In this month's issue
Distressed exchanges prominent in EMEA
Tuesday, 13 March 2012
Distressed exchanges are likely to continue to represent a prominent proportion of total defaults among non-financial corporates in the Europe, Middle East & Africa region (EMEA) region in 2012-13, says Moody's Investors Service in a Special Comment.
Moody's expect that distressed exchanges will continue to represent a significant proportion of total defaults among non-financial corporates in EMEA.
"Our default rate forecasting model currently projects a trailing 12-month non-financial corporate default rate in the region of approximately three per cent at the end of 2012, which is not materially higher than that in 2011," say Lola Cavanilles and Gunjan Dixit, analysts in Moody's Corporate Finance Group and co-authors of the report.
Given the improved liquidity profiles of many Moody's-rated speculative-grade EMEA corporates, the rating agency believes that few defaults will be prompted by immediate liquidity shortfalls. Likewise, as European jurisdictions generally continue to lack established, trusted and speedy court debt-restructuring processes, the rating agency believes that the incidence of bankruptcies will remain limited by the desire of parties to achieve consensual out-of-court restructurings.
In addition, Moody's anticipates that excessively leveraged companies may use material cash positions to voluntarily address their untenable capital structures ahead of an approaching wall of debt maturities in 2013-14.
Moreover, Moody's notes that, should bond prices fall, companies with unsustainable capital structures may be forced by creditors, or voluntarily tempted, to buy back debt at significant discounts to par, which will help these issuers to avoid a payment default in the near future.
Moody's defines a distressed exchange as an exchange whereby an issuer offers creditors a new or restructured debt, or a new package of securities, cash or assets, that imply a loss relative to the original promise and that has the effect of allowing the issuer to avoid a payment default or bankruptcy filing.