One quarter of European junk market defaulted in 2002, Fitch says

New York, Feb. 28 - One quarter of bonds outstanding in the European high-yield market defaulted during 2002, according to Fitch Ratings.

Noting the sector is barely five years old, Fitch said European junk bonds suffered from their heavy concentration in the telecommunications and cable sectors. Nearly 90% of the defaults by par value came from these two industries.

Total European high-yield defaults were $19.2 billion - 25.1% of the amount outstanding - almost five times higher than the 2001 figure of $4.2 billion, or 8.9%.

Fitch noted that the U.S. high-yield market also saw record credit problems with 16.4% of bonds defaulting or $109.8 billion. Of the U.S. total, 54% were in telecommunications.

European high yield defaults were made up of 28 issuers defaulting on 73 issuers, up from 18 issuers and 29 issues in 2001.

Of the $19.2 billion total, telecommunications was $9.5 billion and cable $7.6 billion. The default rate for these two sectors was 44.8%. The rest of the European junk market saw a default rate of 5.6% (the comparable U.S. figure was 7%).

The average time to default was "a very brief" 2.5 years, Fitch said, attributing the short period to the youth of the market and the "aggressive nature" of deals brought to market in the late 1990s.

The weighted average recover rate in Europe was 15% of par, using the price of defaulted issues one month after default, little changed from the 11% of par level in 2001. Again telecommunications and cable were to blame as they saw recoveries of 12% and 15% respectively.

Despite the huge volume of defaults and little new issuance, the European high-yield market grew by 35.2% in 2002 thanks to downgrades of formerly investment-grade names.

These fallen angels added roughly $30 billion, taking the market size to more than $60 billion at year end.

Downgrades outweighed upgrades by 22:1 during the year, measured on a par value basis and excluding defaults.

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