The U.S. corporate bond distress ratio opened the new year at an elevated 13.4% as of Jan. 14, according to S&P’s Global Fixed Income Research Group. Distress ratio credits are compiled as those trading at T+1,000 or greater.
The distress ratio is a hair lower than 13.8% in December, but represents a big expansion from 8.1% in November, 5% in September, and a recent low of 4.7% in June, according to S&P GFIR reports.
“Recent drops in oil prices have impacted the profitability of oil and gas companies (particularly the exploration and production segment), whose spreads have widened considerably, and that spread expansion had a spillover effect to the broader speculative-grade spectrum as a whole,” said Diane Vazza, head of S&P GFIR.
The distress ratio generally trended lower since the second half of 2012, however, as noted above, and it’s been at an elevated level since October. It’s a leading indicator and typically a precursor to more defaults.
The lagging indicator is S&P’s trailing-12-month U.S. corporate default rate, which slipped to 1.5% in December, from 1.6% in November.Caesars Entertainment and LBI Media defaulted in December, but larger year-ago defaults rolled out of the calculation.
Today’s report, titled “Distressed Debt Monitor: The U.S. Distress Ratio Remains Elevated, At 13.4%,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.
For more information or data inquiries, please call S&P Client Services at (877) 772-5436. – Staff reports