Bond defaults hit record $34 billion in first quarter but March rate declines, Moody's says

New York, April 22 - Global bond defaults hit $34 billion in the first three months of 2002, the highest quarterly figure ever, according to Moody's Investors Service.

However the rating agency added that the global speculative-grade bond default rate declined for the second consecutive month in March to 10.3% - although the U.S. figure increased,

Moody's said it expects that by the end of the year the default rate will fall to 7.4% and in a year's time - through March 2003 - to 6.6%.

February's decline in defaults was the first drop since October 2000.

Moody's noted that the large dollar value of defaults was the result of more volume but a lower number of defaults compared to a year ago.

During the first quarter, the $34 billion was made up of 47 defaulting issuers. By comparison, in the first quarter of 2001, 55 issuers defaulted on $29.2 billion of bond.

Of the 2002 first quarter total, U.S. issuers accounted for 32 defaults totaling $22.6 billion.

The U.S. speculative grade default rate rose to 11.3% in March from 11.2% in February. For non-U.S. issuers, the rate declined to 8% from 9%.

Indicating the large size of defaults, the top five made up 50% of the first quarter's total volume, Moody's said. The biggest defaults were United Pan-Europe Communications NV with $5.1 billion, Global Crossing Holdings Ltd. with $3.8 billion, McLeodUSA, Inc. with $2.9 billion, Metromedia Fiber Network Inc. with $2.6 billion and Kmart Corp. with $2.4 billion.

"Default risk actually feels worse than it really is because recent defaults have been so large in terms of dollar volume and because a few well-known names have gotten into trouble," said David T. Hamilton, Moody's director of default research, in a press release.

Nonetheless, volumes are expected to remain high in the short run, particularly in April. NTL Communications Corp.'s proposed debt exchange includes a minimum of $8.4 billion of bonds and Williams Communications Group's default totals $3 billion.

However Moody's expects the number of issuer defaults to decline.

"Virtually every indicator that is useful for predicting the default rate points to lower levels a year from now," Hamilton added, citing healthier industrial production figures, continued low interest rates and a steep yield curve, a tightening high yield spread, and improving credit fundamentals.

Moody's default rates are weighted by issuer rather than dollar volume. The speculative-grade default rate includes only issuers that have had a junk rating for at least a year before default.

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