Moody's global junk default rate dips to 10-year low of 1.4% in first quarter

By Caroline Salls

Pittsburgh, April 9 - Moody's Investors Service's speculative-grade corporate default rate declined to its lowest level in a decade, with the rate dropping to 1.4% for the 12-month period ended March 31, down from 1.6% at the beginning of this year and at its lowest level since April 1997, according to a Moody's report.

The agency said its U.S. speculative-grade default rate also ended the quarter at 1.4%, its lowest level in 25 years.

According to the report, Moody's forecasting model predicts that the global speculative-grade default rate will increase modestly to 2.7% by the end of 2007 and rise further to 3.5% a year from now.

"Moody's model suggests a relatively benign default environment over the next year with default rates continuing to come in below their long-run average of 5.1%," Moody's Kenneth Emery said in the report.

Emery said "factors likely to push default rates modestly higher during the next year include slower growth of the U.S. economy and seasoning effects from relatively low-rated debt that was issued during the past several years."

No Moody's-rated bond or loan issuers defaulted in March, the second month in a row without a default.

Although there were no Moody's-rated defaults in March, Moody's said there were several unrated defaults, including New Century Financial Corp.

Additionally, the agency said several of its rated issuers appear likely to default in the next several months because they have either proposed distressed debt exchanges to their debt holders or they have missed interest payments, although they remain within their grace periods.

During the first quarter of 2007, Moody's said both default counts and volume dropped significantly compared to the last quarter of 2006.

Moody's reported only three defaults in the first quarter of 2007, compared with 10 defaults in the fourth quarter of 2006.

As for default volume, only $1.4 billion in bonds defaulted in the first quarter of 2007, relative to a total of $2.5 billion in bonds and $0.9 billion in loans that defaulted in the final quarter of 2006.

Moody's said SunCom Wireless Holdings Inc., at $750 million, was the largest defaulter in the first quarter of this year.

The leveraged loan market also recorded no first-quarter defaults, according to the report. In the previous quarter, there were two loan defaults, affecting $0.9 billion of loans.

Moody's said its issuer-weighted loan default rate finished at 0.4% for the 12-month period ended March 31, down from 0.6% for the period ended in the fourth quarter of 2006.

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