Global junk defaults rise for second month to 1.94%, S&P says

New York, Dec. 9 - The global speculative-grade default rate rose to 1.94% for the 12 months ending in November from 1.90% in October, according to Standard & Poor's. The increase marked the second consecutive month of rising defaults.

The rate remains below the long-term average of 5.27% for the period 1981 to 2003 but is above the record low of 1.3% in the second quarter of 1997.

Looking ahead, S&P expects defaults will edge up but remain low due to continued economic strength, relatively favorable financing conditions and healthy corporate profitability.

"In the U.S., results from a proprietary default forecast model indicate that U.S. speculative-grade default rates will rise slightly from their third-quarter low (2.3%) but the average forecast for the next four quarters (2.6%) will remain lower than the average of the last four quarters (4.0%)," said Diane Vazza, head of S&P's Global Fixed Income Research Group, in a news release.

S&P also noted that its model's predictions have been overshooting actual results recently although remaining within the 95% confidence interval of plus or minus 1.3%.

S&P added that it is still concerned there may be a bigger increase in defaults in two to three years.

By region, the speculative-grade default rate is 2.56% for the United States, 1.20% for the European Union and 0.24% for emerging markets. S&P said one "confidentially rated" default has been recorded in emerging markets, the first since September 2003.

So far 2004 has seen 40 defaults on $12.7 billion of debt. Of these 34 for $11.1 billion were in the United States, two for $1.3 billion in Europe and two in Japan, one in Canada and the emerging markets default.

As of Dec. 8, S&P's weakest links list contained 26 issuers with $6.6 billion of debt, the same number of issuers as a month earlier. Included are companies rates CCC or lower and with a negative outlook or on CreditWatch negative.

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