RPT-Fitch: 2013 US HY Recovery Rate 47.7% of Par, Default Rate 1.5%

Tue Mar 11, 2014 8:05am EDT

March 11 (Reuters) - (The following statement was released by the rating agency)

For the fourth consecutive year, the US high yield default rate remained low, ending 2013 at 1.5%, according to Fitch Ratings. Thirty-six issuers defaulted on $18.5 billion in bonds, a near repeat of 2012's 32 issuer defaults and $20.5 billion tally.

The average recovery rate in 2013 was 47.7% of par, down from 50.2% in 2012. The presence and poor performance of emerging market (EM) dollar-denominated defaults put some pressure on the year's recovery results. EM issues - nearly all senior unsecured - experienced an average recovery rate of 21.1% of par, below the 66.1% recorded across domestic defaults.

Energy, broadcasting and media, and building and materials led default activity in 2013. Both energy and building and materials were disproportionately affected by EM dollar-denominated defaults, with the latter making up 72% and 100% of volume in each area, respectively. One of these defaults was in fact the largest of the year, the collapse of Brazilian oil company OGX Petroleo e Gas Participacoes SA ($3.6 billion).

Other large defaults in 2013 included publisher Cengage Learning ($1.9 billion), services and e-commerce provider Travelport LLC ($1.0 billion), and a distressed debt exchange (DDE) of $1.3 billion from Energy Future Holdings (EFH).

An EFH bankruptcy would add 1.5% to Fitch's base default forecast for 2014 of 1.5%-2.0% and would also represent the latest example of unsuccessful DDEs.

Fitch has calculated that of the DDEs completed 2008-2013 (79 issuers, $62 billion in bonds), 32% have had a subsequent event of default. For these companies, the average time from the original DDE to a second default was 1.1 years. In the low default years of 2010-2013, eight companies have experienced a post-DDE default.

Fitch recorded two defaults in the first two months of 2014, resulting in a trailing 12-month default rate of 1.3% through February. Four defaults in March ($1.4 billion) bring the year-to-date tally to $1.8 billion. This compares with a full first-quarter 2013 total of $3.4 billion.

Additional information is available on www.fitchratings.com.

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