s&p industry overview: a long-term analysis of 19 u.s. industry sectors

8/14/2019 S&P Industry Overview: A Long-Term Analysis of 19 U.S. industry Sectors

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Credit Trends:

Industry Overview: A Long-TermAnalysis Of 19 U.S. Industry SectorsGlobal Fixed Income Research:Diane Vazza, Managing Director, New York (1) 212-438-2760; [email protected] W Kraemer, Director, New York (1) 212-438-1698; [email protected]

Table Of Contents

Introduction And Overview

Default Rates

Ratings MovementsRatings Performance

Historical Bond Returns

Appendix I: Monthly Issuer Counts By Industry, 1981-June 2013

Appendix II: One-Year Average Transition Matrices By Industry, 1981-2012

Appendix III: Corporate Average Cumulative Default Rates, 1981-2012

Appendix IV: Gini Methodology

Related Research

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Credit Trends:

Industry Overview: A Long-Term Analysis Of 19U.S. Industry SectorsIn evaluating credit risk, many users of default studies and historical default and ratings transition data typically focus

on long-term, aggregate average figures. It would be more instructive to consider the historical experiences of various

industries and regions separately in order to get a better reflection of how various economic and industry cycles have

affected specific segments at different points in time. In this report, we examine corporate bond issuer experiences

across multiple industries within the U.S. (including Bermuda and the Cayman Islands). This highlights how different

industries can experience varying levels of stress at different times. This report also shows how industries can vary

significantly in terms of relative size and ratings mix, both currently and historically.

Introduction And OverviewThis study follows the long-term experiences and defining characteristics of 19 different industries as classified by

Standard & Poor's. These include: the aerospace and defense; automotive; banks and brokers; capital goods;

chemicals, packaging, and environmental services; consumer products; financial institutions; forest products and

building materials; health care; high technology; homebuilders/real estate cos.; insurance; media and enter tainment;

metals, mining, and steel; oil and gas; retail/restaurants; telecommunications; and utility sectors. This study only

includes entities from the U.S. region (the U.S., Bermuda, and the Cayman Islands), from Jan. 1, 1981-June 30, 2013.

The dataset used in the analyses of default rates, transition matrices, rating movements, and cumulative default rates is

comprised of 9,030 issuers. Because of the large number of available industries, many exhibits will cover five broad

categories of industry classification. The groupings are as follows:

Financials and Utilities

• Banks and Brokers• Financial Institutions• Insurance• Utility

Heavy Industries

• Aerospace and Defense• Automotive• Capital Goods• Transportation

Advanced Industries

• Chemicals, Packaging, and Environmental Services• Health Care


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• High Technology• Telecommunications

Consumer-Reliant Sectors

• Consumer Products• Homebuilders/Real Estate Co.• Media and Entertainment• Retail/Restaurants

Commodities/Raw Materials

• Forest Products and Building Materials• Metals, Mining, and Steel• Oil and Gas

Over the 32.5 years covered in this study, the U.S. corporate bond market has undergone considerable changes. The

most significant has been the periodic growth of speculative-grade ratings since the late 1980s. Typically, these periods

of speculative-grade growth precede cyclical spikes in the U.S. speculative-grade default rate. Chart 1 shows the

annual company counts by rating for issuers examined in this study. On the chart we can see four periods of growth in

the speculative-grade ratings universe, with the first beginning in (approximately) 1986, the second in 1993, the third in

2005, and the last in 2011. In each case, these periods of growth were followed by a period of retraction that lasted

roughly two years due to increased default activity and a slowdown in the pace of new ratings being assigned. Clearly,

the most significant growth in the overall number of rated issuers occurred between 1993 and 2000, with the number

of issuers with active ratings reaching an all-time high of 3,161 on Jan. 1, 2000.

Alongside the trend of overall growth in the number of rated issuers, the composition of the U.S. corporate bond

market has changed dramatically. On Jan. 1, 1981, only 19.1% of the issuers in this study possessed a

speculative-grade rating, however, by Jan. 1, 2013, 53% of the issuers were rated as speculative grade--an increase of

179% and a solid majority of all rated issuers. By individual rating category, the number of 'B' rated firms increased by

over 1,850% from 1981-2013, and it is now the largest rating category by number of issuers. Conversely, both the

'AAA' and 'AA' categories saw declines of roughly 95% and 33%, respectively. Clearly the credit profile of U.S.

corporates issuers (including financial institutions and insurance companies) has become more risk-bearing over time,

however, this is a general statement. Much of this report will focus on the differences in the way these industries have

evolved over the last 32.5 years, and how their compositions have changed (for a graphical representation of the

issuer-base growth of each industry, see appendix I). Many of the industries examined here are at different points in

their life cycles, have different economic drivers, and have had unequal experiences during recessions and expansions.

Given these considerations, the aim of this analysis is to emphasize a more detailed approach when examining andpredicting default- and credit-risk.


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Credit Trends: Industry Overview: A Long-Term Analysis Of 19 U.S. Industry Sectors



Chart 1

Appendix I shows that, at any given time, some sectors have far more rated issuers than others. Also, the ratingsdistributions across various sectors are vastly different, and these distributions can also evolve over time within each

individual sector. These combined qualities make for an evolving base from which standard, macro-level credit metrics

are derived. For transition matrices, cumulative default rates, downgrade rates, and trailing-12-month default rates, for

example, are all typically expressed as a percentage of an issuer base--whether geographically defined, at the industry

level, or based on ratings and rating categories. Even when these 19 industries are combined into the five previously

mentioned groupings, the ratings bases are still far from equally distributed (see chart 2).

Throughout the 32.5 year history examined, the financials and utilities grouping has comprised the largest portion of

rated issuers, though its lead has been slowly declining over time. On Jan. 1, 1993, financials and utilities comprised

41.2% of all rated issuers examined. By the start of 2013, this proportion had decreased to 33.1%. However, thisdecline is not the result of a shrinking issuer base for this grouping, but rather substantial growth in the other four

industrial groupings. The main reason for the dominance of financials and utilities is its inclusion of both insurance

companies and utilities, which respectively accounted for 13.3% and 9.8% of the overall issuer base at the start of

2013. These are, and have always been, the two largest sectors by issuer count.

Between the start of 1993 and 2013, all five industrial groupings saw their issuer base increase, however, at very


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different rates of growth. Financials and utilities remains the largest grouping, but it has grown at a comparably slower

rate of 25.7% since 1993. Only the heavy industries grouping grew at a slower pace (23.6%) over the same timeframe.

The other three groupings--consumer-reliant sectors, advanced industries, and raw materials/commodities--saw

enormous growth in their issuer bases over the last 20 years, rising by 92.5%, 89.7%, and 93.3%, respectively. While all

five of these large industrial groupings saw increases, the consolidation masks the different experiences among

individual constituent sectors. On one end, the industry that saw the largest growth in its issuer base since 1993 was

the homebuilders/real estate co. segment, which saw an increase of 335.5%. On the other end, three sectors--financial

institutions, telecommunications, and transportation--saw declines of 1.5%, 7.9%, and 24.7%, respectively.

Chart 2

Default RatesConsidering both the shifting dynamics of issuer bases over time, and past economic cycles that at times

disproportionately affected certain sectors more than others, we will now examine the varying default experiences of

each industry. In the following charts, default rates have been broken out by industry and are comprised of both

investment-grade and speculative-grade companies.


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Financials and utilities have been combined into the same industry grouping because they have the highest

proportions of investment-grade companies (see charts 18-21 in appendix I). As such, it should not be surprising that

the default rates in these sectors are rather muted relative to all of the other sectors (see chart 3). For example, the

maximum default rate these sectors experienced during the 32 years of our study was 7.1%, which was reached twice

in the financial institutions sector during the 12 months ended Jan. 31, 2009, and Feb. 28, 2009. Meanwhile, the banks

and brokers, insurance, and utility sectors' peak default rates were only 3%, 5.9%, and 2.2%, respectively. Every sector

except for these four has experienced higher peak default rates during our observed period.

