S&P Warns A Big Increase In Debt Defaults Is Coming
In an article entitled "Defaults wave to hit corporate US," the Financial Times reports that Standard & Poor's is predicting that $35 billion in corporate debt will go into default by the end of 2008. This is similar to the view taken by Moody's, reported in a recent post.
According to the Financial Times, S&P believes that the slowing economy, together with liquidity issues caused by credit market problems, puts approximately 75 issuers of junk debt at a high risk of default. These companies are primarily in the media, healthcare, and consumer products industries. Not surprisingly, S&P believes that the default rate could go up significantly if the economy were to decline more than currently predicted.
Struggling companies that took on substantial debt during the recent favorable credit environment “are highly reliant on financial market access to support operational cash needs, but the plentiful liquidity for high-yield borrowers is almost surely a thing of the past,” according to S&P.
Of course, debt defaults frequently lead to Chapter 11 bankruptcy filings. With S&P joining Moody's in predicting a rise in defaults, the ride could get bumpy from here.
