(Editor's Note: Our "Risky Credits" series focuses on corporate issuers rated 'CCC+' and lower in emerging markets. Because many defaults are of companies in these categories, ratings with negative outlooks or on CreditWatch negative are even more important to monitor.)
Key Takeaways
- The number of issuers rated 'CCC+' and lower increased to 15 as of January 2025, adding two entities to the count as of the end of Q3 2024, representing 10.8% of all speculative-grade rated entities. Three of the 15 risky credits displayed a negative outlook.
- The 'CCC+' and lower rated issuers kept on refinancing upcoming maturities, buoyed by tight spreads and anticipating potential future market turmoil, given ample U.S. policy uncertainty and the limited space for further monetary easing by local central banks.
- Rated maturity wall looks manageable, peaking in 2027 with $3.6 billion, mostly located in Latin America (LatAm). The telecom sector displayed the highest concentration of upcoming debt.
The number of emerging market (EM) issuers rated 'CCC+' and lower increased to 15 as of January 2025, from 13 in Q3 2024 (chart 1). The 'CCC+' and lower' issuers accounted for 10.8% of all speculative-grade (SG) issuers as of January 2025, higher than in September 2024 (9.6%) and in line with its five-year average, after a couple of add-ins to the risky credits pool. Six of the 15 risky credits, still subject of this study, have been upgraded on Feb. 6, 2025, to 'B-' from 'CCC' (Banco de Galicia Y Buenos Aires S.A.U., YPF S.A, Telecom Argentina S.A., Pampa Energia S.A., Aeropuertos Argentina 2000 S.A., and Genneia S.A.) following the recent upward revision of the transfer and convertibility assessment of Argentina, based on our perception of modestly diminished risk of the sovereign interfering with the ability of domestic entities to access, convert, and transfer money abroad.
CLISA-Compania Latinoamericana de Infraestructura & Servicios S.A. (Argentina; capital goods) was upgraded to 'CCC' from 'SD' as the restructuring of its international notes alleviated cash pressures. This was in the form of maturity extensions and a considerable decrease in the interest rate to 3.5% from 7.5% during the first year with successive step-ups reaching 8.5% in 2028.
On Dec. 6, 2024, we assigned a 'CCC' rating to Genneia S.A. (Argentina; utility), given our view of the risky jurisdiction in which it operates, the high level of country risk and discretionary regulatory framework. The partly compensating factors are our favorable view of the company's contracted business model and the steady wind and sun resources, resulting in stable and predictable cash flow.
One risky credit default took place between October 2024 and January 2025, down from three in Q3 2024. Brazil-based Azul S.A. (transportation) was downgraded to 'SD' from 'CC' on a distressed exchange on its 2028, 2029, 2030, and convertible notes. This was due to shrinking liquidity amid high lease expenses, repayment of various liabilities, and the limited ability of refinancing. We've subsequently upgraded the company to 'CCC+' on improved liquidity and somewhat reduced debt.
In 2024, EM yearly defaults amounted to 8, compared with 14 in 2023. EMs continue to display a lower default rate than developed economies. As of December 2024, the 12-month trailing SG default rate was 1.1% for EMs, compared with 5.1% in the U.S. and 4.1% in Europe (U.S. and Europe trailing default rates until Jan. 31, 2024, are preliminary and subject to change).
Chart 1
The negative bias for 'CCC+' and lower rated issuers decreased to 20% as of January 2025 from 31% in Q3 2024 (chart 2). This was due to the higher number of issuers within the category and the outlook revision on Azul to positive from negative. Two of the three negative outlooks on issuers are located in Brazil: Oi S.A. (telecommunications) and Investimentos e Participações em Infraestrutura S.A. - INVEPAR (transportation). Nitrogenmuvek Zrt. (Hungary; chemicals) completes the count.
