Year-End Review of Bond Markets: Junk-Bond Defaults Expected to Multiply ---- Staff Reporter of The Wall Street Journal By Constance Mitchell
NEW YORK -- Junk-bond investors were buried under an avalanche of corporate defaults in 1990. And according to analysts, the worst is yet to come.</br></br>"Defaults will not slow down," said Mark Backman, a senior vice president at Standard & Poor's Corp., the credit-rating concern. "There still are many highly leveraged companies that are close to or on the verge of defaulting," he said.</br></br>There are a number of trends working against heavily indebted companies, the group of firms considered the most likely candidates to default on bond payments. All of the companies that defaulted during 1990 had debt ratings that were below investment grade, a category often referred to as "junk." No company with an investment-grade rating defaulted.</br></br>Many analysts blame the economic recession for the rise in defaults in the past year. And as the business downturn deepens, making it difficult for companies to meet debt payments as their revenue dwindles, the analysts expect junk-bond defaults to multiply.</br></br>The junk-bond market has shriveled, with only $1.4 billion of new junk-bond issues during 1990. And the reluctance of banks to continue to finance marginal companies has left these companies with scant room to maneuver.