These four sectors appear to have seen increased defaults during the three main U.S. recessions and related credit

cycles of 1990-1991, 2000-2001, and the most recent downturn that began in late 2008. However, the intensity of

default rates has varied, particularly during the last downturn, which effected financial institutions far more than it did

the other three sectors. Despite the most recent recession of late 2008-early 2009 having been the most severe in

terms of defaults for financial institutions, it was shorter-lived than the prolonged spike in defaults the sector

experienced during the 1990-1991 cycle. In contrast, it would appear that the insurance sector was hit

disproportionately hard in 1982 and 1983--a period of time when no official recession occurred. This sector

experienced its highest historical default rate in the 12-months ended Oct. 31, 1983, with its previous high having

come only 18 months earlier. However, this, as with all previous data points, comes from a very limited sample. These

peak default rates for the insurance sector were the result of only one default in 1982 and two defaults in 1983. Since

then, the sector has generally seen a gradual decline in its default rate, with only brief episodes of default generally

coinciding with the three broad downturns previously mentioned. Broadly speaking, default rates prior to the late

1980s will appear more sporadic at the individual industry level, largely due to the much smaller sample sizes of rated

issuers. At the beginning of the dataset (Jan. 1, 1981), only the consumer products and utility sectors had more than

100 rated issuers each, with many sectors having fewer than 40.


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Chart 3

As the insurance sector's experience illustrated, small sample sizes can produce inflated default rates. However, manysectors in the heavy industries grouping have exhibited the opposite--more subdued default rates with a smaller issuer

base, and increasing default rates coinciding with increasing issuer bases (see chart 4). With the exception of the

automotive industry, the industrial grouping's members generally saw their peak default rates during the 2000-2001

cycle. However, this is not to say that these sectors were not adversely affected during the most recent downturn. The

automotive sector clearly experienced a particularly harsh default rate during the 12-months ended May 2009 through

the 12-months ended May 2010. During this time, the sector saw a peak default rate of 30.9% in August 2009, which is

the highest rate experienced by any sector. The second highest default rate came from the forest products and building

materials sector, with an all-time high of 23.9%. Even given the exceptionally high default rate for the automotive

sector during the most recent downturn, it's clear that it is no stranger to heightened stress, as its default rate hit at

least four relative peaks between June 2000 and April 2007. In all four instances, the default rate hit or exceeded 7.9%.

This is nearly identical to the experience of the closely related transportation sector, which also saw four spikes in its

default rate over the same period--though on a slightly more subdued level.

These four sectors are among the smallest of the 19 presented. In fact, of these four, only the capital goods sector has

more than 100 rated issuers as of June 30, 2013. The aerospace and defense sector is the smallest of the group, both


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historically and currently, with less than 50 issuers rated as of June 30, 2013.

Chart 4

All of the sectors in the advanced industries grouping saw their peak default rates during the 2000-2001 U.S. recession

(see chart 5). This is not particularly surprising as the telecommunications and high technology sectors are closely

related, and that particular recession is often referred to as the bursting of the "dot com bubble." Nowhere can an

industry-specific downturn be more clearly seen in the data than with the telecommunications sector. This sector

experienced heady growth in its rated population--particularly in its speculative-grade segment--during the period

leading up to June 2000. This coincides with the beginning of the sector's most severe default cycle, which hit an

all-time high of 18.2% in the 12 months ended July 31, 2002. After telecom's peak default cycle ended, the sector's

rated population returned to roughly the same level it was at prior to the buildup, although with a much larger

proportion of companies with speculative-grade ratings as their numbers had been increasing relative to the totalissuer base. Even now, the size of the sector's rated population has remained relatively stable over the last 10 years.

During the most recent recession, all of the group's sectors saw some increases in their default rates, but for the most

part the industrial grouping experienced a comparably mild rate of defaults relative to other sectors. The only sector

that was particularly hard hit was the chemicals, packaging, and environmental services sector, which saw its default

rate hit a recent high of 11.2% in the 12 months ended Sept. 30, 2009. This stands in sharp contrast with its three


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peers, which saw their default rates reaching highs of only 2% (for high technology and health care) and just over 4%

(for telecommunications).

Chart 5

The consumer-reliant grouping has arguably experienced the most default stress of any of the groupings in our

analysis. While the homebuilders/real estate co. sector has had probably the longest period of near zero

to-non-existent default rates among all of the 19 sectors--seven and one-thirds years with only one default--its peers in

the industrial grouping have had, conversely, some of the most consistently elevated default rates. This is especially

true for the retail/restaurants and consumer products sectors. Of all of the sectors, the media and entertainment

industry is the most vulnerable to continued defaults and further degradation of its credit quality. Approximately 89%

of issuers in this sector with active ratings, as of July 1, 2013, are speculative-grade. This sector's trailing-12-month

default rate ended June 30, 2013, is also the second-highest (after transportation), at 3.72%. These trends have largely been the result of underlying secular shifts over the past few decades, such as a decline in print media and radio

caused by newer technologies. More recent additions in this industry such as online advertising have performed better.

This sector grouping saw its most difficult default rate periods occur during the recessions of 1990-1991 and

2008-2009 (see chart 6). These recessions hit consumers harder than the "dot com" recession of 2000-2001, which

seemed to take a harder toll on the stock market. In the case of the other two recessions, the unemployment rate


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remained higher than it did during the 2000-2001 downturn, cutting into the purchasing power of U.S. consumers and

decreasing their spending.

Chart 6

Finally, the default experience of the industries in the raw materials/commodities group is more idiosyncratic than

most (see chart 7). The forest products and building materials segment saw an extreme default rate associated with the

most recent downturn, 23.9% in the 12 months ended Feb. 28, 2010. The financial crisis that began in late 2007 was

related to historically over-inflated housing prices, which presaged one of the largest and most extended periods of

falling home values and sales. This led to a severe drop in new housing construction and hit homebuilders particularly

hard (see chart 6). Naturally, this also had a negative effect on building suppliers. In contrast, both the metals, mining,

and steel and oil and gas sectors saw relatively modest default rates during the same period. The heavy industries

grouping contains some of the smallest sectors, particularly forest products and building materials and metals, mining,and steel. Both sectors currently have fewer than 85 issuers each.


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Chart 7

Ratings Movements

While default rates tend to fluctuate nearly exclusively around economic downturns, ratings change fluctuations

appear more frequently (see charts 8-12). Increases in the default rate give perhaps the best indication of stressful

credit conditions for corporate borrowers, however, they also have a lower bound of zero. Looking at the net change in

ratings actions can give additional insight into periods of more favorable credit conditions by reflecting both

downgrades and upgrades. In charts 8-12 we show the net upgrade ratio (which could also be considered the inverse

of the net downgrade ratio) on a trailing-12-month basis. This is defined as the number of upgrades in a particular

period less the number of downgrades, with the result expressed as a percentage of the issuer base.

As a general rule, periods of heightened downgrades tend to both outnumber upgrades over the long-term, and are

generally more severe. This is clearly visible in the proportion of data points below zero (a higher number of

downgrades versus upgrades will result in a negative reading). However, the tendency seems to be that the more

severe the downturn is, the quicker the upswing will be and the greater its magnitude. For example, the downturns that

coincided with the 1990-1991, and 2008-2009 recessions produced marked declines in credit quality for financials and

utilities, but these were followed by periods of net upgrades (see chart 8). From here, we can also observe that the


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banks and brokers grouping follows a generally coincident ratings action path as financial institutions. For these two

industries, as well as insurance companies, the most recent downturn produced a significant amount of downgrades.

While the pace of downgrades in these sectors has subsided, the typical rebound we have seen in the past has not yet

materialized. This is likely a consequence of the downgrade of the U.S. on Aug. 11, 2011, which effectively puts a "cap"

on how high most insurance companies and financial institutions (particularly banks) can be rated. The ratings criteria

for many firms in these sectors base issuer ratings on implicit support from the U.S. for financial institutions, and on

large holdings of U.S. Treasuries for insurance companies.

Chart 8

Fluctuations in net rating changes have been particularly volatile among segments in the heavy industries grouping,

with the automotive sector being the most volatile (see chart 9). Just as this sector produced the highest default rates

during the most recent downturn, it also produced the most severe net downgrade rate among all of the sectors,reaching a low of -56.9% in the 12 months ended March 31, 2009. As is often the case, this sector then experienced a

positive reversal of nearly the same magnitude over a three-year span, reaching a net upgrade rate of 51.06% in the 12

months ended May 31, 2011. This is the highest net upgrade rate seen among all of the sectors. Many firms within the

sector are auto parts and components suppliers, which were hit particularly hard by the bankruptcies and financial

troubles of the three largest U.S. car manufacturers. After the government provided financial relief to the automakers,


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their operations resumed, providing the necessary business for a period of sustained upgrades in the sector.

Currently, these sectors are trending in the direction of net downgrades amid a wobbly recovery. As of the 12-month

period ended June 30, 2013, the aerospace and defense sector had experienced the highest proportion of net

downgrades at -15%.

