Bankruptcies remain a rare occurrence for companies in the Aerospace & Defense (A&D) and Industrial & Manufacturing (I&M) sectors, according to a new report published by Fitch Ratings.

High-yield bond default rates for A&D and I&M companies averaged 1.2% and 2.0%, respectively, during 2001-2017. Both rates were substantially lower than Fitch's 4.1% cross-sector rate over the same period.

"Cash flows remain stable for aerospace and defense companies thanks largely to multiyear contracts and industry dominance by global-scale, investment-grade companies," said Senior Director Sharon Bonelli. The few companies with high yield bonds that did default were smaller in scale, had less diversified product lines or customer bases, and were operating with more highly levered capital structures.

Bankruptcy filings also remain idiosyncratic both in frequency and reason for filing among I&M companies. Filing drivers include sluggish or declining product demand and high manufacturing costs, while recently resolved filings emanated from burdensome contracts, an adverse litigation outcome and lower-than-expected customer purchases.

Further evidence of the relative stability in both sectors is the fact that there are no I&M nor A&D issuers among either Fitch's Top Loans of Concern or Top Bonds of Concern lists. Fitch expects more of the same for the next 12 months. 'Both sectors are benefitting from a growing U.S. economy that has been boosted by tailwinds from tax cuts and borrower-friendly capital markets,' said Bonelli.