2. Significant Speculative Grade Default Risk. S&P defines a default as a missed payment, a distressed debt exchange, or a bankruptcy filing, what we call a “Hard Default.” Any other kind of default, such as breaking a ratio or violating a covenant, is what we call a “Technical Default”. Given the general credit deterioration that happens over five years, we believe that the risk of a technical default must be at least equal to S&P’s hard default rate. So while BBB’s have a small 4% total default risk over 5 years, for speculative grade companies it is significant: 14% for BB’s and 36% B’s.