Fitch Ratings has reported that three high-yield corporate bond issuers defaulted on $0.6 billion in bonds in February 2012, bringing the year-to-date speculative grade default tally to $2.5 billion. The trailing 12-month rate remained steady at 1.7 percent. However, at mid-March, four issuers had defaulted on an additional $1.6 billion in bonds. Recent activity brings the defaulted issuer count to 10 for the year so far on $4.1 billion in bonds, up from just four issuers and $0.8 billion in the first quarter of 2011.
The weighted average recovery rate on secured issues in the first two months of the year was 72 percent of par, versus 23.6 percent for unsecured bonds.
Steady February, Uptick in March: Three issuers defaulted on $0.6 billion in bonds in February, bringing the year-to-date default tally to $2.5 billion. The trailing 12-month rate remained steady at 1.7 percent. At mid-March, however, four issuers had defaulted on an additional $1.6 billion in bonds, including a large distressed debt exchange from Mohegan Tribal Gaming Authority. Recent activity brings the defaulted issuer count to 10 thus far in 2012 on $4.1 billion
in bonds, up from just four companies and $0.8 billion in the first quarter of 2011.
Recovery Rate Details Critical: The weighted average recovery rate on defaults through February was 53.6 percent of par. Due to changes in issuance patterns in the years just prior to the credit crisis, secured bonds have been more heavily represented in the recent batch of defaults and as such continue to boost overall recovery rates. The average recovery rate on secured issues in the first two months of the year was 72 percent of par, versus 23.6 percent for unsecured bonds.
Issuance on a Tear: New issuance was exceptional in the first two months of the year, totaling $55.7 billion, matching activity in early 2011. The rating mix of bonds has also been roughly in line year over year, with 40 percent of volume rated ‘BB’, 45 percent ‘B’, and 15.5 percent ‘CCC’ or lower. While robust, ‘CCC’ or lower issuance is nonetheless running below the tier’s market weight of 18.9 percent. In addition, defaults continue to originate overwhelmingly from this group, showing that despite investor demand for higher yielding assets, weak companies are not receiving a free pass.
Investor Survey Highlights: The latest Fitch Ratings/Fixed Income Forum Survey of Senior Fixed Income Investors found some noteworthy bullish sentiment surrounding U.S. corporate credit conditions and high yield in particular. A majority of participants, 90 percent, project that the high yield default rate will remain below 3 percent in 2012, 80 percent expect lending standards to further loosen over the coming year, and 68 percent believe high yield spreads will tighten. Fund flows into high yield have been positive for 15 consecutive weeks (see page 9).
Grace Period Defaults Update: Over the past four years, 17 companies in Fitch’s default index missed scheduled interest payment dates but cured the shortfalls within the typical 30-day grace period allowed under most bond indentures. Fitch has monitored these companies and has observed that 11 subsequently missed another payment or restructured, showing the seriousness of the ‘grace period’ miss. The average price of the affected bonds fell further on the formal default event, from 44.6 percent following the first cured shortfall to 37.5 percent.
The Energy Menace: To date, higher energy prices do not appear to have had a meaningful effect on consumer spending. This, however, remains a key risk to the otherwise constructive outlook for defaults in 2012. Fitch projects a year-end default rate in the range of 2.5–3.0 percent.
Here is a link to the report (registration may be required): http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=673581
Gregg D. Killoren
victoria1014
U.S. High-Yield Corporate Bond Defaults Increase in 1Q 2012: Fitch
Fitch Ratings has reported that three high-yield corporate bond issuers defaulted on $0.6 billion in bonds in February 2012, bringing the year-to-date speculative grade default tally to $2.5 billion. The trailing 12-month rate remained steady at 1.7 percent. However, at mid-March, four issuers had defaulted on an additional $1.6 billion in bonds. Recent activity brings the defaulted issuer count to 10 for the year so far on $4.1 billion in bonds, up from just four issuers and $0.8 billion in the first quarter of 2011.
The weighted average recovery rate on secured issues in the first two months of the year was 72 percent of par, versus 23.6 percent for unsecured bonds.
Steady February, Uptick in March: Three issuers defaulted on $0.6 billion in bonds in February, bringing the year-to-date default tally to $2.5 billion. The trailing 12-month rate remained steady at 1.7 percent. At mid-March, however, four issuers had defaulted on an additional $1.6 billion in bonds, including a large distressed debt exchange from Mohegan Tribal Gaming Authority. Recent activity brings the defaulted issuer count to 10 thus far in 2012 on $4.1 billion
in bonds, up from just four companies and $0.8 billion in the first quarter of 2011.
Recovery Rate Details Critical: The weighted average recovery rate on defaults through February was 53.6 percent of par. Due to changes in issuance patterns in the years just prior to the credit crisis, secured bonds have been more heavily represented in the recent batch of defaults and as such continue to boost overall recovery rates. The average recovery rate on secured issues in the first two months of the year was 72 percent of par, versus 23.6 percent for unsecured bonds.
Issuance on a Tear: New issuance was exceptional in the first two months of the year, totaling $55.7 billion, matching activity in early 2011. The rating mix of bonds has also been roughly in line year over year, with 40 percent of volume rated ‘BB’, 45 percent ‘B’, and 15.5 percent ‘CCC’ or lower. While robust, ‘CCC’ or lower issuance is nonetheless running below the tier’s market weight of 18.9 percent. In addition, defaults continue to originate overwhelmingly from this group, showing that despite investor demand for higher yielding assets, weak companies are not receiving a free pass.
Investor Survey Highlights: The latest Fitch Ratings/Fixed Income Forum Survey of Senior Fixed Income Investors found some noteworthy bullish sentiment surrounding U.S. corporate credit conditions and high yield in particular. A majority of participants, 90 percent, project that the high yield default rate will remain below 3 percent in 2012, 80 percent expect lending standards to further loosen over the coming year, and 68 percent believe high yield spreads will tighten. Fund flows into high yield have been positive for 15 consecutive weeks (see page 9).
Grace Period Defaults Update: Over the past four years, 17 companies in Fitch’s default index missed scheduled interest payment dates but cured the shortfalls within the typical 30-day grace period allowed under most bond indentures. Fitch has monitored these companies and has observed that 11 subsequently missed another payment or restructured, showing the seriousness of the ‘grace period’ miss. The average price of the affected bonds fell further on the formal default event, from 44.6 percent following the first cured shortfall to 37.5 percent.
The Energy Menace: To date, higher energy prices do not appear to have had a meaningful effect on consumer spending. This, however, remains a key risk to the otherwise constructive outlook for defaults in 2012. Fitch projects a year-end default rate in the range of 2.5–3.0 percent.
Here is a link to the report (registration may be required): http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=673581
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Posted in Corporate Bonds, Fixed-Income, Investing, Market Commentary, Personal Finance
Tagged Corporate Bonds, Fixed-Income, High-Yield Bonds, Investing, Personal Finance