Thursday, February 21, 2008

More Junk, Less Junk

by Tanta on 2/21/2008 07:49:00 AM

Bloomberg reports:

Feb. 20 (Bloomberg) -- A record 41 companies with high- yield, high-risk credit ratings are in danger of breaching terms of their loan agreements within 12 months as the slowing economy cuts into corporate profits, Moody's Investors Service said. . . .

The percentage of speculative-grade bonds that are distressed, meaning their yields are at least 1,000 basis points higher than benchmark rates, rose to 20.9 percent as of Feb. 15, about the same ratio as in the months preceding the recession that began seven years ago, according to Merrill Lynch & Co.

Debt is 20 times more likely to default within a year once it's crossed the distressed threshold, according to data by Martin Fridson, chief executive officer of high-yield research firm FridsonVision LLC in New York.

Seven borrowers rated by Moody's, including Montreal-based printer Quebecor World Inc., defaulted in January, up from zero in December. The default rate for junk-rated issuers may soar to more than 8 percent this year, the highest since Enron Corp.'s collapse rippled through markets in 2002, according to an analysis of data by Zurich-based UBS AG shows. The rate was 0.9 percent at the end of 2007, the lowest in 26 years, Moody's said.
Then again, there's always a silver lining:
Sharper Image Corp., the seller of $300 electric shavers and $1,999 massage chairs, and catalog retailer Lillian Vernon Corp. filed for bankruptcy protection today after struggling with declining sales. Neither company is on the Moody's list.
Could we be looking at a world without monogrammed silver dog bowls? That'd be the best news I've heard in a long time. . . .