MARC today released its 2013 Annual Corporate Default and Rating Transitions Study, which tabulates defaults and changes in ratings for the issuers rated by MARC over the years.
Similar to 2012, MARC recorded only one credit default in 2013, increasing the overall corporate default rate slightly to 1.6% from 1.3% in the previous year due to the decreased sample size of 64 issuers in the beginning of 2013 compared with 75 issuers in the beginning of 2012. Although the downgrade rate fell to 7.8% in 2013 from 13.3% in 2012 as the number of downgrades halved to five issuers, the slower economic growth locally and regionally as well as lingering effects of the global financial crisis continued to weigh on the business operating environment, resulting in downgrades outpacing upgrades for a fourth consecutive year. It is worth noting that one issuer was downgraded from AAA to AA+, marking the second rating downgrade in the AAA cohort on MARC’s records.
Meanwhile, MARC rating stability improved to 90.6%, with the ratings of 58 out of 64 issuers remaining unchanged during the year from 84.0% in 2012, the highest level since 2002, vis-à-vis an average of 85.1% since 2001, on the back of lower rating downgrades and upgrades compared with previous year’s rating activity. Notably, the 2013 rating activity showed that high-yield issuers demonstrated more stability than high-grade issuers with the former and latter having stability rates of 100% and 89.1% respectively. Nonetheless, examining the long-term annual data, the higher rating issuers continued to demonstrate more stability than high-yield issuers with stability averaging 99.6% for AAA, 87.2% for AA, 81.6% for A, 68.8% for BBB, 69.9% for BB and 52.6% for B.
Last but not least, the 1-year cumulative rating transition analysis indicates a strong negative relationship between MARC’s corporate ratings and default rates, where higher credit ratings are associated with lower default rates and vice versa. There are no corporate defaults in the AAA and AA+ rating cohorts in MARC’s rating history. This attests to the strong credibility of top-notch credit ratings assigned by MARC.
For a copy of MARC’s 2013 Annual Corporate Default and Rating Transitions Study, please click here.