U.S. Default Rate Forecasted To Decline To 1.8% In 2011, Article Says

Stocks and Financial Services Press Releases Thursday February 10, 2011 08:27
Bangkok--10 Feb--Standard & Poor's

Standard & Poor's baseline projection for the U.S. corporate trailing 12-month speculative-grade default rate for December 2011 is 1.8%. A total of 27 issuers would need to default during that period to reach the forecast, said an article published today by Standard & Poor's, titled "U.S. Corporate Default Rate Expected To Continue Declining--To 1.8%--In December 2011."

"This is another 1.47-percentage-point (or another 45%) decline from 3.27% in December 2010," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "The rate of decline will remain sharp, but somewhat slower than what we saw in the past 13 months."

In our optimistic default rate forecast scenario, the economy and the financial markets improve more than expected. In this scenario, we expect the default rate to be 1.3% (22 defaults). On the other hand, if the economic recovery stalls and the financial markets deteriorate--which is our pessimistic scenario--we expect the default rate to be 3.5% (52 defaults) by the end of 2011.

"From its peak of 11.4% in November 2009, the U.S. corporate speculative-grade default rate declined by more than eight percentage points to 3.27% in December 2010," said Ms. Vazza. In the past 13 months, the default rate has declined just as sharply as it rose in 2008 and 2009. This rise and fall of the default rate is similar to previous cycles, but the upswing and downswing this time around occurred faster and at a steeper slope. "The default rate increased for an unprecedented 23 consecutive months--from a 25-year low of 1% in December 2007 to 11.42% in November 2009. Similarly, the decline so far has been faster compared with previous cycles, notwithstanding our expectation that it will continue to decline in 2011, though at a slightly more moderate pace," said Ms. Vazza.

A large volume of low-rated companies that were first assigned ratings during the credit boom are still rated today, and we have seen a number of new entrants into the speculative-grade pool. Both factors indicate that considerable default risk remains. Currently, 1,489 rated U.S. entities are speculative grade, which is 51% of the total.

Many leveraged entities have been able to secure funding, which could have averted or delayed default. We expect that the survival rate will decline over time as more defaults occur beyond the 12-month forecast horizon.

The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.

Media Contact:
Mimi Barker, New York (1) 212-438-5054, mimi_barker@standardandpoors.com
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760

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