Bangkok--19 Feb--Standard & Poor's
Globally, the speculative-grade default rate at the end of January 2007 was 1.18%, according to an article published today by Standard & Poor's. The article, which is titled "Corporate Default Outlook: No Immediate SOS, But Caution Down The Road," says that this rate is modestly higher than the 1.09% recorded at the end of 2006. We expect that the default rate will nudge up slowly from its September 2006 trough of 0.99% but remain well below the long-term (1981-2006) average of 4.48%.
"Leading indicators of default offer a mixed picture of what we can expect down the road," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. Bond spreads, equity-market volatility, the interest burden, and the distressed ratio remain sharply compressed amid an abundance of liquidity that has provided borrowers with greater headroom and flexibility in avoiding default combined with a macroeconomic backdrop that has proved surprisingly resilient. At the same time, a rising share of low-grade originations (both by new issue and by issuer rating) as well as an increase in the number of weakest links suggests caution.
Baseline results from a proprietary default forecast model indicate that the U.S. speculative-grade default rate will gradually increase from its 2006 fourth-quarter low, reaching 2.33% by the fourth quarter of 2007 (results based on running the model on Feb. 9, 2006). Two alternative scenarios, one pessimistic and one optimistic, were also tested, with varying implications for default rates. Under the pessimistic scenario, the model anticipates a faster increase in the default rate, to 3.52% by the end of 2007, its highest rate in 15 quarters. Our optimistic scenario anticipates a modest increase in the 2007 year-end default rate, to 1.54% from 1.26% at the end of 2006. Under no scenario did default rates exceed their long-term average of 4.54%.
In the U.S., the trailing 12-month speculative-grade default rate rose to 1.39% in January 2007, slightly higher than the 1.26% recorded at the end of 2006. The default rate has remained below its long-term average (4.54%) for 34 consecutive months.
The report 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 . If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected] . The report is also available at www.sandp.com/gfir , listed under Global Fixed Income Research. If you have not previously registered with the site, you will need to do so to access this material. Registration requires minimal information and is free. Members of the media may request a copy of this report by contacting the media representative name provided.
Media Contact:
Mimi Barker, New York (1) 212-438-5054, [email protected]
Analyst Contact:
Diane Vazza, New York (1) 212-438-2760