By Jui Chakravorty
DETROIT (Reuters) - U.S. junk bond delinquencies could climb to 5 percent by the end of next year, increasing opportunities for investment in distressed companies, billionaire Wilbur Ross told Reuters on Sunday.
"By the first quarter of 2008, I think the junk bond default rate will start approaching the 3 percent level," Ross said at the Reuters Autos Summit in Detroit.
"My guess is by the end of 2008 that could be as high as 4.5 to 5 percent," said Ross, best known for buying and turning around distressed companies.
The U.S. junk bond default rate was 1.1 percent in October, the lowest since 1982, but Ross said the long-term historical average of junk bond default rates was in the range of 4.5 percent to 5 percent.
"It's just that default rates have been artificially depressed by the very lax credit standards," Ross said. "I think you're now going to get a reversion to the mean."
Massive defaults on home loans to shaky borrowers and a resulting global credit squeeze have made lenders more reluctant to finance the riskiest companies.
About one-fifth of U.S. banks have tightened lending standards on commercial and industrial loans to large and middle-market companies, a Federal Reserve survey showed last week.
Analysts and investors expect the situation to worsen as current U.S. banks reveal more losses and rating companies continue to downgrade some top bonds that trade like junk. Continued...
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