TEXT-S&P: distress ratio rises to 11.4 pct in November
Nov 28 - The speculative- and investment-grade spreads have increased from their October levels, pushing the distress ratio higher, said an article published today by Standard & Poor's Global Fixed Income Research, titled "Distressed Debt Monitor: The U.S. Distress Ratio Increases To 11.4% In November." The distress ratio was 11.4% as of Nov. 15, up from 10.6% as of Oct. 15. "This is the ratio's first month-over-month increase since June," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "However, the ratio is still significantly lower than the November 2011 level of 15.7%." Standard & Poor's distress ratio is the number of distressed securities divided by the total number of speculative-grade issues (those rated 'BB+' and lower). Distressed credits are speculative-grade issues that have option-adjusted spreads of more than 1,000 basis points (bps) relative to U.S. Treasuries. The S&P/LSTA Leveraged Loan Index distress ratio stayed at 3.7% in October--in line with the corporate distress ratio. The distress ratio was unchanged, at 10.6%, in October. The default rate, which is a lagging indicator of distress, decreased slightly to 2.75% as of Oct. 31 from 3% as of Sept. 30. Distressed issues are the weakest of the speculative-grade population. Therefore, their recovery prospects are low. Currently, among the distressed issues with available recovery ratings, 65% have recovery ratings of '5' or '6', indicating only negligible to modest recovery in the event of a default. In addition, about 60% of all distressed issues are either unsecured or subordinated, and, in the event of default, those noteholders' claims to the firm's assets are secondary to the more senior debtholders'. In November, the number of distressed corporate entities increased slightly. As of Nov. 15, 132 companies had issues trading with spreads of 1,000 bps and higher--up from 125 in October. The number of affected issues increased to 188 from 174. Of the 132 companies on this month's distressed list, 45% had either negative rating outlooks or ratings on CreditWatch with negative implications. The rating outlooks on 48% of the companies were stable and 2% were positive. Standard & Poor's rates 57% of the companies 'B-' or lower. The amount of affected debt increased to $79 billion as of Nov. 15 from $69 billion as of Oct. 15. Based on debt volume, the media and entertainment, high technology, and utility sectors accounted for 51% of the total debt outstanding. Media and entertainment alone accounted for 27% of the total distressed debt. The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to email@example.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com.
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