S&P U.S. corporate speculative-grade default rate hits 2.25% in June

By Caroline Salls

Pittsburgh, Aug. 1 - Standard & Poor's said the U.S. corporate trailing 12-month speculative-grade default rate for June was 2.25%, with 32 speculative-grade issuers defaulting in the 12 months ended June 30, according to S&P's report entitled "U.S. Corporate Defaults To Remain Benign In The Short Term."

S&P said it expects the U.S. default rate to decline to 1.6% by June 2012. A total of 25 issuers would need to default from July to June 2012 to reach this forecast.

The ratings agency said improved lending conditions and greater availability of capital, even for low-rated issuers, continue to temper its default expectations in the short term.

In addition, S&P said stronger credit quality, as reflected by fewer downgrades and lower negative bias, should help companies mitigate the effects of lackluster economic growth and uncertainty about domestic and international sovereign funding.

Under S&P's optimistic default rate scenario, the economy and the financial markets would improve more than expected and result in a 1.2% default rate, representing 18 defaults in the next 12 months.

Meanwhile, if the economic recovery stalls and the financial markets deteriorate, S&P's pessimistic default scenario would yield a 4% rate, representing 62 defaults by June 2012.

The agency said a large volume of low-rated companies that it first assigned ratings on during the credit boom are still rated today, and S&P said it has seen a number of new entrants into the speculative-grade pool.

According to the report, both factors indicate that considerable default risk remains in the long term.

S&P said another potential risk stems from highly leveraged issuers that have sought to avoid Chapter 11 by implementing buybacks below par value or other forms of distressed exchanges.

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