On the other hand, the negative bias among the 'B-' rated companies increased to 33% from none in Q3 2024, surpassing risky credits' downgrade potential for the first time since July 2022. China Vanke Co. Ltd. (real estate) was downgraded by two notches to 'B-' and placed on CreditWatch negative on pressured liquidity amid approaching bond maturities. We expect to resolve the CreditWatch listing once we have enough details to assess the company's measures to manage its liquidity, including noncore asset disposals and concrete progress in cash collection, as well as the ability in obtaining new secured loans from financial institutions.
Chart 2
The aggregate debt represented by the issuers rated 'CCC+' and lower edged up to $9 billion as of January 2025. The country with the highest concentration of debt was Argentina, with $7.2 billion, all of which has the stable outlook (chart 3). Sector-wise, the oil and gas sector tops the list with $3.7 billion from YPF S.A. and Compania General de Combustibles S.A. (chart 4).
Chart 3
Chart 4
The SG issuance volume was solid over the last few months (chart 5), with $7 billion in Q4 2024, 14% higher than in Q3 2024 and marking the highest quarterly record since Q3 2021. This year started on the same note, with SG corporations raising roughly the same amount in January as in Q4 2024. Issuance was buoyed by historically low corporate spreads: the HY Fred index decreased by 22 basis points (bps) to 331 bps as of January 2025. This was significantly below its 10-year average of 586 bps. Unlike the increase of benchmark and IG corporate yields, the 'CCC' iBoxx annual yield time series dropped to 11.6% as of January 2025 from 14.5% as of September 2024. The SG issuances are still mostly in the 'BB' rating category, with some market activity among the 'B' rated issuers.
However, 'CCC+' and lower issuance has been roaring since October, with YPF Energia Electrica S.A., Banco de Galicia y Buenos Aires S.A.U., Edenor S.A., and YPF S.A. tapping the international market for refinancing purposes. The cumulative amount was $2.2 billion (October 2024 - January 2025) at average 8.2% coupon with eight-year tenor, all at discount with respect to maturing debt. Fear of U.S. policy unpredictability may have pushed SG EM companies tap the market early in the year to take advantage of still relatively favorable financing conditions. However, steeper yield curves and a likely pause in the Federal Reserve's monetary policy easing cloud the EM market activity outlook for the remainder of the year.
Chart 5
The rated risky credits' debt maturity wall will peak in 2027, with $3.6 billion (chart 6). As of Jan. 1, 2025, Nitrogenmuvek, Compania General de Combustibles, and YPF must refinance $1.5 billion, roughly half of the upcoming maturities for 2025, of which two-thirds was already refinanced by YPF in January. Through 2029, 95% of upcoming rated maturities are located in LatAm. Sector-wise and excluding oil and gas (as YPF has just refinanced most of it), the biggest chunk of upcoming debt is in the telecommunication sector, with Telecom Argentina S.A. and Oi S.A. needing to refinance an aggregate amount of $1.3 billion maturing in the next one to two years (chart 7).
Chart 6
Chart 7
Sector-level financials were relatively stable with respect to last quarter (charts 8-10). Below, the drivers of the most significant forecasted changes:
- We expect Nitrogenmuvek to post EBITDA losses in 2024-2027, given Hungary's emission trading system (ETS), which came into force in October 2023 and introduced a tax on free allowances for carbon dioxide emissions. The company has challenged the ETS decree in courts, but the outcome is highly uncertain. The company was downgraded to 'CCC-' from 'CCC' in December 2024, reflecting the greater likelihood of a debt restructuring over the next six months, as its €200 million senior unsecured notes mature on May 14, 2025. As of this report's date, we project very high leverage, low interest coverage, and strained liquidity.
- The telecommunications sector's average debt to EBITDA ratio is highly influenced by Oi S.A., which posted EBITDA losses from 2022 to 2025 because of the costs from its reorganization and the sale of Oi Fiber. Operations should improve in 2025 as the legacy costs of about R$1.1 billion will be discontinued and ClientCo will be sold.