Chart 9

Despite the downturn of 2000-2001, which hit segments in the advanced industries grouping particularly hard, these

sectors have otherwise had a much more positive experience than the other industries in terms of net upgrades,

especially the health care sector (see chart 10). While all of the other industries have a long-term average net upgrade

ratio that is negative, averaging -3.66% across industries, this sector is the only one with a long-term average in

positive territory (1.2%). This sector also tends to follow a different path of net rating changes relative to its peers,experiencing peaks and troths at different and sometimes contradictory times as the other three. For example, during

the period spanning roughly the 12 months ended Sept. 30, 2000, through the 12 months ended April 30, 2005, the

health care and chemicals, packaging, and environmental services sectors followed nearly the exact opposite pattern in

net rating movements.

Overall, the advanced industries grouping has experienced less ratings change volatility over the long-term, relative to


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the other four industrial groups. This is of course relative, since it can be seen that rarely do any industries see periods

of little or no rating changes. Still, these four sectors generally display fewer large fluctuations as a whole.

Chart 10

The most recent economic downturn produced the highest net downgrade rates for all of the industries in the

consumer-reliant sector grouping, with the homebuilders/real estate co. and media and entertainment industries

seeing the largest declines (see chart 11). This is consistent with the elevated default rates experienced by these two

sectors during this period. Putting the rate of defaults and proportion of downgrades together, the most recent

recession proved to be incredibly harsh for these two sectors from a credit perspective.

Charts in appendix I provide context for the ratings-based statistics. Different industries have grown and/or matured

(in terms of rated issuer counts) at different rates. Chart 11 provides a clear example of the results of figures based off of a very small sample of the homebuilders/real estate co. sector. At the beginning of the database on Jan. 1, 1981, the

homebuilders/real estate co. sector had an extremely small number of issuers--less than 10. This was true until 1984,

and it wasn't until 1987 that the sector had at least 30 issuer. The net upgrade ratio for the sector appears very stilted

until around early 1986.


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Chart 11

With the exception of the downgrade experiences within the forest products and building materials sector due to themost recent recession, industries in the raw materials/commodities sector grouping have generally seen a more stable

pace of ratings changes over time (see chart 12). Unlike most other sectors, the metals, mining, and steel and oil and

gas sectors experienced their most severe periods of net downgrades during the mid-1980s. These sectors have also

tended to experience periods of net downgrades during the three U.S. recessions, though they are not quite as severe

as in other sectors. Given the extent of losses in the U.S. real estate market, in terms of falling home prices and slowing

housing starts, the firms that provide materials to the homebuilders have also suffered in kind.

Net downgrade rates reflect aggregate level forces that can affect particular industries at different times. The overall

economy would clearly be the highest-level driver of upgrades and downgrades, while market forces, which may

produce cycles within a specific industry, also come into play--such as an extended low interest rate environment thatwould encourage more consumers to buy a house or take on more discretionary debt. However, at any given point in

time, it is generally the case that lower-rated entities are more likely to either default or be downgraded. The exhibits

thus far only show high-level amalgams of data for defaults and ratings actions within an industry as a whole. For a

more granular breakdown of both defaults and ratings actions by rating, please see appendix II for one-year average

transition matrices by industry.


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Chart 12

Ratings Performance

All of our default studies include metrics for assessing ratings performance over the long-run. Ratings performance

measures are typically grounded in three concepts: default, prior ratings, and time to default. By this we mean that, for

the samples examined, the key considerations are the defaulter's rating, and the time frame over which their credit

deterioration took place. We can see that the median original rating of defaulting corporate issuers in this study is 'B+'

(see table 1). This is generally the case with all industrial groups outside of financials and utilities. In their case, the

median original ratings of their defaulters are slightly-to-considerably higher, ranging from 'BB'-'BBB+'. Like the

underlying ratings distribution of all issuers in these industries, the defaulters originating from these four sectors also

tend to come from a higher proportion of investment-grade ratings. In fact, among defaulters in the insurance sector,nearly 72% possessed an initial investment-grade rating. At the other end of the spectrum, defaulters from the

advanced industries grouping began their rating histories very heavily skewed towards speculative-grade ratings, with

only 1.7% of defaulters within the telecommunications sector possessing an investment-grade initial rating.

While financials and utilities may have produced defaulters with higher initial ratings on average, they also produced

fewer defaults--both in absolute number and as a percentage. Overall, financials and utilities combined for 190


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defaulters as of June 30, compared to 272 defaulters for heavy industries, 326 for advanced industries, 625 for

consumer-reliant sectors, and 252 for raw materials/commodities. The financials and utilities grouping also saw longer

average and median times to default than other sectors, with a weighted average of 7.64 years compared with an

overall weighted average of 6.35 years for all 1,665 defaulters in the 32.5 years covered.

Table 1Time To Default From Original Rating

Industry Defaults

Medianoriginalrating of defaulters

Averageyears from

originalrating

Medianyears from

originalrating

Standarddeviation of

years fromoriginal rating Range

Percentage beginningwith investment-grade

ratings

Financials and utilities

Banks and brokers 21 BBB- 7.51 5.53 6.15 22.44 52.38

Financial institutions 71 BB 7.44 4.35 7.27 28.59 30.99

Insurance 53 BBB+ 7.54 6.58 5.14 19.84 71.70

Utility 45 BB 8.14 4.33 7.58 24.19 46.67

Weighted average 0.00 0.00 0.00 0.00

Heavy industries

Aerospace and defense 25 B+ 5.14 3.82 3.56 15.27 4.00

Automotive 67 B+ 7.52 5.25 7.02 27.99 13.43

Capital goods 88 B+ 6.54 4.97 4.95 23.35 10.23

Transportation 92 B+ 6.87 3.88 6.95 30.87 14.13


Advanced industries

Chemicals, packaging,and environmentalservices

82 B+ 6.40 5.12 5.02 27.33 9.76

Health care 58 B+ 5.14 3.37 4.09 17.00 3.45

High technology 66 B+ 5.92 3.99 5.86 28.45 9.09

Telecommunications 120 B 4.49 3.53 3.51 21.37 1.67


Consumer-reliant sectors

Consumer products 169 B+ 6.53 4.82 5.56 28.23 9.47

Homebuilders/real estatecompanies

41 B+ 6.46 3.57 6.95 28.78 17.07

Media and entertainment 245 B+ 5.71 3.97 4.89 27.92 5.71

Retail/restaurants 170 B+ 7.10 5.57 5.38 25.91 15.29

Weighted average 0.00 0.00 0.00 0.00Raw materials/commodities

Forest products and building materials

86 B+ 7.88 6.05 5.72 27.38 15.12

Metals, mining, and steel 70 B+ 6.96 5.43 5.50 21.11 14.29

Oil and gas 96 B 4.04 3.00 3.72 22.67 10.42



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Table 1

Time To Default From Original Rating (cont.)

Total 1,665 B+ 6.35 4.51 5.54 30.87 14.29


Source: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Another metric available for assessing ratings performance is the Gini coefficient. This is a measure of the

rank-ordered power of the ratings system over a given time horizon. It shows the ratio of actual rank-ordering

performance to theoretically perfect rank ordering. This involves plotting the cumulative share of defaulters against the

cumulative share of issuers by rating in a Lorenz curve to visually render the accuracy of its rank ordering (see

appendix IV for definition and methodology). The one-, three-, and five-year weighted Gini coefficients for the 19

industries presented are displayed in table 2.

As expected, the Gini coefficients decline over time because longer time horizons allow greater opportunity for credit

degradation among higher-rated entities. If the rank-ordering of ratings had little predictive value, the cumulative share

of defaulting corporate entities and the cumulative share of all entities at each rating would be nearly the same,producing a Gini ratio of zero. Gini coefficients do, however, show a range of possibilities between industries, with the

homebuilders/real estate co. sector producing a one-year Gini coefficient of 92.22, while the automotive sector's

one-year Gini coefficient is 68.12. Overall, the average one-year Gini coefficient (with equal weighting across

industries) is 76.75, with an associated standard deviation of 6.12. After five years, the average and standard deviation

are 62.6 and 9.06.

