Bangkok--19 Sep--Standard & Poor's
The 12-month trailing global corporate speculative-grade bond default rate fell to a record low of 1.00% in August from 1.03% in July, according to a report released today by Standard & Poor's Ratings Services. It has been below its long-term (1981-2005) average of 4.61% for 31 consecutive months. The article, titled "Global Bond Markets' Weakest Links And Monthly Default Rates," states that, by region, speculative-grade default rates were recorded at 1.44% in the U.S., 0.53% in Europe, and zero in the emerging markets.
At the same time, the number of weakest links climbed to its highest level in 20 months. As of Sept. 13, 25 weakest links remained vulnerable to default on combined rated debt worth US$10.2 billion. This is five greater than reported last month and equivalent to the number reported in January 2005. (Weakest-link issuers are defined as issuers rated 'CCC' or lower with either a negative outlook or ratings on CreditWatch with negative implications.) Full-year 2005 averaged 20 entities while full-year 2004 averaged 31 entities.
From January through August 2006, 16 defaults (two more than reported a month earlier) were recorded in total among entities rated by Standard & Poor's, affecting rated debt worth US$5.8 billion.
"Despite the August decline, our prediction remains that the default rate will edge up slowly from its 2006 trough," observed Diane Vazza, Managing Director and head of Standard & Poor's Global Fixed Income Research.
Results from a proprietary forecast model indicate that U.S. speculative-grade bond default rates will continue to slowly edge up in the next few quarters, reaching 2.1% by year-end 2006, roughly on par with year-end 2005 (results are based on running the model on Sept. 12, 2006). The U.S. speculative-grade default rate is expected to breach 3.5% by the first quarter of 2008, well below the long-term average (4.7%). Looking ahead, default rates among U.S. leveraged loans are also expected to increase.
The new issue market among deals rated 'B-' or lower is still fairly active, spiking to 56% to total speculative grade (partially due to lower overall issuance) in the U.S. at the end of August from 42% in the second quarter and 36% in the first. The industrials sector took the lead, with capital goods, healthcare, and high technology each issuing more than $1 billion in the year to date in low-rated issuance; issuance by utilities was also sizable.
Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . All ratings referenced herein can be found on Standard & Poor's public Web site at www.standardandpoors.com ; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.
Media Contact:
Mimi Barker, New York, 212-438-5054, [email protected]
Analyst Contact:
Diane Vazza, New York, 212-438-2760
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