Distress Ratio At Its Lowest Point In More Than Two Years, Article Says

After a protracted period of economic and financial stress that began in the second half of 2007, credit conditions appear favorable at the start of 2010, said an article published today by Standard & Poor's.


The speculative-grade corporate spread is now lower than at any point in 2009, closing at 586 basis points (bps) on Jan. 15. Along with this, the distress ratio is now solidly below its long-term average, at 10.4% as of Jan. 15. This is down from 14.6% in December, according to the article, titled "U.S. Distressed Debt Monitor: Distress Ratio Falls To 10%, An Optimistic Start To The New Year."

Standard & Poor's distress ratio is defined as the number of distressed securities divided by the total number of speculative-grade-rated issues. Distressed credits are speculative-grade-rated issues that have option-adjusted spreads of more than 1,000 bps relative to Treasuries.

"The homebuilders/real estate companies and insurance sectors are posting the highest debt-based distress ratios, at 75% and 28%, respectively," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.

"In addition, the high technology sector has a debt-based distress ratio in excess of its traditional, issue-based measure," said Ms. Vazza. "This reveals that a disproportionate amount of speculative-grade debt in this sector is attributable to distressed companies."

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