Friday, May 1, 2009

Ahh, Spring is in the Air and Defaults are Breaking Out All Over

According to this piece by Standard & Poor's (I don't have access to the more detailed premium report), there were 40 global corporate defaults in April, increasing the total for the year to 102.

The total for April is "the second-highest monthly tally since 1981" (when S&P started tracking) and "the highest monthly tally since March 2002 (when 47 issuers defaulted)." S&P stated that they "expect defaults to continue into 2010, leading to an expected all-time high of 14.3% by March 2010."

S&P quoted Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group as stating that "missed payments currently are the leading reason for defaults this year, with 35 issuers." The article goes on to say that "bankruptcy-related defaults follow with 30 issuers, distressed exchanges with 28 issuers, regulatory supervision with four issuers, and various other reasons with five issuers."

S&P also stated "the majority of recovery ratings for defaulted issuers so far this year are ... indicative of our expectation for modest (10%-30%) or negligible (0%-10%) recovery ... on defaulted issues."

They also noted "only 27% of the issuers that have defaulted this year had issues with recovery ratings ... which indicate very high (90%-100%) or substantial (70%-90%) recovery ..."

Clearly, the expectation of a large restructuring wave - big enough to compare to, or exceed, the waves of the early 1980s and early 1990s.

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