US junk-rated defaults decline in Q3: Moody's
NEW YORK, Oct 16 (IFR) - Debt defaults by US speculative-grade companies declined in the third quarter, breaking a streak of rising defaults over the prior three quarters, Moody's said on Wednesday.
The rating agency said the default rate fell to 2.6% from 2.9% in the second quarter. It expects the rate to steady around 2.7% by year-end, providing there is an orderly resolution of the US budget discussion.
This remains well below the late 2009 cyclical peak when default rates breached 14%.
A rebound in issuance following a tail-off in May - when the first hints of US tapering rattled investors - has significantly eased pressure on junk-rated issuers, the agency said.
"Capital markets have remained open for low-rated issuers, supporting a low default rate," said Moody's senior vice president Lenny Ajzenman.
According to Thomson Reuters data, more than US$65 billion of US high-yield deals were sold in September - a record month for supply.
Significantly, about 23% of debt issued last month was rated Caa/Ca - just above default rating - according to the Moody's high-yield covenant database.
This indicates that investors remain focused on yield and the benefits of continuing bond purchases by the Federal Reserve.
Heavily-indebted Caesars Entertainment, for example, was recently able to issue US$4.87 billion in the US high-yield bond and leveraged loan markets.
The casino operator's parent company, Caesars Entertainment Corporation, is currently one of 41 companies with a probability of default rating of Caa2 or lower.
These companies have the highest probability of defaulting among Moody's-rated issuers.
There were two bankruptcies and two distressed exchanges in the third quarter, Moody's said.
The largest default in the quarter was the bankruptcy filing of GateHouse Media Operating Inc, with more than US$1 billion of debt.
Rural/Metro Corporation also filed for bankruptcy with more than US$700 million of rated debt. Sotera Defense Solutions Inc, rated Caa2, and Jacuzzi Brands Corp, rating withdrawn, both completed debt-to-equity conversions that were considered distressed exchanges.
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