Is this the canary in the coalmine for corporate credit?
Throughout 2021, banks took back as profit the provisions they made in the first year of the pandemic against bad debts. Government largesse and central bank repression of rates saved the day.
“Default rates are near zero,” Doug Petno, chief executive of commercial banking at JPMorgan, told Euromoney after a whirlwind tour of mid-market European corporate clients in November.
That is almost a cautious assessment. Not a single issuer of European investment grade or junk-rated corporate bonds has gone bankrupt in 2021, according to S&P Global Ratings.
If the index continues to climb, funding options for many companies will shrink
But this may be about to change in the third year of Covid-19.
Law firm Weil, Gotshal & Manges released a study suggesting that beneath the surface calm, distress is already rising among European corporates.
Weil launched its Weil European Distress Index on Thursday. This aggregates data from more than 3,750 listed European corporates and financial market indicators. The index incorporates such factors as: liquidity, including the cashflows available to service debts; traditional risk metrics, such as interest cover; profitability, including net margins; valuation measures such as enterprise value to ebitda; and market signals such as CDS spreads.
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