Reuters: Bankruptcy News: US corporate defaults rise but outlook favorable: Moody's

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US corporate defaults rise but outlook favorable: Moody's Apr 25th 2012, 15:31 By Ciara Linnane Wed Apr 25, 2012 11:31am EDT NEW YORK, April 25 (IFR) - US corporate defaults have been unusually high for two consecutive quarters but the uptick is unlikely to signal a worsening trend, Moody's Investors Service said on Wednesday. There were 15 defaults by non-financial companies in the first quarter, representing about $7 billion of debt, and 16 defaults in the fourth quarter equal to about $10 billion of debt, the agency said in a report. That compares with a total of 29 defaults in all of 2011. "Despite the increase, our default rate forecast remains benign," said the report. Moody's is expecting the speculative-grade default rate to rise to 3.3 percent by end of 2012 from 2.8 percent at the end of the first quarter. That remains well below the peak above 14 percent seen in late 2009 and the average 4.6 percent recorded from 1992 to the present. "Speculative-grade companies overall have good liquidity, as indicated by a low reading of 4.2 percent on Moody's Liquidity-Stress Index," said the report. "They are maintaining access to capital markets, and spreads over Treasuries have narrowed since last fall." In a sign of investor confidence, companies rated Caa2 were able to access the market in the first quarter, with Realogy Corp, Energy Future Holdings Corp, Rite Aid Corp and Claire's Stores Inc all pushing through deals that extended their maturities. High-yield spreads narrowed to less than 600 basis points, buoyed by improving economic data and optimism about the Greek bailout. The biggest default in the quarter was Eastman Kodak , which filed for Chapter 11 bankruptcy protection with about $1.5 billion of debt. That was followed by aviation company Hawker Beechcraft , which missed an interest payment on almost $1.5 billion of debt and the distressed exchange by Mohegan Tribal Gaming Authority with more than $750 million of debt. Distressed exchanges are expected to continue to be a popular restructuring strategy, and to account for a significant portion of defaults. "The preponderance of higher-ranking loans in the capital structures of leveraged companies will persuade junior bondholders to agree to debt exchanges rather than risk low recovery in a bankruptcy," said Moody's. Link this Share this Digg this Email Reprints

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