Moody's global speculative-grade default rate hits 11.5% in August

By Caroline Salls

Pittsburgh, Sept. 9 - Moody's Investors Service's trailing 12-month global speculative-grade default rate edged up to 11.5% in August from 11% in July, according to a news release.

The global rate stood at 2.5% in August 2008.

The U.S. default rate rose to 12.2% for the 12 months ended in August from 11.9% in July and the European rate high 8.2% in August, up from 6.7% in July.

According to the release, a total of 15 Moody's-rated corporate debt issuers defaulted in August, taking the year-to-date default count to 205.

In comparison, Moody's said only 50 defaults were recorded in the comparable period of 2008.

The ratings agency said default counts have fallen in recent months since peaking at 44 defaulters in March, as the average monthly default count was 17 per month in July and August compared to 29 per month from January to June.

Of the 15 defaults in August, Moody's said 11 were by North American issuers while the remaining defaulters were from Europe.

Measured on a dollar-volume basis, Moody's said the European speculative-grade bond default rate jumped to 5.9% in August from 4.6% in July.

In the United States, the dollar-weighted speculative-grade bond default rate rose to 19.2% in August, up from July's level of 18.9%. Globally, Moody's said the dollar-weighted speculative-grade bond default rate was 17.5% in August, up from 17% in July.

In the leveraged loan market, a total of five Moody's-rated loan defaults were recorded in August, all by North American companies.

As a result, Moody's said the trailing 12-month U.S. leveraged loan default rate rose to 9.4% in August from 8.9% in July.

Looking ahead, the agency said it forecasts that the global speculative-grade default rate will peak at 12.6% in the fourth quarter and then drop to 4.3% by August 2010.

Moody's said it expects the U.S. rate to peak at 13.2% in the fourth quarter and then decline sharply to 4.1% a year from now and the European rate to peak at 11.4% in the fourth quarter before easing to 6.5% in August 2010.

"If the U.S. unemployment rate were to increase substantially above 10% in the coming year, then default rates would likely be significantly higher than indicated under the model's baseline scenario," Moody's Kenneth Emery said in the release.

Across industries over the coming year, Moody's said it expects default rates to be highest in the advertising/printing/publishing media sector in the United States and the durable consumer goods sector in Europe.

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