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
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
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
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rated Caa2, and Jacuzzi Brands Corp, rating withdrawn, both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