Moody's global junk default rate ends 2007 at 0.9%, lowest since 1981

By Caroline Salls

Pittsburgh, Jan. 8 - Moody's Investors Service's global speculative-grade default rate drifted lower for the 12 months ended in December, closing 2007 at 0.9%, down from its level of 1.7% a year ago.

The global default rate also slipped slightly from 1% for the 12 months ended in November.

Moody's said the December global default rate is now at its lowest level since December 1981 when it stood at 0.7%.

"We believe December 2007 likely marks the low point of the current default rate cycle as several issuers have missed interest payments in recent weeks, which should translate into upward pressure on default rates as the 30-day grace periods on these issuers' bonds expire and they become actual defaulters," Moody's Kenneth Emery said in the agency's release.

Moody's said its default rate forecasting model predicts that the global speculative-grade default rate will rise sharply to 4.8% by the end of 2008. By the end of 2009, the model forecasts the global default rate will reach its historical average of 5%.

"Both weaker macroeconomic fundamentals and a modest worsening in the ratings mix of Moody's speculative-grade issuers are contributing to recent increases in forecasted default rates for year-end 2008," Emery said in the release.

Consistent with upward pressure on default rates over the next year, Moody's said its speculative-grade corporate distress index, which measures the percentage of rated issuers that have debt trading at distressed levels, reached 11.5% in December, the highest level since July 2003.

The agency said the index stood at 4.2% a year ago.

For the 12 months ended in December, the U.S. speculative-grade default rate also edged lower, finishing at 0.9%, down from 1.7% at the end of 2006, Moody's reported.

No Moody's-rated corporate issuers defaulted in the month of December, leaving a total of 16 defaulters for the entire year in 2007.

Measured on a dollar volume basis, Moody's said the global speculative-grade bond default rate closed at 0.6% in 2007, down more than 46% from 1.1% at the end of 2006.

Among U.S. speculative-grade issuers, the dollar-weighted bond default rate ended the year at 0.6%, according to Moody's, down 44% from the 1.0% level recorded at the end of 2006.

In addition, no Moody's-rated leveraged loan issuers defaulted in December. The agency said the trailing 12-month leveraged loan default rate ended at 0.1% in 2007, down from 0.6% at the end of 2006.

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