World-wide defaults hit record in first quarter, S&P says

New York, April 11 - Corporate bond defaults hit a record in the first quarter of 2002 with 4.16% of all junk-rated issuers failing to meet their obligations, according to Standard & Poor's.

The rating agency said 94 companies defaulted on $33.6 billion of rated corporate bonds during the three-month period.

However S&P noted that 38 of the companies with $2.3 billion of the debt were from Argentina where problems were created by the devaluation of the peso and a bar on fulfilling foreign-currency interest-payment obligations.

"The pesification in Argentina in which the government has dedollarized all transactions and redenominated them in pesos, together with the economic difficulties in the rest of the world yielded the worst quarter we have ever recorded, with 4.16% of all speculative-grade issuers defaulting globally.

This figure exceeds the previous high of 3.40% during the first quarter of 1991," said Brooks Brady, associate director for corporate default research at Standard & Poor's Risk Solutions, in a news release.

Excluding Argentina, the first quarter's default rate would have been 2.25%. That would still be equivalent to a higher annual default rate than the 8.9% recorded in 2001.

Brady said S&P expects defaults to gradually trend downward by the end of the year. But he said the speculative-grade default rate for 2002 is likely to be higher than 2001 when Argentina is included.

S&P expects only a "moderate deceleration" in defaults in the U.S. during the year because of the risks associated with the strength of the recovery and the threat of rising energy prices due to Middle East tensions, said Diane Vazza, head of S&P's Global Fixed Income Research.

She added: "Defaults in the European Union are likely to continue rising, peaking in the second quarter, reflecting the continued difficulties of the European telecommunications sector."

Among the first quarter's defaults were McLeodUSA Inc., Kmart Corp., United Globalcom Inc. and Global Crossing Holdings Ltd., all with more than $3 billion of rated debt.

There was just one investment-grade default during the quarter, Covanta Energy Corp.

Of all issuers worldwide, both high-yield and investment-grade, a total of 1.51% defaulted during the quarter, S&P said. Excluding Argentina the figure was 0.80%.

In addition to the 38 defaults in Argentina, 41 issuers defaulted in the U.S., three in the U.K., two each in Bermuda, Brazil, Canada and Indonesia, and one each in Australia, China, the Netherlands and Switzerland.

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