S&P's global corporate junk default rate declines to 8.65% in February

By Caroline Salls

Pittsburgh, March 16 - Standard & Poor's said its 12-month trailing global corporate speculative-grade default rate dropped to 8.65% in February from 9.24% in January, marking the third straight month that the rate has declined, according to a report titled "Global Bond Markets' Weakest Links And Monthly Default Rates."

By region, the agency said the U.S. speculative-grade default rate also decreased to 10.38% in February from 10.87% in January. The default rate in Europe declined to 7.73% in February from 8.63% in January, while the emerging markets default rate decreased to 4.31% from 5.19%.

Through March 11, S&P said that 19 issuers have defaulted, affecting debt worth $8.01 billion. In 2009, 264 issuers defaulted, affecting debt worth $627.7 billion.

Of the 19 defaults in 2010, 15 are from United States, two are from Canada and one each is from Argentina and Bahrain.

The non-confidential defaults recorded since S&P's most recent report included Gulf Finance House GSC, Penton Business Media Inc. and Catalyst Paper Corp.

Weakest links declining

In addition, S&P said the number of global weakest links, defined as issuers rated B- and lower with a negative outlook or ratings on CreditWatch negative, continues to decline.

As of March 10, there were 203 weakest links, which is 10 fewer than last month and down from 298 recorded one year ago.

S&P said that the 203 weakest links have combined rated debt worth $190.75 billion.

Since S&P's most recent report, 15 issuers were removed from the list of weakest links and five were added.

Of the issuers removed from the list, 12 were the result of a favorable revision to their CreditWatch/outlook status, two were removed because their ratings were withdrawn, and one defaulted.

Of the five new weakest links, two issuers were added because they were downgraded, two were the result of a revision of their CreditWatch/outlook status to negative, and one was newly rated.

S&P said that two of this month's additions were from the United States, and one each was from Canada, the Netherlands and the United Arab Emirates.

By volume, S&P said the 133 U.S.-based weakest links account for $147.34 billion of debt, or almost 77% of the total $190.75 billion of debt issued by all weakest links.

According to the report, the United States leads in the number of weakest links, with 66%.

Sector breakdown

S&P said the media and entertainment sector showed the greatest vulnerability to defaults, with 43 weakest links, constituting 21% of the total, while banks had 20 weakest links and chemicals, packaging and environmental services and consumer products had 14 each; and forest products and building materials had 12.

S&P's year-end 2010 baseline projection for the U.S. corporate speculative-grade default rate is 5.0%. To realize the baseline projection, a total of 70 speculative-grade rated issuers must default in the next 12 months, for an average of 5.8 defaults per month.

Under two alternative economic scenarios, S&P said its pessimistic scenario yields a mean corporate default rate of 6.9%, while the optimistic scenario yields an average corporate default rate of 4.3%.

In the next 12 months, 97 issuers must default to reach the pessimistic default rate forecast of 6.9%, and 60 issuers must default to reach the optimistic forecast of 4.3%.

Leveraged loans

After reaching an 84-month high of 8.25% in November, S&P said that the 12-month-trailing default rate for U.S. leveraged loans, based on the number of loans, declined to 7.23% in February from 7.82% in January.

The agency said recent stabilization in the credit markets and the pickup in activity might alleviate some of the near-term default pressure on leveraged loans.

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