Global corporate defaults were low in 2013, and could slide further still this year as the economic recovery gains steam, says Moody’s Investors Service.
The rating agency reports that corporate defaults held steady at the low levels through 2013. During the year, 66 Moody’s-rated corporate issuers defaulted, compared with 63 in 2012. And, it says that the defaulted debt in 2013 was comprised of $36.7 billion of bonds and $17.8 billion of loans, compared with $31.7 billion of bonds and $17.6 billion of loans in default in 2012.
Corporate defaults were highly concentrated in two industries, Moody’s says, capital industries and banking, which combined to account for 44% of the defaults. It also notes that Europe was the region with the greatest dollar amount of debt that defaulted, $23.8 billion, compared with $21.5 billion in North America. Although, North America continued to have the greatest number of defaults, accounting for half of them.
The default rate for all Moody’s-rated corporate issuers came in at 1.4% in 2013, unchanged from its level at the end 2012. The rate for global speculative-grade defaults finished the year at 2.9%, also unchanged from 2012.
“With the US economic condition gradually improving and the sovereign debt crisis easing in Europe, the global economy is now navigating towards calmer waters,” says Sharon Ou, Moody’s vice president and senior analyst.
“This, together with continued accommodative funding conditions and healthy corporate fundamentals, put defaults in 2013 on the same pace as what we saw in 2012, leaving the default rate low by historical standards,” she said.
And, as the economic recovery gains steam, Moody’s expects the default rate to slide further in the year ahead. “Looking ahead, we expect a somewhat lower corporate default rate in 2014 mainly given our expectations for relatively more robust economic growth,” says managing director of credit policy research, Albert Metz.