Global spec-grade default rate falls further in May: Moody’s

Date: Tuesday, June 8, 2010
Author: Investment Executive

The global default rate for speculative-grade issuers continued to fall in May, Moody’s Investors Service said Monday.

The firm reports that the global default rate dropped to 7.5% in May from 9.0% in April, and is now down from its peak of 13.5% in November 2009. A year ago, the global default rate stood at 9.8%.

Moody’s default rate forecasting model now predicts that under its baseline scenario, the global speculative-grade default rate will finish this year at 2.4% and then fall to 1.9% a year from now.

“This baseline scenario assumes that high yield spread will continue to tighten considerably while the unemployment rate is expected to increase onlymodestly in the coming year,” said Moody’s director of credit policy research, Albert Metz.

“Under the pessimistic scenario of a second economic downturn and renewed liquidity pressures, the global default rate may land at 5.6% in December 2010 and return to 10.0% by May 2011,” added Metz.

Only one company defaulted in May of this year, lifting the year-to-date default count slightly up to 23. In comparison, 30 defaults were recorded May 2009. Overall, 21 of this year’s defaults were by North American issuers while the other two were from Europe and Asia.

Across industries over the coming year, default rates are expected to be highest in the hotel, gaming, & leisure sector in both Europe and the U.S.

Measured on a dollar volume basis, the default rate was down from 8.1% to 6.6% in May, Moody’s added.

Although, its’ speculative-grade corporate distress index -- which measures the percentage of rated issuers that have debt trading at distressed levels -- came in at 14.9% at the end of May, up from 14.1% in April. Still, a year ago, the index was at 46.7%, it said.