hr: Money

Photo Credit: Mispahn

In Europe there is a rising risk of debt default, which are utilized in leveraged buyouts. This came about as companies struggle their way to settle huge amount of debts, as reported by Standard & Poor’s.

During the first quarter, we can see that inflation has indeed taken its toll on European companies as the cash to obligations ratio dwindles to 2.2 times debt from a ratio of 2.5 the previous year and was at 4 in the year 2003, according further to Standard & Poor’s.

The cash-coverage ratios are the greatest concern for the investor today. The rate at which these ratios have declined is nothing short of alarming as they approached the level of what experts call “record-thin” levels.

The warning made by S&P agrees with Moody’s Investors Service’s prediction regarding an increase in high-risk and high-yield debt defaults in Europe to 3.9 percent by the end of 2008 based from 0.7 percent in February.

In April, the global defaults as regards junk bonds surged to 1.29 percent, which was the highest ever in a span of one year based from March’s 1.14 percent.

During the second quarter, as regards nine high-yield European borrowers, Standard & Poor’s pared down its ratings from four during the comparable period the previous year.