Since the beginning of the year, total defaults on global corporate debt hit $50 billion. The number of firms that fail to meet their debt obligations is increasing.
According to Standard & Poor’s, there were five more defaults last week. Overall, 46 companies have defaulted since January 2016.
Half of the defaults occurred in the oil and gas industry and in the mining sector. Thus, Peabody Energy, Energy XXI and Midstates Petroleum failed to make interest payments on bonds.
The industries were under pressure of low commodity prices on the back of slowing global growth and a decrease in demand for base metals and crude.
S&P forecasts that 4% of subinvestment-grade US companies will default by the end of the year. As a result, the number of defaults will be twice as more than in 2014.
Meanwhile, the rebound in stock and fixed-income markets has reduced the pressure on companies that have BB+ or lower ratings. At the same time, spreads have decreased, thus cutting borrowing costs for companies seeking to sell new debt.
According to Bank of America Merrill Lynch, yields on junk bonds fell below 8% from 10% in February. On the average, bonds in the Merrill index now trade at 91.5% of the nominal value from 83.6% in February. Thus, bond prices rise as yields fall.
Companies with low ratings are in no hurry to sell their debt. Issuance of speculative-grade bonds is half as much this year than a year ago, falling to $56 billion.
S&P revealed the list of companies at greatest risk of default. At the end of March it numbered 242 companies, the highest level since 2009.
