Bangkok--7 Nov--Standard & Poor's
Standard & Poor's expects the U.S. corporate trailing 12-month speculative-grade default rate to rise to 3.1% by September 2012 from 1.94% at the end of September 2011, said an article published today by Standard & Poor's Global Fixed Income Research, titled "U.S. Corporate Default Rate Expected To Rise To 3.1% By September 2012."
"The baseline projection is still lower than the long-term average of 4.59%. A total of 48 issuers would need to default in the 12 months from October 2011 to September 2012 to reach this projection," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "By comparison, 28 speculative-grade issuers defaulted from October 2010 to September 2011."
The economy continues to recover at half speed, and contagion from Europe's sovereign debt crisis remains a risk. As a result, investor confidence is waning. The cost of borrowing also rose as the U.S. speculative-grade spread reached 830 basis points (bps) at the beginning of October, up from an average of 500 bps in the first half of the year. Nonetheless, credit quality has strengthened, as reflected by fewer downgrades in recent quarters and relatively low negative bias, which should help companies mitigate the effects of lackluster economic growth and uncertainty in the financial markets.
In addition to our baseline projection, we forecast the default rate in our optimistic and pessimistic scenarios. "In our optimistic default rate forecast scenario, the economy and the financial markets improve more than expected. As a result, we would expect the default rate to be 1.6% by September 2012, or 25 defaults in the next 12 months," said Ms. Vazza. "On the other hand, if the economic recovery stalls and the financial markets deteriorate--which is our pessimistic scenario--we expect the default rate to be 5.1%, or 79 defaults in the next 12 months."
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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