Bangkok--21 Feb--Standard & Poor's
Beginning this month, Standard & Poor's will expand the criteria for entities included in the weakest links report to include entities rated 'B-' or lower that have either a negative outlook or on Credit Watch with negative implications, according to an article published today by Standard & Poor's. The article, which is titled "Global Bond Markets' Weakest Links And Monthly Default Rates," says that the 12-month trailing global corporate speculative-grade bond default rate increased to 1.18% in January from 1.09% in December 2006.
As of Feb.12, 2007, 113 weakest links remained vulnerable to default on combined rated debt worth $94.9 billion. Of the 113 entities, 26 would be included using the earlier criteria-one less than the 27 entities reported last month.
"Results from Standard & Poor's proprietary default forecast model for the U.S. speculative-grade bond market indicate that the default rate will edge up in the next eight quarters," noted Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "The average forecast for the next four quarters is higher than the historical average of the trailing four quarters. Two alternative scenarios-one pessimistic and one optimistic-were also tested, with varying implications for default rates."
For the second consecutive month, the proportion of high-yield distressed issuers recorded an all-time low to 1.3% in January from 1.6% in December. Distress and defaults continue to be suppressed by abundant liquidity and generous financing provisions. The U.S. speculative-grade default rate ended 2006 at a near 25-year record low. In 2007, our baseline forecast remains that the default rate will edge up slowly from its 2006 trough, ending the year at 2.33% (results are based on running the model on Feb. 9, 2007).
Ms. Vazza added, "that 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%."
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
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760