Default rates fail to budge

The 12-month trailing global corporate speculative-grade bond default rate dipped to 1.2% in May from 1.25% in April, according to an article published by Standard & Poor’s.  The report, titled “Global Bond Markets’ Weakest Links And Monthly Default Rates,” stated that as of June 12, 2007, 97 global weakest links were vulnerable to default on combined rated debt worth $61.3 billion, four fewer than the number recorded last month.
“The proportion of high-yield distressed issuers increased marginally to 0.9% in May from 0.8% in April,” said Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “Distress and defaults continue to be suppressed by abundant liquidity and generous financing provisions. We forecast that the U.S. speculative-grade default rate will increase throughout the year, reaching 2.3% by year-end 2007 and 2.5% by the first quarter of 2008.”
By number of issuers, the pipeline of U.S. bond issuance among deals rated ‘B-‘ or lower to total speculative grade issuance in the trailing-six months decreased marginally to 48.1% in May from 48.7% in April. On a quarterly basis, the same ratio was recorded at 42.7% in the first quarter of 2007, compared with 46.5% recorded in the last quarter of 2006. This ratio has been elevated for 15 quarters, with the annual ratio ending at 42.49% for full-year 2006, 43.9% for 2005, 46.5% for 2004, and 30% for 2003. By volume, the proportion of U.S. bond issuance among deals rated ‘B-‘ or lower to total speculative grade issuance in the trailing-six months increased to 43.3% in May from 38.9% in April, 32.2% in 2006, and 35.3% in 2005.
Ms. Vazza added “consumer products, media and entertainment, and retail and restaurants showed the highest concentration of weakest-links issuers.”