High Yield Default Rate Drops After Quiet Month

 

By Rom Badilla, CFA

October 23, 2012

After a surge in August where four companies defaulted totaling $2.14 billion, there was no default activity in the High Yield arena in September according to JP Morgan. In their latest Default Monitor report, there were six high yield companies totaling $2.5 billion that defaulted in the third quarter. This is a significant decline from 2011 as there were two companies totaling $5.8 billion that defaulted in the third quarter of last year.

The tally thus far through the third quarter stands at $8.9 billion across 16 companies with debt in the high yield sector. Eastman Kodak kicked off 2011 by defaulting on a billion dollars of debt in January. Residential Capital Corp set the high water mark for the year in April with $2.8 billion in defaults followed by ATP Oil & Gas Corp. with $1.5 billion in August.

The quiet September, drops the par-weighted High Yield default rate to 1.83% from 2.13% according to JP Morgan. Similarly, the issuer weighted default rate fell from 3.08%, which was the highest since spring 2010, to 2.98% in September.

Given the rebound, the JP Morgan research team led by Peter D. Acciavatti, believes that the default rate for High Yield bonds should remain low for the foreseeable future. In the report, they wrote the following:

Looking ahead, we expect high-yield bond and loan default rates to remain at or below 2% for the next two years, well below their 4.2% and 3.8% long-term averages. By dollar volume, this equates to roughly $40bn and $22bn of high-yield bond and loan defaults over the next two years, versus $33.7bn and $10.4bn of defaults over the prior two years.

Original post can be found Here

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The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Bondsquawk or its employees.

 
 
 

1 Comment

  1. [...] Bondsquawk: High yield default rate drops after quiet month - There were six high yield companies totaling $2.5 billion that defaulted in the third quarter. This is a significant decline from 2011 as there were two companies totaling $5.8 billion that defaulted in the third quarter of last year. [...]

 
 

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