Corporate debt defaults increased in the year – in the 12 months to September, the junk bond default rate was 2.3 per cent, up from 1.6 per cent in 2011.
The decline in credit quality has been widespread, as “nearly 30 per cent of all ratings were in the speculative-grade segment as of September 2012 – a significant jump from just 17 per cent as of year-end 2007,” read the report.
“The likelihood of further downgrades among both sovereigns and corporates in Europe is high,” said the agency.
“The ratings on France, Greece, Portugal, Spain, and Italy, as well as on about 28 per cent of all European corporates, either have a negative outlook or are on credit watch with negative implications.”
However, the report noted one silver lining for firms with poor credit ratings.
“In 2012, investors showed some willingness to increase risk exposure in exchange for better yields, pushing new corporate bond issuance activity to near record highs for both investment-grade and speculative-grade companies. This helped some companies offset immediate funding concerns stemming from weak revenue,” the agency said.