The spike in Canadian corporate defaults that hit during the immediate aftermath of the financial crisis has sharply abated, according to a new report from Moody’s Investors Service.
The rating agency says that there were just 16 Canadian corporate defaults during the 2010-2013 period, compared with 28 defaults in 2008 and 2009. And, it reports that the value of defaults in 2010-2013 dropped to $8.6 billion, compared with $22.5 billion during 2008-2009.
“Unlike 2008-2009 defaults, which were dominated by the forest products sector, recent defaults were predominantly in the oil and gas sector, which has contributed 31% of the total defaults and 46% of the total default volume since 2009,” says Sharon Ou, a vice president and senior analyst at Moody’s.
The default rate for Moody’s-rated Canadian issuers dropped to 1.7% in 2013 from 5.1% in 2009, it notes. Among speculative-grade issuers, the Canadian default rate fell to 4.1% in 2013 from 10.5% in 2009, Moody’s says. And, it forecasts that the speculative-grade default rate will finish this year at 2.9%, well below the historical average of 4.7%.
Moody’s says that the average credit quality of Canadian corporate issuers improved in 2010-2011, with the upgrade-to-downgrade ratio rising to 2.8 in 2010 and 1.6 in 2011 from 0.2 in 2009. However, in the past two years, downgrades have been more numerous than upgrades, it says; with the upgrade-to-downgrade ratio dropping to 0.4 in 2013.
Between 1989 and 2013, 117 rated and unrated Canadian issuers defaulted on a total of $76.3 billion in outstanding debt, Moody’s reports. By sector, 29% of the 117 defaults were by issuers in the forest/paper products and metal/mining industries, it says; although in terms of value, 36% of the defaulted debt came from telecom issuers, led by AT&T Canada, which defaulted on $5.6 billion of debt in September 2002.