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Global Credit Research - 17 Mar 2011
New York, March 17, 2011 -- Many companies that executed distressed exchanges in 2009 and 2010 have
improved their credit profiles and received rating upgrades, yet
about a quarter of them remain very low-rated and at elevated risk
of another default, Moody's Investors Service said in a new
More than 100 companies had distressed exchanges during the two-year
period, Moody's said. Globally, distressed exchanges
accounted for 42% of total initial defaults in 2010, compared
with an average of only 11% from 1970 to 2007.
"Many companies that performed distressed exchanges were able to
address liquidity concerns, reduce debt and benefit from the economic
recovery," said Lenny Ajzenman, senior vice president
at Moody's and author of the report. "For about 25%
of companies still rated Caa2 or lower, though, debt levels
are generally unsustainable and they will likely need to restructure their
balance sheets further to avoid another default."
The number of distressed-exchange defaults by Moody's-rated
non-financial companies fell to 21 in 2010 from nearly 100 in 2009,
consistent with a drop in the global speculative-grade default
rate to 3.1% at year-end 2010 from 13.1%
a year earlier, according to the report. Although the number
of distressed exchanges fell, they continued to represent a significant
percentage of all defaults.
"We believe the number of distressed exchanges will to continue
to decline in 2011 from 2010 levels given our expectation for a declining
default rate, tightening high-yield spreads and modest economic
growth," said Ajzenman. "However, the maturity
wall looming in 2013-2015 could trigger a new wave of distressed
exchanges and potentially lead to restructuring through bankruptcy for
some companies that had used distressed exchanges to avoid it."
The overall improvement in credit quality for companies that completed
distressed exchanges in 2009 and 2010 is reflected in an upward migration
of their credit ratings. According to the report, 42%
of the companies had a Corporate Family Rating of B3 or higher as of February
28, 2011, compared with only 17% as of the closing
dates of their distressed exchanges.
At the other end of the spectrum, seven of the non-financial
companies that executed distressed exchanges in 2009 and 2010 subsequently
filed for bankruptcy or defaulted by missing a payment, as of February
28, 2011, Moody's said.
The full report, "Distressed Exchanges: A Lifeline for
Many, Not Enough for Some," is available at www.moodys.com.
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Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's: Distressed exchanges have helped many companies improve credit profiles, yet some remain at higher risk of default
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