NEW YORK - December 8, 2009 - The trouble in the commercial real estate markets is getting ugly, as the precarious situation of Dubai World has made all too clear.

Expect many more unpleasant situations like that one. Speculative-grade debt issuers are bracing for the default rate to hit 12% to 14% by the end of 2009, according to projections at Bain & Company.

The last time the U.S. economy experienced default rates of that magnitude was 28 years ago. The current long-term average default rate is 4.5%; as recently as 2007, it was just under 1%. These failures are not limited to small or marginal firms; they are happening at large companies with at least $100 million in assets, and have already hit legendary businesses like General Motors, Lehman Brothers and General Growth.

What's significant is not just that big, high-profile companies have defaulted - by missing a payment, making a distressed exchange with lenders to buy time, or filing for bankruptcy - but that virtually every sector of the U.S. economy has been touched, including automotive, home building, industrial products, entertainment, media and financial services. Now watch for commercial real estate.