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NEW YORK, Sept 25 (Reuters) - Non-financial junk bond defaults may top 23 percent by 2010, the highest level since 1981, as the U.S. financial crisis deepens, Standard & Poor’s said on Thursday.
That suggests 353 non-financial firms could default between 2008 and 2010, as that three-year cumulative rate rises, with the most defaults coming after the first half of 2009, S&P said.
“As the financial landscape adapts to changes unseen since the Great Depression of the 1930s, the heat will eventually spread among non-financials and add significantly to cumulative default pressure on a much bigger scale than has materialized to date,” S&P’s Managing Director Diane Vazza, co-author of the study, said in a report.
Consumer products, media and entertainment, and the retail and restaurant industries will be among the worst hit, similar to defaults seen in 1990 and 1991, S&P said in a report.
On Wednesday, Vazza told Reuters that she forecasts an “avalanche” of U.S. high-yield bond defaults after August next year.
S&P’s current forecast is for those default rates to climb to 4.9 percent by August 2009 or as high as 8.5 percent if the United States falls into a severe recession lasting more than a year, Vazza said on Wednesday.
The report said the current credit correction involves three distinct phases, starting with the housing sector and falling home prices over the past two years. That trend likely has not hit bottom, S&P said.
The second phase is the hit to the financial sector, resulting in billions of dollars of losses due to exposure to the U.S. mortgage securities.
“The financial sector is still in crisis mode, though recent government policies have stemmed some of the panic,” the report said.
The last phase “is the spreading impact across the corporate landscape,” S&P said. “Though difficult to pinpoint the precise timing with great accuracy, we expect this phase to generate the greatest default pressure among non-financials.” (Reporting by Walden Siew; Editing by Tom Hals)