Bangkok--19 Aug--Standard & Poor's After several years of otherwise abnormally low credit spreads in both the investment-grade and speculative-grade segments, bond markets within the U.S. experienced a sudden shock at this time last year, noted an article published today by Standard & Poor's. The article, which is titled "U.S. Credit Comment: In The Dance Of The Defaults, Distress Makes A Perfect Partner (Premium)," says that shock has maintained itself through today and is becoming a phenomenon that has overstayed its welcome for many investors. The corporate speculative-grade bond spread in the U.S. was 764 basis points (bps) as of Aug. 11 compared with 415 bps a year ago at this time. With this marked rise in speculative-grade spreads, more and more companies that were previously enjoying relatively low borrowing costs are now members of the distressed debt market--those with issues trading with option-adjusted spreads at least 1,000 bps over comparable treasuries. "While this makes a perfect environment for bond vultures to potentially find lucrative bargains, it cannot be ignored as territory vulnerable to default," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. The article examines the historical relationship between the distress ratio and its use as a signpost for future defaults. The main conclusions of this exercise are that the distress ratio: -- Is a leading indicator of future speculative-grade defaults with a lead time of roughly nine months. -- When used as a forecasting tool, the distress ratio slightly overstates future default rates initially over the forecast horizon then underestimates defaults further out. This results in a default rate forecast of 4.5% for 2008 and 4.7% nine months from now. This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. 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 Contacts: Diane Vazza, New York (1) 212-438-2760 Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]