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S&P U.S. distress ratio approaches four-year high

The S&P U.S. distress ratio climbed to 15.7% in September, its highest level since December 2011, according to a report by S&P Global Fixed Income Research (S&P GFIR).

The Metals, Mining, and Steel sector had the largest increase in the proportion of distressed issues, according to the report, gaining about 1.2% to a distress ratio at 53.4%. This also represents the highest sector distress ratio and the second-most issues at 47.

The Oil and Gas sector accounted for 95 of the 270 issues in the distress ratio. The sector had 40% of total distressed debt, and the second-highest sector distress ratio, at 41.9%.

Distressed credits are speculative-grade issues with option-adjusted composite spreads of more than 1,000 basis points relative to U.S. Treasuries. The ratio indicates the level of risk the market has priced into the bonds.

A rising distress ratio reflects an increased need for capital and is typically a precursor to more defaults when accompanied by a severe and sustained market disruption. The default rate – a lagging indicator of distress – increased to 2.21% as of July 31, 2015, from 2.01% on June 30.

Today’s report, titled “Distressed Debt Monitor–Distress Ratio Nears A Four-Year High,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.

For more information or data inquiries, please call S&P Client Services at (877) 772-5436. – Staff reports