Table 2

Weighted Average Gini Coefficients By Sector

One-year Three-year Five-year

Financials and utilitiesBanks/brokers 77.38 59.48 44.32

Financial institutions 76.50 69.13 66.31

Insurance 76.76 61.83 53.12

Utility 76.31 68.78 62.30

Heavy industries

Aerospace and defense 79.48 68.74 62.44

Auto 68.12 62.99 57.64

Capital goods 82.63 73.56 72.10

Transportation 83.10 78.71 76.80

Advanced industriesChemical, packaging, and enviromental services 75.66 66.68 61.46

Health care 69.95 58.02 53.97

High tech 70.10 58.02 54.36

Telecoms 82.82 77.79 76.33

Consumer-reliant sectors

Consumer 77.81 71.86 67.65


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Table 2

Weighted Average Gini Coefficients By Sector (cont.)Homebuilders/real estate 92.22 82.62 74.82

Media and entertainment 70.04 59.19 52.01

Retail/restaurants 73.14 65.45 62.94

Raw materials/commodities

Forest products and building materials 74.99 68.06 62.91

Metals, mining, and steel 69.12 59.23 56.78

Oil and gas 82.08 75.73 71.01

Source: Standard & Poor's Global Fixed Income Research and Standard & Poor's CreditPro®.

Finally, another measure of ratings performance used in our default studies is cumulative default rates. Appendix III

lists cumulative default rates for all 19 sectors, and they are broadly consistent with the findings in our default studies:

the higher the rating, the lower the observed frequency of default, and vice versa. Exceptions to the rule exist, but they

are few in number and are not surprising considering the more granular level of industrial breakouts presented here.

Historical Bond Returns

After examining all the historical stress periods and relative risks of these sectors, it is useful to put these measures

against the upside of bond returns. Here we provide quarterly total returns for each industry using the larger sector

groupings (see charts 13-17). Broadly, bond returns clearly follow a more correlated path than other metrics do, such

as default rates and net rating changes. One important distinction is that our proprietary bond returns series begin on

Jan. 1, 2003, so our analysis will cover a shorter time frame than prior exhibits.

Overall, most sectors have a rather healthy pace of returns from first quarter 2003 to fourth quarter 2007, on average.

Most industries saw fluctuations with an upper bound of 5% and a lower bound of roughly 2%-3%. These troughs weregenerally in second quarter 2004, the first and third quarters of 2005, and the first and second quarters of 2006.

However, the following seven quarters were much more volatile. At the end of first quarter 2008, only the media and

entertainment sector saw a marked level of stress--hitting a record quarterly loss of -4.7%. However, the losses gained

momentum from there, and by fourth quarter 2008 they were hitting previously unseen levels, averaging -7.8%. The

worst hit was the automotive sector, which saw a loss of -29.8% in fourth quarter 2008. Other sectors that were

particularly hard hit this quarter were the media and entertainment industry, which saw a loss of -20.6%, forest

products and building materials, which fell -17.8%, and metals, mining, and steel, which lost 17.2% for the quarter.

With the support of the Federal Reserve returning confidence to investors, most sectors saw bond returns of nearly the

same magnitude in the positive direction within a quarter or two. The outlier in second quarter 2009 was theautomotive sector--returning 41.4%--followed by the media and entertainment sector, which returned 26.3%. After this

period that could otherwise be described as chaotic, bond returns across most sectors returned to the same general

movements (and magnitude) that they had been experiencing prior to the financial crisis.


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Chart 14


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Chart 15


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Chart 16


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Chart 17

Because our bond series contain actively rated bonds (and exclude defaulted instruments), the downturn that began inlate 2008 had a marked effect on their composition (see table 3). For example, as the most recent downturn had a

disproportionately hard impact on financial institutions, the issue-base for this sector decreased by over 70% from

Sept. 30, 2008-Aug. 20, 2013. Among financials, the insurance sector also experienced a similar decline, with a 50.5%

decline in the number of included issues over the same time frame. These are some of the most represented industries

in our bond series. When combined with the rest of the financials and utilities grouping, they make up 41.9% of the

total, though that is still down markedly from 58.3% in September 2008. At the other end of the spectrum, more

modestly sized industries such as high technology and health care saw substantial increases in their issuer bases, rising

136.8% and 77.2%, respectively. In fact, 17 of the 19 sectors saw either increases or decreases of a magnitude greater

than 10% over this time frame, with an average absolute change of 39.9%.

Also included in table 3 is the Herfindahl Index measure (H-index) for each sector, both at the end of third quarter

2008, and as of Aug. 20, 2013. This provides a gauge for how concentrated each sector is in relation to its number of

issuers when measured by each issuer's issuer-base. Some sectors may have many more issues outstanding than

others, but many of those outstanding issues could be from the same issuer or a small group of issuers. The more

concentrated a particular sector is, the more its various bond metrics (including returns) will be influenced by the


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performance of its largest members. The H-index values are calculated as the sum of each sector's constituent issuers'

squared proportion of included bonds. For analytical purposes, the higher the H-index value the more concentrated the

sector is--the more its bonds are concentrated among a smaller number of issuers.

The furthest right column shows the absolute change in each sector's H-index value between Sept. 30, 2008-Aug. 20,

2013. While this measure appears to be only slightly unchanged for most sectors over the nearly five-year time frame,the transportation and insurance sectors are now much less concentrated than they were previously. The most striking

change is that at the start of the financial crisis near the end of 2008, the relationship between a sector's issue size and

its level of concentration was positive--with a correlation of 0.41. Currently, this relationship is much less robust, with a

correlation of only 0.09. With the exception of the high technology and transportation sectors, much of the changing

dynamics in the bond market between late 2008 and today lie squarely on financials (financial institutions and

insurance). These sectors have historically been the largest when measured by issue size. However, they have seen

substantial declines over the last five years, both in terms of outstanding issues and in new issuance trends. This is

likely the result of experiencing both a period of elevated stress--as is the case with banks and financial institutions in

the most recent crisis--and having to navigate through a new regulatory regime over the past five years that has

focused much of its attention on reducing leverage among large financial institutions.

Table 3

Changing Composition Of Bond Indices

As of Sept. 30, 2008, and Aug. 20, 2013

--9/30/2008-- --8/20/2013--

SubsectorNo. of bonds H-index

No. of bonds H-index

Bond no. change(%)

H-indexchange

Banks and brokers 576 8.90 619 8.22 7.47 (0.68)

Financial institutions 2606 16.35 770 12.09 (70.45) (4.26)

Insurance 1274 47.06 631 14.74 (50.47) (32.32)

Utility 1144 1.89 1438 1.70 25.70 (0.19)

Aerospace and defense 109 6.88 137 6.69 25.69 (0.19)

Auto 101 7.56 112 6.36 10.89 (1.20)

Capital goods 153 3.32 206 3.65 34.64 0.33

Transportation 634 45.81 232 6.79 (63.41) (39.02)

Chemical, packaging, and enviromentalservices

206 2.97 281 2.59 36.41 (0.38)

Health care 246 3.05 436 1.93 77.24 (1.12)

High tech 171 3.82 405 2.03 136.84 (1.79)

Telecom 329 9.15 377 2.06 14.59 (7.09)

Consumer 383 2.45 547 6.78 42.82 4.33

Homebuilders/real estate 295 2.69 340 2.34 15.25 (0.35)

Media and entertainment 411 2.07 503 2.42 22.38 0.35

Retail/restaurant 296 4.14 337 3.23 13.85 (0.90)

Forest products and building materials 165 4.82 159 4.18 (3.64) (0.64)

Metals, mining, and steel 81 6.54 135 3.30 66.67 (3.24)

Oil and gas 420 2.51 586 1.51 39.52 (1.00)


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Table 3

Changing Composition Of Bond Indices (cont.)

H-index--Herfindahl Index. Herfindahl index shares equal each issuer’s “share” based on issue count. Source: Standard & Poor’s Global FixedIncome Research and Standard & Poor’s CreditPro®.

