ab10 January 2024Global Research and Evidence LabGlobal StrategyUS/EU Credit Default and Recovery Rate Analysis – December 2023In the December US/EU Credit Default and Recovery Rate Analysis, we update monthly default statistics covering issuers in the following markets: US HY bonds, US Leveraged Loans, European HY bonds and European Leveraged Loans. We also provide revised default forecasts for 2024 in this report.Key Takeaways:1. We are updating our 2024 default forecasts lower (Figure 2): We recently updated our 2024 US Credit Outlook with a view that the probability of a credit recession is now lower and/or will be further out on the horizon. As a result, we lower our US HY/LL issuer default forecast to 3.5/4.0% and EU HY/LL issuer default rates to 2.5/3.0% (Figure 3). Several leading indicators of defaults have either improved or stopped deteriorating in recent months, such as the level of distressed debt across markets (Figures 5&6).2. The number of monthly US Issuer defaults continues to decline (Figures 7&8, 12&13): There were no US HY issuer defaults in December, and only one US LL issuer default: STRATE (bankruptcy). LTM US HY issuer/par (2.5/1.3%) and US LL issuer/par (2.9/1.9%) default rates are little changed from the prior month, but the number of issuer events/default amounts across both markets declined from $39/29bn in 1H 2023 to $22/16bn in the second half of the year. 3. More default activity in Europe (Figures 17&18, 22&23): December saw one EU HY issuer default: STRATE (bankruptcy) the fourth straight month with at least one default. There was also one EU LL issuer default: WITTUR (restructuring), marking third consecutive month with a EU LL issuer default. EU HY issuer/par default rates (1.4/0.9%) are the highest since October 2021. EU LL issuer/par default rates (1.3/1.1%) are also higher on the month, though default rates in both markets are still low in absolute terms.4. Recovery rates are stabilizing except for EU HY: After dipping to 37% in July 2023, the US HY recovery rate has seen a steady, albeit modest, increase. US LL recoveries have also remained at around 45-46% since April of 2023. EU HY recoveries still remain near record lows with very low recoveries from COFP debt, while the EU LL recovery rate is higher after hitting its lowest level since 2009 in September 2023.Report notes:•Default criteria: bankruptcies, distressed exchanges, restructuring and missed payments where financial impairment has occurred.•Recovery rate: based on prices observed on the date of default.(Figures begin on next page)This report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 10. Global StrategyGlobalJames MartinStrategist james.martin@ubs.com +1-212-713 7960Younghoon KimStrategist younghoon...
