High-yield bond and loan default rates will remain below 2 percent through 2014, according to JPMorgan Chase & Co. (JPM)
The combination of a low interest-rate environment spurring corporate borrowing and conservative business behavior limiting risky debt issuance will result in default rates below the long- term average of about 4 percent, JPMorgan analysts wrote in a report today. About $34 billion of the debt will default during the next 12 months, compared with $22.2 billion last year.
“The focus by companies on terming out maturities and improving liquidity continues to be an important driver of the low default backdrop,” JPMorgan analysts led by New York-based Peter Acciavatti wrote in today’s report. Businesses are “maintaining an emphasis on de-leveraging versus re-leveraging, and limiting risky issuance commonplace ahead of previous default cycles,” they said.
The amount of high-yield debt coming due in 2013 is down to $57 billion and to $127 billion in 2014. Issuance of $668 billion in high-yield debt last year outpaced the previous annual record of $536 billion in 2007, JPMorgan said.
Last year’s refinancing activity “meaningfully exceeded” the more than $250 billion of annual bond and loan issuance allocated toward refinancing since the beginning of 2010, “dwarfing high-yield bond and institutional loan maturities over the coming years,” the analysts wrote.
Leveraged loans and high-yield, high-risk, or junk, bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.
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