Appendix I: Monthly Issuer Counts By Industry, 1981-June 2013Chart 18


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Chart 20


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Chart 21


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Chart 22


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Chart 23


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Chart 24


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Chart 25


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Chart 26


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Chart 27


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Chart 28


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Chart 29


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Chart 30


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Chart 31


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Chart 32


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Chart 33


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Chart 34


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Chart 36

Appendix II: One-Year Average Transition Matrices By Industry, 1981-2012Table 4

Financials And Utilities--(%)--

Banks and brokers

From/to AAA AA A BBB BB B CCC/C D NR

AAA 81.73 14.42 1.92 0.00 0.00 0.00 0.00 0.00 1.92

AA 0.00 84.27 11.52 0.56 0.00 0.00 0.00 0.14 3.51

A 0.05 2.00 89.01 3.55 0.35 0.10 0.00 0.05 4.90

BBB 0.00 0.34 4.37 84.92 3.00 0.69 0.09 0.17 6.43

BB 0.00 0.46 0.93 8.80 64.81 9.26 1.39 0.93 13.43

B 0.00 0.00 0.81 0.81 5.65 67.74 7.26 5.65 12.10

CCC/C 0.00 0.00 0.00 0.00 3.85 15.38 42.31 19.23 19.23

Financial institutions

AAA 91.76 3.00 1.12 0.37 0.37 0.00 0.37 0.00 3.00


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Table 4

Financials And Utilities (cont.)AA 0.45 85.45 8.64 0.61 0.15 0.00 0.00 0.00 4.70

A 0.07 2.54 85.29 5.07 0.51 0.14 0.14 0.22 6.01

BBB 0.00 0.66 3.60 82.29 3.79 1.14 0.19 0.95 7.39

BB 0.00 0.40 0.00 6.80 71.00 9.20 1.60 1.60 9.40B 0.00 0.00 0.00 0.52 6.99 69.95 7.51 6.22 8.81

CCC/C 0.00 0.00 0.00 0.00 2.33 10.47 43.02 25.58 18.60

Insurance

AAA 87.85 10.22 0.11 0.00 0.11 0.11 0.00 0.00 1.59

AA 0.83 86.99 7.86 0.33 0.04 0.08 0.08 0.08 3.70

A 0.03 2.73 88.23 3.63 0.36 0.09 0.00 0.18 4.76

BBB 0.00 0.29 5.13 82.44 3.61 0.65 0.51 0.36 7.01

BB 0.00 0.21 0.85 9.11 72.46 4.66 1.69 1.27 9.75

B 0.00 0.39 0.77 0.39 9.27 72.20 4.63 2.32 10.04

CCC/C 0.00 0.00 0.00 0.00 1.92 11.54 42.31 30.77 13.46

Utilities

AAA 70.97 9.68 0.00 0.00 0.00 0.00 0.00 0.00 19.35

AA 0.09 87.79 9.07 0.65 0.09 0.00 0.00 0.00 2.31

A 0.00 1.40 88.85 6.11 0.44 0.00 0.09 0.06 3.06

BBB 0.00 0.00 3.58 89.43 2.54 0.45 0.03 0.23 3.75

BB 0.32 0.00 0.47 14.72 69.94 6.49 0.32 0.63 7.12

B 0.00 0.00 0.96 1.28 11.50 69.65 3.83 4.47 8.31

CCC/C 0.00 0.00 4.88 0.00 2.44 12.20 48.78 21.95 9.76

NR-Not rated. Source: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

Table 5Heavy Industries

--(%)--

Aerospace and defense


AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00

AA 0.00 88.10 7.14 0.00 1.19 0.00 0.00 0.00 3.57

A 0.43 0.43 88.31 5.19 0.43 0.87 0.00 0.00 4.33

BBB 0.00 0.37 3.70 82.96 4.44 0.74 0.37 0.00 7.41

BB 0.00 0.00 0.30 5.06 82.44 4.17 0.00 0.60 7.44

B 0.00 0.00 0.00 0.30 5.62 76.33 3.25 2.96 11.54

CCC/C 0.00 0.00 0.00 5.00 0.00 10.00 30.00 50.00 5.00

Automotive

AAA 0.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 85.94 12.50 0.00 0.00 0.00 0.00 0.00 1.56

A 0.00 1.60 83.96 9.09 0.00 0.00 0.00 0.00 5.35

BBB 0.00 0.00 4.37 80.56 9.52 1.98 0.00 0.00 3.57


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Table 5

Heavy Industries (cont.)BB 0.00 0.00 0.26 4.50 74.87 12.96 0.53 1.59 5.29

B 0.00 0.22 0.00 0.44 9.45 69.23 5.71 7.69 7.25

CCC/C 0.00 0.00 0.00 0.00 0.00 25.00 41.67 23.33 10.00

Capital goods

AAA 91.67 4.17 0.00 0.00 0.00 0.00 0.00 0.00 4.17

AA 0.00 92.11 7.24 0.66 0.00 0.00 0.00 0.00 0.00

A 0.00 0.13 90.84 4.96 0.00 0.51 0.00 0.00 3.56

BBB 0.00 0.00 4.01 81.61 5.69 0.67 0.17 0.33 7.53

BB 0.00 0.00 0.00 5.41 78.07 6.58 0.29 0.73 8.92

B 0.00 0.00 0.34 0.00 4.30 76.36 4.19 4.19 10.63

CCC/C 0.00 0.00 0.00 0.00 0.00 12.79 48.84 29.07 9.30

Transportation

AAA 90.16 1.64 0.82 0.00 0.00 0.00 0.00 0.00 7.38

AA 0.00 84.87 5.17 3.32 0.74 0.00 0.00 0.00 5.90A 0.00 2.23 84.04 9.09 1.30 0.37 0.00 0.00 2.97

BBB 0.11 0.11 2.37 86.01 3.66 0.65 0.32 0.22 6.57

BB 0.00 0.21 0.42 5.41 72.35 8.73 1.66 1.25 9.98

B 0.00 0.19 0.19 0.75 6.23 73.02 4.91 7.92 6.79

CCC/C 0.00 0.00 1.19 0.00 0.00 13.10 44.05 32.14 9.52

NR-Not rated. Source: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

Table 6

Advanced Industries

--(%)--

Chemicals, packaging, and environmental services


AAA 0.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 80.00 16.92 0.00 0.00 0.00 0.00 0.00 3.08

A 0.00 1.10 89.83 4.85 0.78 0.31 0.00 0.00 3.13

BBB 0.00 0.00 1.96 88.82 4.53 0.60 0.00 0.15 3.93

BB 0.00 0.13 0.00 3.10 79.92 8.36 0.27 1.21 7.01

B 0.00 0.00 0.00 0.11 5.19 78.13 3.16 4.51 8.91

CCC/C 0.00 0.00 0.00 0.00 0.00 22.00 30.00 44.00 4.00

Health care

AAA 92.74 5.65 0.81 0.00 0.00 0.00 0.00 0.00 0.81

AA 1.60 90.37 5.35 0.53 0.00 0.00 0.00 0.00 2.14

A 0.00 1.55 87.37 5.93 0.26 0.00 0.00 0.00 4.90

BBB 0.00 0.00 6.09 81.03 5.62 1.17 0.00 0.00 6.09

BB 0.00 0.00 0.32 5.74 76.08 5.90 0.80 0.48 10.69

B 0.00 0.00 0.09 0.18 3.86 78.35 2.43 2.34 12.76

CCC/C 0.00 0.00 0.00 0.00 1.27 11.39 51.90 17.72 17.72


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Table 6

Advanced Industries (cont.)

High technology

AAA 91.23 7.02 1.75 0.00 0.00 0.00 0.00 0.00 0.00

AA 1.82 86.67 7.27 0.00 0.00 0.00 0.00 0.00 4.24

A 0.00 1.44 88.04 6.70 0.48 0.24 0.00 0.00 3.11

BBB 0.00 0.22 4.16 80.96 6.56 2.84 0.22 0.44 4.60

BB 0.00 0.00 0.37 4.09 75.31 8.06 0.62 0.25 11.29

B 0.00 0.08 0.00 0.08 5.41 75.32 1.98 2.67 14.47

CCC/C 0.00 0.00 0.00 0.00 1.79 12.50 39.29 21.43 25.00

Telecommunications

AAA 85.31 12.43 0.00 0.00 0.00 0.00 0.00 0.00 2.26

AA 1.20 86.60 6.01 0.86 0.00 0.17 0.00 0.00 5.15

A 0.00 3.94 84.53 4.67 0.44 0.58 0.00 0.00 5.84

BBB 0.00 0.53 6.90 79.84 2.92 0.53 0.00 0.80 8.49

BB 0.00 0.00 0.21 2.76 79.41 6.16 1.06 0.64 9.77B 0.00 0.10 0.21 0.52 4.56 72.72 6.85 3.53 11.51

CCC/C 0.00 0.00 0.00 0.66 0.00 10.53 38.16 34.87 15.79

NR-Not rated. Source: Standard & Poor’s Global Fixed Income Research, and Standard & Poor’s CreditPro®.

