S&P Notes Surge In Defaults

November 17, 2008

A total of 85 companies defaulted on bond debt worth $284 billion through Nov. 11, according to Standard & Poor’s, which estimates that the default rate could increase to as much as 9.6% by October of 2009. The rise in defaults contrasts with last year, in which 22 companies defaulted, and 2006, in which there were 30 defaults.

According to S&P, the 12-month-trailing global speculate-grade bond default rate continued to increase to 2.30% this past October from 2.04% in September and 1.85% in August. It remains below the long-term average of 4.35% set between 1981 and 2007.

The ratings agency expects the high yield bond default rate to escalate to a mean forecast of 7.6% through October of 2009. Its pessimistic scenario yields a mean default rate of 9.6%. Its optimistic scenario yields a default rate of 6.1%.

The 12-month-trailing default rate for U.S. leveraged loans increased to a 65-month high of 3.59% in October 2008 from 3.32% in September 2008 and 0.40% in October 2007, according to S&P Leveraged Commentary and Data.

Worldwide, the U.S. leads the world in “weakest link” companies, which S&P defines as companies rated B- or lower with a negative outlook or with ratings on CreditWatch with negative implications. These companies are more likely to default.

For more information on related topics, visit the following:

• Leveraged Loans
• High Yield Bonds