Bangkok--2 Aug--Standard & Poor's The first half of 2007 saw record issuance in both the high-yield and leveraged-loan markets, adding up to $452 billion in leveraged loans and close to $98 billion in high-yield debt in the year to date, according to an article published Monday by Standard & Poor's. The report, titled "U.S. High-Yield Prospects: Scuppered Deals Rock High-Yield Ship," said that the average rating quality of new issuance has worsened, with 48% of all new dollar issuance rated 'B-' and below, versus 32% in 2006. "Based on the number of default occurrences to date, we have lowered our speculative-grade default forecast to 1.4% by year-end 2007. This does not indicate that we expect corporate credit risks to diminish, rather it is an indication that corporate defaults will be slow to materialize in the remainder of this year," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "At the same time, there is a material risk that defaults may be more severe beyond the one-year forecast horizon. The leaks in the credit markets will continue to sap strength, even though, in the next six months, defaults may be staved in part due to structural concessions that avert payment default." Spreads widened to close to 60 basis points (bps) during June and have blown out in late July to end at 404 bps on July 26, the highest level since June 2005. Credit default swap spreads also widened, as the CDX HY8 moved to its highest level since its roll, reaching 512 bps on July 26, versus the 260 bps-270 bps range in April 2007. Ms. Vazza added, "Rising volatility has resulted in investor pullback from some headline profile and highly leveraged deals, but the bond market has not been completely shuttered. As investors demand better terms, originators are having to step in to provide bridge financing or delay the timing of new deals. What has thus far been a winning formula of financing leveraged deals in the credit markets may turn on its head, causing the LBO parade to wind down amid rising risk aversion." 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]. Ratings information can also 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. Members of the media may request a copy of this report by contacting the media representative provided. Media Contact: Mimi Barker, New York (1) 212-438-5054, [email protected] Analyst Contact: Diane Vazza, New York (1) 212-438-2760 Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]