Global high-yield defaults fall to 3.45% in April, S&P says

New York, May 6 - The global high-yield default rate fell to 3.45% for the 12 months ending in April from 3.97% in the 12 months to March, according to Standard & Poor's.

The current level compares to the long-term average for 1981 to 2003 of 5.27%.

S&P said it expects the global default rate will continue to drift lower in 2004 thanks to expectations for greater economic strength, continued favorable financing conditions and improving corporate profitability.

However the rating agency said it is still concerned that defaults will rise in two to three years.

"In the U.S. - and to a lesser extent in Europe - a trend displaying a rising proportion of lower grade issuance (B- or lower) beginning in 2003 serves as an early warning of renewed default pressure two to three years ahead," said Diane Vazza, head of S&P's Global Fixed Income Research group, in a news release.

For the first four months, low rated deals made up 42% of U.S. issuance compared to 31% for all of 2003. For Europe the figure is 51% year to date, but S&P noted the figure is subject to volatility because of the small size of the market.

S&P said the 3.45% default rate for April is the lowest level in four years.

By region, the rate for the United States is 4.15%, the smallest since May 1999.

In Europe, defaults are now down to 1.18%, the lowest since April 2001.

For emerging markets, the default rate was 2.06% in April.

So far this year there have been 14 defaults on $4.1 billion of rated debt, S&P said.

Of the total, the United States recorded 11 defaults on $2.5 billion, Europe two defaults on $1.3 billion and Canada one. There have been no emerging markets defaults.

S&P's list of "weakest links" vulnerable to default now totals 31 with $10.4 billion of debt, the same number of issuers as a month earlier. The weakest links are issuers rated CCC or lower with either a negative outlook or on CreditWatch negative. Over the past month, one issuer defaulted, one was upgraded and two saw their outlook raised. Four issuers were added due to downgrades.

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