Defaults post largest drop in two years, fall to 9.6%, Moody's said

New York, Sept. 23 - The corporate bond default rate registered its largest one-month drop in two years, according to Moody's Investors Service.

For the 12 months to August 2002, the rate was 9.6%, down 0.5% from 10.1% a month earlier, the rating agency said.

And it added that the default rate has now fallen for six out of the eight months so far in 2002.

Moody's also updated its forecasts for future default rates, putting the full-year 2002 figure at 9.8% and the August 2003 figure at 8.5%.

However August's defaults mean 2002 will be a record year for defaults - with only eight months completed.

During August seven issuers defaulted on $10.2 billion of bonds. Of these, three issuers were U.S. based and there was one each from Brazil, the U.K., Argentina and Sweden.

The year-to-date dollar value of defaults is now $139.5 billion, already more than the previous record of $135 billion seen in 2001.

The month's biggest defaults were Conseco, Inc. at $5.1 billion and Marconi Corp., plc at $3.3 billion.

Despite the sharp drop in August, Moody's cautioned that it expects the default rate to remain high in the near term and decline slowly going forward.

Based on a preliminary count of defaults in September to date, Moody's said that the default rate will very likely rise again for the 12 months ending September.

"Significant hurdles will need to be overcome before we see a material decline in the default rate," warned David T. Hamilton, director of default research at Moody's, in a news release. "A lot of things need to go right for aggregate credit quality to get better, and only one or two things to go wrong to keep thing where they are or get worse."

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