Now we get to 2020 and 2021. As we know there are lots of bankruptcies and default situations throughout the year because of the pandemic, because of global recession, and also related to industry. This shows you the importance of not just looking at it by rating, but also looking at certain industries. Without a doubt, some industries that were thriving and doing fine before 2020, the airline industry for example, of course, actually plummeted and imploded in 2020 because of the pandemic. We can make observations about certain industries and look at default rates by industry as it relates to 2020. You see here, airlines, retail, automotive, entertainment, oil and gas, travel and hospitality. These are all industries that were vulnerable throughout. If I were to look at default trends, I would expect to see a large number of troubled and non-performing names in those respective industries throughout the year. Of course, default rates and bankruptcies did increase. Well as you'll see on an ensuing page, you'll see how they're tied and mapped to these particular industries. Were there predictable signs at the outset as it relates to these industries in 2020? Yes, there were. Were there signs in 2019? No, because we didn't know the pandemic was going to come. As we're looking at these names going forward, we're going to look into are they're vulnerable names, borrowers, corporate counterparts in these industries for which we are going to have to change our rating and increase the probability of default. Now some of the names are actually in bankruptcy but some of them have actually deteriorated but still are ongoing enterprises. On the other hand, what we'll do is that as you start watching 2020 and as it is now into 2021, this is not over yet. What we also do is try to figure out why is it that some companies have been able to thrive more than others? Part of risk management, part of analysis. Some companies and vulnerable industries have been able to thrive while others were not able to do so. Here's just a sample of US companies that filed for bankruptcy in 2020 and then you can see the industries at which they are mapped into. You can see a lot of vulnerability in some of the consumer products and retail industry. Retail, JC Penney, J Crew, Modell's, Pier 1, Gold's Gym. In terms of global, we can see airlines had issues LATAM Airlines, Avianca Airlines as well. As we know from 2020 oil prices actually nose dived, especially in the mid portion of 2020 and this made energy and oil and gas companies quite vulnerable during this period. This is just a sampling of some of the bankruptcies. But as we look at this, as I say, we're also trying to look at this in terms of risk management, why is it that some companies in the same industries were able to thrive? What is it about them intrinsically? Cash on the balance sheet, not as much debt, a lower debt burden, true management, expanding into other industries, reinvented, themselves. Why is it that some companies were able to avoid default? They did deteriorate, but they were able to avoid default and then actually bankruptcy. That's our approach now as we observed what's been going on in 20 and then 21. As we would expect the pandemic, has had a big impact in terms of default rates. By the time we got to the middle of the pandemic the mid year 2020, there were reports that over 100 companies around the globe with at least $50 million had filed for bankruptcy. This is by July of 2020, companies with over 50 million in debt had filed for bankruptcy. As we mentioned also, some bankrupt names were victims of the pandemic without a doubt. That relates to many of the airlines. Some their business models were based on social contact and constant interaction among humans, they were expected to be victims. There were companies that were vulnerable all along it's just that the pandemic pushed them off the cliff. It had a lot to do with retail oriented companies, retail department stores. Many of those companies were barely hanging along and then it put them over the hump and they fell off the cliff as a result of the pandemic. Other companies have a substantial amount of credit obligations, a substantial amount of debt. Many companies operate with a substantial debt to equity ratio, or what we also call the debt to EBIT DA ratio. They have capital structures where there's so much debt. Some of those companies could have survived if they did not have an excessive burden of debt on the balance sheet. I might argue that could be some of the rental car companies. You see that Hertz filed for bankruptcy during the course of year, but it was a company that was just overloaded. Yes the rental car industry imploded but at the same time, it was also a factor of this excessive mount of debt on its balance sheet. When I to go back and look at debt I do try to figure out industries. Why is it that some companies thrived in the industry? How is it some companies that are invulnerable industries were able to hang on? Then what is it about the companies that had too much debt on the balance sheet? Now by the time we get to early 2021 we can now see the default rates. Default rates are running at about the 10 percent. Remember we had seen that between 2015 and 2019, default rates for names BB and investment grades they were running less than five percent. Now, you're seeing that as a result of the pandemic as expected, we're seeing default rates based on the report from the rating agencies are anywhere from say, 10-15 percent. Default rates increase as we would expect, certainly increase as we would expect.
