Fitch: U.S. HY Default Rate Marks 5th Consecutive Year Below 35-Year Average

NEW YORK--()--The U.S./Canada-only issuer default rate finished at 2.5% while the Yankee bond rate was 1.2%, according to Fitch Ratings. This is a reversal from 2013 when the latter was 5.6% and the former 1%. The U.S. high yield default rate ended 2014 at 2.4%, up from 1.5% in 2013, but marking the fifth consecutive year it was below the 35-year, 4.1% historical average.

The energy default rate finished 2014 at 0.7% and the sector's historical default rate is a benign 1.9%. Exploration and production, which accounts for 54% of the energy universe, ended 2014 with just a 0.5% rate. Energy comprises 16% of the $1.36 trillion high yield universe and has risen 154% since the end of 2009. The 'CCC' and lower rated pool for energy stands at $47.2 billion, nearly double the amount seen at the end of 2013.

Fitch projects that the default rate will finish in the 1.5%-2% range in 2015. The default projection includes the Jan. 15 bankruptcy filing for Caesars Entertainment Operating Co., which adds 90 basis points (bps) to the rate and puts the trailing 12-month (TTM) rate at 3.3%. The TTM default rate will drop in April when EFH comes off the books.

Issuers have made significant efforts to lock in better rates and push out maturities. In 2015, there is only $26 billion slated to come due, with less than $2 billion from the 'CCC' and lower rating class. Maturities remain below $100 billion through 2017 with 2020 and 2021 serving as peak years ($215.7 billion and $223.8 billion coming due, respectively).

The par weighted recovery rate (based on 30-day postdefaut prices) ended 2014 at 64.2%, with a median of 60.2%. Senior secured bonds recovered 85% of par, above historical averages. Distressed debt exchanges recovered 79% of par compared to 63% for missed payments and bankruptcies.

The U.S. leveraged loan default rate ended the year at 3.2%, up from 1.6% in 2013 and the highest level recorded since 2009. Nevertheless, the rate falls to 1% removing EFH. There were 19 issuer loan defaults tallying $27.2 billion in 2014 compared to 13 and $10.5 billion in the prior year.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Fitch U.S. High Yield Default Insight (2014 Summary and Key Statistics)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=854568

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Eric Rosenthal, +1 212-908-0286
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
U.S. Leveraged Finance
Michael Paladino, CFA, +1 212-908-9113
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Eric Rosenthal, +1 212-908-0286
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
U.S. Leveraged Finance
Michael Paladino, CFA, +1 212-908-9113
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com