Moody's global default rate at 3.1% in fourth quarter on 19 defaults

By Caroline Salls

Pittsburgh, Jan. 7 - Moody's Investors Service's trailing 12-month global speculative-grade default rate finished at 3.1% in the fourth quarter of 2010, down from 4% in the previous quarter, Moody's said in a new report released Friday.

This level is close to the ratings agency's forecast of 3.3% made a year ago. The global default rate stood much higher at 13.1% in the fourth quarter of 2009.

The ratings agency said it now predicts that the global speculative-grade default rate will fall to 1.9% in 2011 under a stable baseline scenario.

In a pessimistic scenario, which incorporates a renewed liquidity freeze and further economic contractions, the global default rate could finish at 6.1%, while in an optimistic scenario, the rate could dip even further to 1.2%.

"The story of 2010 is how few defaults were actually recorded," Moody's Albert Metz said in the release.

"Our baseline expectations call for continued stability in 2011. But that baseline assumes that additional significant sovereign and financial sector problems do not develop in Europe."

In the United States, Moody's speculative-grade default rate ended the fourth quarter at 3.3%, also down from 4.0% in the third quarter, while the default rate fell to 1.9% in Europe from 3.5%.

At the end of 2009, the U.S. default rate stood at 14.1%, and the European rate was 11.3%.

Moody's said it projects the default rate to fall to 2.1% by December 2011 among speculative-grade issuers in the Unites States and to 1.2% among those in European.

Default count

A total of 19 Moody's-rated corporate debt issuers defaulted in the fourth quarter, which sends the 2010 default total to 59. In comparison, there were 269 defaults in 2009, of which 32 were recorded in the fourth quarter.

According to the release, the largest number of defaults came from the media: advertising, printing and publishing industry in 2010, with six companies in that sector defaulting. This is followed by the capital equipment sector, the hotel, gaming and leisure sector and the retail sector, each of which contributed five defaults.

Across regions, 48, or 81%, of the 2010 Moody's defaulters were from North America while seven, or 12%, were from Europe. The remaining defaulters were from Asia and Latin America.

Across industries over the coming year, the agency said default rates are expected to be highest in the consumer transportation sector in the United States and the media: advertising, printing and publishing sector in Europe.

Dollar-volume rate

Measured on a dollar volume basis, Moody's global speculative-grade bond default rate closed at 1.6% in 2010. The current level is down from the level of 2.0% from the previous quarter. A year ago, the global dollar-weighted default rate stood much lower at 16.4%.

In the United States, the dollar-weighted speculative-grade bond default rate ended the fourth quarter at 1.6%, down from third quarter's 1.8%. In Europe, the dollar-weighted speculative-grade bond default rate fell to 1.7% in the final quarter of 2010 from 2.6% in the third quarter.

Leveraged loans

Meanwhile, in the leveraged loan market, a total of four Moody's-rated loan defaulters were recorded in the fourth quarter, sending the entire year's loan default count to 23.

The trailing 12 month U.S. leveraged loan default rate finished the fourth quarter at 2.8%, down from 4.1% in the previous quarter.

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