Speculative corporate default rate rises

Speculative corporate default rate rises

Moody's trailing 12-month global speculative grade corporate default rate rose slightly in May to 2.8%, up from 2.6% in the previous month and just shy of the rating agency’s forecast of 3% one year ago.

There were nine Moody's-rated corporate defaults in May, three of which were Spanish banks that completed distressed exchanges on subordinated bonds and hybrid securities. While in the year to date, 34 Moody's-rated corporate issuers have defaulted: 18 from North America, 12 from Europe and four from Latin America.

"Corporate defaults remain remarkably stable, even in Europe, matching our expectations almost exactly," noted Albert Metz, Managing Director of Credit Policy Research.

In the US, the speculative-grade default rate ended May at 2.9%, down from 3.1% the previous month. In Europe, the rate jumped to 2.9% in May from 2.0% in April, while it was 3.8% at the end of May 2012.

Moody's default rate forecasting model now predicts that the global speculative-grade default rate will finish 2013 at 3.1% and that thereafter it will edge lower, to 2.5% by the end of May 2014.

Moody's still expects default rates to be highest in the media, advertising, printing and publishing sector in the US and the hotel, gaming and leisure sector in Europe.

On a dollar-volume basis, the global speculative-grade bond default rate was 1.7% in May, up from 1.4% the prior month but down from 2.1% at the end of May last year.

In the US, the dollar-weighted speculative-grade bond default rate held steady at 1.3% from April to May. The comparable rate was 1.6% in May 2012.

In Europe, the dollar-weighted speculative-grade bond default rate finished May at 3.5%, more than double April's reading of 1.6%. The European rate finished May at 3.8% last year.

Moody's global distressed index continues its downward path, falling to 7.3% in May from 8.0% in April. A year ago, the index stood at 18.6.

In the leveraged-loan market, two Moody's-rated loan issuers defaulted in May, one from Canada and the other from the UK. The trailing 12-month US leveraged loan default rate finished May at 2.5%, down from 2.9% the prior month. This time last year, the loan default rate stood at 2.1%.