Fitch: Sovereign debt repayments stabilize globally, but corporate and financial institutions see a slight increase in defaults

Fitch Ratings confirmed that global credit default rates have stabilized or declined across key sectors, with declining default rates in global sovereign and infrastructure debt, stable default rates in international public finance, a slight increase in corporate and financial institutions, and an increase in speculative-grade US public finance default rates.

According to the agency, the sovereign default rate in 2024 decreased from 2.6% to 0.9%, with only one default (Ukraine) compared to three in 2023. Meanwhile, investment-grade sovereign debt maintained its zero-default record. International public finances maintained a stable default rate of 0.2%, with no investment-grade defaults and a slight increase in speculative-grade defaults to 1.4%.

Rating upgrades jumped to a record 12.0%, while downgrades declined to 2.8%. Multi-notch rating conversions rose sharply, with 20 issuers seeing changes of two or more notches (up from three issuers in 2023), 19 of which were multi-notch upgrades.

US public finances had a mixed year, with the overall default rate rising to 0.1% due to four speculative-grade defaults, while investment-grade defaults remained close to zero. Rating upgrades increased to 14.1% of the portfolio, largely driven by the adoption of new local government standards, and significantly outpaced downgrades (4.3%), resulting in a downgrade-to-upgrade ratio of 0.3x. Multi-rating crossovers saw a notable increase, with 93 ratings moving up two or more notches (compared to 20 ratings in 2023).

For the first time since 2019, global infrastructure and project finance saw no defaults. Total rating activity remained high at 13.9%, with a record 11.8% of upgrades. Rating downgrades declined slightly, maintaining a low downgrade-to-upgrade ratio of 0.2x. The sector’s regional composition continued its gradual shift toward Asia-Pacific, Latin America, and the Middle East and Africa. The corporate default rate increased by 10 basis points to 1.8% in 2024, with 41 issuers defaulting compared to 37 the previous year. All defaults were speculative-grade, resulting in a speculative-grade default rate of 4.0%, while no investment-grade defaults were recorded. The building and construction materials, telecommunications, transportation, and real estate sectors accounted for 54% of defaults. Despite the rise in defaults, rating upgrades outpaced rating downgrades, resulting in a downgrade-to-upgrade ratio of 0.9x.

Financial institutions saw positive rating momentum, with rating upgrades rising to 12.7% from 10.1% the previous year, while rating downgrades remained stable at 3.4%. Six issuers defaulted in 2024, compared to five in 2023. Among speculative-grade issuers, the annual default rate rose to 1.2%, while the investment-grade default rate declined to 0.1%. Multi-grade transitions increased to 67 issuers in 2024, up from 47 in 2023, with multi-grade upgrades rising significantly to 47 from 29.