Amid continued economic uncertainty in Europe, global defaults rose last year, reports Moody’s Investors Service in new research. It sees default rates holding steady for the year ahead.
The number of corporate defaults rose during the year, and Moody’s global speculative-grade default rate finished the year at 2.6%, up from 1.9% at the end of 2011, the rating agency reports. For all Moody’s-rated corporate issuers, the default rate rose to 1.3% at the end of 2012, up from 0.9% at the end of 2011.
Notwithstanding the increase, the default rate remains well below the historic average of 4.7%. “The overall incidence of defaults remained low in 2012, due mainly to an extremely accommodative monetary environment allowing distressed borrowers to access the debt markets and refinance debt on favorable terms,” says managing director of credit policy research, Albert Metz.
Looking ahead, Moody’s predicts that the global rate will hold steady in 2013, finishing the year at 2.7%. “We believe the monetary environment will remain accommodative in the near future,” adds Metz. “Financial market conditions have been relatively benign in recent months, and the downside risks facing the global economic recovery have diminished since the end of last year.”
Moody’s reports that, globally, 58 rated corporate issuers defaulted in 2012, compared with 37 in 2011. “Along with increasing financial stress from the European sovereign debt crisis at the beginning of the year, defaults were elevated in the first quarter, when 23 companies defaulted, while in the subsequent quarters there were 11 or 13 defaults,” says vice president and senior analyst, Sharon Ou.
Defaults in 2012 were led by the consumer industries and capital industries sectors, Ou says, with these sectors accounting for 40% of the defaults. By region, defaults remained concentrated in North America last year, where 44 issuers defaulted on $29.0 billion of debt; nine defaults occurred in Europe; there were four in Latin America; and one in Africa.