Junk defaults rise to 1.85% in October, S&P says

New York, Nov. 9 - The global speculative-grade default rate rose to 1.85% for the 12 months ending in October from 1.64% the previous month, Standard & Poor's said.

S&P said the increase was the first since October 2003.

But the rating agency noted that the previous 11 months of declining defaults had partly been due an earlier period of heavy defaults through the third quarter of 2003 dropping out of the 12 month window used in the calculation.

Nonetheless, the global rate is now a "fraction" of the long-term average of 5.27% for 1981 to 2003 and is at its lowest level since May 1997.

S&P says expectations for continued economic strength, relatively favorable financing conditions and healthy corporate profitability point to continued low defaults in the near term, with the global rate slowing its decline for the rest of 2004.

The rating agency's forecasting model indicates that U.S. rates will will rise slightly from their third-quarter low but the average forecast for the next four quarters is still 2.6%, below the 4.0% of the last four quarters.

However S&P remains concerned about a bigger increase in the next two to three years due to the high proportion of low rated debt issuance, especially in the United States.

By region, the U.S. speculative-grade default rate was 2.32% in October, the lowest since August 1998.

For Europe the figure was 1.24%, up from a month earlier due to the inclusion of an entity that subsequently defaulted in the 12-month rolling window used for calculating the default statistics.

Emerging markets had a zero default rate and have not seen a default since September 2003.

So far in 2004 there have been 33 defaults on $10.4 billion of debt. The United States accounts for 28 of the total and $8.8 billion of debt, Europe two and $1.3 billion of debt with a Canadian steelmaker and two Japanese companies accounting for the rest.

S&P's list of weakest had 26 issuers with $11.4 billion of debt at Nov. 9, down one from a month earlier. The list is made up of companies rated CCC or lower with either a negative outlook or on CreditWatch negative.

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