Restructuring

We previously reported your predictions on U.S. default rates as the 2014 refinancing wall approaches, and promised to keep our ears to the ground to report any changes in market temperature.  A Weil blogger always keeps his promises.
The FT recently reported on a survey of the members of the International Association of Credit Portfolio Managers (IACPM), in Corporate Default Concerns Rise, Survey Says.  Nicole Bullock noted that, although survey participants expected default rates in Europe to rise, a predictable sentiment given current events across the pond, there is a split of direction over default rates in the U.S., with 47% of survey participants expecting a rise in default rates, and 41% expecting default rates to remain static.
This makes interesting reading when compared to the surveys that we have conducted this year.  In our debt wall survey, our analysis of the survey results concluded that approximately 50.6% of survey participants expected defaults to remain static thanks to existing credit facility maturities being chipped away at, and additional liquidity coming on line to handle refinancings.  20.8% of participants predicted a rise in default rates as a result in an inability to refinance existing indebtedness, so the IACPM’s numbers appear to be consistent with what we’ve been seeing.
In that survey, we also asked our readers what the trailing 12-month default rate for non-investment grade corporate debt would be as of December 31, 2011, with 11.4% of respondents predicting the number at less than 2%, almost 40% predicting it at 2-3%, and a similar number at 3-5%.  As Nicole Bullock points out, the trailing 12-month global speculative default rate finished at 1.8% in the third quarter, down from 2.3% in second quarter.  It’s touch and go at this stage where it will end up on December 31, in particular given the almost 30% drop in chapter 11 business cases in September 2011 when compared to the same month last year, from 924 cases in September 2010 to 686 cases last month.
While default expectations were assessed by the IACPM as being among the most negative since June 2009, the U.S. default rate is still only 2%, well below its historical average of 4.2% (from 1985 to 2010).  So things can’t be that bad, can they?