(Editor's note:  Our "Risky Credits" series focuses on European corporate issuers rated 'CCC+' and lower. Because many defaults are of companies in those categories, ratings with negative outlooks or on CreditWatch negative are even more important to monitor.)

Refinancing Concerns Spur An Increase In Risky Credits

The total number of risky credits increased to 48 by Jan. 31, 2025, from 45 on Sept. 30, 2024, indicating lingering pressure for the lowest-rated issuers (see chart 1). The addition of 10 new risky credits contributed to this uptick. Five of them joined the risky credits cohort due to persisting refinancing risks, which highlight these issuers' struggles to secure necessary funding (see chart 2). Despite declining interest rates, lower-rated issuers still face higher refinancing costs on average than when they first issued near-term debt three to five years ago.

Chart 1

Chart 2

Most downward transitions resulted from entities that are highly leveraged and have negative free operating cash flows because of lower demand or low capacity utilization. We rerated four issuers that had previously defaulted to the 'CCC' category, following completed debt restructurings. One addition to the risky credit cohort resulted from a newly assigned rating. Three countries accounted for most additions: the U.K. (40%), France (20%), and Luxembourg (20%).

We removed seven issuers from the risky credits cohort since the end of third-quarter 2024. 71.4% of removals resulted from defaults (four issuers) and rating withdrawals (one issuer). This continues a trend that began in third-quarter 2024, with defaults dominating removals from risky credits.

Even though the media and entertainment sector and financial institutions accounted for two defaults each, the reasons for these defaults differed. Issuers from the media and entertainment sector defaulted due to distressed exchanges, while the financial institution defaults resulted from missed payments.

Leverage Ratios Show Signs Of Improvement

Risky credits have faced high leverage and low interest coverage ratios due to weaker operating performance on the back of high interest rates. However, by December 2024, debt to EBITDA started to decline for the first time in 12 months, despite many lower-rated issuers' ongoing struggles with unsustainable capital structures.

Notable declines in leverage ratios concentrated on five sectors, including transportation, forest products and building materials, chemicals, capital goods, and high technology (see charts 3 and 4). EBITDA and credit metrics improved modestly in some of these sectors, which enabled issuers to decrease leverage ratios.

Chart 3

Chart 4

Sector And Country Concentrations Remain

Five sectors accounted for 52% of risky credits, with chemicals leading the tally with seven issuers and accounting for three of the 10 additions since Sept. 30, 2024. Recent negative rating actions primarily focused on the speculative-grade space, where high energy costs, destocking, and overall weak economic conditions have led to underperformance and low plant utilization rates for some issuers.

Other sectors that contributed significantly to the risky credits count include consumer products with six issuers and telecommunications, financial institutions, and media and entertainment with four issuers each. These four sectors have led the tally in 2024.

As of Jan. 31, 2025, the debt volume of risky credits had increased by 28% to close to €89 billion since Sept. 30, 2024 (see chart 5). Consumer products, chemicals, utilities, home and real estate, and telecommunications accounted for 67% of the debt volume. Close to 48% of this debt pertained to issuers with ratings on a negative outlook or a CreditWatch negative placement, potentially indicating further pressure on these companies.

Chart 5

Risky credits in the utilities and home and real estate sectors saw a material increase in debt volumes. This rise mainly resulted from the inclusion of two companies in the home and real estate and utilities sectors:

• We raised the ratings on Swedish real estate landlord Samhallsbyggnadsbolaget i Norden AB (publ) to 'CCC/Negative' from 'SD' (selective default) on the completed debt restructuring.
• We assigned our 'CC' rating to Thames Water Utilities Ltd. The outlook on the rating is negative due to the pending restructuring.

With €26.1 billion, the telecommunications sector continues to accumulate most debt in the risky credits cohort (see chart 6). We note, however, that 92% of this debt pertain to Altice France, which we downgraded further to 'CCC/Developing' on the increased risk of a debt exchange.

