High yield defaults drop to 6.89% but are expected to stay high, S&P says

New York, April 4 - The global high-yield default rate fell to 6.89% for the 12 months ending March from 8.30% the month before, according to Standard & Poor's.

But the rating agency warned that default rates will stay high in 2003, descending slowly through the end of the year and then showing "a more perceptible improvement" in 2004.

S&P noted that the U.S. default rate has already declined to 6.81% from its high of 10.20% in April 2002.

U.S. industrial production, a good leading indicator of the U.S. speculative-grade default rate, has been steadily moving into positive territory since January 2002, suggesting that a further decline in defaults is likely, S&P added.

"Projections for this year indicate continued weak growth in industrial production until fourth-quarter 2003," said Diane Vazza, head of Standard & Poor's global fixed income research, in a news release. "However, issuers are faced with an environment where banks are tightening lending standards, albeit to a lesser extent than in 2001. This potentially jeopardizes an important source of funding for issuers nearing default that may be unable to turn to the capital markets."

S&P said the big drop in the global rate to 6.89% from 8.30% the month before is due to the numerous Argentinean defaults in early 2002 dropping out of the calculation since they are now more than 12 months ago.

The U.S. high-yield default rate improved less markedly, declining to 6.81% for the 12 months ending March from 7.01% the month before.

The European high-yield default rate fell to 12.24%, down from its recent December 2002 high of 13.48%.

The U.S. investment-grade default rate was relatively flat at 0.40% from 0.45% the month before. For Europe the comparable figures were 0.52%, unchanged from February.

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