According to Fitch Ratings, the U.S. high yield default rate finished 2011 at 1.5 percent, falling below 2 percent for the second consecutive year. Over the past 32 years, the default rate has ended shy of 2 percent 16 times.
The weighted average recovery rate on the year’s defaulted issues was a robust 59.4 percent of par, higher than 2010′s 56.7 percent and up from the recent cyclical low of 34.1 percent recorded in 2009.
The latest report from Fitch Ratings includes:
- full details on 2011 key default and recovery trends
- updated long term default and recovery statistics
- vintage default rates
- industry specific default and recovery rates
- recovery rates by seniority and year
- other important credit indicators
The top industry default rates in 2011 included: paper and containers, 10.3 percent; transportation, 7.4 percent; and utilities, 5.9 percent.
Approximately 80 percent of the 2011 defaulted issues were rated “CCC” or lower at the beginning of the year, for a “CCC” or lower par default rate of 6 percent. Isolating “CCC” or lower bonds trading at the distressed level of 80 percent of par or lower at the beginning of the year, Fitch Ratings calculates that 30 percent of these subsequently defaulted.
Here is a link to the report: 2011 Fitch U.S. High Yield Default Insight.
Gregg D. Killoren
victoria1014
Macroeconomic Concerns to Overshadow Corporate Credit in 2012: Fitch
A multitude of macroeconomic concerns will overshadow corporate credit performance in 2012, Fitch Ratings has concluded in its recently released “2012 Outlook.”
Europe is, of course, at the top of the list of concerns that also include the impact of global austerity programs, the potential for consumer retrenchment, and the contraction in global bank credit. Combined, these risks create an environment that encourages conservatism in capital structures and liquidity management, Fitch notes in the report. “With global growth forecasts regularly being ratcheted down, this risk-averse stance could portend an extended period of relatively stable credit conditions,” Fitch says.
In the investment-grade sector, Fitch will focus its attention on companies with poor returns on equity and investment. Fitch notes that, “Lagging equity returns in a slow-growth environment, whether due to top-line sluggishness, business model pressures, competition, technology or simply poor execution, have been a reliable catalyst for event risk, particularly for domestic-oriented companies.”
However, that doesn’t mean the ratings agency is poised to initiate large-scale downgrades. In fact, Fitch observes that many U.S. corporates are well-positioned to withstand prolonged slow growth or even a “double-dip” recession. Companies have stock-piled cash and generally improved their operating performance since the 2008 credit crisis and would not be stressed by an another liquidity crunch over the next two years.
The main takeaway from the report for fixed-income investors is to concentrate positions in U.S. corporates that have healthy returns on equity and investment. Fitch believes that European risks to U.S. corporates are limited.
The biggest risk to U.S. corporates are legislative and regulatory, with the impact of taxation and spending cuts taking center stage. However, since 2012 is an election year, it is unlikely that the picture will become any clearer this year. Thus, 2013 is more likely to be a year of defining the long-term federal budget and sorting out the impact on U.S. corporates. In the meantime, risk appetite among U.S. corporates should remain subdued.
Here is a link to the full report (registration and/or subscription required): Outlook 2012: U.S. Corporate Credit.
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Posted in Corporate Bonds, Economy, Fixed-Income, Investing, Market Commentary, Personal Finance
Tagged Corporate Bonds, Fixed-Income, Fixed-Income Investing, Investing, Personal Finance