Table 7

Consumer-Reliant Sectors--(%)--

Consumer products


AAA 77.97 18.64 0.00 0.00 0.00 0.00 0.00 0.00 3.39AA 0.22 87.42 8.03 0.65 0.00 0.00 0.00 0.00 3.69

A 0.00 1.69 88.50 4.72 0.71 0.18 0.00 0.00 4.19

BBB 0.00 0.10 3.02 85.87 5.07 0.68 0.00 0.00 5.26

BB 0.10 0.00 0.10 4.05 75.99 9.09 0.59 1.28 8.79

B 0.00 0.06 0.06 0.28 3.51 77.05 4.48 4.31 10.25

CCC/C 0.00 0.00 0.00 0.00 1.04 10.36 52.33 23.83 12.44

Homebuilders/real estate

AAA 92.31 3.85 0.00 0.00 0.00 0.00 0.00 0.00 3.85

AA 0.69 90.97 3.47 2.08 0.00 0.00 0.69 0.00 2.08

A 0.00 0.00 87.15 8.38 0.00 1.12 0.00 0.00 3.35

BBB 0.00 0.00 1.26 90.89 3.12 0.17 0.17 0.00 4.38

BB 0.00 0.00 0.00 4.63 81.48 7.87 1.16 0.69 4.17

B 0.00 0.00 0.00 0.00 6.15 76.15 6.15 6.15 5.38

CCC/C 0.00 0.00 0.00 0.00 0.00 14.29 30.95 40.48 14.29

Media and entertainment

AAA 63.64 9.09 18.18 0.00 0.00 0.00 0.00 0.00 9.09

AA 0.00 85.50 10.69 0.76 0.00 0.76 0.00 0.00 2.29


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Table 7

Consumer-Reliant Sectors (cont.)A 0.24 1.70 82.28 9.22 0.49 0.00 0.00 0.00 6.07

BBB 0.15 0.00 2.91 82.39 7.28 0.58 0.00 0.15 6.55

BB 0.00 0.00 0.15 2.85 77.32 8.71 0.59 1.02 9.36

B 0.00 0.00 0.14 0.05 4.04 74.58 6.27 4.23 10.69CCC/C 0.00 0.00 0.00 0.29 0.87 10.20 49.27 26.82 12.54

Retail/restaurants

AAA 75.00 12.50 6.25 0.00 0.00 0.00 0.00 0.00 6.25

AA 0.00 88.59 7.07 0.00 0.00 2.17 0.00 0.00 2.17

A 0.15 1.38 86.81 8.13 0.00 0.61 0.00 0.00 2.91

BBB 0.00 0.00 4.52 80.69 7.01 1.09 0.00 0.31 6.39

BB 0.00 0.00 0.00 3.53 76.16 11.07 0.12 0.97 8.15

B 0.00 0.07 0.00 0.07 4.70 75.69 4.92 4.85 9.69

CCC/C 0.00 0.00 0.00 0.78 0.00 11.63 40.31 37.98 9.30


Table 8

Raw Materials/Commodities

--(%)--



AAA 50.00 0.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00

AA 0.00 77.55 22.45 0.00 0.00 0.00 0.00 0.00 0.00

A 0.21 0.42 87.18 7.98 1.05 0.00 0.00 0.42 2.73

BBB 0.00 0.00 2.72 85.87 4.71 0.36 0.18 0.54 5.62

BB 0.00 0.00 0.19 4.73 79.21 6.99 0.19 0.76 7.94

B 0.00 0.00 0.00 0.28 2.70 77.59 5.11 5.11 9.22

CCC/C 0.00 0.00 0.00 0.00 0.00 14.67 42.67 33.33 9.33

Metals, mining, and steel

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 87.10 9.68 3.23 0.00 0.00 0.00 0.00 0.00

A 0.00 0.67 80.54 14.77 0.67 0.00 0.00 0.00 3.36

BBB 0.00 0.00 1.11 85.60 8.59 0.55 0.00 0.28 3.88

BB 0.00 0.00 0.00 5.11 78.51 9.36 0.43 1.28 5.32

B 0.00 0.00 0.00 0.16 4.07 75.61 5.53 5.20 9.43

CCC/C 0.00 0.00 0.00 0.00 2.99 20.90 37.31 28.36 10.45

Oil and gas

AAA 86.23 9.42 0.72 0.00 0.00 0.00 0.00 0.00 3.62

AA 0.71 87.44 4.74 0.71 0.00 0.47 0.00 0.00 5.92

A 0.24 0.95 85.70 8.75 0.24 0.24 0.12 0.12 3.66

BBB 0.00 0.26 3.51 87.43 3.25 0.17 0.17 0.09 5.13

BB 0.00 0.00 0.00 4.33 79.76 7.58 0.54 0.54 7.25


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Table 8

Raw Materials/Commodities (cont.)B 0.00 0.00 0.25 0.25 7.11 74.51 4.66 6.00 7.23

CCC/C 0.00 0.00 0.74 1.47 0.00 11.03 50.00 17.65 19.12


Appendix III: Corporate Average Cumulative Default Rates, 1981-2012Table 9

Financials And Utilities

Bank and brokers

--Time horizon--

(%) Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.14 0.28 0.58 0.88 1.35 1.84 2.19 2.54 2.54 2.73 2.73 2.73 2.73 2.73 2.73

A 0.05 0.15 0.37 0.59 0.82 1.05 1.30 1.56 1.82 2.04 2.19 2.34 2.51 2.68 2.87

BBB 0.17 0.53 1.01 1.42 1.52 1.64 1.88 2.01 2.15 2.30 2.63 2.81 2.81 2.81 2.81

BB 0.93 2.38 2.38 3.52 4.12 4.76 5.46 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18

B 5.65 11.88 16.72 19.96 22.39 23.80 23.80 23.80 23.80 23.80 23.80 23.80 23.80 23.80 23.80

CCC/C 19.23 23.27 23.27 23.27 28.38 28.38 28.38 28.38 28.38 28.38 28.38 28.38 28.38 28.38 28.38

Investment-grade 0.10 0.28 0.58 0.86 1.10 1.34 1.60 1.83 2.01 2.20 2.35 2.48 2.57 2.67 2.77

Speculative-grade 3.83 7.02 8.60 10.33 11.81 12.62 13.07 13.53 13.53 13.53 13.53 13.53 13.53 13.53 13.53

All rated 0.41 0.84 1.24 1.63 1.96 2.24 2.51 2.76 2.93 3.10 3.25 3.36 3.45 3.54 3.63

Financial institutions

AAA 0.00 0.37 0.75 1.13 1.51 1.90 2.31 2.74 3.17 3.63 4.11 4.61 5.15 5.72 6.32

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.22 0.59 1.05 1.52 1.92 2.35 2.70 3.06 3.34 3.64 3.95 4.17 4.40 4.52 4.66

BBB 0.95 2.33 3.65 5.14 6.59 7.86 9.05 10.29 11.73 12.97 14.00 15.24 16.43 17.90 19.53

BB 1.60 4.69 9.36 12.87 14.91 17.04 17.78 18.30 18.56 19.12 19.99 20.92 21.25 21.25 21.25

B 6.22 13.06 17.80 20.83 22.98 25.32 26.54 27.39 28.29 28.77 29.30 29.30 29.30 29.30 29.30

CCC/C 25.58 29.18 33.12 35.96 39.01 40.58 42.14 43.70 43.70 43.70 43.70 43.70 43.70 43.70 43.70



All rated 1.55 3.02 4.50 5.72 6.68 7.59 8.22 8.82 9.39 9.91 10.44 10.95 11.38 11.81 12.26

Insurance

AAA 0.00 0.00 0.23 0.46 0.70 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95AA 0.08 0.21 0.39 0.62 0.80 1.00 1.16 1.32 1.49 1.61 1.73 1.80 1.88 1.96 2.06

A 0.18 0.49 0.87 1.26 1.65 2.03 2.44 2.69 2.85 3.16 3.50 3.65 3.83 3.94 4.20

BBB 0.36 1.22 2.05 2.87 3.66 4.32 4.81 5.37 6.00 6.36 6.57 6.57 7.10 7.70 8.05

BB 1.27 2.85 4.52 6.07 7.75 10.56 13.37 16.19 19.36 21.41 24.25 26.12 26.79 27.51 28.27

B 2.32 4.76 7.85 9.29 10.38 11.01 11.74 11.74 11.74 13.77 17.13 18.30 19.55 20.97 22.46

CCC/C 30.77 41.59 41.59 41.59 41.59 41.59 45.02 48.95 48.95 48.95 48.95 48.95 48.95 48.95 48.95



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Table 9

Financials And Utilities (cont.)Speculative-grade 3.58 6.02 8.05 9.47 10.86 12.81 15.04 17.06 19.06 20.98 23.83 25.36 26.18 27.08 28.03

