Last Year’s COVID Waves May Lead to This Year’s Default Tsunami for UK Corporates


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  • Government support for UK businesses is due to end in early 2021, leaving many at-risk companies in debt.
  • UK lenders have expected to see a significant rise in defaults since Q2 2020 but actual increases have so far been mild, likely due to large boost in credit availability from government packages.
  • A significant increase in default rates may be observed as credit becomes less available.
  • Credit Benchmark data shows that UK companies have an almost 20% higher chance of defaulting in 2021 compared to a year ago.
  • This data suggests that 1 in 150 UK companies will default this year.
  • Consumer Services and Oil & Gas are the worst affected industries, with a 27% and 23% increase in default risk compared to a year ago, respectively.
  • The average monthly drop-out rate (companies disappearing from lenders’ portfolios) has doubled in the last year, particularly in the non-investment grade credit categories, suggesting these companies are no longer considered creditworthy by their lenders and thus signalling rising credit risk.
  • The rate of credit downgrades also increased compared to the rate of credit upgrades across the last year.

As the clock struck midnight and 2020 came to a close, the words of ‘Auld Lang Syne’ may have rung hollow for the millions living through another lockdown in the United Kingdom. The tradition of bidding farewell to the old year and welcoming new beginnings seemed like wishful thinking amidst a fresh surge of COVID infection rates and the prolonged economic strangulation of many British businesses.

With the vaccination program picking up pace, Brits may look forward to the prospect of a European summer break or at the least, a drink in the local pub. However, the likelihood of that package holiday firm or the favourite ‘local’ staying afloat long enough to meet post-pandemic demand remains in question. The government’s furlough scheme is due to wrap up at the end of April, and the Bank of England’s Covid Corporate Financing Facility (CCFF) closes in late March, leaving the future of many British businesses uncertain as they grapple with a year’s worth of debt and minimal incomings.

Credit Benchmark collects internal credit risk estimates from global financial institutions, providing forward looking tracking of changes in the credit risk of existing borrowers and of the impact on the portfolios of the contributing financial institutions.

Figure 1: Credit Trend for UK Corporates, December 2019 – December 2020

The data, covering more than 5,000 UK Corporates, show that the average one-year default probability of UK Corporate has risen to 0.67%. In effect, financial institutions expect 1 in 150 corporates to default over the next year. As shown in Figure 1, this represents a 19% higher chance of defaulting compared to a year ago, with Consumer Services and Oil & Gas the most impacted industries. The steepest increase in credit risk was observed between April and August with an average monthly growth rate of 2.4%. The latter months of the year show a stabilization, with credit risk growing only by 0.2% in November. But the third COVID wave brought another steep increase in credit risk in December [please continue below to access full report].

Figure 2: Changes in Average Probability of Default for UK Corporates by Industry, December 2019 – December 2020

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    Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk.
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