Fitch: High Yield Default Rate to ‘Remain Steady’
Fitch Ratings announced that it projects that the U.S. high yield default rate will remain in a range of 1.5%-2.0% in 2014. Fitch said the key pillars of a low default rate environment – credit availability and good corporate fundamentals – remain steady.
Building on the momentum of recent quarters, Fitch said it expects improved U.S. GDP growth of 2.6% in 2014, up from 1.7% this year.
Fitch notes that many of the recognized default candidates of the past several years have already restructured, and a stronger economy combined with favorable funding conditions is sure to give some strapped companies a new lifeline.
In 2013, defaults closely followed our expectations. We projected a repeat of 2012 activity. Through late December, there have been 35 issuer defaults on $18.5 billion in bonds versus 32 issuers and $20.5 billion in 2012. The market grew 10% in size over the course of the year, which put some modest downward pressure on the default rate, but the issuer count and par value of defaults was nearly identical year over year.
In this the fifth year of an uneven and often unpredictable recovery from the financial crisis of 2008-2009, the more important metric will be new issuance credit quality and the extent to which a soaring stock market and low borrowing costs will fuel more aggressive, debt-accretive transactions, Fitch said.
The funding environment remains highly accommodative. Issuance has been exceptional and now includes a fully revived loan market. Scheduled bond and loan maturities are quite low over the near term. There is $117.6 billion maturing in 2014 and 2015, representing 5.4% of market volume and a just fraction of bonds and loans sold in 2013.
Importantly, top-line and EBITDA growth showed renewed vigor in the most recent two quarters, reversing lackluster results recorded over the prior year.
To link to the Fitch report, click here.