Moody's global junk default rate climbs to 5.2% in February; year-end forecast down to 14.8%

By Caroline Salls

Pittsburgh, March 5 - Moody's Investors Service said its trailing 12-month global speculative grade default rate rose to 5.2% in February from 4.8% in January, according to a news release.

The ratings agency said that the U.S. default rate increased to 5.7% in February from 5.2% in January, and the European default rate was up to 2.7% from 2.4% at the end of January.

Moody's said it predicts that the global junk default rate will rise to 14.8% by the end of 2009 and ease to 13.8% by February 2010.

This forecast is down from last month's projection of a 16% percent global default rate at year-end, mainly because of a recent modest decline in high-yield bond spreads, which Moody's said are factors in its default forecasting.

Moody's said it currently forecasts a 15.3% global default rate peak in the fourth quarter, down from last month's 16.4% forecast.

"The high level of uncertainty surrounding the potential length and severity of the current global economic downturn imply similarly high uncertainty for model-based forecasts of default rates," Moody's Kenneth Emery said in the release.

"There is going to be some modest movement in our forecasts month to month."

The U.S. rate is expected to climb to 13.8% by year-end, followed by a small decline to 13% two months later, while the European rate is expected to spike at 22.5% by the end of 2009 and then edge lower to 21.8% a year from now.

According to the release, the consumer transportation sector is expected to be the most troubled sector in the United States in the coming year, while the durable consumer goods sector is most likely to encounter the highest default rate in Europe.

Worldwide, a total of 17 Moody's rated corporate issuers defaulted in February. Of these, Moody's said 13 were based in the United States, two in Brazil and one each in Denmark and Ukraine.

The default count compares to a total of 22 defaults in January and four in February 2008.

Moody's said its distressed index closed at 48.4% at the end of February, lower than the 52.8% level recorded at the end of January.

As a percentage of dollar volume outstanding, the global speculative-grade default rate rose to 6.7% in February from 6.0% in January. Moody's said the corresponding European rate climbed to 1.5% in February from 1.2% the previous month.

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