By Ben Steverman

After a year when the threat of bankruptcy seemed to lurk around every corner, investors can breathe more easily. Recent data suggest companies are finding their debt troubles easier to manage.

That's a relief to investors whose portfolios were slammed by corporate defaults. In 2009, U.S. companies defaulted on 10.9% of speculative-grade debt, according to Standard & Poor's. Globally, companies defaulted on a record $627.7 billion in debt.

"It's the business equivalent of a 50-year flood," bankruptcy attorney Nicholas M. Miller, a partner in Neal, Gerber & Eisenberg, says of 2009. "Now there are indications the situation is improving a bit."

The nature of the bankruptcy threat is changing, many experts say. Instead of the flood of filings that occurred during the Great Recession, we can expect a steady, strong stream of bankruptcies stretching years into the future.

Diminishing Rate

Corporate defaults seem to have peaked in November and have "inched down slightly" since, says Diane Vazza, managing director of global fixed income research at S&P. This year, S&P predicts the speculative-grade default rate will fall to 5%, less than half last year's rate.

In the first two months of 2010, five U.S. companies filed for bankruptcy, compared with 19 in the same period in 2009, according to BankruptcyData.com.

The credit rating agencies, which monitor companies' abilities to pay back their debts, are sounding more optimistic about the future. Moody's Investors Service (MCO) says it has downgraded the credit ratings of four speculative-grade companies so far this year, compared with an average of 21 downgrades per month in late 2008 and early 2009.

Still, some companies continue to struggle with high debt loads or slow sales. On Mar. 17, Blockbuster (BBI) acknowledged the threat of bankruptcy in a filing with the U.S. Securities & Exchange Commission. The video rental company, whose sales fell 19% last year, to $4.1 billion, has about $963.6 million in debt outstanding.

Not a Real Solution

Many companies used revived credit markets in the past year to refinance debt. That gives them time to revamp their businesses or wait for an economic recovery, but it doesn't necessarily solve the problem of taking on too much debt in the first place.

"There was so much debt raised in the 2003 through 2007 period that it's going to take a while to work through it all," says George Putnam, the editor of The Turnaround Letter and publisher of BankruptcyData.com.

Heavily indebted companies "have put off the day of reckoning," Putnam adds, but they "haven't necessarily solved their problems."

Other companies face the risk of bankruptcy because their industries have changed and their business models no longer work, says Greg Segall, a partner in Versa Capital Management, a private equity firm specializing in distressed investing. These are "companies that are likely to have trouble regardless of the [economic] environment," he says.

One example is health-care companies that could be hurt by federal reform efforts, he says. Media companies have been hurt both by the weak economy and shifting trends in advertising.

Improving Cash Flow

In such threatened industries, cost-cutting has helped. Moody's senior analyst John Puchalla says layoffs and other cost-cutting in the newspaper industry have actually succeeded in boosting its Ebitda, or earnings before interest, taxes, depreciation, and amortization, despite the advertising downturn. "What cost cuts do is buy companies more time to get through the downturn," Puchalla says.

According to a S&P's Mar. 16 report on the corporate bond markets' "weakest links," the industries with the highest concentrations of troubled companies include media and entertainment; banks; chemicals, packaging and environmental services; consumer products; and forest products and building materials.

A strong economic recovery could help investors avoid losses in these industries. "They're going to find it very difficult to survive without a revival in [sales] and earnings growth," says S&P's Vazza.

More Trouble in Properties

Another major problem area is expected to be commercial real estate. In the boom years, developers "could get financing for pretty much anything you wanted," says Miller, who expects a flurry of commercial real estate bankruptcies later this year. With vacancies high and debt coming due, "there is no way out for a lot of these real estate companies," he says.

Miller expects a "healthy clip" of bankruptcies through 2011. Other experts are even more pessimistic on how long the high numbers of bankruptcies will continue.

Charles Berk, managing director in the bankruptcy group at CBIZ MHM (CBZ), says that by refinancing, many companies have postponed to 2011 and 2012 the dates their debts come due.

Moody's Puchalla notes that some companies—in some cases bought by private equity firms in recent years with lots of borrowed money—have debt that doesn't come due until 2014 or later. Debt levels are so high that even several years of a strong economy might not be enough to save some companies from bankruptcy, he says.

"The big risk out there is the maturities over the next three to four years," Puchalla says. "That's why we need to see fundamental improvements in cash flow."

Steverman is a reporter for Bloomberg BusinessWeek's Finance channel.