RH Donnelley publishes telephone directories, which is possibly the only form of print media more distressed than newspapers (and this even despite the relative absence of echo-chamber commentary on the matter of its steady and inevitable demise).
Last week, the publisher said it was “in talks” with lenders to defer a $55m interest payment on its senior unsecured notes; the company has been attempting to restructure its hefty $9bn debt burden, more or less unsuccessfully.
On Monday, ISDA – which oversees these things - said that credit default swap contracts written against Donnelley’s debt had been triggered because the publisher failed to make its interest payment within a 30-day grace period. Consequently, Markit and Creditex will host an auction to determine the notional values of these contracts.
In any event, CDS investors have been betting on a default for quite some time – Donnelley has long been of the more distressed names in the market. Witness the charts below:
Note the inversion in the first chart, which in the world of credit default swaps means investors are betting the near-term outlook for the company in question is dire (at best).
The second chart shows the steady ratcheting upward of the cost of a five-year CDS contract on a notional $10m of the publisher’s debt, to what can only be described as stratospheric levels.
But defaults – and with them, a steady stream of CDS events, auctions and payouts – are not and will not be confined to the yellow pages.
S&P said on Monday the US corporate default rate had hit a seven-year high:
Corporate defaults continue to rise rapidly in 2009, nearly matching the number in all of 2008. Through May 13, 2009, 121 issuers defaulted, affecting debt worth $297.22 billion. By comparison, 126 defaults were recorded in all of 2008, affecting debt worth $433 billion. Of the 121 defaults in 2009, 85 are from the U.S., 21 are from emerging markets, seven are from Europe, six are from Canada, and one each is from Australia and Japan.
“In the U.S., it’s not surprising that the real estate and forest and building products/homebuilders sectors have some of the highest default rates, given the current stress that the housing industry is experiencing,” said Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “In addition, consumer discretionary sectors are particularly vulnerable to cyclical downtrends in the economy, including leisure/media, consumer/service, and transportation to some extent.”
Related links:
Directory business loses its way – FT
Idearc seeks to repair directory business – FT