Moody's global junk default rate hits 12.4% in October; global rate expected to peak in November

By Caroline Salls

Pittsburgh, Nov. 5 - Moody's Investors Service's trailing 12-month global speculative-grade default rate edged up to 12.4% in October from 12.3% in September, breaking the post-Depression record high of 12.2% reached in July 1991, according to the agency's latest monthly default report.

A year ago, Moody's global default rate stood at only 3.0%.

The agency said it now predicts that the global speculative-grade default rate will peak at 12.5% next month and then decline sharply to 4.2% by October 2010.

"The global default rate is now likely near its cyclical peak as indicated by a rapidly slowing pace of defaults in recent months," Kenneth Emery, Moody's director of corporate default research, said in the report.

"Our baseline forecast for a 4.2% global default rate one year from now implies approximately eight to 10 defaulters per month on average over the coming year, down from the 20 defaulters per month experienced during the past year."

Moody's said the U.S. speculative-grade default rate increased to 13.4% for the 12 months ended in October from 13.2% in September, while in Europe, the default rate rose to 9.4% from 9.3% in September.

In all, a total of eight Moody's-rated corporate debt issuers defaulted in October, the lowest monthly default count so far this year.

Moody's said six of the eight default events were distressed exchanges. For the year to date, 79 of the total 235 defaults were distressed exchanges, a considerably higher share than the historical average of 13%.

Measured on a dollar-volume basis, the agency said its global speculative-grade bond default rate closed at 18.5% in October, up from September's level of 18.2%.

The European dollar-volume default rate edged higher to 8.1% in October from 7.7% in September.

For U.S. speculative-grade issuers, Moody's predicts that the default rate will reach its peak of 13.6% in November and then fall to 4.4% a year from now.

In Europe, the speculative-grade default rate is expected to rise to 10.2% at the end of this year before dropping to 4.3% in October next year.

Overall, Moody's said default rates are expected to be highest in the consumer transportation sector in the United States and the wholesale sector in Europe.

Across regions, six of October's defaults were by North American issuers. The remaining defaulters were from Europe.

In the leveraged loan market, the agency recorded only three Moody's-rated loan defaulters in October, all based in the United States. The trailing 12-month U.S. leveraged loan default rate increased to 10.8% in October from 10.4% in September.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.