by Calculated Risk on 2/06/2008 01:55:00 AM

From the WSJ: A Year of Reckoning

In a closely watched report to be released today, finance professor Edward Altman projects that high-yield, or "junk," bonds will default by a rate of 4.64% this year. That would be the highest rate since 2003 and a nine-fold increase from the 0.51% rate in 2007, which was the lowest rate since 1981. High-yield debt is typically used by lower credit-quality companies to fund operations and acquisitions.

Mr. Altman, whose so-called Altman-Z score is the market standard for predicting bankruptcy, sees as much as $53 billion in high-yield debt defaulting in 2008, up from $5.5 billion in 2007.

And in a related story from the WSJ: 'Anyone for Some Used Corporate Debt?'

The loans of First Data Corp., which was taken private in September by Kohlberg Kravis Roberts & Co. for about $28 billion, were sold into the market this past fall at a 4% discount to their par value; they now trade in the market at a steep 11.5% discount to par value, according to Reuters LPC.

Loans of Freescale Semiconductor Inc., taken private by a consortium of private-equity firms in December 2006 for about $28 billion, are trading at a 15.5% discount to their original value; Tribune Co., which was taken private in April by investor Sam Zell for $8.2 billion, issued loans now trading a 26% discount.

With rising defaults, and limited demand for leveraged loans, the banks will have difficulty syndicating all the $152 billion in LBO debt still in the pipeline.