Bangkok--27 May--Standard & Poor's
After tumultuous events in the Middle East and Japan earlier in the year, markets appear to be on a stronger footing, despite an increase in defaults during April, said an article published today by Standard & Poor's, titled "U.S. Distressed Debt Monitor (Premium)."
At the end of April, the speculative-grade corporate default rate in the U.S. was 2.55%, little changed from 2.47% at the end of March. Also, the U.S. speculative-grade corporate bond spread increased only slightly, to 489 basis points (bps) on May 16 from 475 bps a month earlier.
"With the increase in the corporate bond spread, the distress ratio also rose, to 3.65% on May 16 from 3.56% a month earlier," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research.
Standard & Poor's distress ratio is defined as the number of distressed securities divided by the total number of speculative-grade-rated issues. Distressed credits are speculative-grade-rated issues that have option-adjusted spreads of more than 1,000 bps relative to Treasuries.
Both the corporate and leveraged loan distress ratios declined in April, with a smaller decrease in the leveraged loan segment than the corporate sector. The S&P/LSTA Leveraged Loan Index distress ratio fell to 3.9% at the end of April from 4.4% in the previous month.
"A total of 49 companies currently have issues trading with spreads of 1,000 bps and higher--essentially unchanged from 48 in April," said Ms. Vazza. "Along with this, the count of affected issues increased marginally, to 57 as of May 16 from 55 in April."
Distressed issues are the weakest of the speculative-grade population. As such, their recovery prospects are low. Currently, among the distressed issues with available recovery ratings, 61.5% have recovery ratings of '5' or '6', indicating only negligible to modest recovery in the event of default. In addition, 59.6% of all distressed issues are either unsecured or subordinated notes, and those noteholders' claims to a firm's assets are secondary to those of more-senior debtholders in the event of default.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760