Dregs of the Junk Market Swell to Six-Year High, Moody's Says

  • `Unabated growth' of troubled companies tied to energy rout
  • Ratings company forecasts increasing default rate for 2016

The number of companies on the lowest rungs of the junk-bond market hit a six-year high in 2015, according to Moody’s Investors Service.

The ratings company reported Tuesday that there were 248 companies on its Negative and Lower Corporate Ratings List, up by more than a third from a year ago and just 43 shy of the all-time high reached during the credit crisis. The increased weakness comes as a rout in junk has seen the average yield on the debt climb to 9.5 percent, the highest level since the global financial crisis.

"The list’s unabated growth in 2015 was fueled mostly by downgrades in the oil & gas sector, which is reeling from plunging oil prices," Moody’s analysts Julia Chursin, David Keisman and Tom Marshella wrote in the report. "It suggests an increasing default rate in 2016 when coupled with the deterioration in our other indicators of speculative-grade credit."

Commodity prices have fallen to the lowest levels since at least 1991, according to ther Bloomberg Commodity Index, a measure of returns on 22 raw materials, amid reduced demand for oil, metals and minerals as China’s economy cools down.

High-yield energy debt fell 24 percent last year, more than five times the losses of the broader high-yield market, according to Bank of America Merrill Lynch Indexes.

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