Junk Bond Stress at Record Low as Defaults Slow: Credit Markets

Junk bond investment 30 percent higher than 2011.

 Aug. 7 (Bloomberg) -- U.S. speculative-grade companies are in the best position ever to meet their debt obligations as investors pour a record $43 billion into high-yield mutual funds and borrowers boost the cash held on balance sheets.

Moody’s Investors Service said Aug. 1 its Speculative-Grade Liquidity-Stress index, which falls as corporations’ ability to manage cash needs improves, dropped to 3.1 percent in July, beating the previous record low of 3.3 percent in May. The New York-based ratings firm sees the U.S. default rate peaking at 4 percent in October before falling to 3 percent by June 2013, below the historical average of 4.6 percent since 1992.

Elsewhere in credit markets, the cost of protecting corporate debt from default in the U.S. fell for a third day, with the Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses or to speculate on creditworthiness, declining 0.5 basis point to a mid-price of 102.2 basis points as of 11:09 a.m. in New York, according to prices compiled by Bloomberg.

 Swap Spreads

While two companies, Patriot Coal Corp. and Cinram International Inc. had their ratings withdrawn after filing for bankruptcy, Casella Waste Systems Inc. and GeoEye Inc. had their liquidity grades raised to SGL-3.

Free cash-flow at Rutland, Vermont-based Casella rose to $3.6 million in the fiscal quarter ended April 30, compared with negative cash flow of $23.4 million a year earlier. Free cash flow at GeoEye, the company being purchased by DigitalGlobe Inc., narrowed to negative $16.4 million in the first quarter of 2012 from negative $53.3 million a year earlier, Bloomberg data show.

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