Fitch Expects U.S. High Yield Bond Default Rate to Decline in 2017

NEW YORK--()--Link to Fitch Ratings' Report: Fitch U.S. High Yield Default Insight (Fitch Expects 2017 Default Rate Around 3%, Down from 5% in 2016)

https://www.fitchratings.com/site/re/888881

Fitch Ratings initiated its 2017 default forecast at roughly 3% based largely on expectations that the economy will continue on its slow growth trajectory (no recession) and that the bulk of the most severely distressed energy companies already defaulted during the course of 2016.

Last month, Fitch lowered its U.S. high yield default rate expectation for end-2016 to 5% from 6% on improving high yield market conditions.

Excluding energy and metals/mining, Fitch expects the October trailing-12-month (TTM) default rate to be a relatively benign 1.5%, which is below the 2.2% non-recessionary average and well below the 11.1% recessionary average.

Energy and metals/mining defaults continue to impact the high yield bond market, as October default volume ($3.9 billion) is the highest since July, according to Fitch Ratings.

"Commodity prices have recovered from their lows but not enough to stem all of the near-term defaults," said Eric Rosenthal, Senior Director of Leveraged Finance. "The energy and metals/mining sectors account for 93% of October's default volume."

The TTM metals/mining default rate will climb to roughly 16% from 13.9% at end-September following the first sector default since April. American Gilsonite did not make its interest payment prior to the October 1 grace period expiration date while Samarco Mineracao elected not to make a payment on September 26 and is now in a 30-day grace period.

In the energy sector, Key Energy Services elected not to pay its interest payment by the October 1 grace period expiration date. In addition, Vanguard Natural Resources missed an interest payment at the start of October. The energy sector's TTM default rate is expected to end October at a comparable level to September's 15.5% mark.

Energy industry behemoth Petroleos de Venezuela SA (PDVSA) asked shareholders to approve a voluntary exchange by Monday, October 17th. PDVSA is the largest name on Fitch's Bonds of Concern list, with nearly $12.5 billion in outstanding debt. Fitch does not view this transaction as a default/DDE.

PDVSA remains part of a dwindling 'CCC' universe, due to the high volume of energy defaults over the past 18 months and low issuance. 'CCC' new issuance accounts for just $171 billion, or 11% of all issuance through the third quarter. The amount of outstanding 'CCC' debt fell to $242 billion in September, from $288 billion in February.

For more information please see Fitch's report: "U.S. High Yield Default Insight: Fitch Expects 2017 Default Rate Around 3%, down from 5% in 2016" at www.fitchratings.com.

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

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Contacts

Fitch Ratings
Eric Rosenthal
Senior Director
Leveraged Finance
+1-212-908-0286
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Michael Paladino, CFA
Managing Director
Leveraged Finance
+1-212-908-9113
or
Sharon Bonelli
Senior Director
Leveraged Finance
+1-212-908-0581
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Eric Rosenthal
Senior Director
Leveraged Finance
+1-212-908-0286
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Michael Paladino, CFA
Managing Director
Leveraged Finance
+1-212-908-9113
or
Sharon Bonelli
Senior Director
Leveraged Finance
+1-212-908-0581
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com