The FINANCIAL -- A more cautious funding environment since the summer is having a greater effect on the most leveraged and vulnerable companies in the high yield universe.

Fitch Ratings projects that the U.S. high yield default rate will rise to 2.5% - 3.0% in 2012, above 2010’s 1.3% rate and this November’s 1.4% level. The long-term average annual default rate is 5.1%.

The seasoning of transactions brought to market from 2009 through 2011 will also contribute more significantly to defaults beginning in 2012 and continuing in 2013-2015. To date, default rates on the 2010 and 2011 issuance pools have been especially low at 0.3% and 0.5%, respectively.

The operating success of companies that refinanced over this period will be tested over the next several years, especially in light of anticipated below-trend economic activity. 

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