UPDATE 1-S&P slashes US junk bond default forecast to 6.9 pct

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NEW YORK, Oct 21 (Reuters) - Standard & Poor's on Tuesday slashed its forecast for the U.S. junk bond default rate, saying a reopening of the bond markets after last year's credit crisis is helping more risky companies survive.

S&P said it now expects defaults to decline to 6.9 percent a year from now from a September rate of 10.8 percent. On Oct 2, it had said it expected defaults to escalate to 13.9 percent by August 2010.

"This does not mean that corporate default risks are permanently lower," S&P said in a statement. Without a revival in corporate revenues and growth, many borrowers could face renewed default risks unless they significantly reduce debt, the agency said.

S&P had kept a double-digit default forecast long after other analysts, including default experts at Moody's Investors Service, lowered their projections as the credit crisis healed.

Moody's is projecting the U.S. default rate will fall to 4.4 percent by September 2010 from 12.9 percent in September.

"The revised forecast is substantially closer to the market view," said Martin Fridson, chief executive officer at Fridson Investment Advisors.

He noted the current market view is at 5.4 percent, in between the Moody's forecast and the revised S&P forecast, as measured by the percentages of issues quoted at distressed and non-distressed levels and the respective, historical default rates of those two categories.

Fridson noted the widely divergent views in a Reuters article in August. For details, click on [ID:nN27313817] (Reporting by Dena Aubin and Walden Siew; Editing by Diane Craft)