Fitch: More Secured Bonds in U.S. High Yield Default Mix

NEW YORK--()--Secured bonds have been more visible in the high yield default mix in recent years, comprising 49% of defaults by par value and 41% by issue count since 2010 compared with just 13% and 12%, respectively, over 2000-2009, according to Fitch Ratings.

Bond for loan take-outs soared in the aftermath of the financial crisis and significantly boosted the share of secured bonds in the high yield space from a modest 8% of market volume in 2008 to a peak of 23% in 2012.

The post crisis surge in secured bonds was notable both for its scale and its more aggressive rating mix relative to newly originated unsecured bonds. Approximately 38% of secured bonds sold 2009-2012 (totaling $283 billion) were rated 'B-' or lower versus 28% of newly issued unsecured bonds.

The more aggressive rating profile of the secured bonds has manifested itself in default patterns. The default rate on post-recession secured issues hit a cumulative 8.9% in May (or 6.1% excluding Energy Future Holdings), higher than the 1.4% rate recorded across unsecured bonds sold since 2009.

The default rate on all bonds sold since 2009 remains low at a cumulative 3.4% (or 2.5% excluding Energy Future Holdings).

There was a lone high yield bond default in May -- a missed interest payment from gaming company River Rock Entertainment and June has added just two defaults, Affinion Group Holdings, and Allen Systems Group.

For additional information, please see our report titled, "Fitch U.S. High Yield Default Insight, Secured Bonds in the Mix," which is available on our website www.fitchratings.com.

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 (Secured Bonds in the Mix)

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Contacts

Fitch Ratings
Mariarosa Verde
Managing Director
+1 212 908-0791
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Eric Rosenthal
Senior Director
+1 212 908-0286
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212 908-9123
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Mariarosa Verde
Managing Director
+1 212 908-0791
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Eric Rosenthal
Senior Director
+1 212 908-0286
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212 908-9123
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com