Today marks a deadline for several U.S. high-yield companies to make interest payments, otherwise the default rate would move above the current 1.8% mark, according to Fitch Ratings.
The companies include two large retailers. Claire’s Stores and Nine West Holdings are on Fitch’s Bonds of Concern list, which means a high probability of default within the next year. Claire’s CEO indicated during a recent earnings call that the payment would be made. Same-store sales trends for the company have been positive for the first half of the year, but declining U.S. mall traffic and rough macroeconomic conditions in Europe weigh on the top line. Liquidity remains tight but adequate to fund this year’s holiday season, Fitch said.
The interest payment for exploration and production company EXCO Resources is more in doubt. The termination of its asset sale resulted in its bid price declining about 35 points in recent weeks, the ratings agency said.
“The September sector trailing 12-month [TTM] high-yield rate is at 2.1%, with less than $1 billion of defaults,” said Eric Rosenthal, Fitch’s senior director of leveraged finance.
In August, for the second consecutive month, the TTM U.S. high-yield default rate remained below 2%. Only $1 billion in high-yield bond defaults were registered during that period. Ongoing stress in the retail sector as well as a pending filing from iHeartCommunications may result in the rate rising to just below 3% by the end of the year. After oil-drilling contractor Seadrill filed for bankruptcy on Sept. 12, the Yankee index’s default rate rose to 3.3%. Fitch expects the Yankee default rate to end the year near 4%.
– Adam Fusco, associate editor