Bonds News

U.S. junk bond default rate rises to 10.2 pct -S&P

NEW YORK, Sept 3 (Reuters) - The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July as the worst recession since the 1930s left more companies unable to pay off debt, Standard & Poor’s data showed on Thursday.

The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.

Default rates have surged from less than 1 percent in 2007 as an economic downturn squeezed corporate revenues and a global credit crunch dried up funding. A 13.9 percent default rate would be the highest since the Great Depression of the 1930s, when it hit 15.9 percent.

August’s default rate is preliminary and subject to revision, S&P said.

Eighteen companies defaulted in August, bringing the year-to-date total to 147.

“Credit metrics in the U.S. show continued deterioration of credit quality and restricted lending conditions,” S&P said.

In another sign of corporate distress, the rating agency has downgraded $2.9 trillion of company debt year to date, up from $1.9 trillion in the same period last year.

Just $73.6 billion of debt has been upgraded, though that is up from $35.8 billion in the same period last year.

“The bright spot for credit markets amid the current economic downturn is an increase in new issuance,” S&P said. Junk-rated bond sales have grown to $73.6 billion through August from $35.8 billion in the same period last year. Investment-grade issuance has risen to $603 billion from $537 billion, according to S&P.

A reopening of the bond market following last year’s credit freeze is allowing companies to refinance debt, keeping defaults lower than they otherwise would be. (Reporting by Dena Aubin; Editing by James Dalgleish)