(The following statement was released by the rating agency)

S&P Raises Default Forecast: Corporate Hatchet Meter Kicks Into Motion

July 29 - In our baseline scenario (to which we've assigned a 60%
probability), we expect the U.S. speculative grade default rate to escalate to
a mean forecast of 4.9% in the next 12 months (through June 2009), with a
one-standard deviation range of 3.8%-6.1%. This predicted range is
significantly higher than the 1.9% trailing-12-month default rate observed in
June 2008 and the 25-year low of 0.97% in December 2007. The increase in
defaults reflects the unfolding recessionary conditions, weaker earnings
prospects, oil price uncertainty, and continued financial pressures that will
increase lending constraints. Continued financial-market volatility, tightening
credit conditions, unfolding housing correction, dollar-weakness, and the risk
of a larger of smaller impact of the fiscal stimulus package contribute to
substantial variability in the forecast.
To reach this baseline of 4.9%, 79 issuers must default in the next 12 months.
This implies an average of 6.6 defaults per months, slightly higher than the
6.2 average in the first half of 2008.
Under our two alternative economic scenarios, the pessimistic yields a default
rate of 8.5%, nearly double the long-term average of 4.4% but still below the
peak of 10.8% in 2001-2002. 131 issuers must default under this scenario. The
optimistic yields a default rate of 3.4%. 52 defaults must default under this
scenario.
Currently, in the U.S. there are 118 corporate issuers ($110.5 billion) that
have the greatest potential to default. These weakest links are defined as
issuers rated 'B-'or lower with either a negative outlook or with ratings on
Credit Watch with negative implications.
Diane Vazza
Managing Director and Head of Global Fixed Income Research
Standard and Poor's Ratings
(New York Ratings Team)