Moody's: global junk default rate still at 1.8% eight-year low

By Caroline Salls

Pittsburgh, Aug. 5 - The global speculative-grade default rate remained at its eight-year low in July, unchanged from the 1.8% level recorded in June, according to a Moody's Investors Service report.

Moody's predicts that the global speculative-grade default rate will edge up to 2.8% by the end of July 2006, the report said.

"Although macroeconomic and credit quality indicators were sending some negative signals earlier this year, it seems to have subsided," Moody's David Hamilton said in the report. "Credit quality remains strong, spreads have come in, and it now appears that the default rate will remain low until the latter half of 2006."

The global speculative-grade default rate was down from 2.4% in January, which translated to a year-to-date decline of 26%. Over the past 12 months, the global speculative-grade default rate has fallen by 44%, down from 3.1% a year ago.

Last month, two U.S. corporate issuers defaulted on $345 million of bonds. O'Sullivan Industries, Inc. missed an interest payment on $150 million of senior notes, while Allied Holdings, Inc., filed for Chapter 11 bankruptcy in late July.

In the first seven months of 2005, 14 Moody's rated corporate issuers have defaulted, compared with 24 for the same period a year ago. Among the 14 defaulters in 2005, 11 were U.S. companies, two were in Sweden and one in Brazil.

So far this year, bond defaults total $3.5 billion, roughly half the $6.9 billion in defaults for the same period in 2004. The two largest defaults of 2005 thus far are Collins & Aikman, at $915 million, and R.J. Tower, at $453 million.

Among U.S. issuers, the speculative-grade default rate was unchanged in July, at 2.0%. The July rate is down from 3.0% in January and 3.7% in July 2004.

Among European issuers, default rates edged lower, to 1.6% in July from 1.7% in June. Europe's July default rate is up from its bottom of 0.6% in January 2005. At this time last year, the European default rate stood at 0.7%.

As a percentage of dollar volume, the global speculative-grade default rate fell slightly, to 1.8% in July from 1.9% in June. The current global dollar volume weighted default rate has fallen more than 30% from 2.6% at the opening of 2005. A year ago, the global dollar-weighted default rate was 2.1%.

As a percentage of dollar volume, the U.S. speculative-grade default rate also fell - to 1.9% in July, down slightly from the June level of 2.0%. The July rate was down from 2.1% recorded in July 2004.

As a percentage of dollar volume, the rate among European speculative-grade issuers remained unchanged at 1.4% from June to July. A year ago, Europe's dollar-weighted default rate was 1.6%.

Like July a year ago, this July saw no Moody's-rated loan defaults. Moody's issuer-weighted one-year default rate for U.S. leveraged loan issuers was therefore unchanged at 1.7% from June to July.

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