Magnifying glass focused an invoice with negative numbers

The economic fallout from Covid-19 is driving a spike in corporate defaults, which are now on track to reach record levels, says Fitch Ratings.

In a new report, the rating agency said that the number of defaults in the first five months of 2020 surpassed the default activity for all of 2019.

“At the current rate, the annual volume of corporate defaults could exceed the record set during the global financial crisis in 2009,” Fitch said.

There were 28 defaults among the non-financial companies rated by Fitch in the first five months of 2020, it said; compared with 25 defaults in 2019.

“The corporate sector has been under pressure since the coronavirus crisis and related lockdowns expanded globally,” said Fitch. “While the most stringent levels of lockdown are easing in many jurisdictions, the centre of the pandemic has now shifted to South America and we expect more defaults in this region.”

Sectors that have led the increase in defaults include the hard-hit airline industry, along with the energy and mining sectors that have suffered due to significant drops in commodity prices.

In total Fitch estimated that the pandemic will eliminate more than US$5 trillion worth of revenue from the companies it rates, which amounts to about 20% of their 2019 revenues.

“This puts significant strain on the credit profiles of affected issuers, and the rate of defaults is likely to remain high throughout 2020,” it said.