Citing cheap financing and brighter economic prospects, Fitch Ratings has cut its forecast for U.S. high-yield defaults.
The rating agency said its forecast for the U.S. high-yield default rate in 2021 has been dropped to 3.5% from 5%-6%, and its default outlook for 2022 declined to 4%-5% from 5%-7%.
“While the economic effects of the pandemic continue to weigh on issuer operating profiles, recent refinancing activity has pushed out maturities and largely accounts for lower 2021 and 2022 default rate forecasts,” said Eric Rosenthal, senior director of leveraged finance at Fitch, in a release.
“Additional government stimulus and rollout of the coronavirus vaccine should further bolster market sentiment and help maintain healthy access to the capital markets,” Rosenthal added.
For 2020, the default rate finished at 5.2%, Fitch said.
Last year’s defaults amounted to US$68.5 billion of volume. Fitch said it now expects roughly US$50-billion worth in 2021.
The energy and telecom sectors accounted for 64% of the defaults in 2020, Fitch said.
For 2021, Fitch’s revised default forecast for the energy sector is now 6% compared with the previous expectation of 11%, amid an “improved oil price environment.”
For the retail sector, which now has most of its failures in the rearview mirror, the default rate is projected at 2% in 2021, down from the 13.7% in 2020.
The rating agency said that, with the revised forecasts, the cumulative default rate for the 2020 to 2022 period would be 13%-14%, beating the performance of high-yield issuers in the wake of the global financial crisis.
In the 2008-2010 period, the three-year cumulative default rate was 22%, it reported.