Moody's global junk default rate declines to 2.8% in third quarter

By Caroline Salls

Pittsburgh, Oct. 8 - Moody's Investors Service's trailing 12-month global speculative-grade default rate finished the third quarter at 2.8%, down from 2.9% in the second quarter and 3.3% in the same period of last year, according to a default report released Tuesday.

Moody's said the latest default rate almost matches the 2.9% rate it predicted a year ago.

In the United States, the speculative-grade default rate declined to 2.6% in the third quarter from 2.9% in the second. In Europe, the default rate came in at 3.3% in the third quarter, slightly down from the second quarter's 3.4%.

Moody's said it expects the global speculative-grade default rate to finish this year at 3%, before falling to 2.7% by the end of the third quarter of 2014.

"Global corporate defaults continue at their recent pace below the historical average," Moody's Albert Metz said in the report.

"Our central scenario assumes an orderly resolution of the U.S. budget discussions, and, under that scenario, we expect corporate default rates to remain relatively stable for the next year."

Of the 11 defaults among Moody's-rated corporate debt issuers in the third quarter, six were from North America and three from Latin America, while the remainder was from Europe.

The ratings agency said its year-to-date default tally is 51, the same as in the first three quarters of 2012.

By dollar volume, Moody's global speculative-grade bond default rate ended the third quarter at 1.7%, down slightly from 1.8% the previous quarter.

In the United States, the dollar-weighted speculative-grade bond default rate fell to 1.3% in the third quarter from 1.5% in the second. In Europe, the rate edged higher, to 3.2% from 3.1%, during the same period.

Across industries, Moody's said it expects default rates to be highest in the media: advertising, printing and publishing sector in the United States and the retail sector in Europe in the next 12 months.

In the leveraged loan market, a total of four Moody's-rated companies defaulted on their loans in the third quarter, with one of these defaults occurring in September.

The U.S. leveraged loan default rate ended the third quarter at 2.5%, up from 2.3% in the second quarter, Moody's reported.

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