The trailing 12-month U.S. speculative-grade default rate rose slightly to 5.7% in August, representing the market’s highest default rate since June 2010, according to Moody’s Investors Service.
The six-year high water mark is expected to grow to 6.2% by year's end, as default risks remain elevated in the commodity sectors.
Still, Moody’s rates the 2017 default outlook as “benign” for junk-rated companies both in the U.S. and abroad, with credit conditions sufficient in the near-term for most low-rated companies to find capital for refinancing debt.
The rise was driven by six high-yield bond defaults in the quarter, including distressed exchanges (which are tantamount to defaults) by California Resources Corp., DFC Finance Corp. and Toys ‘R’ Us. Those three firms accounted for $2.7 billion of the total $3.5 billion in bond-related defaults.
California Resources’ corporate rating was downgraded to ‘Caa2’ by Moody’s on Aug. 2 after it tendered an offer at a discount to par for outstanding debt totaling $1.41 billion as it took out a new $700 million term loan.
One of the U.S. bond defaults was Light Tower Rental’s $330 million Chapter 11 bankruptcy.
Only one default was recorded in the leveraged-loan market, with Logan’s Roadhouse also doing a distressed exchange totaling $30 million.
The default tally had reached 110 by the end of August, the highest year-to-date level since 2009.
Moody’s global default rate of 4.8% remained unchanged month over month, with only one other default recorded internationally (Brazil’s General Shopping Brasil S.A.)
In Europe, the default rate fell to 2.5% from 2.6%.
Last week, Standard & Poor's reported its global default tally of S&P-rated firms had reached 118, a rate 51% higher than in August 2015 and already in excess of the total 2015 roundup of 113 defaults.
