Bangkok--2 Feb--Standard & Poor's
U.S. corporate defaults increased substantially over the last two months, with 11 in November and 17 in December, said an article published on Thursday, January 29 by Standard & Poor's. The article, which is titled "Distressed Exchanges Are Increasing And Affecting Recovery (Premium)," says that eight of the U.S. defaults during December were distressed exchanges.
"We expect that distressed exchanges will grow more numerous over the coming quarters," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. Indeed, the forecast for the 12-month-trailing speculative-grade default rate is 13.9% for 2009.
Issuers will continue to look to reduce leverage and extend maturities out further. Investors will most likely continue to be receptive to the exchange offers as the prospects of bankruptcy looks less appealing. Moreover, debtor-in-possession financing is no sure thing these days, and a failure to reorganize will cause asset liquidation at diminished values, so exchanges might be the best option in many cases. In addition, prior academic research concludes that successful exchange offers that reduce debt significantly lower the likelihood that a firm will file for Chapter 11 bankruptcy. However, many of the firms that have recently undergone an exchange continue to have a weak financial position, and we expect that the earnings of many of these firms will erode further in the first half of 2009--so future bankruptcy is still a risk.
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