Bangkok--29 Jun--Standard & Poor's
In anticipation of the Federal Reserve's end to the quantitative easing program (QE2) in June, corporate bond spreads have been on the rise since mid-May. Although this has led to a quick increase in borrowing costs, the U.S. default rate has yet to rise in response, said an article published today by Standard & Poor's, titled "U.S. Distressed Debt Monitor: Distress Ratio Jumps To 5.9% In June, Led By The Media And Entertainment Sector."
"At the end of May, the speculative-grade corporate default rate in the U.S. remained essentially unchanged, at 2.53%, compared with 2.55% at the end of April," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "The U.S. speculative-grade corporate bond spread increased to 549 bps on June 15 from 489 bps a month earlier. With the increase in the corporate bond spread, the distress ratio also rose, to 5.9% on June 15 from 3.65% a month earlier."
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 remained relatively unchanged in May, with the S&P/LSTA Leveraged Loan Index distress ratio at 3.8% at the end of May, compared with 3.9% in the previous month.
"A total of 69 companies currently have issues trading with spreads of 1,000 bps and higher--a substantial increase from 49 in May," said Ms. Vazza. "Along with this, the count of affected issues increased considerably, to 92 as of June 15 from 57 in May."
With an increase in the distress ratio, the amount of affected debt also rose, to $36.3 billion as of June 15 from $17.3 billion in May. Based on debt volume, the media and entertainment, retail/restaurants, and oil and gas sectors accounted for 64.9% of the total debt outstanding. Media and entertainment alone accounted for more than 35%.
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Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760