The indicator that predicts Bankruptcy risk skyrockets in Europe. Since January, the value has climbed exponentially from 3.3% to 21.2% todayaccording to what emerges from a report by the financial analysis firm CreditSight and which is echoed Expansion.
The current level for the Old Continent is above the 15.5% that the same analysis shows for the United States. Thus, the great power is surpassed for the first time since the euro crisis.
According to the firm’s predictions, one in 5 European companies with listed debt high yeld–that is, assets issued by countries or companies that have received a low rating– they would be in trouble.
CreditSights has ruled out companies that have a rating in the most solvent territory (investment grade), since the notes given by the rating agencies, in theory, rule out a short-term default on their debt.
Although there is always some precedent for this, the firm has focused on those that are BB+ down. Subsequently, it has compared the risk premium at which its issues are listed with the risk-free adjusted reference appropriate for its category.
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In this way, he has considered that investors are targeting all companies that have at least one bond with a distance greater than 1,000 basis points (10 percentage points).
As they explain, this risk premium means that the owners of the debt are getting rid of it with significant losses, since the risk of default has skyrocketed. In addition, it makes it very difficult for these groups to refinance their liabilities or appeal to the market, because the costs would be very high.
The conclusion is clear: of the 382 European companies analyzed by CreditSights, 81 are in this situation.
Despite the fact that Europe is in a worse situation compared to the United States, in both cases the index of companies in difficulty is at its highest since the worst of the pandemic, when the viability of many companies faltered.
Now, the situation is considerably more delicate, after the invasion of Russia invaded Ukraine and runaway inflation threatens to lead to a global recession.
Not all sectors are equally affected
As usual, the risk varies depending on the sector you look at. The banks of the Old Continent show some good health. Only 3 of the 34 have rating high-yield in the risk zone.
The most indicated industry is real estate, which is at 35%. The situation of the media and retail trade is not better, which are at 33%. Leisure at 30% and energy at 27%.
However, having a high ratio is no longer a guarantee of bankruptcy. “It is a signal of what investors think, not a scientific truth,” they explain.
So while it had shown in the past that having this rate was highly correlated with the actual level of bankruptcies, CreditSights believes there may be a significant gap this time around.
However, his bet is that the default rate rises considerably in Europe, but below its historical average and without reaching levels even remotely similar to those of the euro crisis or that of the beginning of the century.
The analysis firm’s bet goes through a ratio of 1% in Europe by the end of this year and 3% by mid-2023. That implies the fall of some 11 companies from the Old Continent.
CreditSights has listed the most likely companies. Among them, appears the German real estate group Alder; the owner of margarine flora.
Also the chain of perfumeries Douglass. It should be remembered that the company, which was made in Spain with Bodybell in 2017, announced a ERE for Spain that was settled a few months ago, with the closure of 124 stores and the dismissal of 900 people.
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