Moody's speculative-grade default rate ends fourth quarter at 1.7%

By Caroline Salls

Pittsburgh, Jan. 10 - Moody's Investors Service's trailing 12-month global speculative-grade default rate finished at 1.7% in the fourth quarter of 2011, very close to the ratings agency's 1.9% forecast from one year ago, according to Moody's monthly default report.

In the United States, the speculative-grade default rate ended the fourth quarter at 1.8%, down from 2.0% in the third quarter, while in Europe the default rate almost doubled to 2.7% from 1.4%.

Moody's said it expects the global speculative-grade default rate to rise to 2.9% by the end of 2012, and that the rate is probably at the bottom of default cycle right now.

"The story of 2011 is how few defaults occurred, despite weak fundamental macroeconomics and despite credit spreads more typically associated with distress," Moody's Albert Metz said in the report.

"We are expecting somewhat higher default rates in 2012, but rates which are still low by historic standards."

A total of 19 Moody's-rated corporate debt issuers defaulted in the fourth quarter, bringing the 2011 default total to 36. In 2010, there were 61 defaults of which 21 occurred in the last quarter of the year.

Moody's said the two industries contributing the largest number of defaults in 2011 were the banking and the energy: oil and gas sectors with five defaults each.

According to the report, the five banks that defaulted were based in Europe and defaulted on junior debt via distressed exchanges. Moody's said North America was the base for 26 of the defaults with the remainder from Europe.

Moody's said it expects the highest default rates to be in the consumer services sector in the United States and the business services sector in Europe.

By dollar volume, Moody's said the global speculative-grade bond default rate finished the fourth quarter at 1.7%, up from 1.2% in the previous quarter.

In the United States, the dollar-weighted speculative-grade bond default rate remained unchanged at 1.1% from the third to the fourth quarter. In Europe, the agency said the rate came in at 3.8% in the final quarter of 2011, more than doubling the third quarter's rate of 1.5%.

In the leveraged loan market, no Moody's-rated loans defaulted in the final quarter of 2011. The trailing 12-month U.S. leveraged loan default rate came in at 0.6%, down from 1.2% in the third quarter.

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