Tags: Corporate | Defaults | Low | debt

S&P: US Corporate Defaults Hit Three-Year Low

Tuesday, 18 Oct 2011 08:26 AM

The number of U.S. companies missing debt payments is steadily falling, according to Standard & Poor's. In fact, that number dropped to just 1.9 percent of companies in the 12 months ended in September, down from 11.5 percent as of November 2009.

"Companies are pretty healthy, despite what's going on in the rest of the economy," Mario DeRose, fixed income strategist at Edward Jones, told USA Today. "It's a nice position to be in."

To explain the increased debt payoffs, analysts point to the facts that more firms are postponing new ventures, taking advantage of low interest rates and hoarding cash.

However, S&P says that, while a 1.9 percent default rate is low, it’s still up from the record-breaking low 1 percent default rate notched at the end of 2007.

Nor are investors completely at ease; they have demanded higher interest rates from companies with low credit ratings, relative to U.S. Treasuries, since the end of August.

Approximately 80 companies hold S&P's lowest credit rating, double the usual level following a recession, and more companies could stumble if the economy falters, says S&P's Diane Vazza.

"If we go into a double-dip recession, that will paint a very different picture," Vazza says.

The Wall Street Journal reports that S&P expects the trailing 12-month default rate for junk-rated U.S. corporations will decline to 1.6 percent by June 2012, compared with 2.25 percent as of last June.

The credit rater has said improved lending conditions and easier capital continue to temper its default expectations in the short term.

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The number of U.S. companies missing debt payments is steadily falling, according to Standard Poor's. In fact, that number dropped to just 1.9 percent of companies in the 12 months ended in September, down from 11.5 percent as of November 2009. Companies are pretty...
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2011-26-18
Tuesday, 18 Oct 2011 08:26 AM
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