Bloomberg News

U.S. Default Candidates Hurt Little by Europe Woes, Moody’s Says

December 20, 2011

Dec. 21 (Bloomberg) -- The number of U.S. companies at greatest risk of default held steady from last quarter signaling that Europe’s debt crisis and slow growth in the world’s largest economy had minimal effect on high-yield borrowers, according to Moody’s Investors Service.

The number of non-financial companies graded B3 or lower with a negative outlook grew by 2 to 172 during the last three months, according to a Dec. 19 report from the ratings firm. There were 182 borrowers with those grades last year.

“There is relative stability in the rating universe,” David Keisman, senior vice president at New York-based Moody’s and an author of the report, said yesterday in a telephone interview. “There are issues in Europe and people are discussing whether next year there will be a double dip, and the default rate is just not showing that.”

Refinancing activity allowed many of the lowest-rated creditors to push off debt maturities and avoid default this year, Keisman wrote in the report.

The ratings company projects the U.S. default rate will rise to 2.4 percent next year from 2 percent. A year ago the measure was at 3.5 percent, according to the report.

Twenty-four companies were removed from the list this quarter, according to the report. Ten were taken off because they defaulted, five of which were bankruptcies including AMR Corp., the parent of American Airlines. The remaining five defaults were the result of distressed exchanges or restructurings, according to the report.

Reader’s Digest Association Inc., DirectBuy Holdings Inc. and Associated Materials LLC are among the 26 companies that were added to the list this quarter.

Companies are added to the list if they have a probability of default rating of B3 with a negative outlook or a probability of default grade of B3 with a rating under review for downgrade, or a probability of default rating of Caa1 or lower. A B3 rating is six steps below investment grade.

--Editors: Faris Khan, Chapin Wright

To contact the reporter on this story: Kristen Haunss in New York at khaunss@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net


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