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.
"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
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
The report is available to subscribers of RatingsDirect on the Global Credit
Portal at www.globalcreditportal.com. If you are not a RatingsDirect
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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.