Defaults Are on the Rise

The March rebalancing of the S&P U.S. Distressed High Yield Corporate Bond Index saw another increase in the number of qualifying constituents.  This marks the eighth increase of this kind in the last nine months.  The index, which is designed to measure securities with an option-adjusted spread greater than or equal to 1,000 bps, is down 35% over the past one-year period as of March 1, 2016.

While the monthly change in constituents saw a net increase of 53 issues, there were actually 137 new issues that entered the index universe.  Seventy issues were removed from the index as a result of improved credit spreads; however, 14 issues were removed from the index due to default.

Of the 14 issues in default, 10 were in the energy sector (five issuers), while four represented the materials sector (four issuers).  Combined with January’s activity, 14 issuers have been removed from the index due to default this year.  In comparison, there were 64 issuers that defaulted in all of 2015.


New issues added to the index had a total par amount of over 80 billion (approximately 15% of the index value).  The total par value of the index has increased 300% since July 2015.


Not surprisingly, the energy sector is the leader for both number of issues added and percentage of par amount added to the index.  There were a total of 72 issuers that were added to the index with representation from all 10 sectors.


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