Wednesday, September 22, 2010

Junk Defaults Drop

From the WSJ:

Corporate debt-default rates are expected to fall to the same levels that preceded the financial crisis of September 2008, marking a swift turnaround for the fate of the most troubled U.S. companies.

The U.S. default rate should fall below 3% by year's end, according to Moody's Investors Service, a stunning drop from the 14.6% peak of November 2009 and even below the default rate of 3.1% from August 2008.

The default rate measures the percentage of companies with "junk" credit ratings that failed to meet debt obligations during a trailing 12-month period. The rate's decline suggests the corporate bloodletting set off by the collapse of Lehman Brothers Holdings Inc. is at or near its end. That should bode well for the nation's unemployment rolls, which swelled after the collapse of such companies as Circuit City Stores Inc., Linens N' Things Inc., and Nortel Networks Corp. in 2008 and 2009.

"In the near term, we seem to have overcome the last wave of restructurings—faster than anticipated," said Michael Henkin, co-head of restructuring at Jefferies & Co. "Things came back pretty quickly, and the capital markets have solved a lot of the concerns that were out there on corporate defaults."

More signs the economy is on the mend.