Junk Bonds Getting Junkier and Riskier
Before 2000, lending to companies with "junk" (non-investment grade, rated BB or below) ratings was the exception; now, it is commonplace. Last year, 42.5% of new high-yield borrowing was rated B-or below, the largest percentage of truly junk debt ever.
Such low quality companies default more often. Since 1971, more than 40% of corporate borrowers rated CCC stopped paying interest and principal within 4 years of taking on the debt. This default rate compares to fewer than 10% for those junk bonds rated BB.
Source: Financial Times, May 25, 2005
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