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S&P raises US speculative-grade default rate forecast to 12.5%

S&P Global Ratings further raised its baseline default rate forecast for U.S. speculative-grade corporates amid a spike in negative ratings actions and lowered expectations for the U.S. economy due to the coronavirus pandemic.

The rating agency now expects the U.S. trailing-12-month speculative-grade corporate default rate to hit 12.5% by March 2021, compared with a previous default rate forecast of 10%. The default rate rose to 4.1% in April 2020 from 3.5% in the previous month.

The forecast revision follows the historically high number of rating downgrades, outlook revisions to negative and CreditWatch placements in April, as a result of social distancing measures and the recent oil price collapse, according to the rating agency.

"We expect this general deteriorating credit trend to continue as many firms, particularly speculative-grade companies in some of the weakest and most affected sectors, find their solvency stretched amid falling revenue," S&P Global Ratings said.

S&P Global Ratings warned of elevated defaults in several sectors this year, with credit stress spreading beyond energy and natural resources and consumer services, which have accounted for the bulk of annual U.S. default totals since 2015.

Globally, the rating agency has recorded 88 corporate defaults as of May 27, with the U.S. leading the tally with 59 defaults, according to a separate S&P Global Ratings report.

Media and entertainment leads all sectors with 14 defaults globally, followed by oil and gas and consumer products, with 13 defaults each.

Missed interest and principal payments lead the causes of global defaults with 37, followed by distressed exchanges and bankruptcies with 24 and 22 defaults, respectively.

S&P Global Ratings said that as of May 27, the speculative-grade category accounts for 85% of nonfinancial corporate entities globally that had been hit with negative ratings actions due to the pandemic and oil price collapse.