Chart 6

The Maturity Wall Will Increase From 2026

While near-term refinancing risks seem manageable, lower-rated borrowers tend to be more vulnerable to refinancing pressure. Demand for lower-rated debt can quickly dry up during periods of volatility or tightening financing conditions. Even though risky credits' debt maturities will amount to less than €10 billion in 2025, the maturities of 'CCC+' and lower rated bonds and loans from nonfinancial corporates will double to €23.2 billion in 2026 and €22.5 billion in 2027 (see chart 7). Most speculative-grade debt in Europe that will mature through 2027 is concentrated on five sectors, namely health care, media and entertainment, consumer products, chemicals, and telecommunications. Together, these sectors will account for 63% of speculative-grade maturities through 2027.

Chart 7

Table 1

Our Approach

• Charts and tables include issuers rated 'CCC' and 'CC' with negative, stable, positive, or developing outlook or CreditWatch placement.
• Data represents rating actions on financial and nonfinancial corporate issuers in Europe.
• We base our calculations on the country of incorporation and the ratings on the parent, and we use only public ratings, unless stated otherwise.
• Risky credits are corporate issuers rated 'CCC+' and lower.
• Speculative-grade issuers are issuers rated 'BB+' and lower.
• In the current analysis, we use data as of Jan. 31, 2025, except for charts 3 and 4, where we use data as of Dec. 31, 2024.

Related Research

• Odyssey Europe Holdco Downgraded To 'CCC' On Refinancing Risk; Outlook Developing, Jan. 30, 2025
• U.K.-Based Zeus Bidco Ltd. (Zenith) Downgraded To 'CCC+' On High Leverage And Rising Refinancing Risk; Outlook Stable, Jan. 29, 2025
• Intrum Downgraded To 'SD' After Missing Interest Payments; Rated Notes Lowered To 'D', Jan. 28, 2025
• Airline Caterer gategroup Holding AG Upgraded To 'B-' On Improved Leverage And Profitability, Outlook Positive, Jan. 28, 2025
• Ecotone Upgraded To 'B-' On Reduced Refinancing Risks; Outlook Stable, Jan. 27, 2025
• NOVIS Insurance Co. Rating Lowered To 'CCC-'; On CreditWatch Negative And Separately Withdrawn At Issuer's Request, Jan. 24, 2025
• Samhallsbyggnadsbolaget Ratings Raised To 'CCC' From 'SD' On Completed Debt Restructuring; Outlook Negative, Dec. 20, 2024
• Global Telco Distributor Eos Finco (Netceed) Cut To 'CCC+' On Elevated Leverage, Worsening Liquidity; Outlook Negative, Dec. 20, 2024
• U.K.-Based TalkTalk Telecom Group Ltd. Upgraded To 'CCC+' From 'D' On Completed Debt Restructuring; Outlook Stable, Dec. 19, 2024
• Thames Water Utilities Ltd. Rated 'CC' Pending Restructuring; Outlook Negative, Dec. 17, 2024
• CD&R Vialto UK Intermediate 3 Ltd. Issuer Credit Rating Lowered To 'SD' On Second-Lien Term Loan Amendment, Nov. 26, 2024
• CD&R Vialto UK Intermediate 3 Ltd. Issuer Credit Rating Lowered To 'SD' On Second-Lien Term Loan Amendment, Nov. 26, 2024
• Sirona Holdco (Seqens) Downgraded To 'CCC+' From 'B-' On Elevated Leverage, Rising Liquidity Pressure; Outlook Stable, Nov. 25, 2024
• French Chemical Producer Lune Downgraded To 'CCC+' On Elevated Leverage And Rising Liquidity Pressure; Outlook Negative, Nov. 19, 2024
• SK Mohawk Holdings S.a.r.l. Upgraded To 'CCC+' On Debt Restructuring Transaction; Outlook Negative, Nov. 7, 2024
• Praesidiad Group Ltd. Upgraded To 'CCC+' Following Completion Of Debt Restructuring; Outlook Stable, Nov. 5, 2024
• Risky Credits: Defaults Have Driven A Decline In European Risky Credits, Oct. 30, 2024
• Dutch E-Bike Maker Accell Group (Sprint HoldCo) Downgraded To 'SD' On Distressed Transaction, Oct. 15, 2024
• IQera Downgraded To 'SD' From 'CCC-' On Missed Principal Payment; Defaulted Senior Secured Note Rating Lowered To 'D', Oct. 2, 2024
• Risky Credits: European Debt Surged To €80 Billion In Q1 2024, May 2, 2024
• Risky Credits: Europe Continues To Walk A Fine Line, Feb. 7, 2024