All rated 0.47 0.96 1.48 1.95 2.40 2.87 3.29 3.64 3.95 4.26 4.61 4.78 4.97 5.16 5.37

Utility

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.10 0.20 0.40 0.50 0.61 0.73

A 0.06 0.12 0.21 0.30 0.40 0.50 0.63 0.77 0.95 1.10 1.25 1.38 1.51 1.65 1.80

BBB 0.23 0.52 0.77 1.06 1.34 1.63 1.86 2.11 2.28 2.51 2.85 3.11 3.39 3.68 3.93

BB 0.63 1.96 3.35 4.61 6.13 7.34 7.34 7.34 7.34 7.86 7.86 7.86 7.86 7.86 8.21

B 4.47 9.48 12.94 15.08 15.82 16.61 18.36 20.40 22.90 24.46 26.26 27.21 28.19 29.20 30.26

CCC/C 21.95 24.64 24.64 24.64 27.66 27.66 30.95 34.78 39.13 44.66 51.58 61.26 70.95 80.63 80.63

Investment grade 0.12 0.28 0.42 0.58 0.74 0.90 1.05 1.20 1.35 1.52 1.73 1.92 2.09 2.28 2.46

Speculative grade 2.74 5.29 7.29 8.78 10.11 11.14 11.83 12.58 13.42 14.34 14.96 15.39 15.84 16.32 16.83

All rated 0.41 0.82 1.16 1.46 1.74 1.99 2.19 2.40 2.61 2.84 3.08 3.29 3.49 3.70 3.90

Y-Year. Source: Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro®.

Table 10

Heavy Industries

Aerospace and defense

--Time horizon--


AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BBB 0.00 0.38 0.77 1.17 1.58 2.00 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44

BB 0.60 1.21 2.50 3.50 4.54 5.25 6.38 6.78 7.62 8.06 8.53 8.53 8.53 8.53 9.13

B 2.96 7.27 10.47 12.15 12.85 13.61 14.41 15.27 16.20 17.17 17.68 18.23 18.82 19.48 19.48

CCC/C 50.00 70.00 75.00 75.00 75.00 81.25 81.25 81.25 81.25 81.25 81.25 81.25 81.25 81.25 81.25



All rated 1.72 3.41 4.74 5.51 6.04 6.59 7.16 7.46 7.87 8.19 8.41 8.53 8.65 8.78 8.92

Automotive

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.00 0.57 1.16 2.36 3.57 4.80 6.68 8.60 10.60 12.01

BBB 0.00 0.82 1.24 1.67 3.84 7.36 9.60 11.44 12.90 13.93 16.12 18.49 20.38 22.39 24.54

BB 1.59 3.81 6.98 11.98 17.20 21.09 25.21 29.63 33.70 36.81 37.79 38.31 39.45 40.69 41.99

B 7.69 16.26 23.82 28.67 31.75 33.41 34.12 35.98 37.16 38.41 40.16 40.62 41.11 41.65 42.85

CCC/C 23.33 30.00 35.38 39.84 44.47 49.10 54.19 54.19 54.19 54.19 54.19 54.19 54.19 54.19 54.19



All rated 3.94 7.68 11.12 14.14 17.01 19.38 21.39 23.50 25.32 26.81 28.15 29.21 30.32 31.50 32.76


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Table 10

Heavy Industries (cont.)

Capital goods

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.15 0.45 0.60 0.76 0.93 1.10 1.45 1.82 2.01 2.22

BBB 0.33 0.68 1.04 1.61 1.99 2.60 3.02 3.46 4.15 4.88 5.13 5.13 5.13 5.44 5.44

BB 0.73 2.41 4.49 6.16 7.57 8.90 9.51 10.84 12.04 12.83 13.40 14.34 15.02 15.77 16.19

B 4.19 9.78 14.95 19.50 23.35 26.45 29.16 30.26 31.26 32.34 33.50 34.76 36.16 37.41 38.80

CCC/C 29.07 38.69 46.35 55.29 60.08 61.90 64.14 64.14 64.14 64.14 64.14 n/a n/a n/a n/a



All rated 2.13 4.31 6.39 8.23 9.69 10.91 11.88 12.52 13.14 13.71 14.17 14.70 15.21 15.69 16.08

Transportation

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00A 0.00 0.00 0.00 0.19 0.38 0.57 0.77 0.97 1.17 1.17 1.17 1.17 1.17 1.17 1.61

BBB 0.22 0.66 1.22 1.80 2.52 3.13 3.76 4.16 4.29 4.72 5.17 5.81 6.50 7.25 8.26

BB 1.25 4.04 7.14 9.85 11.93 14.59 16.64 19.07 21.91 24.36 26.58 27.90 29.28 30.36 30.74

B 7.92 16.24 22.96 27.41 30.68 33.17 35.84 37.85 39.06 40.34 41.69 42.04 42.40 43.17 43.97

CCC/C 32.14 46.23 50.36 54.88 60.29 62.28 62.28 62.28 62.28 62.28 62.28 62.28 62.28 62.28 62.28



All rated 2.60 5.03 6.95 8.44 9.67 10.75 11.70 12.51 13.19 13.84 14.47 14.89 15.33 15.79 16.31


Table 11Advanced Industries

Chemicals, packaging, and environmental services

--Time horizon--


AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.16 0.32 0.48 0.64 0.81 1.15 1.50 1.86 2.22 2.41 2.61 2.81 3.02 3.23

BBB 0.15 0.47 0.95 1.63 2.34 3.08 3.65 4.25 4.87 5.53 6.22 6.71 7.24 8.10 8.74

BB 1.21 3.48 6.00 8.61 11.19 14.26 16.47 17.87 19.18 20.13 20.40 20.99 21.31 21.31 21.70

B 4.51 9.71 14.52 18.44 21.61 23.93 26.30 28.52 30.57 32.57 34.45 36.20 37.43 38.09 38.46

CCC/C 44.00 56.92 59.79 59.79 59.79 59.79 59.79 59.79 79.90 79.90 79.90 79.90 79.90 79.90 79.90



All rated 2.36 4.69 6.81 8.68 10.32 11.83 13.13 14.18 15.20 16.07 16.72 17.36 17.85 18.24 18.59

Healthcare

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


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Table 11

Advanced Industries (cont.)AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BBB 0.00 0.25 0.51 1.06 1.66 1.97 1.97 1.97 1.97 1.97 2.50 2.50 2.50 2.50 2.50

BB 0.48 1.97 3.54 5.01 6.37 7.20 8.09 8.33 8.87 9.17 9.17 9.17 9.58 10.04 10.04B 2.34 5.18 7.74 9.25 10.28 11.61 13.26 14.37 15.23 15.71 16.26 16.90 18.07 19.00 20.58

CCC/C 17.72 24.47 27.37 30.60 34.16 36.04 36.04 36.04 38.17 38.17 38.17 38.17 38.17 38.17 38.17



All rated 1.46 3.04 4.42 5.43 6.26 6.96 7.68 8.06 8.49 8.69 8.90 9.07 9.42 9.72 10.06

High technology

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.76

A 0.00 0.00 0.00 0.00 0.00 0.00 0.30 0.62 0.62 0.62 0.98 1.74 2.54 3.40 3.86

BBB 0.44 0.91 1.16 1.69 2.25 2.84 3.16 3.49 4.20 5.74 6.15 7.08 7.62 7.62 7.62

BB 0.25 1.30 2.83 4.14 5.06 5.88 6.93 8.24 9.44 9.88 10.84 11.11 11.11 11.45 12.21

B 2.67 5.67 8.10 10.24 11.95 12.82 13.54 13.80 14.08 14.54 14.71 15.07 15.48 15.70 15.70

CCC/C 21.43 30.56 34.22 36.27 38.47 40.67 40.67 40.67 42.95 42.95 42.95 42.95 42.95 42.95 42.95



All rated 1.56 3.24 4.67 5.94 6.93 7.58 8.18 8.69 9.23 9.70 10.10 10.53 10.86 11.16 11.48

