Default rates haven’t been this low in years – and that’s not a good thing for buy-out firms, according to Standard & Poor’s. Recent S&P research indicates that, because the default rate of speculative-grade companies is at an eight-year low and there haven’t been any defaults in Europe in the past year, Euro buy-out investors are ignoring potential risks and taking comfort in a false sense of security, Financial News reports. The report by analyst Paul Watters blames buy-out firms in part for the credit-quality deterioration as firms flush with cash are looking for opportunities that they may have avoided in the past because of the risk associated with a poor credit rating. And how far has the credit quality sunk? S&P says more than 77% of its European leveraged loan index is rated as speculative levels, B or B-plus grades; contrast that to just 14% in 2002. Watters says the easy ride may come to an abrupt end. “The default rate can only go one way, which is up,” he told FN. He suggests that because of the inevitable default turnaround north, buy-out firms will have to factor in a target company’ potential for recovery before signing off on highly leveraged deals.