Moody's: Global junk default rate down again to 1.8% in November

By Caroline Salls

Pittsburgh, Dec. 6 - The global speculative-grade default rate declined again in the 12 months ended in November to 1.8% from the 1.9% recorded in October, Moody's Investors Service reported Tuesday.

Moody's said that the default rate has fluctuated between 1.8% and 2% since March 2005 and it expects the global speculative-grade default rate to remain near the 2% level until the second quarter of 2006, after which time it is expected to rise at an accelerated rate.

According to the report, Moody's forecasting model for its issuer-weighted global speculative-grade default rate predicts that the default rate will finish 2005 at 1.9%, but rise to 3.3% by the end of November 2006.

"The global default rate looks to finish 2005 somewhat lower than Moody's expected a year ago," Moody's David T. Hamilton said in the report.

"Our forecasting model predicted the default rate to end the year at 2.7% back in January, but economic activity has remained healthy and investor appetite for high yield has persisted.

"We expect the default rate to trend higher in mid-2006, but to remain below its 4.9% long-run average for the foreseeable future."

Romacorp only November default

The sole Moody's-rated default last month was Romacorp, Inc., with $50 million of rated debt.

Year-to-date, Moody's said the number of defaulting issuers trails 2004, but the total volume of bond defaults exceeds 2004. For the year to date, some 27 corporate bond issuers have defaulted on $19.7 billion of bonds. In the first 11 months of last year, a total of 35 issuers defaulted on $11.2 billion.

Charter Communications Holdings was the largest default thus far in 2005, according to the report. The cable company completed a distressed exchange of over $6.8 billion of bonds in September. Other sizable defaults this year include Delta Airlines ($3.9 billion), Northwest Airlines ($1.7 billion), Delphi Corp. ($2 billion) and Collins & Aikman ($915 million).

With only one month remaining in 2005, Moody's said that default trends are well established.

"This year was fairly benign from a defaults perspective, but there were a few notable credit stories," Hamilton said in the release. "The downgrades of GM and Ford to speculative grade heightened concern about general credit quality and rising default rates, but the damage was fairly contained." Hamilton noted in the report that that defaults in 2005 were concentrated in a few industrial sectors and in U.S.-based issuers.

The cable sector experienced the highest total default volume though the end of November, with $6.8 billion of bonds, followed by airlines with $5.8 billion and the automotive sector with $3.6 billion of bonds.

Of the 27 bond defaults through November, 24 were based in the United States. Two Europe-based corporate issuers defaulted on a total of $377 million, including Sweden's Concordia Bus Nordic AB ($169.5 million) and Concordia Bus, AB ($207.4 million). The third non-U.S. default was Brazil's Banco Santos S. ($100 million).

Moody's said the U.S. speculative-grade default rate was unchanged at 2.2% from October to November and down from 2.9% at the beginning of the year and from 3.0% a year ago.

Among European issuers, the default rate from October to November also was unchanged at 1.6%, although higher than its 1.3% rate at the start of the year. The default rate among European issuers was 0.6% in November 2004. No Moody's-rated European defaults have occurred since March 2005.

On a dollar-volume basis, the ratings agency reported the global speculative-grade default rate for November dipped slightly to 3.5% from October's 3.6%. For the first 11 months of the year, the global dollar-volume default rate is up more than a third, from 2.6% in January.

Among U.S. issuers, the dollar-weighted default rate also was static from October to November at 3.9%. Year to date, the rate has jumped nearly 50%, from 2.6% in January.

In Europe, the dollar-weighted default rate edged downward to 1.2% in November from 1.3% in October. A year ago, the rate was 1.5%.

No speculative-grade loans rated by Moody's defaulted last month. Moody's trailing 12-month issuer-weighted speculative-grade loan default rate fell to 1.6% in November from 1.8% in October.

© 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.