fitch us hy default - q3 2010

8/8/2019 Fitch US HY Default - Q3 2010

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2U.S. High Yield Default Update: Default Loss Rate Shrinks to 23 Basis Points Through Third Quarter October 20, 2010

Highlights Through September, 19 issuers have defaulted on $5.0 billion in bonds, versus 131

issuers and $90.3 billion in bond defaults in the first nine months of 2009. Threesectors have produced roughly half of this years small batch of issuer defaultsbroadcasting and media, banking and finance, and building and materials eachwith three defaults. However, the largest default thus far is retailer Blockbuster Inc.

Five of the years 19 issuer defaults have been in the form of debt exchanges. Theexchanges have continued to produce substantially higher recovery rates than themore traditional defaults (through September, 88.9% of par for the debt exchangesversus 35.2% for defaults associated with missed payments or bankruptcy filings).

The presence of debt exchanges combined with a relatively small pool of defaulthas resulted in some anomalies in the data relating recovery outcomes to seniorityThrough September, the weighted average recovery rate on unsecured bonds i80.4% of par, above the secured bond recovery rate of 51.3%; however, this unusua

pattern is due to the high concentration of debt exchanges in the small pool ofunsecured bond defaults.

The boom in high yield issuance continued unabated in the third quarter, pushingnew bond sales to an astounding $200 billion in just the first nine months of 2010Refinancing existing loans and bonds continued to dominate use of proceeds.

While the cost of high yield bonds issued in 2010 has fallen relative to 2009, themore important benefit from the surge in issuance has been the opportunity to pushout debt maturities. Fitchs data shows that 87% of new bonds sold in 2010 maturein 2016 or later and 65% mature in 2018 or later.

Beyond refinancing, improving fundamentals have helped the survivors of the20082009 economic and financial crisis avoid default in 2010. Fitch U.S. ratingchanges at the speculative grade level have been net positive in 2010, with

Fitch U.S. High Yield Default Index Distribution of 2010 Defaults bSource

Par Value($ Mil.) (%) Issuers (%) Issues (

Missed Payment 2,699.5 53.5 9 47.4 11 52Distressed Exchange 1,473.9 29.2 5 26.3 5 23Ch. 11 Filing 868.4 17.2 5 26.3 5 23Total 5,041.8 100.0 19 100.0 21 100

Source: Fitch U.S. High Yield Default Index.

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Source: Fitch.

Fitch U.S. High Yield Default Index Quarterly Issuer and Volume Trends


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U.S. High Yield Default Update: Default Loss Rate Shrinks to 23 Basis Points Through Third Quarter October 20, 20103

upgrades topping downgrades by a margin of 1.9 to 1.

A combination of defaults booked in 2009 and upgrades in 2010 has had the mosstriking impact on the pool of CCC rated bonds, which has contracted from a peak

of $280 billion in early 2009 to $187 billion at the end of September.

On a trailing 12-month basis, the U.S. high yield default rate fell to 3.5% at the endof September, down from 4.5% at the end of June and 13.7% at the end of 2009. AsFitch discussed in its June report, The Extreme Credit Cycle, Making Sense of a 1%U.S. High Yield Default Rate, the high yield default rate has posted its biggestpost-recession decline on record in 2010.

High Yield Bond Recovery Rates20002010(%)

Weighted AverageRecovery Rate

Median RecoveryRate

2000 24.9 20.02001 29.8 15.82002 22.5 21.92003 44.4 36.62004 62.1 51.62005 57.6 61.32006 64.3 60.02007 66.4 69.12008 45.8 19.62009 34.1 24.9Sept. 2010 54.0 50.0

Source: Fitch Ratings, Advantage Data.

2010 September Year-to-Date WeighteAverage Recovery Rates

Seniority Recovery Rate (%) No. of Issu

Senior Secured 51.3 Senior Unsecured 80.4 Senior Subordinate 18.7 Total 54.0

Source: Fitch U.S. High Yield Default Index.


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4U.S. High Yield Default Update: Default Loss Rate Shrinks to 23 Basis Points Through Third Quarter October 20, 2010

Fitch U.S. High Yield Default Index: 2010 Defaulted Issuers

Month Issuer Par Value ($ Mil.) Default Date Default Source Fitch Industry

January Spheris Inc. 125.0 Jan. 15, 2010 Missed Payment Computers & ElectronicsJanuary Atrium Companies Inc. 220.4 Jan. 20, 2010 Ch.11 Filing Building & MaterialsJanuary Uno Restaurant 142.0 Jan. 20, 2010 Ch.11 Filing Gaming, Lodging & RestaurantJanuary Builders Firstsource Inc. 269.8 Jan. 22, 2010 Distressed Exchange Building & MaterialsJanuary Neenah Foundry Co. 225.0 Jan. 31, 2010 Missed Payment Metals & MiningSubtotal 982.2

February FGIC Corp. 261.9 Feb. 15, 2010 Missed Payment Banking & FinanceSubtotal 261.9

March Catalyst Paper Corp. 318.7 March 5, 2010 Distressed Exchange Paper & ContainersMarch Reddy Ice Holdings Inc. 136.9 March 15, 2010 Distressed Exchange MiscellaneousSubtotal 455.6

First-Quarter 2010 Default Volume 1,699.7

April Us Concrete Inc. 271.8 April 29, 2010 Ch. 11 Filing Building & MaterialsSubtotal 271.8

May Neff Corp. 34.3 May 16, 2010 Ch. 11 Filing Banking & FinanceSubtotal 34.3

June American Capital Ltd 539.0 June 28, 2010 Distressed Exchange Banking & FinanceSubtotal 539.0

Second-Quarter 2010 Default Volume 845.0

July Truvo Subsidiary Corp. 200.0 July 1, 2010 Ch. 11 Filing Broadcasting & MediaJuly Network Communications 175.0 July 1, 2010 Missed Payment Broadcasting & MediaJuly Titan Petrochemicals 209.5 July 20, 2010 Distressed Exchange EnergyJuly Sanluis Corp Sab De Cv 86.1 July 30, 2010 Missed Payment AutomotiveSubtotal 670.6

August Blockbuster Inc. 930.0 Aug. 1, 2010 Missed Payment RetailAugust Tristan Oil Ltd 420.0 Aug. 1, 2010 Missed Payment Energy

Subtotal 1,350.0

September Penhall International 175.0 Sept. 1, 2010 Missed Payment Industrial/ManufacturingSeptember Radio One Inc. 301.5 Sept. 15, 2010 Missed Payment Broadcasting & MediaSubtotal 476.5

Third-Quarter 2010 Default Volume 2,497.1

Total Jan.Sept. 2010 5,041.8Source: Fitch Ratings.


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U.S. High Yield Default Update: Default Loss Rate Shrinks to 23 Basis Points Through Third Quarter October 20, 20105

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Param eters of the Fitch Ratings U.S. High Yield Default Index

Based on non-investment grade, U.S. dollar-denominated, nonconvertible bonds.

Includes rated (by Fitch or one of the other two major rating agencies) and nonrated public bondsand private placements with 144A registration rights.

Issuers are considered to have defaulted after passing a 30-day grace period, unless there is abankruptcy filing, in which case defaults are immediate.

Defaults include distressed exchanges, in which bond investors are offered securities with structuralor economic terms that are diminished in comparison with those of existing bonds.

Default rates are calculated by dividing the volume of defaulted bonds by the average principalvolume outstanding for the period under observation.

fitch us hy default - q3 2010

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