Defaults may spike for weaker credits amid slow growth, says Goldman

Defaults rate among junk-rated companies are likely to spike over the next six to 12 months as slow growth prohibits firms from reducing debt, said analysts at Goldman Sachs on a weekly credit conference call yesterday.

Companies near the bottom of the ratings spectrum or in distressed territory were likely to choose voluntary defaults, in the shape of restructurings or exchanges, rather than try to grow their way out of trouble, said Goldman strategist Charles Himmelberg.

"The corporate sector is in a good position generally but if you are distressed or with cashflow problems, an outlook of slowing growth and declining risk appetite makes a wait and grow strategy less attractive, Himmelberg said.

Goldman remains positive on the financials sector, which is in a much stronger position in terms of liquidity, balance sheet and capital than in 2008, Himmelberg said, though there still may be short-term volatility.