Corporate Junk Bond Default Rates Could Set New Record
Conditions for corporate bond issuers have deteriorated at an alarming pace in 2008 and have set the stage for a record wave of corporate high-yield bond defaults in the next two years, according to Fitch Ratings.
Through the end of September, junk bond defaults had reached $25 billion, compared with $3.5 billion for all of 2007. If the bankruptcy of Lehman Brothers Holdings Inc. and the collapse of Washington Mutual are included, corporate defaults have reached $100 billion this year, the worst since 2002.
Fitch believes that recent events are among a number of worrisome factors that suggest that the coming high yield default wave may be the most severe on record.
Corporate debt defaults tend to peak in the year following a meaningful contraction of corporate profit growth. That would suggest a peak in defaults in the current cycle in 2009 or 2010 and impact a wider swath of corporations than in the 2001-02 recession, Fitch said.
For details, see “The Rising Corporate Default Wave.”
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