Default Risk in U.S. Drops to Lowest in 2 Years, Moody's Says

(Bloomberg)--The number of U.S. companies at greatest risk of default dropped to the lowest level in two years as Federal Reserve efforts bolstered the economy, according to Moody’s Investors Service. Companies rated at or below B3 with a negative outlook declined to 195 as of Sept. 1 from a high of 288 in June 2009, Moody’s said in a report. The B3 rating is six steps below investment grade. Clear Channel Communications Inc. and Energy Future Holdings Corp., formerly named TXU Corp., were among the biggest companies on the list. “What’s interesting is the snap back,” David Keisman, senior vice president at Moody’s in New York, said in a telephone interview. Increased liquidity is helping to improve credit quality and lessen default risk, he said.

The Fed is “prepared to provide additional accommodation if needed to support the economic recovery,” it said yesterday, after a policy-making committee decided to keep its portfolio of securities stable at around $2 trillion to prevent money from draining out of the financial system. Data showing a steeper- than-expected decrease in jobless claims this month helped ease concern the world’s largest economy is cooling.

Junk Bond Sales

Speculative-grade debt sales in the U.S. jumped to $184.2 billion this year compared with $100.1 billion in the same period of 2009, according to data compiled by Bloomberg. Sales of $119 billion in the first half were the most since Bloomberg began compiling the data in 1999. The extra yield investors demand to own U.S. high-yield bonds instead of Treasuries declined 85 basis points this quarter to 632 basis points, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. The debt has returned 8.5 percent this year, the benchmark shows.

Moody’s trailing 12-month global speculative-grade default rate ended August at 5 percent compared with 12.3 percent for the same period a year earlier. The New York-based risk assessor added 13 companies to its B3 Negative and Lower Corporate Ratings List in the three months ended Aug. 31, compared with 35 additions in the same period of 2009. Companies are being removed from the list mostly because credit quality is improving, Keisman said, after ratings upgrades struck 19 of 27 names from the tally. The other eight were taken off either because they defaulted or their ratings were withdrawn, according to the report.

American Axle & Manufacturing Holdings Inc., Neiman Marcus Group Inc. and UAL Corp. were all removed from the list after their ratings improved. Lisa Dollinger, chief communications officer at San Antonio-based Clear Channel; and Rima Hyder, director of investor relations at Dallas-based Energy Future Holdings, didn’t immediately return telephone messages or e-mails left at their offices after regular business hours.

To contact the reporters on this story: Kristen Haunss in New York at khaunss@bloomberg.net Katrina Nicholas in Singapore at Knicholas2@bloomberg.net