(Updated with five-year default predictions from Deutsche
Bank.)
DOW JONES NEWSWIRES
The global speculative-grade default rate over the past year
stood at 7% at the end of the first quarter, up from 4.1% at the
end of 2008 and 1.5% a year earlier, according to Moody's Investors
Service.
The ratings agency again said it now predicts the global default
rate will rise to a peak of nearly 15% in the fourth quarter, but
it lowered its estimate for a year from now, saying the rate will
remain elevated at about 12%.
"Moody's model-based forecast for the speculative-grade default
rate has declined in the last couple of months as high-yield bond
spreads have declined moderately from their fourth-quarter 2008
peaks," said Kenneth Emery, director of default research.
So far this year, 79 Moody's-rated debt issuers have defaulted,
including 35 in March. In the first quarter last year, just 16
companies defaulted. The defaulters include 58 issues from North
America. The majority of the defaults were in the media, chemicals,
high tech and beverage, food and tobacco sectors.
Measured on a dollar-volume basis, the global junk-grade bond
default rate ended the quarter at 10%, up from 5.8% in the prior
quarter and 0.9% in the prior year.
Moody's said the U.S. junk-grade default rate will peak at 14.1%
in the fourth quarter, above last month's estimate of 13.8%. It
said the European rate will likely rise to 21%, below its estimate
of last month.
Some estimates paint an even more bleak default picture over the
long run. U.S. high yield currently prices in approximately 53%
defaulting on a zero-recovery basis over the next five years, wrote
Deutsche Bank strategist Jim Reid this week, which he compared to
the 31% defaults seen over five-year periods during the last two
recessions and the 45% seen during the great Depression.
"Given that this recession will easily outstrip [the recessions
of] the 90s and 00s, then 40% high yield defaults over 5 years
seems to be a minimum starting point for this default cycle with
50% not unrealistic," Reid wrote.
Moody's reiterated that its forecasting model indicates the
consumer-transportation sector will be the most troubled in the
U.S. over the coming year, while the durable consumer-goods sector
will have the highest default rate in Europe.
Moody's speculative-grade corporate default index, which
measures the percentage of rated issuers that have debt trading at
distressed levels, closed the first quarter at 51%, down from 55%
in the prior quarter but up from 23% a year earlier.
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com
(Michael Aneiro contributed to this report.)
