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

Latest Press Release

SET and IPPD join hands to foster research on sustainable development

The Stock Exchange of Thailand (SET) and The Institute of Public Policy and Development (IPPD), under the Thai government think tank, signed a memorandum of understanding (MoU) to jointly conduct insightful and practical researches to benefit the...

Photo Release: Outstanding Women Leaders for Green Growth Award

Recently, at Grand Hyatt Erawan Hotel, Ms. Kattiya Indaravijaya, KBank President, received the "2019 Outstanding Women Leaders for Green Growth Award" for being an exemplary role model in developing businesses which are environmental friendly and an...

Mastercard Strengthens its Leading Position in Real-Time Payments in Asia Pacific with Increased Focus on Thailand

Global payments and technology leader is bringing further innovation to Thailand as part of its push to advance the regional digital payments agenda Today, at the Bangkok Fintech Fair 2019, Mastercard announced a commitment to deliver a growing suite of...

Ultra Sale on Tokinex Completed in 35 Seconds

Tokinex, the Bitfinex and Ethfinex token sale platform, today announces the successful completion of its 5m USD token sale of Ultra (UOS) in just 35 seconds. Ultra is a protocol and platform positioned to disrupt the $140bn gaming industry by using...

Photo Release: Mastercard Presents its Leading Position in Real-Time Payments at the Bangkok Fintech Fair 2019

Recently, at the Bangkok Fintech Fair 2019, Mastercard announced a commitment to deliver a growing suite of real-time and digital payments solutions across Asia Pacific through its regional real-time payments hub, with data centers in Thailand and...

Related Topics