November 28, 2012 / 9:31 PM / 5 years ago

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 research_request@standardandpoors.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.

Our Standards:The Thomson Reuters Trust Principles.
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