US Corporate Debt Default Rate Could Top 23% by 2010

The US corporate debt default rate could reach its highest level since 1981 in the next three years, Standard & Poor’s says.

Based on our estimates of a worst-case scenario, the three-year U.S. cumulative default rate between 2008 and 2010 among speculative-grade nonfinancials will rise to 23.2%, the worst on record since 1981.

If realized, this estimate suggests that 353 speculative-grade rated nonfinancial firms could default between 2008 and 2010, with potentially more than 200 of these defaults materializing in the second half of 2009 and in 2010.

Consumer-sensitive sectors — such as consumer products, media and entertainment, and retail and restaurants — will be among the worst hit, in line with what happened in 1990-1992.

Details are available in Default, Transition, and Recovery: By 2010, U.S. Corporate Default Rate Could Rise To More Than 23%.

Comments

[whidbey:]

Your numbers or likely low, just watching the high yields and CEF pricing it would appear that the discounts are expecting like 30% might more in line. I suspect that means the equities make some very low, new lows.

2008 Sep 26 04:46 PM

[JasonC:]

Horribly inaccurate, deliberately misleading headline.

The rate is for *junk* bonds, but the headine refers to *all* US corporates, the vast majority of which are investment grade.

Journalistic malpractice at its doom-mongering worst...

2008 Sep 26 04:46 PM

[Larry House:]

The facts are bad enough without trying to make them worse. I was shocked by your title until I read the piece. Please be accurate in the future if you want any credibility.

2008 Sep 26 05:27 PM

[tvb:]

Another fear-mongering headline. And these are default estimates by S&P, the geniuses who predicted that so many of these distressed sub-prime securities had no/AAA credit risk.

2008 Sep 26 06:50 PM

[Edor:]

Thanks for keeping the author honest. Again I am grateful to commentators here who often seem far more astute than the original author, perhaps an other example of the Peter Principle.

2008 Sep 27 11:42 AM

[Tom Armistead:]

As others have noted, the headline seriously exaggerates the severity of the problem.

2008 Sep 27 01:15 PM

[Elaine Supkis:]

Culture of Life News here!

Sorry, but if a quarter of all SPECULATIVE ---ie. hedge funds, JP Morgan, Goldman Sachs etc entities go under, this will cook the economic goose. There is no sunshine in this news. At least 10% of all corporations will be merged, sold to the Chinese or dead, too.

That is the good news. We pray that our financial masters in OPEC and Asia buy out our dying corporations. That stupidly put themselves deep into debt during the go-go years of buy-ups and buy-outs using the infamous Japanese carry trade funds.

2008 Sep 27 06:38 PM

[Research Recap:]

I agree the headline is misleading, though not deliberately so. In trying to make the headline fit the meaning was changed. Thanks for your comments. It has been changed on the original item at Research Recap.
www.researchrecap.com/.../

Angus Robertson

2008 Oct 08 03:53 PM

[Diane Ritter:]

It is bizarrely inappropriate to state that the junk bond "default rate" will be 23%. They are predicting that 23% of the junk bonds in the index would default over 3 years time, 2008, 2009, 2010, which translates to a RATE of default of 6.7% in 2008, 7.8% in 2009, and 8.8% in 2010 (since they are predicting that 200 of the defaults will occur in the second half of 2009 and in 2010). Default rates of 8.8% aren't pretty, but they aren't out of line with other forecasts (I have heard predictions of up to 10% junk bond default rates). But saying that the DEFAULT RATE is 23% is just irresponsible scare mongering.

2008 Oct 21 08:08 AM