Default rate declines to 10.7% in September, S&P says

New York, Oct. 23 - The global speculative-grade default rate declined to 10.7% in the 12 months to September, according to Standard & Poor's.

The rating agency noted that the figure is down from a peak of 11.3% in June but added that because of the continuing weak economy and declining credit quality it expects that default rates will decline more slowly than in the 1990s.

During the third quarter, 37 corporations defaulted on $46.3 billion of debt, most of it due to WorldCom Inc. which made up $31.9 billion of the total. The figure was the second highest ever, close to the record $48.2 billion of defaults in the second quarter.

Through the end of the third quarter, $135.9 billion of debt has defaulted so far in 2002, already far above the $117.4 billion seen for all of 2001.

By number of issuers, the third quarter's count is down from the record 94 that defaulted in the first quarter when 38 Argentinean companies inflated the figures.

S&P also noted that the third quarter is the first quarter which has seen fewer than 40 defaults since the third quarter of 2000.

During the three month period, six companies rated investment grade on Jan. 1, 2002 defaulted: Mutual Risk Management Ltd., AT&T Canada Inc., NRG Energy Inc. and its subsidiary NRG South Central Generating LLC, and WorldCom Inc. and its subsidiary SkyTel Communications Inc.

Of the third quarter's total, telecommunications was hit hard once again, with 10 companies defaulting. Transportation and utility/energy each had four defaults.

Biggest of the quarter's defaults were WorldCom with $31.9 billion, AT&T Canada Inc. at $3.3 billion, Conseco Inc. at $2.6 billion, NRG Energy Inc. at $1.4 billion and Callahan Nordrhein-Westfalen GmbH at $1.3 billion.

By country, 27 of the quarter's defaults were in the U.S. followed by two in Bermuda and one each in Brazil, Canada, Chile, Germany, Mexico, the Netherlands, the U.K. and Uruguay.

The U.S. companies accounted for $39.7 billion of rated debt compared with $35.6 billion in the second quarter and $27.3 billion in the first quarter of this year.

Looking ahead S&P said it expects defaults globally to continue to decline from their record highs as many of the low quality issuers of the late 1990s have now already defaulted.

But S&P also cautioned that it has 58 issuers rated CCC or lower and on CreditWatch with negative implications or with a negative outlook, an increase from 48 similarly assessed issuers at the end of the second quarter.

Particular risks that could push defaults back up to record levels include war, a worsening economy and continued deterioration in Brazil, S&P added. In addition, the high cost of borrowing signaled by the recent volatility and rise in credit spreads impedes companies from issuing new debt.

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