High-yield defaults drop to 1.71% in January from 1.82% in December, S&P says

New York, Feb. 3 - The global speculative-grade bond default rate fell to 1.71% for the 12 months ended in January from 1.82% a month earlier, according to Standard & Poor's.

The rate has now been below the long-term average of 4.91% for 1981 to 2004 for 14 consecutive months, the rating agency said, although it noted the level is above the record low of 1.3% in the second quarter of 1997.

S&P anticipates defaults will stay low in the near term thanks to expectations for economic stability, relatively favorable financing conditions and healthy corporate profitability.

But Diane Vazza, head of S&P's Global Fixed Income Research Group, forecast that the level will begin "edging up slowly from its trough before the end of 2005."

For the United States, S&P's model forecasts a further decline from the fourth quarter low of 2.3%, then a rise in late 2005. The next four quarters should see an average rate of 2.2%.

In 2006 and beyond, S&P is concerned about a "more material increase in defaults" because of recent heavy issuance of low rated bonds.

S&P's weakest links list of companies vulnerable to default had 23 members with $8.4 billion of rated debt as of Feb. 3, down two from a month earlier. Issuers are classed as a weakest link if they are rated CCC or lower and have a negative outlook or are on CreditWatch negative.

By region, the 1.71% January default rate breaks up into 2.34% for the United States, 0% for the European Union and 0.48% for emerging markets.

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