Defaults rise as sales of junk debt jump Global corporate default rates are inching higher just as companies with fragile balance sheets sell large amounts of debt to take advantage of investor appetite for high-yielding securities. After a jump in corporate defaults last year to the highest level since 2009, SEAT Pagine Gialle SpA, based in Italy, became the tenth company to default in 2013 after it missed an interest payment on its 2017 bonds, according to Standard & Poor's data. The publisher of classified directories joined 84 other global corporations, including Eastman Kodak, Barneys New York, Sino-Forest and Dynegy, that either failed to refinance, missed cash payments or went bankrupt in a little over 12 months. Companies with fragile balance sheets have been able to bide their time and avoid potential restructurings or even bankruptcy thanks to the strong appetite for high-yielding debt. "Investors allocated significant capital to the credit markets," in 2012, said Diane Vazza, head of global fixed income research at S&P. As a result, many companies were able to raise capital to refinance maturing debt at relatively attractive terms or explore other opportunities that would diversify or expand their interests. That combination has helped keep US default rates below a historic average of 4.5 per cent, as companies have been able to delay what could have been a debilitating "wall" of debt maturities in 2013 and 2014. But the outlook has turned murkier recently. Many restructuring experts and bond fund managers now expect a rise in the number of companies forced to restructure. S&P estimates that among US companies alone the default rate for those with debt rated below investment grade will increase to 3.4 per cent by year-end, from 2.6 per cent last December. That implies 54 junk-rated issuers will default during the 12 months ending December 2013. By comparison, 39 entities rated below investment grade defaulted in 2012. Throughout 2012 and the start of this year, investors have funded companies at higher risk of default and pushed their average yields to a record low of 5.61 per cent last month, in exchange for higher returns. Yields have since rebounded to stand at 6.02 per cent on Monday, according to Barclays data. Companies have taken advantage of low benchmark borrowing costs to boost the amount of junk debt sales so far this year to $50.6bn, compared with $42.6bn for the same period in 2012, according to Dealogic. But while a bet on junk bonds paid off in 2012, with average returns at 15 per cent late last year, analysts have been warning that valuations may be extreme. Investors have pared bets on the debt recently, pulling $1.2bn from US junk bond funds in the week that ended last Wednesday, according to EPFR.