S&P warns defaults will rise on weak European economic outlook Europe's weak economic outlook, and a less tolerant attitude by lenders, threatens to continue the trend of increasing defaults by speculative-grade companies, according to Standard & Poor's. The rating agency said that there were 10 defaults, involving total debt of €8.7bn, in the second quarter of this year among the speculative-grade companies it tracked, compared with 12 corporates and €2.4bn in the first quarter. More than 90 per cent of defaults in the past two-and-a-half years related to transactions originated at the height of the bull market between 2006 and 2008. One reason that lenders are taking a tougher approach is that nearly half of the defaults this year were repeat defaults, with three companies defaulting for a third time. Paul Watters, an S&P analyst, said: "This is a key reason why the current default cycle is proving to be so protracted." In the absence of a material improvement in the European economic outlook, the agency said a less tolerant approach towards borrower-friendly, amend-to-extend transactions suggested that this trend was likely to continue. "We note that lenders" attitudes towards forbearance is already hardening in certain countries, resulting in rising defaults in France and The Netherlands in particular," said Mr Watters. Of the 10 defaults listed in the second quarter, three were publicly rated entities that missed making an interest payment. They were Ceva Group, a Netherlands-based integrated logistics services provider which defaulted for the second time; Netherlands-based telecoms holding company Magyar Telecom; and a Spanish gaming company, Codere. There was also a default by a confidentially rated Greek shipping company. The six private credit estimate defaults were all pre-2008 transactions, of which three had previously defaulted. S&P said the business environment continued to test the transport industry and the two second-quarter defaults in that sector meant its default rate rose to a record 18.2 per cent for the speculative-grade corporate portfolio it tracked. "Overcapacity continues to dog the shipping sector as new ships are delivered, and this, combined with slower than anticipated growth in global trade and high bunker fuel costs, is playing havoc with the industry's economics," said Mr Watters. The report said CEVA's financial performance had been weakened significantly by the global supply chain industry's shift to cheaper oceanic transport from air transport, and by its exposure to the weak southern European economies in its contract logistics business. The agency said the retail sector, an early casualty of the recession, was struggling against rising unemployment, declining real disposable incomes, and depressed consumer expenditure - notably in the peripheral countries of Europe. The most recent quarter saw two French retail defaults, further highlighting the current deterioration in the economic environment. These, together with a credit estimate default by an Italian food service business, pushed the default rate for the sector to 9.9 per cent from 4 per cent in 2012.