Moody's: Post-Brexit default wave unlikely for European non-financial companies

Although there was a surge in defaults among EMEA non-financial companies in Q2 2016, Brexit is unlikely to be a driver of additional defaults over the rest of the year, says Moody's Investors Service today in a new report. 

"A slew of post-Brexit defaults is unlikely since Brexit-related risk is manageable for most companies, corporate liquidity remains strong, and oil prices have rebounded from recent lows relieving some of the pressure on commodity-related companies," says William Coley, a Moody's Senior Vice President -- Group Credit Officer and author of the report. 

Moody's report, titled "EMEA Non-financial Corporates Six Defaulters in Q2 Almost Matches 2015 Total; No Brexit-Related Flood Likely", is available on www.moodys.com. 

There were six corporate defaults in EMEA in Q2 2016 alone, compared to a total of seven for 2015 as a whole. Two of the defaulters are in the mining sector (New World Resources N.V., Consolidated Minerals Limited), one in the manufacturing sector (Bridge HoldCo 4 Ltd./ Bridon) and the remaining three are in retail (Edcon Holdings Limited), newsprint (Norske Skogindustrier ASA) and waste management (Waste Italia S.p.A.). 

Three of the corporate defaults (Norske Skog, ConsMin and Bridon) were distressed exchanges, two were missed payments (Edcon, Waste Italia) and the last one a bankruptcy (New World Resources). Half are repeat defaulters where one entity in the family has already defaulted in recent years. In addition, half of the defaulters are relatively small companies with revenues of less than $500 million. 

Some of the other weakest-rated EMEA companies are already on the path to likely default. For example, Brunswick Rail (Ca negative) has already begun the process of negotiating the restructure of its debt obligations. Elli Investments Limited (Caa3 negative) also appointed financial and legal advisers in October 2015 to assist in a review of its capital structure.