U.S. media & entertainment sector most vulnerable to distress: S&P

The consumer-reliant grouping, which includes the consumer products, homebuilding & real estate, media & entertainment and retail & restaurants sectors, saw default rates spike during the recessions of 1990-1991 and 2008-2009, according to the report. Among highlights, the trailing 12-month default rates for homebuilding & real estate breached the 10 percent mark around the time of the 2008-2009 recession, while that for the media & entertainment sector breached the 20 percent mark around the same time.

In a jolting sign of just how vulnerable the latter industry remains, nearly nine in 10 (89 percent) issuers in the media & entertainment industry remained speculative-grade as of July of this year. Concluded S&P in the report: “Of all of the sectors, the media and entertainment industry is the most vulnerable to continued defaults and further degradation of its credit quality.”

By the same token the report found the financials and utilities grouping, which includes the banks & brokers, financial institutions, insurance and utilities sectors, experienced default rates that were “rather muted” compared to other groupings. Over the three decades studied, S&P found only two times that one of the four sectors in the financials and utilities grouping reached a default rate of as high as 7.1 percent; financial institutions reached this rate twice, once in the 12 months ending Jan. 31, 2009 and again in the 12 months ending Feb. 28, 2009.

Among trends that cut across industries, the report found four periods of rapid growth in issuers with speculative-grade ratings—1986, 1993, 2005 and 2011. Each period was followed by a roughly two-year period of retraction as defaults spiked and the assignment of new ratings dropped off. A second trend described in the report is the gradual deterioration in credit quality of issuers over time. Fewer than one in five (19.1 percent) issuers had a speculative-grade rating at the beginning of 1981; by the beginning of 2013 that fraction had grown to more than half (53 percent).

The Nov. 12 report, by Standard & Poor’s Managing Director Diane Vazza and Director Nick W. Kraemer, is titled “Industry Overview: A Long-Term Analysis Of 19 U.S. Industry Sectors.”

The study takes a look at default rates and the movement of credit ratings over a 32.5-year period from 1981 to 2013 in 19 separate industries, grouped into five major categories: financials & utilities, heavy industries, advanced industries, consumer-reliant sectors and commodities & raw materials. The dataset studied included 9,030 issuers based in the United States, including ones based in Bermuda and the Cayman Islands.