Moody's says Latin American high-yield default rate reaches 4.2%

By Angela McDaniels

Tacoma, Wash., Aug. 20 - Moody's Investors Service said the default rate for speculative-grade Latin American companies was 4.2% in the past year, its highest level since June 2010, when it stood at 4.4%.

During the coming year, modest regional and global economic growth will present challenges for Latin American issuers, the agency predicted. The forecast for the region's speculative-grade default rate in the next 12 months is 3.3%, compared with 2.5% for global corporates.

"Seven Latin American companies with Moody's-rated debt have defaulted since this time last year, for a total of $3.05 billion," Steffen Sorensen, Moody's vice president - senior analyst, said in an agency news release. "Of these, two are from Brazil and five from Mexico, with the failed Brazil-based Banco Cruzeiro do Sul [SA] the largest corporate default by volume in the region since 2002."

In Moody's view, most notable in the past year were the defaults in the Mexican homebuilding industry. Corporacion GEO SAB de CV, Urbi Desarrollos Urbanos SAB de CV and Desarrolladora Homex SAB de CV missed interest payments. The three builders were dependent on home sales where buyers required subsidies from the government in order to purchase homes, but following elections last year the subsidy and mortgage allocations were disrupted as new heads of the major housing agencies were named, the agency said. For the three homebuilders that pursued sales of subsidized government housing, liquidity dried up.

Over the past year, rating downgrades have been more numerous than upgrades in Latin America, Moody's said. Despite a fall in the average senior unsecured rating, investment-grade ratings were held by 43.5% of the companies, slightly higher than at this time last year.

Moody's had rated the debt of 336 companies in 21 Latin American countries by the end of July, a 10% increase during the year. The majority of new issuers were based in Brazil and Peru.

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