Bangkok--26 Jun--Standard & Poor's, After months of focus on structured finance and financial institutions' debt, market attention is shifting to leveraged corporate debt as defaults begin to increase. Already this year, global corporate defaults have outnumbered those for all of 2007, and market participants are understandably sharpening their scrutiny on the bulge of speculative-grade loans and bonds issued during the record expansion from 2005 through mid 2007. As of mid May, corporate borrowers had defaulted on almost $19 billion of debt--more than double last year's total. Standard & Poor's Ratings Services sees the potential for continued growth in defaults through this year and next. But beyond default risk, the key factor driving credit exposure for many holders of both cash and synthetic leveraged credit is the prospect for recovery. Predicting which issuers will miss payments on which issues can be very difficult when borrowers are rated 'B-' or 'CCC' and nearing the edge of default. But developing an understanding of what lenders can expect in the event of a borrower's default may be more feasible--and this is the focus of Standard & Poor's recovery ratings. A recent review of the portfolio of recovery ratings confirms two key trends: (1) a dispersion of recovery ratings within secured and unsecured debt classes and (2) the likelihood that both secured and unsecured recoveries in this credit cycle will be below historical levels. Standard & Poor's recently published a series of nine articles focusing on recovery and the leveraged finance markets that will be compiled into a CreditWeek special report next week (the July 2 edition) titled "The Debt Market Spotlight Shifts To Recovery." Articles within the special report include the following titles: --"As Defaults Increase, The Debt Market Spotlight Shifts To Recovery" Sidebar: "Defaults Creep Higher" --"Instrument-Specific Recovery Analysis Is Key, Especially When Comparing Europe And North America" --"Recovery Ratings For U.S. Finance Companies" --"Recovery Rating On The Debt Of Speculative-Grade Companies In The Insurance Sector" --"Update: Jurisdiction-Specific Adjustments To Recovery And Issue Ratings" --"Debt Recovery For Creditors And The Law Of Insolvency In The U.S." --"Debt Recovery For Creditors And The Law Of Insolvency In Brazil" --"Recovery Prospects For Restaurant & Retail Lenders Are In Line With Those Of Other Sectors," and --"The Bruising Year For Leveraged Loans Seems To Be Settling." In the lead article of the special report, Standard & Poor's Managing Director Bill Chew, who heads the rating agency's Loan & Recovery Ratings group, notes that some new forces could play a role in the profile of recoveries during the current credit cycle. These include the change in holders of leveraged loans and the potential rise of liquidation as an alternative to restructuring in the event of default. "Since 2002, nonbank institutional investors have substantially replaced banks as the holders of broadly syndicated loans," explained Mr. Chew. "These institutional holders may not have the same incentives as banks in pursing debt recoveries during restructuring. They may have shorter holding periods, less interest in par recoveries, and, in some cases, may focus on strategies with only secondary interest in debt recovery (such as "loan-to-own"). "In addition, U.S. insolvencies in recent credit cycles have generally involved restructuring rather than liquidation, with the former outnumbering the latter by a wide margin. But restructurings require some form of liquidity to support the borrower during the reorganization process. In the current market, contraction in overall bank liquidity has, for some borrowers, limited the availability of traditional sources for lending to support restructurings, such as debtor-in-possession financing in the U.S. As a result, we expect that there will be more liquidations in place of restructurings during this credit cycle than in recent credit reversals--at least in the U.S.--and that this trend may contribute to lower recoveries." Mr. Chew added, "With defaults creeping higher and a rising focus on recovery prospects, we believe it is especially important to look at instrument-specific analysis rather than average recoveries based merely on historical data. Against this background, recovery ratings for both secured and unsecured debt show the importance of estimating individual recoveries and recognizing that past patterns for recovery may change with the rise of new forces in the leveraged debt markets." The reports are 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 copies of these reports by contacting the media representative provided. Media Contact: Mimi Barker, New York (1) 212-438-5054 Analyst Contacts: William H Chew, New York (1) 212-438-7981