The U.S. economy remains in good shape so far in 2019 yet it looks to be another challenging year for apparel retailers, some department stores, and specialty merchandise retailers, as the sector works to address online competitors and evolving consumer behavior. Defaults in 2018 dropped just below the record level in 2017; however S&P Global Ratings estimates for 2019 defaults is for another record. 

S&P Global Ratings' outlook on the overall U.S. retail sector remains negative. Adverse secular trends and management's limited success in executing plans to adapt have driven those downgrades. For stressed and distressed retailers the need to service a substantial debt burden has reduced the cash flow that could have helped reposition the business. Still, recent "Chapter 22" filings (companies filing for the second time) and worsening business risk profiles have shown that limited leverage or debt reduction does not guarantee retail success. 

Preliminary holiday sales reports are underwhelming and some retail public equities have slumped to at or near recent years' lows. Meanwhile, the issuers in the speculative-grade category are moving toward a maturity wall of around $10 billion in 2020, more than double 2019 levels. The maturity wall rises significantly again in 2021 to around $18.1 billion, although analysts expect some companies to extend these maturities (which includes bank revolving credit facilities).

Supporting the negative view and expectations for default levels to remain elevated are highly leveraged balance sheets (dozens of private equity buyouts or recaps over the past decade), some retailers' lagging dangerously behind online competitors, shifting consumer preferences, and volatile but cautious capital markets for retailer debt.

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