Fewer corporate issuers defaulted on rated bonds in 2002, but the total dollar volume of defaulted debt soared to over US$163 billion, up from US$106 billion in 2001 according to a report from Moody’s Investors Service.

During 2002, 141 corporate bond issuers defaulted on their bonds, down from 186 in 2001. The default rate for all Moody’s-rated corporate bond issuers fell to 3%, compared with 3.8% in 2001. However, when measured in dollar terms, the rate for all corporate issuers increased to 5.3% in 2002, up from 4.2% in 2001.

The default rate for speculative-grade rated issuers fell to 8.3% in 2002 from 10.6% the year before. As a percentage of dollar volume, the speculative-grade default rate jumped to 21% in 2002 from 18% in 2001.

“The duration and depth of the current credit cycle has eclipsed that of the 1990-91 period and, in fact, has not been matched since the 1930s,” said David Hamilton, Moody’s director of corporate bond default research. “This situation is largely the product of three factors: the unprecedented issuance volume of very risky speculative-grade securities in the late 1990s, the slow economic growth of the last two years, and the recent wave of corporate accounting scandals.”

The rating agency reported that 20 defaults topped US$1 billion each, quadrupling the 1983-2001 average default size to $1.7 billion. The largest default in 2002 was also the largest in history: WorldCom, Inc., defaulted on over US$23 billion of bonds in July 2002. More than half of last year’s defaults by dollar volume occurred in the telecommunications sector.

U.S issuers comprised 68% of all defaulters, down from 77% in 2001. Europe’s share of the global defaults rose sharply last year, to just over 19%, up from 7% in 2001.

The percentage of corporate debt issuers downgraded in 2002 and 2001 also reached record highs. Among speculative-grade issuers, 25% received downgrades in 2002. Among investment-grade corporations, 22% received downgrades. The number of “fallen angels”, debt issuers whose ratings fall from investment to speculative grade, more than doubled, to 5.2% last year from just over 2% in 2001.

Moody’s forecasting model indicates that during 2003, the global speculative-grade default rate should fall to 6.9%, down from 8.3% at the end of 2002. The 10-year high of 10.6% was notched in 2001.