More Defaults on High-Yield Bonds — Fitch Ratings

The trailing 12-month default rate on high-yield bonds in August rose to 2.2% from 2% in July, according to Fitch Ratings. The ratings firm expects the default rate to end the year with a 2.5% to 3% rate. The agency noted three bankruptcies were filed in August — ATP Gas & Oil, Broadview Networks and K-V Pharmaceuticals. So far this year the defaulter count is 23 and the value of defaulted bonds is $12.2 billion. At the same time last year there were 10 defaults valued at $4.7 billion.

Corporate performance lagged in the second quarter, according to Fitch, with revenue and EBITDA growing at the slowest pace in two years. And there’s more weakness:

Fitch rating activity so far in the third quarter also points to a speculative grade downgrade to upgrade ratio of 2 to 1. While corporate fundamentals and funding conditions remain solid — issuance soared in August to $28.5 billion — the economy’s sluggish performance in recent quarters is having an impact. Clearly the Federal Reserve’s launch of another round of quantitative easing is intended to address this, and worries that the U.S. fiscal cliff and recessionary conditions in Europe will further threaten growth.

The Fitch Ratings report is available here.

Paul Ausick