Chart 8
Chart 9
Chart 10
Table 1
| Industry | Issuer name | Rating | Outlook/CreditWatch | Outlook or CreditWatch | Country | Region | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Bank | Banco De Galicia Y Buenos Aires S.A.U. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Capital goods | CLISA-Compania Latinoamericana de Infraestructura & Servicios S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Chemicals, packaging and environmental services | Nitrogenmuvek Zrt. | CCC- | Negative | OL | Hungary | Europe | ||||||||
| Homebuilders/Real estate co. | PT Kawasan Industri Jababeka Tbk. | CCC+ | Stable | OL | Indonesia | Asia/Pacific | ||||||||
| Telecommunications | Telecom Argentina S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Telecommunications | Oi S.A. | CCC | Negative | OL | Brazil | Latin America | ||||||||
| Oil and gas exploration and production | YPF S.A | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Oil and gas exploration and production | Compania General de Combustibles S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Transportation | Aeropuertos Argentina 2000 S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Transportation | Investimentos e Participacoes em Infraestrutura S.A. - Invepar | CCC | Negative | CW | Brazil | Latin America | ||||||||
| Transportation | Azul S.A. | CCC+ | Positive | OL | Brazil | Latin America | ||||||||
| Utility | Empresa Distribuidora Y Comercializadora Norte S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Utility | CAPEX S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Utility | Pampa Energia S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Utility | Genneia S.A. | CCC | Stable | OL | Argentina | Latin America | ||||||||
| Data as of Jan. 31, 2025. OL--Outlook. CW--CreditWatch. Source: S&P Global Ratings Credit Research & Insights. | ||||||||||||||
Emerging market consist of Latin America: Argentina, Brazil, Chile, Colombia, Peru, Mexico; Emerging Asia: India, Indonesia, Malaysia, Thailand, Philippines, Vietnam; EMEA: Hungary, Poland, Saudi Arabia, South Africa, Turkey; Greater China: China, Hong Kong, Macau, Taiwan, and Red Chip companies (issuers headquartered in Greater China but incorporated elsewhere).
Glossary and Abbreviations
Negative bias: The percentage of issuers with a negative outlook or on CreditWatch negative.
Related Research
- Consumer Products And Health Care Led Defaults In January, Feb. 13, 2025
- Emerging Markets Monthly Highlights: Increased uncertainty Stemming From U.S. Trade Policy, Feb. 12, 2025
- Credit Conditions Emerging Markets Q1 2025: The Tariff Trials, Dec. 3, 2024
- Risky Credits: Emerging Markets: Issuance Activity And Deleveraging Plans, Oct. 30, 2024
- Look Forward – Emerging Markets: A Decisive Decade, Oct. 16, 2024
Related Rating Actions
- Several Argentine Corporate, Infrastructure Entities Upgraded On Improved Transfer And Convertibility Risk Assessment, Feb. 6, 2025
- Brazilian Airline Azul S.A. Upgraded To 'CCC+' From 'SD' Following Debt Restructuring; Outlook Positive, Jan. 31, 2025
- Brazilian Airline Azul S.A. Downgraded To 'SD' Following Distressed Debt Exchange, Jan. 29, 2025
- China Vanke Downgraded Two Notches To 'B-' On Weak Liquidity; Ratings Placed On CreditWatch Negative, Jan. 20, 2025
- Argentine Conglomerate CLISA Upgraded To 'CCC' On Improved Capital Structure Following Debt Restructuring, Dec. 23, 2024
- Nitrogenmuvek Ratings Lowered To 'CCC-' From 'CCC' On Near-Term Debt Maturities; Outlook Negative, Dec. 4, 2024
- Genneia S.A. Rated 'CCC'; Outlook Stable, Dec. 6, 2024
- Brazilian Infrastructure Group Invepar Downgraded To 'CCC', Rating On CreditWatch Negative On Risks Of Debt Acceleration, Nov. 1, 2024
This report does not constitute a rating action.
| Emerging Markets Credit Research: | Luca Rossi, Paris +33 6 2518 9258; luca.rossi@spglobal.com |
| Jose M Perez-Gorozpe, Madrid +34 914233212; jose.perez-gorozpe@spglobal.com | |
| Research Contributor: | Nivedita Daiya, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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