Standard & Poor's updates its outlook for the issuer-based U.S.

Published October 28th, 2009 - 09:39 GMT

corporate speculative-grade default rate each quarter after analyzing the latest economic realities and expectations. Since our most recent update, the tone in the capital markets has improved measurably, resulting in benefits for even low-rated borrowers, said an article published yesterday by Standard & Poor's Global Fixed Income Research. Accordingly, we have downwardly revised our default-rate expectations for the next 12 months.


Our 12-month-forward baseline projection for the U.S. corporate speculative-grade default rate is now 6.9%. Our pessimistic and optimistic scenarios result in default rates of 9.9% and 5.5%, respectively, according to the article, titled "U.S. Corporate Speculative-Grade Default Rate: A Forecasted Decline To 6.9% In September 2010 Indicates Apprehension More Than Relief (Premium)."


"This does not mean that corporate default risks are permanently lower," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "Instead, we believe these improvements are largely being driven by increased forbearance by lenders in a monetary environment propped up by policy-induced liquidity."


Without a revival in top-line earnings and growth, many of the surviving leveraged issuers originated during 2003-2007 could face renewed default risk unless they significantly reduce their debt burdens.


"The marked improvement in financial conditions has altered our expectations for corporate default rates within the one-year forecast horizon," said Ms. Vazza.


As of September 2009, the U.S. 12-month-trailing corporate speculative-grade default rate was 10.8%. Previously, we had stated our expectations for a swathe of defaults to occur in the first half of 2010. But now, we expect that many of the defaults might be postponed to later quarters beyond the 12-month forecast horizon.

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