More Green Shoots...... US Corporate Default Rate Edition

Green Shoots as far as the eye can see......... The "Green Shoots" or "Second Derivitive" nonsense will vanish as fast as the other buzz words like "Contained" , "Decoupling", "Cash On The Sidelines" , "Stock Are Cheap" etc......

Noch mehr Futter für all diejenigen die in jeder veröffentlichten Zahl momentan Green Shoots erkennen ..... Just kidding...... Bin mir sicher das die Bezeichnungen "Green Shoots" oder "Second Derivative" sich nahtlos in die Reihe der letzten Modebezeichnungen ( "Contained", Decoupling", "Cash On The Sidelines" usw ) einreihen werden. Warum wundert es mich eigentlich nicht das alle permanent suggerieren das das nun der Zeitpunkt gekommen ist einzusteigen.....

Thanks to Telegraph

FT Alphaville S&P said on Monday the US corporate default rate had hit a seven-year high:

Corporate defaults continue to rise rapidly in 2009, nearly matching the number in all of 2008. Through May 13, 2009, 121 issuers defaulted, affecting debt worth $297.22 billion. By comparison, 126 defaults were recorded in all of 2008, affecting debt worth $433 billion. Of the 121 defaults in 2009, 85 are from the U.S., 21 are from emerging markets, seven are from Europe, six are from Canada, and one each is from Australia and Japan.

Nice to see that markets are allowed to work in at least some parts of the market........Now add the following chart & read examples like this ( see Another Private Equity Deal That Went Bust Within 24 Months ) and you get even more green shoots.... Sarcasm off......

Immerhin schön zu sehen das dem Markt zumindest in einigen ausgewählten Teilen der Wirtschaft erlaubt wird zu arbeiten....... Der nachfolgende Chart kombiniert mit Beispielen wie diesem lassen erahnen das hier in der nächsten Zeit noch die ein oder andere nette Überraschung auf uns wartet.......

Number Of The Day " Percentage Of US Companies With A Junk Rating"

About 50% of U.S. companies have below-investment-grade credit ratings

Credit Quality in a Freefall

I assume that lthe majority of these distressed companies have bought back shares during the past few years....

Ich gehe jede Wette ein das die Mehrzahl der jetzt betroffenen Firmen in den letzten Jahren fleißig Aktien zurückgekauft haben.....

Credit Quality in a Freefall / CFO.com
The distressed-debt ratio quadruples in a month's time though some signs point to a light at the end of the tunnel.

Credit quality deteriorated steeply from mid-October to mid-November despite the recent actions by the Federal Reserve to stimulate credit markets.

As of Nov. 15, $36.2 billion worth of debt was in distressed issues, more than four times the $8.6 billion reported a month earlier, according to Standard & Poor's. Distressed debt as a percentage of total debt recorded its largest monthly increase in five years, more than doubling to 4.9 percent from 2.3 percent. The ratio was as low as 2.1 percent 12 months ago.

Distressed credits are defined as speculative-grade-rated issues that have option-adjusted spreads of more than 1,000 basis points relative to Treasuries.

Other metrics also suggest that the credit crunch continues to impact the overall credit markets. For example, the non-distressed speculative-grade bond spread widened to 502 basis points in mid-November from 392 basis points a month earlier, according to S&P.

In addition, the total number of rated companies with issues trading at distressed levels ballooned to 224, almost double the 120 in October, according to the report.

S&P noted that of the 224 companies on this month's distressed list, half had either negative outlooks or ratings on CreditWatch with negative implications. The outlooks on 39 percent of the companies were stable, 7 percent were positive, and 4 percent were developing.

Of the 52 companies listed at the 1,000 bps level, 27 were rated "B-" or lower, and 39 were on CreditWatch with negative implications or had negative outlooks.

Not surprisingly, financial issues are suffering the most. Of the $36.2 billion of distressed issues, finance companies had the largest exposure, constituting 45 percent of the total debt affected, according to S&P. Next came media and entertainment at just over 20 percent.

Brokerage and finance companies displayed the highest distress rates as a share of total speculative-grade-rated issues, at 20 percent and 13.6 percent, respectively.

Not all of the news was bad. S&P pointed out that the U.S. speculative-grade default rate — typically the last indicator of stress within a credit cycle — hit an all-time low of 0.98 percent at the end of October, down from a previous low of 1.13 percent in September.

"Though default risk is rising, this year's default count continues to be constrained in part because of limited refunding needs, as well as structural concessions that avert payment default," S&P said in its report.

Year to date, the U.S. has recorded 13 defaults. "The U.S. speculative-grade default rate remains suppressed and is likely to post a year-end 25-year low of close to 1 percent,” S&P predicted.

> This low defalut rates ratios will dramatically spike during the years to come....

> Diese paradisischen niedrigen Ausfallraten dürften für lange lange Zeit Geschichte sein.....

Junk-Grade Defaults ‘More Likely’ / FT

I´ll bet that we will see much higher default rates than the agencies are forecasting. When you look at the spreads (chart Bespoke) there is much more room to the upside. Especially when you keep this in mind

Ich bin mir ziemlich sicher das wir in der Zukunft noch deutlich höhere Ausfallraten sehen werden als jetzt vorhergesagt werden. Hier ein Spreadchart via Bespoke der sehr anschaulich zeigt das hier noch "Luft ist". Das gilt insbesondere wenn einige Details näher beleuchtet werden.

More securities than ever have the lowest rankings, with CCC ratings assigned to 26.5 percent of the new debt, according to New York-based Fitch Ratings. That compares with 15 percent in 2006 for debt that itch says has a ``high default risk.''

Bonds that allow companies to pay interest in extra securities instead of cash, including toggle notes, accounted for almost 9 percent of high-yield debt sold this year, compared with less than 1 percent three years ago

Junk Grade Defaults More Likely / FT
Moody’s Investors Service said last month that company default rates in the junk-grade sector would rise by nearly 300 per cent as the credit squeeze hit the wider economy.

The agency predicted that the global speculative-grade default rate would rise from 1.4 per cent now, meaning only 1.4 per cent of the companies rated have defaulted in the past year – to 4.1 per cent in a year’s time and 5.1 per cent in two years’ time.

> Compare the prognosis (dotted chart-line) from the beginning of 2007 with the latest estimate. They had "calculated" roughly a 36% lower default rate. Here is another number that is hinting that the models from the rating agencies one more are outdated.....

> Vergleicht die Prognose im Chart von Anfang 2007 mit den aktuellen "Erwartungen". Hier noch eine weitere Hausnummer die darauf deuten läßt das die Modelle der Ratingagenturen in guten wie in schlechten Zeiten Ihren Zweck evtl. nicht erfüllen......

Distressed Bonds Increase Most Since 2003 / Bloomberg

The corporate bond market's favorite securities last year, so-called distressed debt, yield at least 10 percentage points more than Treasuries. Since June, the amount of distressed bonds has risen more than fivefold to $24.8 billion, according to an index Merrill Lynch & Co. began compiling in 1997.