Corporate Defaults Would More Than Double Even In Mild Recession, S&P Global Warns

11.23.22 - Could Corporate Defaults Double?

Gold last traded at $1,750 an ounce. Silver at $21.53 an ounce.

 - The Epoch Times --As fingers remain crossed that our economy is turning around, some experts warn even a mild recession would wreak havoc on many corporations. There is only so much more corporate America (and our households) can take on top of the last few years of financial distress.

The rate of corporate defaults for companies in the United States could soar if the economy tips into a "shallow recession," S&P Global analysts warned on Monday.

According to S&P Global Ratings, the default rate for American companies could reach 3.75 percent by September 2023 if the Federal Reserve's hawkish policy of raising interest rates prompts a shallow or mild economic downturn.

In a far worse scenario in which a more serious economic downturn occurs, default rates could reach 6 percent, the highest since March 2021, analysts said.

"Much will depend on the length, breadth, and depth of a recession should one occur, and if the Fed will continue to raise rates through a recession," the S&P analysts wrote on Monday.

"The current pace of widening yields in secondary markets would continue, while consumption would contract, forcing businesses to dig into their cash holdings to ride out a deeper recession."

Elsewhere on Monday, Deutsche Bank said that default rates on U.S. leveraged loans - those made by banks to companies or individuals who have considerable amounts of debt - will hit a near-record high of 11.3 percent in 2024, while defaults on euro-leveraged loans will reach 7.1 percent.

Analysts at the bank said that the U.S. economy will likely slip into a recession in the second half of 2023, and companies will take a significant hit to their profit margins resulting in missed interest payments, and prompting increased default rates.

However, Deutsche Bank does not anticipate default rates to soar in 2023.