S&P: Defaults Rise as Credit Quality Erodes

Reprinted from The Monitor, The Authority on the Commercial Finance Industry


Eighty-five companies defaulted through Nov. 11, 2008, affecting debt worth $284 billion, according to Standard & Poor's. The rise in defaults in 2008 is in sharp contrast with trends in prior years, when only 22 defaults were recorded in all of 2007 and 30 in 2006.

Of the 85 defaults, 70 are domiciled in the U.S., five are from Europe, four are from Asia, three are from Canada, two are from Mexico, and one is from Russia, according to S&P in an article titled "Global Bond Markets' Weakest Links And Monthly Default Rates."

"In 2008, defaults have increased significantly, particularly in the U.S.," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "The U.S. speculative-grade default rate increased for the 10th consecutive month, reaching 2.86% in October, up from 2.68% in September and a 25-year low of 0.97% at the end of 2007."

The default rate in Europe increased marginally to 1.01% from 1.00%, while the emerging markets default rate rose to 0.82% in October from 0.17% in September.

The U.S. also leads in the number of weakest links, with 156 of the 207 entities, or 75%. Weakest links are defined as issuers rated 'B-' or lower with either a negative outlook or with ratings on CreditWatch with negative implications, and they are at greater risk of default.

Editor's Note: When the largest companies, the ones S&P measures, are having default issues, this then has a ripple effect across the economy to affect supplies, middle market and smaller businesses as well.

Stu
Southern Lending Solutions