Fitch: Secured Bonds Dominate High Yield Default Mix

Business Wire

NEW YORK--(BUSINESS WIRE)--

Secured bonds were the most prevalent in the batch of first-half 2013 defaults, according to Fitch Ratings. A majority (14) of the 19 defaulted issuers carried secured bonds with six of those issuers selling the bonds as recently as 2011 and 2012.

Secured bonds produced a weighted average recovery rate of 71.7% versus 59.6% for unsecured issues. However, median recovery rates for secured and unsecured bonds were not vastly different at 65.6% and 61.2%, respectively. The par weighted average recovery rate on high yield defaults through June was 67.3% of par and the median recovery rate was 59.8%.

Several sectors had multiple defaults in the first half, including broadcasting and media; energy; gaming, lodging, and restaurants; and healthcare and pharmaceuticals. However, the highest industry default rates were associated with single-issuer defaults with unique challenges.

The trailing 12 month U.S. high yield default rate rose modestly to 1.7% at the end of June from 1.6% at the end of March. It is projected to end July at 1.9%. Eleven issuers defaulted on $5.0 billion in bonds in the second quarter, compared with eight issuers and $3.4 billion in the first three months of the year. On a year-over-year basis, the $8.4 billion in defaults through June is shy of the $9.9 billion recorded in first-half 2012. However, July has added $3.1 billion to the 2013 tally versus $0.3 billion last year.

The share of 'CCC' bonds trading above par continues to fluctuate with market sentiment and was back up to 63% in late July after falling to 49% in June. However, the group trading at distressed levels - below 80% of par - has shown far less movement. This suggests that for these entities, there was not enough substance in the prospect of Federal Reserve tapering - either on the upside or downside - to greatly alter their immediate outlook. The most recent large default originating from this group was textbook publisher Cengage, which filed for bankruptcy on July 2. The distressed 'CCC' pool is currently $32.5 billion in size.

For full details please see 'Fitch U.S. High Yield Default Insight - Strong Secured Bond Presence; Tapering Neutral for Distressed Pool,' which is available at 'www.fitchratings.com' or by clicking on the link below.

Additional information is available at '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 - Strong Secured Bond Presence; Tapering Neutral for Distressed Pool

-- Fitch U.S. High Yield Default Insight - Steady Defaults, Evolving Base

-- Fitch U.S. High Yield Default Insight - The Impact of Industry Selection on Default Risk

-- Fitch U.S. High Yield Default Insight - 2013 Outlook

Applicable Criteria and Related Research:

Fitch U.S. High Yield Default Insight -- Steady Defaults, Evolving Base

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710775

Fitch U.S. High Yield Default Insight -- The Impact of Industry Selection on Default Risk

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701149

Fitch U.S. High Yield Default Insight -- 2013 Outlook

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696629

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