Telecommunications

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.58 1.18

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.18 0.18 0.18

A 0.00 0.15 0.30 0.45 0.76 1.08 1.40 1.74 2.08 2.26 2.45 2.64 2.64 2.64 2.64

BBB 0.80 1.34 1.34 1.63 1.92 1.92 1.92 1.92 1.92 2.30 2.71 3.16 3.66 4.20 4.79

BB 0.64 2.20 5.03 8.25 10.35 12.05 13.27 13.93 14.65 15.42 15.42 15.42 15.91 16.46 16.46

B 3.53 10.24 16.47 21.26 24.92 27.45 28.93 29.83 30.62 31.49 32.46 33.26 33.58 33.96 34.44

CCC/C 34.87 48.97 54.49 57.38 58.82 59.56 60.32 61.18 61.18 61.18 63.22 65.52 65.52 65.52 65.52



All rated 2.73 5.51 7.82 9.65 10.98 11.88 12.45 12.82 13.14 13.46 13.76 14.03 14.22 14.42 14.59


Table 12

Consumer-Reliant Sectors

Consumer products

--Time horizon--


AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.09 0.19 0.29 0.60 1.12 1.55 1.99 2.34 2.34 2.34 2.48 2.62

BBB 0.00 0.31 0.84 1.73 2.77 3.74 4.63 5.44 5.87 6.33 6.82 7.34 7.53 7.74 8.43


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Table 12

Consumer-Reliant Sectors (cont.)BB 1.28 2.91 5.43 8.27 10.80 13.22 15.40 17.33 18.52 19.98 20.71 21.10 21.52 22.19 22.92

B 4.31 10.23 15.22 18.90 21.75 24.45 26.04 27.14 27.94 28.92 29.95 30.95 31.77 32.68 33.18

CCC/C 23.83 35.80 42.28 46.17 49.71 50.49 51.36 52.33 54.36 55.50 56.73 58.01 59.28 59.28 59.28

Investment-grade 0.00 0.12 0.31 0.68 1.10 1.48 1.92 2.43 2.76 3.10 3.41 3.57 3.62 3.74 4.00Speculative-grade 4.55 9.37 13.58 16.96 19.73 22.20 23.96 25.36 26.37 27.53 28.45 29.24 29.94 30.70 31.25

All rated 2.39 4.97 7.24 9.14 10.74 12.14 13.21 14.12 14.75 15.45 16.02 16.43 16.75 17.13 17.50

Homebuilders/real estate companies

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 1.39 2.79 4.25 5.77 7.35 9.01 10.74 12.54 14.45 16.43 18.52 20.73

A 0.00 0.00 0.61 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24

BBB 0.00 0.18 0.36 0.65 0.86 0.97 1.08 1.21 1.49 1.96 2.32 2.32 2.32 2.32 2.32

BB 0.69 3.19 6.67 7.80 9.59 11.50 13.90 16.46 18.81 19.66 20.14 20.67 21.28 22.00 23.68

B 6.15 14.69 21.37 27.50 29.86 32.34 32.99 33.67 34.36 35.07 36.55 38.10 39.77 42.43 44.31

CCC/C 40.48 45.65 48.37 48.37 48.37 48.37 48.37 48.37 48.37 52.06 55.75 59.43 64.50 64.50 64.50



All Rated 1.57 3.09 4.56 5.63 6.38 7.13 7.79 8.51 9.29 9.98 10.66 11.23 11.87 12.63 13.54

Media and entertainment

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.25 0.50 0.76 1.03 1.30 1.58 1.87 2.19 2.52 2.87 3.62 4.01 4.85

BBB 0.15 0.15 0.77 1.73 2.89 4.27 5.73 7.48 9.14 10.47 11.44 12.24 13.14 13.83 13.83

BB 1.02 3.40 5.87 8.35 10.87 13.23 15.12 16.70 17.84 19.06 20.37 21.90 23.43 24.66 26.21

B 4.23 10.03 14.91 18.91 22.09 24.87 27.67 29.95 32.24 34.36 35.51 36.24 36.59 37.00 37.49

CCC/C 26.82 37.28 44.63 49.71 51.60 52.58 52.58 52.58 52.58 52.58 52.58 52.58 53.68 54.79 54.79



All rated 3.88 7.60 10.83 13.55 15.78 17.79 19.61 21.18 22.60 23.94 24.89 25.74 26.55 27.22 27.93

Retail/restaurants

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.25 12.50 18.75 18.75 18.75 18.75 18.75 18.75

AA 0.00 0.00 0.57 1.16 1.76 2.37 3.61 4.24 4.88 4.88 4.88 4.88 4.88 4.88 4.88

A 0.00 0.00 0.00 0.16 0.32 0.82 1.33 1.85 2.73 4.18 5.12 5.89 6.30 6.72 7.16

BBB 0.31 0.95 1.45 2.47 4.23 6.06 7.78 9.38 10.89 12.04 13.03 13.29 13.88 14.19 14.52

BB 0.97 2.98 5.60 7.90 9.46 11.26 13.32 15.51 17.31 19.06 20.96 23.02 24.28 25.14 26.12

B 4.85 11.25 17.51 22.99 27.76 31.23 34.30 36.68 39.07 41.13 42.80 44.14 45.41 46.61 47.74

CCC/C 37.98 52.04 63.38 69.95 75.13 78.38 79.51 80.72 82.10 83.59 83.59 83.59 83.59 83.59 83.59



All rated 3.30 6.59 9.83 12.66 15.11 17.17 19.09 20.78 22.45 24.03 25.28 26.31 27.13 27.81 28.49



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Table 13

Raw Materials/Commodities


--Time horizon--


AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 2.04 4.08 6.12 8.16 12.24 16.33 18.37 20.41 22.45 24.54

A 0.42 0.85 1.06 1.71 2.59 3.03 3.25 3.48 3.71 3.71 3.71 3.71 3.97 4.24 4.80

BBB 0.54 1.10 1.69 2.29 2.50 3.36 4.49 6.37 8.60 10.42 12.07 12.65 13.58 14.58 15.64

BB 0.76 2.52 4.74 7.03 10.30 13.73 17.36 20.14 22.27 25.03 26.78 28.93 29.90 30.61 30.99

B 5.11 12.23 18.74 25.44 29.84 33.55 36.34 39.34 42.38 44.92 46.80 48.24 49.81 50.83 51.97

CCC/C 33.33 45.83 57.24 63.57 68.54 68.54 68.54 70.29 72.14 74.13 76.49 79.42 82.36 85.89 85.89



All rated 2.93 6.00 8.87 11.70 14.00 16.09 17.95 19.90 21.76 23.52 24.88 25.91 26.86 27.65 28.43

Metals, mining, and steel

AAA n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.69 0.69 0.69 1.46 2.27 3.10 3.97 4.87 4.87 4.87

BBB 0.28 0.57 0.87 1.83 3.19 4.25 5.00 6.17 6.99 7.41 8.32 9.30 9.83 10.42 10.42

BB 1.28 4.39 7.18 9.61 10.88 12.50 14.20 15.70 17.94 20.33 22.54 24.12 25.81 26.72 28.72

B 5.20 11.73 17.71 22.79 26.98 31.34 34.73 37.92 39.39 40.34 41.34 42.42 43.99 45.26 47.16

CCC/C 28.36 39.26 42.46 44.44 52.67 57.18 59.86 62.72 68.46 71.96 71.96 71.96 71.96 81.31 81.31



All rated 3.43 7.13 10.22 12.98 15.38 17.76 19.59 21.36 22.88 24.12 25.33 26.41 27.56 28.44 29.54

Oil and gas

AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.24 0.49 0.74 1.00 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26

A 0.12 0.36 0.49 0.62 0.76 1.04 1.19 1.34 1.66 2.00 2.18 2.56 2.76 2.99 2.99

BBB 0.09 0.18 0.37 0.67 0.99 1.22 1.46 1.60 1.74 1.90 2.25 2.64 2.64 2.64 2.91

BB 0.54 1.90 3.45 5.19 6.51 7.90 8.34 8.83 9.18 9.37 9.80 10.04 10.30 10.30 10.30

B 6.00 11.07 14.57 17.09 19.30 20.79 21.61 22.28 22.76 23.27 23.27 23.27 23.27 23.27 23.67

CCC/C 17.65 28.32 34.62 37.98 39.70 39.70 40.59 41.49 42.40 43.38 44.45 45.63 46.99 48.64 48.64



All rated 1.80 3.38 4.59 5.60 6.42 7.08 7.44 7.73 8.01 8.26 8.50 8.75 8.89 8.99 9.10


Appendix IV: Gini Methodology

To measure ratings performance or ratings accuracy, we plot the cumulative share of issuers by rating against the


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s&p industry overview: a long-term analysis of 19 u.s. industry sectors

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