What we're looking for
Canadian companies with the highest risk of default.
While Canada's economy remains strong relative to those of the United States and Europe, our ties to these troubled areas expose Canadian companies to dangerous macro-economic forces. In the event of a serious economic downturn in these huge markets, which Canadian companies would be at most risk?
More about today's screen
Today's table is courtesy of Bloomberg's Constantin Cosereanu. He filtered Canadian companies with a market capitalization of greater than $100-million based on five main risk factors that increase the likelihood of default:
- Interest coverage ratio, which illustrates how easily a company can pay interest on outstanding debt.
- Bloomberg issuer likelihood of default.
- Altman's Z Score, a generally accepted score, which combines five different financial ratios to determine the likelihood of bankruptcy amongst companies.
- Five-year credit default swap spread, or the cost for protection against a default by the company.
- Four-week estimated EPS revision for the current year.
Each of these factors were given an equal weight in the screen, from which Bloomberg extrapolates a ranking out of 100.
What we found
The results were surprising, mainly due to the number of blue-chip Canadian companies it contained. While it's relatively easy to see how aerospace juggernaut Bombardier Inc. makes the top of the list, considering the complex sector it operates in, other entries are harder to justify. Encana Corp., Suncor, Teck Resources, and Rogers Communications Inc. hardly qualify as at-risk companies.
If you find yourself looking at shares you own on this list, remember that the universe of Canadian companies large enough to make this list is small. They may be the most at risk for default, but that doesn't mean it's probable. Even within a group of achievers, someone has to be the riskiest.