S&P Lowers U.S. Corporate Speculative-Grade Default Rate Significantly

Standard & Poor's downwardly revised its forecasted default rate for U.S. corporate speculative-grade debt to 6.9 percent. The new projection is a significant drop from the previous 10.8 percent 12-month rate as of September 2009.

The default rate has been revised due to the improved tone in the capital markets, which has resulted in benefits for even the lower rate borrowers.

The new report comes with a pessimistic rate of 9.9 percent and an optimistic rate of 5.5 percent, with the 12-month-forward baseline projection now at 6.9 percent.

S&P does not believe that this revision means that the corporate default risks are permanently going to be lowered. However the improvements in policy-induced liquidity could lower the risks. Also, unless surviving leveraged lenders significantly reduce their debt burdens they could continue to face renewed default risks.

With the projected drop in the default rate, S&P does not believe this will cause a case of genuine relief as much as a higher willingness to take risks.

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