Moody's global junk default rate jumps to 7% in first quarter; agency expects 14.6% peak

By Caroline Salls

Pittsburgh, April 7 - Moody's Investors Service's trailing 12-month global speculative-grade corporate default rate rose to 7% in the quarter ended in March, up from 4.1% at the end of 2008, according to a news release.

The agency said it 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.

In addition, Moody's said it now predicts that the U.S. 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 U.S. speculative-grade issuers, Moody's said its forecasts show that default rates will reach a peak of 14.1% in the fourth quarter.

Moody's said the U.S. speculative-grade default rate ended the first quarter at 7.4%, up from 4.5% in the previous quarter.

Meanwhile, Moody's said the European speculative-grade corporate default rate more than doubled in the first quarter to 4.8%, up from 2% in the fourth quarter of 2008.

"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," Moody's Kenneth Emery said in the release.

First-quarter defaults

A total of 79 Moody's-rated corporate debt issuers have defaulted so far in 2009, Moody's said, including 35 defaults recorded in March.

In the first quarter of 2008, only 16 companies defaulted.

Measured on a dollar-volume basis, the agency reported that 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.

Among U.S. speculative-grade issuers, the dollar-weighted bond default rate ended the first quarter at 11.3%, according to the release, up from 6.6% in the previous quarter and 1.0% a year ago.

The European dollar-weighted speculative-grade bond default rate rose to 4% in the first quarter of 2009 from 1.1% at the end of 2008, Moody's reported.

Industry breakdown

Across industries over the coming year, Moody's said the consumer transportation sector is expected to be the most troubled in the United States, and the durable consumer goods sector will have the highest default rate in Europe.

Moody's said the 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.

Overall, the agency said about 58 of first-quarter defaults were by North American issuers, while European companies accounted for most of the remaining 11 defaults.

Across industries, the majority of the defaults were by issuers in the media, chemicals, high tech and beverage, food and tobacco sectors.

Leveraged loans

In the leveraged loan market, a total of 24 Moody's-rated loan defaulters were recorded in the first quarter, all by North American issuers. Last year, only 11 loan issuers defaulted in the first quarter of the year, Moody's reported.

According to the release, the trailing 12-month U.S. leveraged loan default rate ended the first quarter at 4.5%, up from 3.5% in the last quarter and 1.5% from a year ago.

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