Bangkok--21 Mar--Standard & Poor's
The March 12 default by subprime mortgage lender New Century Financial Corp. has been the latest in a string of news to have jolted the financial markets out of a near-soporific trance, according to a report published today by Standard & Poor's. The article, titled "U.S. High-Yield Prospects: Blithe Gives Way To Rattle," says that the $45 billion record-setting proposed leveraged buyout of Texas-based utility TXU Corp. by a group of private equity investors on March 9 has raised concern about the increasing possibility of event risk in U.S. credit markets and its concomitant impact on high yield.
"Continued heavy use of leverage in acquisitions-via the bond and leveraged loan channels-would contribute to the deterioration of credit characteristics within these segments," noted Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "We expect $145 billion in gross high-yield issuance in 2007, up from $135 billion in 2006, and another $565 billion in leveraged loan issuance in 2007."
Higher levels of volatility have given investors pause, and prompted some of the risk repricing that we have categorized as long overdue. Some of the resultant widening in spreads may well be reversed unless accompanied by more widespread deterioration in economic fundamentals, decreasing cash balances or eroding profitability within issuers rated speculative grade.
Ms. Vazza added "that based on model projections, we expect a 2.3% speculative-grade default rate by year-end 2007, versus 1.3% at the end of February."
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