Defaults for U.S. high-yield bonds have topped $14 billion in April -- the largest monthly volume in two years, according to Fitch Ratings -- and the month isn’t even half over.
The speculative-grade default rate for the past 12 months is on pace to reach 3.9 percent in April, up from 2.1 percent for the same period a year ago, after Peabody Energy Corp. and Energy XXI Ltd. filed for bankruptcy this week, according to the Fitch report.
The dollar value of defaults is the most since $20.3 billion in April 2014, when Energy Future Holdings Corp., the leveraged buyout that turned into one of the largest bankruptcies in U.S. history, filed for Chapter 11, Fitch wrote.
This month’s default rate for coal companies is expected to come close to 70 percent, while the oil and gas exploration and production sector is anticipated to reach 23 percent and metals and mining will climb to almost 20 percent, Fitch wrote.
“The second quarter will not see a reprieve in defaults,” Eric Rosenthal, Fitch’s senior director of leveraged finance, said in the report. “April defaults alone will nearly match the $15.7 billion tallied during the first quarter.”
Despite a recent rally in oil, 57 percent of exploration and production companies with ratings of B- or lower are still struggling to sell their debt in the secondary market, with bids falling below 50 cents, Fitch wrote. The problem is unlikely to be alleviated while prices remain below break-even production costs, according to the credit rater.