Moody's October global junk default rate holds steady at 1.7%

By Caroline Salls

Pittsburgh, Nov. 7 - Moody's Investors Service's global speculative-grade default rate for the 12 months ended in October was 1.7%, unchanged from its revised September level.

Moody's said the global speculative-grade default rate began 2006 at 1.9% and was 2.0% a year ago.

Moody's default rate forecasting model is predicting that its issuers-based global default rate will also end 2006 at its current 1.7% level. The model predicts that the default rate will then rise to 2.5% by the end of October 2007.

In the United States, the speculative-default rate settled at 1.9% in October, down slightly from the revised 2.1% rate at the end of September.

The ratings agency said the U.S. speculative-grade rate started the year at 2.4% and was 2.3% a year ago.

Meanwhile, the European speculative-grade default rate experienced a three-fold jump for the 12 months ended in October to 1.5% from 0.5% at the end of September.

Moody's said the 1.5% rate is slightly below the 1.6% European default rate of a year ago, but higher than the 1.1% level at the start of 2006.

According to the default rate report, the increase reflected the defaults of two U.K.-based companies, Sea Containers, Ltd. and Damovo Ill SA, only the second and third Moody's-rated European issuers to default in 2006.

France-based Global Automotive Logistics defaulted in May.

In addition to the two confirmed European bond defaults, Moody's said Luxfer Holdings plc agreed to a restructuring with its bondholders, which, if completed according to the announced terms, will constitute a default as a distressed exchange.

In all, Moody's reported that October saw three corporate bond issuers default on a total of $1.8 billion of debt.

The largest default for the month was Dura Operating Corp.

Year to date for 2006, 21 Moody's-rated corporate bond issuers have defaulted on a total of $7.0 billion of bonds. During the same period of 2005, Moody's said it saw 28 defaults on $19.9 billion of bonds.

The largest default in 2006 is still Dana Corp.'s bankruptcy, which affected $1.6 billion in bonds.

In October, Moody's global speculative-grade default rate as a percentage of dollar volume was 2.1%, a slight decline from September's revised level of 2.2%.

The U.S. default rate as a percentage of dollar volume fell to 2.3% in October from September's revised level of 2.5%.

Moody's European dollar volume-based speculative-grade default rate rose sharply during October, increasing to 0.9% in October from the 0.1% at the end of September. This is higher than the 0.4% it began the year at, but lower than the 1.3% in October 2005.

In the rated loan market, Moody's said Dura Operating Corp. was the only Moody's-rated default in October. The company had about $225 million of loans outstanding when it filed for bankruptcy.

The default was the sixth Moody's-rated loan default of 2006, and all but one has been U.S. based.

Moody's said its issuer-weighted loan default rate fell to 0.8% for the 12-month period ended in October from 1.0% ended in September.

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