S&P: Sixteen Corporate Defaults Recorded So Far in 2010
March 8, 2010
There have been 16 corporate defaults so far this year and most have been in the U.S., according to a report published by Standard & Poor's.
Year-to-date, there have been 14 defaults in the U.S., one in the emerging markets, and one in a market comprised of Australia, Canada, Japan, and New Zealand, according to S&P.
Distressed exchanges were responsible for six defaults, while Chapter 11 bankruptcy filings were behind five. Missed interest or principal payments caused four defaults, according to the report which did not identify details of the last default because it was confidential.
S&P’s year-end 2010 projection for the U.S. corporate high yield default rate is 5%, within a range of 6.9% at the pessimistic end and 4.3% at the optimistic end.
Although the projected baseline year-end rate is lower than S&P’s 6.9% forecast for 3Q10, the rating agency cautioned that corporate default risks have not fallen lower permanently.
“The ranks of surviving low-rated companies remain large by historical standards. The extent of decline in risk premiums for lower-rated borrowers and the return of what we view as questionable practices in some recent deals—such as raising bond funds to pay out shareholder dividends or sponsors—further raises concerns that the optimism might be overdone,” S&P analysts said in the report. "Without a revival in top-line earnings and growth, many of the surviving leveraged issuers originated between 2003 and 2007 could face renewed default risk beyond the forecast horizon unless they significantly reduce their debt burdens.”
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