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May 18 - The trailing 12-month default rate remained flat in April at 1.9%, according to a new report by Fitch Ratings. The month produced two relatively modest defaults -- Reddy Ice and Dex One -- affecting a combined $537.8 million in bonds.
However, the recent bankruptcy filings by mortgage lender Residential Capital (ResCap) and aircraft maker Hawker Beechcraft add $3.4 billion to the April year-to-date default tally of $5.8 billion. Fitch projects that the U.S. high yield default rate will top 2% in May ? the highest level since October 2010.
The pace of defaults is running ahead of early 2011 activity. The year-to-date defaulted issuer count, including ResCap and Hawker, stands at 16, compared with seven in the first five months of 2011. The par value of bonds affected by defaults is up even more substantially, totaling $9.2 billion thus far versus $1.7 billion in 2011.
As expected, the uptick in defaults is due entirely to stress at the 'CCC' or lower level, where the default rate is tracking at an annualized rate of 10%.
ResCap missed an interest payment roughly a month prior to filing for bankruptcy. This pattern is typical. Since 2000, of the 501 issuers in Fitch's default index who missed interest payments, 67% subsequently filed for bankruptcy. The median time from missed payment to filing was approximately three months. Larger issuers, those with $500 million or more in bonds outstanding, slipped toward bankruptcy even faster ? a median of 45 days.
For additional details please see the full report, 'Fitch U.S. High Yield Default Insight_ April 2012' available at 'www.fitchratings.com'.
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