"Deutschebank is predicting a potentially scary scenario with respect to the US non-investment grade corporate default rates. Their forecast shows three cases: base, optimistic, and pessimistic.
Surprisingly the optimistic and the base cases are nearly identical, with default rates of around 2.5% – close to historical lows. The justification is the relatively low leverage for non-investment grade firms, high liquidity positions, and a market that is hungry for “yieldy” paper. But the pessimistic scenario that assumes a material downturn in the US economy (likely driven by Europe) is quite grim, pushing toward an 8% default rate in 2013. This basically assumes that any refinancing opportunities for these companies have been shut down as they were in 2008..."
at http://pragcap.com/deutschebanks-worst-case-default-scenario
Surprisingly the optimistic and the base cases are nearly identical, with default rates of around 2.5% – close to historical lows. The justification is the relatively low leverage for non-investment grade firms, high liquidity positions, and a market that is hungry for “yieldy” paper. But the pessimistic scenario that assumes a material downturn in the US economy (likely driven by Europe) is quite grim, pushing toward an 8% default rate in 2013. This basically assumes that any refinancing opportunities for these companies have been shut down as they were in 2008..."
at http://pragcap.com/deutschebanks-worst-case-default-scenario
