74 Bond Defaults

A story on today's Wall Street Journal (subscription required) summarizes a Standard & Poor's report predicting that looming junk-bond payments could bring fresh casualties among telecom providers. The story also quantifes the breadth of defaults in the debt-burdened sector.

According to S&P's risk-solutions unit, 74 telecom companies defaulted on $112.6 billion in debt between 1999 and the first quarter of this year. S&P calculates that another $63 billion in telecom debt will come due between now and the end of 2005. "The next big crunch could hit at a time when few expect a quick rebound in industry fundamentals," the Journal notes.

There's no doubt that these looming payments will be problematic for the debtors. But I disagree with the notion that the mere existence of this debt ensures more failures down the line. These debtor companies have a better chance of repaying the money than the 74 companies that already defaulted, simply because they are already survivors. Telecom providers that have made it through the past two years must have one of three things - strong management, the support of existing creditors, and at least a few paying customers. Many will possess all three.

It's always interesting to see numbers that quantify what's happened, and define the challenges that lie ahead. As the disclaimers always note, past results are no guarantee of future performance.