Companies Defaulting on Debt Skyrockets

The stock market has stalled. Each report on the economy raises questions. And now the number of companies defaulting on their debt obligations is rising fast. This year, 47 global companies have been unable to keep paying the interest on their debt, which is more than double the levels a year ago, says Standard & Poor's. A majority of those defaults, 25, are by U.S. companies. "The economy is still fragile," says Diane Vazza of S&P.

This is happening despite record low interest rates that should allow companies to refinance and reduce their interest costs. While most companies continue to be in good health, investors are paying close attention to the:

•Increasing default rate. The past 12 months, 2.6% of companies with the lowest credit ratings have defaulted. That's up from 2.5% in March yet still well below the long-term average of 4.5%.

But given the rash of defaults, S&P predicts the default rate will rise to 3.6% by March. If problems persist in Europe and China, S&P says, defaults could jump to 5.5%.

•Danger of more downgrades. During the second quarter, 87 U.S. companies saw their credit ratings lowered, while 78 were upgraded. Most of the strain is being felt by media and entertainment companies, which accounted for 17 of the downgrades.

•Increased profit strain. For the first time in years, companies are facing the prospect of shrinking profits, says Bonnie Baha of DoubleLine. Earnings are expected to contract 0.9% in the second quarter, marking the lowest growth rate since the third quarter of 2009, says S&P Capital IQ. Read more >>