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Reuters: US distressed debt level rises sharply in March-S&P

Mon Mar 24, 2008 5:28pm EDT

NEW YORK, March 24 (Reuters) - The number of U.S. junk bonds trading at distressed levels surged by 5 percentage points in March, a sign that defaults are set to escalate over the next several months, Standard & Poor's said on Monday.

Bonds are considered distressed when their yields, which move inversely to prices, are at least 10 percentage points more than those on U.S. Treasuries.

About 22.2 percent of U.S. junk bond issues were distressed in March, up from 16.9 percent in February and the highest level since April 2003, S&P said.

S&P blamed tight credit conditions, which began last summer, and a slowing economy for the increasing stress on junk-rated issuers. Defaults are already rising and will pick up speed in the second half of the year, the rating agency said.

Through March 10, 11 U.S. defaults have been recorded, compared with only three in the same period last year, S&P said.

Rising spreads on bonds of GMAC LLC and Ford Motor Co.'s (F.N: Quote, Profile, Research) finance arm also contributed to the distressed levels in March, S&P said. The two companies now have about 32 bond issues trading at distressed levels, the rating agency said.

The distressed ratio on leveraged loans, those issued by junk-rated companies, nearly doubled in February, the latest month reported, to 13.7 percent from 6.9 percent in January, S&P said. February's rate was the highest since S&P began tracking it in January 1997.

(Reporting by Dena Aubin; Editing by Diane Craft)

http://www.reuters.com/article/bondsNews/idUSN2434922920080324