Friday, December 25, 2009

S & P's 'weakest links' list falls sharply

List of companies most at risk because of debts, showed the greatest decline in five years, this indicates that the current cycle of bankruptcies may unfold.

Rating agency Standard & Poor's by 15 December had its list of records of 226 so-called "weak links" with $ 220.5 billion of outstanding debt.

S & P defines the weakest link, as borrowers with junk bonds, the credit rating of B-or lower, with the risk of further downward.

The number of these companies reached 300 in April to the time when credit markets have been volatile, but when the prospects for the economy and markets have improved, that number decreased.

Last month the number of "weak links" fell to 25, which was the largest decline for the month of January 2004, when the last cycle ended in distressed debt.

As expected, the number of defaults will not be significantly less in the coming months, but will drop their speed during the next year.

S & P said in December bankruptcy 260 companies per year, which was the highest result since the start keeping statistics in 1981. 12-month rate of bankruptcies continued to rise since the beginning of the crisis, reaching a rate of 9,77% by the end of November.

Diane Bass, an analyst at S & P, said: "Many companies have gone bankrupt. The positive news is that we are not adding many new companies in this list.

"For the first time we saw a key indicator, suggesting that the cycle of bankruptcies unfolds. We are at a turning point, but there are still many companies in a precarious position, so the bankruptcy will still happen, but even if the level of bankruptcies will not grow, we do not expect sharp reductions. "

S & P lowered the forecast rate of bankruptcies in 2010 due to improvements in capital markets, but more positive expectations about the rate of bankruptcies caused increased restraint of creditors "in the monetary environment, which has supported the political origins of liquidity."

S & P analysts said in a statement: "Without the revival and growth in the principal items of income, many survivors are attracted by issuers that are generated in the period between 2003-2007 may be faced with new risks bankruptcy if they did not significantly will cut its debt levels."

These weak links are very important, as companies in this group were 6 times more prone to bankruptcy this year than other borrowers negatively evaluated over the last decade.

How the media, the most vulnerable sectors are banks, building and timber production. U.S. issuers make up the largest proportion of "weak links".



The Financial Times
December 22

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