Fitch: 2013 US HY Recovery Rate 47.7% of Par, Default Rate 1.5%

NEW YORK--()--For the fourth consecutive year, the US high yield default rate remained low, ending 2013 at 1.5%, according to Fitch Ratings. Thirty-six issuers defaulted on $18.5 billion in bonds, a near repeat of 2012's 32 issuer defaults and $20.5 billion tally.

The average recovery rate in 2013 was 47.7% of par, down from 50.2% in 2012. The presence and poor performance of emerging market (EM) dollar-denominated defaults put some pressure on the year's recovery results. EM issues - nearly all senior unsecured - experienced an average recovery rate of 21.1% of par, below the 66.1% recorded across domestic defaults.

Energy, broadcasting and media, and building and materials led default activity in 2013. Both energy and building and materials were disproportionately affected by EM dollar-denominated defaults, with the latter making up 72% and 100% of volume in each area, respectively. One of these defaults was in fact the largest of the year, the collapse of Brazilian oil company OGX Petroleo e Gas Participacoes SA ($3.6 billion).

Other large defaults in 2013 included publisher Cengage Learning ($1.9 billion), services and e-commerce provider Travelport LLC ($1.0 billion), and a distressed debt exchange (DDE) of $1.3 billion from Energy Future Holdings (EFH).

An EFH bankruptcy would add 1.5% to Fitch's base default forecast for 2014 of 1.5%-2.0% and would also represent the latest example of unsuccessful DDEs. Fitch has calculated that of the DDEs completed 2008-2013 (79 issuers, $62 billion in bonds), 32% have had a subsequent event of default. For these companies, the average time from the original DDE to a second default was 1.1 years. In the low default years of 2010-2013, eight companies have experienced a post-DDE default.

Fitch recorded two defaults in the first two months of 2014, resulting in a trailing 12-month default rate of 1.3% through February. Four defaults in March ($1.4 billion) bring the year-to-date tally to $1.8 billion. This compares with a full first-quarter 2013 total of $3.4 billion.

For full details please see 'Fitch U.S. High Yield Default Insight - 2013 Summary and Key Statistics' which is available at 'www.fitchratings.com' or by clicking on the link below.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: Fitch U.S. High Yield Default Insight -- 2013 Summary and Key Statistics

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729917

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Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com