RapidRatings Releases 2024 Annual Default Review


NEW YORK, NY - RapidRatings, the leading provider of financial health data and analytics, today released its 2024 Annual Default Review. The report analyzes trends from companies that defaulted in 2023 and examines the effectiveness of the FHR® in predicting these defaults. This latest study encompasses the 74 US non-financial companies that defaulted against the backdrop of the 235 US non-financial companies which defaulted from 2019 to 2023. 95% of defaulters filed for bankruptcy while rated High Risk or Very High Risk (FHR below 40) by RapidRatings. In most instances their decline was predicted by FHR data up to 36 months prior to default.

Key observations:
  • The number of defaults increased x3 from 2022 to 2023.
  • Funds generated from operating performance were significantly below what was needed to meet external obligations, with Cash from Operations to Current Liabilities at (80%), for the 2023 default cohort, down from (35%) the prior year.
  • The 2023 defaulter cohort was twice as leveraged as the US coverage average, with the 2023 defaulter debt to assets ratio at 44% compared to 22%. Further, the defaulters were paying twice as much in interest (7% versus 3.5%).
  • While Debt to Assets remained stable from the start of 2023 to 2024 in the US coverage, Interest Expense to Total Debt increased by 100 bps, reflecting the interest rates increases that started in March 2022.
  • Operating profit levels for both the 2022 and 2023 cohorts were significantly negative, indicating these companies started the respective years under financial stress.
Key findings:
  • For the 2023 cohort, the average FHR at default was 25, within the High Risk category. This demonstrates firms with lower FHRs are more likely to default than those with higher FHRs.
  • At the start of 2023, the High and Very High Risk categories encompassed 27% of the general population and captured 84% of subsequent defaulters.
  • RapidRatings successfully separated likely defaulters from likely survivors to provide highly accurate warnings with very low false alarm rates, enabling confident business decision-making. This early detection provided ample warning time for our clients to act.

For sixteen years, RapidRatings has examined public and private company defaults through the lens of the FHR. The FHR is a single number from 0-100 that indicates the overall financial health of an organization and provides advanced, predictive warning signs of deterioration and, ultimately, company failure. RapidRatings' Annual Default Review showcases the FHR's effectiveness by examining yearly defaults and demonstrating the model's accuracy in this context.

Download the study here.

About RapidRatings

RapidRatings sets the standard for financial health transparency between business partners, transforming the way leading companies manage enterprise and financial risk. The company provides the most sophisticated analysis of the financial health of public and private companies in over 140 countries worldwide. Through RapidRatings’ FHR Exchange, an innovative and secure membership platform, businesses can build more meaningful relationships and gain visibility into the financial stability of global suppliers, vendors, and other third parties. Learn more at www.rapidratings.com.

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