S&P: Why we think corporate default rates will rise in 2012

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A deteriorating economic environment, tighter bank lending, and the end of temporary relief for borrowers in distress may all contribute to an increasing default rate in 2012, says Paul Watters, primary credit analyst at Standard & Poor's in London.

Uncertainties surrounding European sovereign debt, scarce and expensive debt finance, and the prospect of more than €69bn of speculative-grade debt maturing over the next two years could drive the European corporate default rate above 6% over the coming quarters. Our base-case European speculative-grade default forecast of 6.1% for the full year would equate to 41 companies in our rated universe defaulting by the year end, up from 4.8% at the end of 2011(see Figure 1 below).   In a downside scenario, the default rate may climb to 8.4% or even higher if the economic and financing en...