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Moody’s: U.S. non-financial defaults continue decline in third quarter
By Caroline Salls
Pittsburgh, Nov. 1 – Moody’s Investors Service reported Wednesday that defaults among U.S. speculative-grade, non-financial companies continued to recede in the third quarter, declining to a three-year low amid solid liquidity and economic growth.
According to a Moody’s news release, at the end of the third quarter, the U.S. speculative-grade default rate ticked down to 3.3% from 3.8% at the end of the second quarter.
“The default rate is moving past the damage from the commodity downturn and continues to trend lower,” Moody’s John Puchalla said.
“A combination of strong liquidity and economic growth will help to stave off defaults, supporting a continued slide of the default rate to 2.3%, projected a year from now.”
Moody’s said even as the commodity downturn produced a significant spike in defaults, the damage was contained and defaults outside of commodities remained low.
More recently, Moody’s said credit strains in retail have lifted non-commodity defaults, but not enough to undercut the recovery in the commodity sectors.
In the third quarter, Moody’s said there were nine U.S. corporate family defaults, four of which occurred in the retail sector.
Distressed exchanges accounted for five of the quarterly defaults, with retailers Toys ‘R’ Us, Inc. and True Religion Apparel, Inc. the only bankruptcy defaults.
Despite the favorable default outlook over the next year, Moody's says “tinder,” or speculative-grade market vulnerability, is in place for a rough default cycle, which could be sparked by a downshift in the economy and credit market access.
Should an economic downturn occur, the agency said it would likely flare up into a large number of defaults, including the potential for meaningful distressed exchange activity.
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