Pressure On Risky Credits Has Not Eased

The total number of European risky credits reached 49 as of April 30, which is slightly above the total of 48 in January this year and below the five-year average of 52 (see chart 1). Even so, current trends indicate ongoing pressure among the lowest-rated issuers.

Chart 1

The change in the risky credits count resulted from seven removals and eight new additions. Importantly, none of the removals from the risky credits cohort were due to upgrades. Instead, they resulted from defaults and rating withdrawals. We withdrew our ratings on four issuers, while three issuers defaulted after distressed exchanges over the three months through April 2025.

New additions to the risky credits cohort included issuers facing refinancing or liquidity challenges (3), newly rated issuers (2), issuers facing operational issues (2), and one issuer we upgraded after a post-default restructuring (see chart 2). Notably, 50% of new entrants were concentrated in the media and entertainment sector. All risky credits in the media and entertainment sector have unsustainable capital structures and remain dependent on favorable business, financial, and economic conditions.

Most downward transitions to risky credits resulted from highly leveraged companies that experience negative free operating cash flow and face liquidity or refinancing challenges due to lower demand or low-capacity utilization.

Chart 2

Currently, 41% of risky credits or 20 companies have defaulted at least once within their ratings history and re-entered the cohort following a post-restructuring upgrade (see chart 3). This is also reflected in the rising number of ratings with negative outlooks. Negative bias in the risky credits category increased to 54.2% as of April 30, 2025, from 53.3% as of Jan. 31, 2025, but is still well below the five-year average of 60%.

Chart 3

Signs Of Deleveraging Emerge Across Sectors

Since the first quarter of 2024, European risky credits' leverage ratios have improved but remain elevated. This trend continued into the first quarter of 2025, with deleveraging efforts focusing on the transportation, forest products and building materials, and high technology sectors.

Modest improvements in EBITDA and credit metrics in these sectors contributed to the reduction in leverage and offset the ongoing challenges that many lower-rated issuers with unsustainable capital structures are facing (see charts 4 and 5).

We expect EBITDA of some issuers in these sectors will improve in 2025 due to the anticipated recovery in revenues or lower costs from ongoing restructuring initiatives. The metals, mining, and steel sector, as well as the oil and gas sector, exhibit the highest interest coverage ratios compared with other sectors.

Chart 4

Chart 5

Two Sectors Represented Almost One-Third Of Risky Credits

By number, the CP&ES and media and entertainment sectors accounted for 30% of European risky credits, with seven issuers each.

Over the past three months, we downgraded two CP&ES issuers within the risky credits cohort to 'CCC/Negative' from 'CCC+/Negative' for both due to unsustainable capital structures and weak cash flows. All risky credits in the CP&ES sector except one have been in this category for more than five months, primarily due to refinancing risks, weak operating performance, and liquidity challenges.

In contrast, all but two risky credits in the media and entertainment sector entered the risky credits cohort in the first four months of 2025. This sector is particularly sensitive to consumer sentiment, which remains subdued in Europe. Its performance depends on economic recovery and increased demand.

The volume of risky credits' debt slightly decreased to €81.5 billion as of April 30, 2025, from €89 billion as of Jan. 31, 2025. The largest sectors by debt volume included telecommunications, CP&ES, and utilities, which, together, accounted for more than 50% of total debt (see chart 6).

Chart 6

Overall, debt volumes as of April 30, 2025, remained highest in France, followed by the U.K. Altice France Holding S.A., a French telecommunications provider, continued to lead debt volumes with €20 billion. In February this year, we downgraded Altice France Holding S.A. to 'CC/Negative' from CCC-/Negative' due to its proposed debt restructuring. In May, we downgraded the company to 'D' for missing a debt interest payment.

Refinancing Challenges Rise As The Maturity Wall Approaches

Demand for lower-rated debt can quickly decrease during periods of volatility or tightening financing conditions. Issuance in the European risky credits cohort remains low, with the most recent issuance in January this year. Primary markets are slowly recovering following an April lull that resulted from the U.S. administration's tariff announcement on April 2, 2025.

Lower-rated borrowers tend to be more vulnerable to refinancing pressure. Even though near-term maturities over 2025-2026 appear largely manageable, mounting maturities through 2028 could weigh on issuers (see chart 7). Most speculative-grade debt in Europe that will mature through 2027 is concentrated in five sectors, namely automotive, media and entertainment, consumer products, CP&ES, and telecommunications. Together, these sectors will account for 62% of speculative-grade maturities through 2027.

Chart 7

Table 1

Our Approach

• Charts and tables include issuers rated 'CCC' and 'CC' with an outlook/CreditWatch status of negative, stable, positive, or developing.
• 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. 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.
• Negative bias is the share of issuers with ratings that either have negative outlooks or are on CreditWatch with negative implications.

Related Research

• Altice France Holding S.A. Downgraded To 'D' On Missed Debt Interest Payment, Altice France S.A. 'CC' Ratings Affirmed, May 16, 2025
• Global Credit Conditions Special Update: U.S.-China Tariff De-Escalation Brings Some Temporary Relief, May 15, 2025
• Default, Transition, and Recovery: Corporate Defaults Fall Below Long-Term Average, May 14, 2025
• Eos Finco (Netceed) Downgraded To 'SD' From 'CCC+' On Agreed Deferred Interest And Amortization Payments; Term Loan B To 'D', April 28, 2025
• BVI Holdings Mayfair Ltd. Ratings Withdrawn At Issuer's Request, April 17, 2025
• Tullow Oil PLC Rating Lowered To 'CCC+' Due To May 2026 Debt Maturity; Outlook Negative, April 17, 2025
• Babilou Family SAS Downgraded To 'CCC+' On Operating Performance Deterioration And Strained Liquidity; Outlook Stable, April 2, 2025
• Enstall Group Lowered To 'CCC+' On Weakening Market Conditions, Negative Cash Flow Generation; On CreditWatch Negative, April 2, 2025
• https://www.capitaliq.spglobal.com/web/client?auth=inherit#ratingsdirect/creditResearch?rid=3345842, March 31, 2025
• Mitel Networks (International) Ltd. 'D' Ratings Withdrawn At Issuer's Request, March 28, 2025
• Interpipe Holdings PLC Rating Reinstated At 'CCC'; Outlook Negative, March 25, 2025
• Colisee Group Downgraded To 'CCC-' On Likely Distressed Exchange; Outlook Negative, March 18, 2025
• CD&R Vialto UK Intermediate 3 Ltd. Upgraded To 'CCC+' Following Debt Restructuring; Outlook Positive, March 5, 2025
• Bright Bidco B.V. Downgraded To 'SD' (Selective Default) And Exit Term Loan To 'D' (Default) On Deferred Cash Interest Payment, March 3, 2025
• Risky Credits: European Cohort Increases Amid Refinancing Concerns, Feb. 28, 2025
• Hurtigruten Newco AS Downgraded To 'D' From 'CC' On Completed Capital Restructuring, Feb. 20, 2025
• Peak Jersey Ratings Lowered To 'CCC+' On Approaching Debt Maturities And Lower-Than-Expected Growth; Outlook Negative, Feb. 12, 2025
• Sprint MidCo Rated 'CCC' After Comprehensive Restructuring; Outlook Negative; Ratings Assigned To New Debt, Feb. 12, 2025
• Selecta Group B.V. Downgraded To 'SD' (Selective Default) Due To Missed Interest Payment, Feb. 4, 2025