Bankruptcies are steadily increasing in Europe and the United States, but the number has been reached in the old continent highest since the 2008 crisisdue to the high interest rates maintained by ECBwhich make the cost of financing much more expensive, and of difficulties of some financial centers. This is what emerges from the latest report from S&P Global Ratings, which analyzes the state of defaults in Europe in May and since the beginning of the year, also highlighting an increase in distressed trades.
“Year-to-date defaults in Europe remain at the highest levels since 2008″said Nicole Serino, Credit Research & Insights at S&P Global Ratings, explaining that “almost 60% of these defaults they concern stock markets in difficulty” (distressed). “Although we expect the default rate in Europe to remain high – she added – we expect it to stabilize around 3.75% starting from March 2025”.
The trend in May and from the beginning of the year
In May the defaults were 14, bringing the global balance of corporate defaults to 69 this yearwell above the five-year average but below the 71 recorded during this period in 2023.
Year-to-date defaults in Europe remain at the highest levels since 2008 almost 60% can be attributed to the suffering of the stock markets. Although S&P expects the default rate in Europe to remain high, the ratings agency expects it to stabilize around 3.75% in March 2025.
The majority of defaults recorded in May concern United Stateswhich recorded 9 new bankruptcies in the month, which brings the total number of those registered in 2024 to 41 against a total of 45 in 2023. Followed byEuropean Union with 4 new defaults bringing the total to 19, already more than the 13 recorded last year. On both continents the most exposed sector is the media. In the emerging markets only 1 more default was recorded in May, which brings the overall number to 6 and compares with 10 in 2023. Also in this case the media are affected, but also the retail and restaurant, telecommunications and transport sectors
Average among the most affected sectors
Over a third of May's defaults were recorded in the sector media and entertainment. The sector leads the default chart in 2024, as lower-rated issuers continue to grapple with changing consumer preferences, highly leveraged capital structures and looming debt maturities.
The reasons for the proliferation of defaults
In Europe, i persistently high interest rates they make it more difficult for lower-rated issuers to service their debt. Although the European Central Bank began cutting rates by 25 basis points on June 6, persistently high inflation and still uncertain economic growth are maintaining high levels of defaults. Furthermore, the reduction cycle of rates could be slower or include fewer cuts than expected earlier this year.
In addition, the increase in the number of markets in difficulty, over a quarter of which coming from issuers with at least one previous default (re-defaulters) helps justify the increase in defaults in the region. This is likely due to a higher number of issuers rated 'B-' or lower combined with more frequent use of distressed trading platforms by distressed entities.
