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2020 U.S. High Yield Default Rate Forecasted at 2%

June 17, 2019, 09:15 AM
Filed Under: Industry News
Related: Fitch Ratings

A 2% high yield default rate is projected for YE 2020 on a record low 12% 'CCC' share of issues and only 5% of outstandings due before 2021, according to a new Fitch Ratings report.

The forecast assumes continued economic growth but caveats that recession risks are heightened.

"Fitch expects a 4% energy default rate for the end of 2020, with many of the default candidates having legacy issues from the 2014-2016 oil price collapse," said Eric Rosenthal, Senior Director of Leveraged Finance. "Several Top Bonds of Concern and Tier 2 Bonds of Concern issuers are expected to default over the next 18 months, with the energy sector playing a prominent role."

The June TTM default rate stands at 2%, unchanged from May 31, with Bellatrix Exploration Ltd.'s restructuring the lone default so far. Several energy issuers on the Top Bonds of Concern have interest payments due on June 15, including EP Energy LLC, Sanchez Energy Corp. and Alta Mesa Inc. The payments due for both EP Energy and Sanchez Energy are on issues bid below 10 cents.

Fitch's Top Bonds of Concern total grew to $17.3 billion from $16.0 billion last month as new additions exceeded the names deleted due to defaults; energy accounts for 70% of the outstandings. Seventy-four percent of the Top Bonds of Concern list matures by the end of 2024 when compared to 53% for the market.

Issuance surpassed last year's pace, up 10% YTD versus 2018, after tallying nearly $23 billion in May, the largest monthly total since November 2017. Energy continues to experience a notable decline, falling 48% YoY.

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