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Mumbai: The rate of global speculative-grade corporate defaults over the last 12 months finished the first quarter 2009-10 at 7%, up from a level of 4.1% at the end of 2008, according to Moody’s Investors Service.
A year ago, the global default rate stood at 1.5%. The ratings agency’s default rate forecasting model now predicts that the global default rate will rise to a peak of 14.6% in the fourth quarter of 2009 and will remain at an elevated rate of 11.7% a year from now.
“Moody’s model-based forecast for the speculative-grade default rate has declined in the last couple of months as high-yield bond spreads have declined moderately from their fourth-quarter 2008 peaks,” said Kenneth Emery, director of default research with Moody’s.
A total of 79 Moody’s-rated corporate debt issuers have defaulted in 2009 year-to-date, of which 35 were recorded in March. In the first quarter of 2008, only 16 companies defaulted. The US speculative-grade default rate ended the first quarter at 7.4%, up from 4.5% in the previous quarter. At this time last year, the default rate stood at 1.8%.
Measured on a dollar volume basis, the global speculative-grade bond default rate closed at 10.2% in the first quarter, almost doubling the 5.8% level from the previous quarter. Last year, the global dollar-weighted default rate stood at 0.9%.
Moody’s default rate forecasting model now predicts that the US speculative-grade default rate will jump to 13.5% at the end of 2009, while the European speculative-grade default rate is expected to rise to 21.2%. For US speculative-grade issuers, Moody’s forecasting model predicts that default rates will reach a peak of 14.1% in the fourth quarter. Among US speculative-grade issuers, the dollar-weighted bond default rate ended the first quarter at 11.3%. The comparable rate was 6.6% in the prior quarter and 1.0% a year ago.
Across industries over the coming year, Moody’s default rate forecasting model indicates that the consumer transportation sector will be the most troubled in the US and the durable consumer goods sector will have the highest default rate in Europe.
Moody’s speculative-grade corporate distress index--which measures the percentage of rated issuers that have debt trading at distressed levels—closed at 50.9% at the end of the first quarter, down from 54.6% in the previous quarter. A year ago, the index was much lower at 23.4%.
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