Global high-yield defaults drop to 4.0%, Moody's says; predicts 2.8% at year-end

New York, May 10 - The global high-yield default rate fell slightly to 4.0% for the 12 months ending in April from 4.2% in March, according to Moody's Investors Service.

The latest default rate is a 40% decline from the 6.7% recorded a year earlier in April 2003.

The rating agency is now predicting the figure will fall to 2.8% at the end of the year and to 2.6% in April 2005.

The lower expected default rate is primarily due to improvements in fundamental corporate credit quality, a trend assisted by strengthening macroeconomic conditions, Moody's said.

"If our prediction bears out, the default rate a year from now would be the lowest since early 1998, immediately before the cyclical increase in the default rate began," said David T. Hamilton, Moody's director of default research, in a news release. "The bull phase in the credit cycle that really took hold in mid-2003 is expected to continue over our forecast horizon."

Outlooks also point to continuing improvement in credit quality, Moody's said.

The ratio of upgrades to downgrades improved to 1:1.1 in April from 0.7:1 in March. A year ago the ratio was 0.5:1.

Favorable outlook changes made up 77% of all outlook changes in April.

April saw three defaults on a total of $328 million of debt. All three issuers were based in the United States. The largest was aaiPharma Inc. on $175 million of bonds. The other two were R.A.B. Holdings Inc. and subsidiary R.A.B. Enterprises Inc., which completed a distressed exchange on $153 million of bonds.

So far this year, 14 issuers have defaulted on $4.4 billion of bonds. The biggest defaults so far this year are RCN Corp., Avon Energy Partners Holdings, and Jordan Industries Inc.

For the third straight month, no European corporate issuers rated by Moody's defaulted. Over the past months there has only been one default in Europe, Avon Energy Partners Holdings with $1.1 billion.

By geographical region, the speculative-grade default rate for U.S. issuers fell to 4.3% in April from 4.5% in March.

The European speculative-grade default rate remained unchanged at 2.2%.

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