue to flow as investors reach for yield in a low interest-rate environment,
and the global economy continues to recover from the COVID crisis, Padgett says. In addition,
the proliferation of weak protections in loan and bond documents limit investors’ ability to react
to deterioration in credit quality and will allow some Caa issuers to postpone or avoid a debt
restructuring. All these factors will contribute to a healthier default picture in the months to come.
In the US and EMEA, the business and consumer services sector has been particularly hard
hit during the pandemic. Given its high concentration of LBOs, the sector also has the highest
proportion of Caa-rated companies, with the capital structures of many stretched even before the
pandemic. Similarly, energy, which entered the pandemic already challenged, was also hit hard; both
sectors suffered the most defaults during 2020.
Although many higher-ranked Caa-rated companies will have liquidity options to help them sustain
operations, weaker issuers further down the rating scale aren’t likely to be as lucky, Moody’s says.
Distressed companies will struggle to refinance, given asset managers’ constraints as to how much
Caa-rated corporate family debt they can hold in a portfolio. And while debt service may remain
feasible in this environment, Padgett cautions that issuers will likely be unable to invest adequately in
their operations.
Meanwhile, notwithstanding the ongoing wave of liquidity, loan issuers that default will see lower
recoveries on first-lien loans than they might have previously. The rating agency estimates that first-
lien loan recoveries will on average decline to 50%-59% from an average of 77% between 1988 and
2019.
For more research and insight on the coronavirus (COVID-19) outbreak, please see
moodys.com/
coronavirus
.
Subscribers can access the report, “Leveraged Finance – Corporates: US and EMEA - Strong
financial support provides life extension to expanded Caa universe,” at:
http://www.moodys.com/
researchdocumentcontentpage.aspx?docid=PBC_1265066
NOTE TO JOURNALISTS ONLY: For more information, please call one of our global
press information hotlines: New York +1-212-553-0376 , London +44-20-7772-5456 , Tokyo
+813-5408-4110 , Hong Kong +852-3758-1350 , Sydney +61-2-9270-8141 , Mexico City
001-888-779-5833 , São Paulo 0800-891-2518 , or Buenos Aires 0800-666-3506 . You can also email
us at mediarelations@moodys.com or visit our web site at www.moodys.com.
This publication does not announce a credit rating action. For any credit ratings referenced in this
publication, please see the ratings tab on the issuer/entity page on
www.moodys.com
for the most
updated credit rating action information and rating history.
Christina Padgett
Associate Managing Director
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Lucia Lopez
VP-Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Michael Yavorek
Associate Analyst
Ratings & Research Support
Moody's Investors Service, Inc.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Diana Morejon
Associate Analyst
Ratings & Research Support
Moody's Investors Service Ltd.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their
licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT
OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS,
OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND
INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE
SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN
ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME
DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT.
SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR
INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED
BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK,
INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE
VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND
OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS
OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE
QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS
OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO
NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S
CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND
DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR
SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND
PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY
PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND
OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND
UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY
AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE,
HOLDING, OR SALE.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS
ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS
AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS,
ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT
DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER
PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT
LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR
OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED,
DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR
ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY
MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE
NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED
FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT
IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be
accurate and reliable. Because of the possibility of human or mechanical error as well as other
factors, however, all information contained herein is provided “AS IS” without warranty of any kind.
MOODY'S adopts all necessary measures so that the information it uses in assigning a credit
rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when
appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot
in every instance independently verify or validate information received in the rating process or in
preparing its Publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,
representatives, licensors and suppliers disclaim liability to any person or entity for any indirect,
special, consequential, or incidental losses or damages whatsoever arising from or in connection
with the information contained herein or the use of or inability to use any such information, even if
MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers
is advised in advance of the possibility of such losses or damages, including but not limited to:
(a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant
financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,
representatives, licensors and suppliers disclaim liability for any direct or compensatory losses
or damages caused to any person or entity, including but not limited to by any negligence (but
excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt,
by law cannot be excluded) on the part of, or any contingency within or beyond the control of,
MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers,
arising from or in connection with the information contained herein or the use of or inability to use
any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,
COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF
ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE
BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s
Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and
municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s
Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s
Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from
$1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies
and procedures to address the independence of Moody’s Investors Service credit ratings and credit
rating processes. Information regarding certain affiliations that may exist between directors of MCO
and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and
have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted
annually at
www.moodys.com
under the heading “Investor Relations — Corporate Governance —
Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the
Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited
ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136
972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale
clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access
this document from within Australia, you represent to MOODY’S that you are, or are accessing
the document as a representative of, a “wholesale client” and that neither you nor the entity you
represent will directly or indirectly disseminate this document or its contents to “retail clients” within
the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as
to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or
any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency
subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc.,
a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating
agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization
(“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-
NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated
obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit
rating agencies registered with the Japan Financial Services Agency and their registration numbers
are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including
corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated
by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to
MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging
from JPY125,000 to approximately JPY550,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory
requirements.
