Fitch Raises 2015 U.S. High Yield Default Rate Outlook to 2.5%-3%
Fitch Ratings has increased its 2015 U.S. high yield default outlook to 2.5%-3% from 1.5%-2%, reflecting the impact that languishing oil prices, weak coal demand and burdensome regulation have had on energy and metals/mining companies during the first half of the year.
'These factors will continue to drive up the default rate into 2016 as distressed debt exchanges (DDE), bankruptcies, and missed payments take their toll,' says Eric Rosenthal, Senior Director of Leveraged Finance.
Fitch expects the overall default rate to increase further in 2016 - still well below peak levels seen during the financial crisis.
The energy trailing 12-month (TTM) default rate registered 2% at the end of June, just above the historical average. Fitch expects the rate to increase but not to exceed the 6%-7% range in the current cycle.
A total of 35 issuers defaulted in first-half 2015 (1H15), with seven in the month of June alone, bringing the TTM issuer default rate to 3.7%. Energy and metals/mining accounted for 57% of the issuer defaults. July already has three defaults including bankruptcies for Walter Energy Inc. and Sabine Oil & Gas Corp. along with Lightstream Resources Ltd.'s DDE. Arch Coal Corp. is also planning a DDE, still yet to be finalized, and Hercules Offshore Inc. is soliciting votes for a prepackaged Chapter 11 plan.
At end-June 2015, the par-weighted TTM default rate for metals and mining took a hit, climbing to 5.1%, well above the historical average. The all-sector par-weighted high yield TTM default rate is 2.3%.
The 1H15 set a record for volume of $168 billion despite a slow finish in June. Energy topped new issuance at 17% while healthcare and pharmaceuticals contributed 14% spurred by M&A activity.
The full report, 'U.S. High Yield Default Insight: 2015 Default Outlook Increased to 2.5%-3%' is available at www.fitchratings.com, or by clicking on the link.
Additional information is available on www.fitchratings.com
Fitch U.S. High Yield Default Insight (2015 Default Outlook Increased to 2.5%-3.0%)
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