Moody's global junk default rate slides to 6.1% in second quarter

By Caroline Salls

Pittsburgh, July 8 - Moody's Investors Service's trailing 12-month global speculative-grade default rate continued its second-quarter downward path, sliding to 6.1% from 10% in the first quarter, according to a news release.

A year ago, Moody's global default rate stood at 11.1%.

The ratings agency said it now predicts that the global junk default rate will fall to 2.4% by the end of this year before declining to 1.8% by the second quarter of 2011.

"Given the indicators in the market, we expect the decline in default rates to continue through the end of this year," Moody's Albert Metz said in the release.

"However, uncertainty is elevated as Europe continues to address sovereign debt issues that could impact the debt market."

In the United States, the speculative-grade default rate ended the second quarter at 6.3%, down from 11.0% in the previous quarter. At this time last year, the U.S. default rate stood at 12.1%.

Moody's said its European 12-month trailing speculative-grade default rate fell to 5.8% in the second quarter from 7.3% in the first quarter.

Among U.S. speculative-grade issuers, Moody's projects that the default rate will fall to 2.7% by December, while the agency predicts that the European rate will decline to 1.4% by the end of 2010.

Measured on a dollar-volume basis, the U.S. speculative-grade bond default rate ended the second quarter at 3%, down from 11.3% in the previous quarter, and the European speculative-grade bond default rate fell to 3.4% from 5.8%.

According to the release, 26 Moody's-rated corporate debt issuers have defaulted so far this year, of which nine were recorded in the second quarter.

In comparison, there were 90 and 85 defaults in the first and second quarter of last year, respectively.

Seven of the second-quarter defaults were by North American issuers. The remaining defaulters came from Europe and South America.

In the leveraged loan market, a total of four Moody's-rated loan defaults were recorded in the second quarter, lifting the year-to-date loan default count to 15.

All of the second quarter's loan defaulters were U.S. issuers. The trailing 12-month U.S. leveraged loan default rate ended the second quarter at 6.1%, down from 10.4% in the previous quarter and 9.1% from a year ago.

Across industries over the coming year, Moody's said default rates are expected to be highest in the business service sector in the United States and the durable consumer goods sector in Europe.

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