There were no Canadian bond or bank loan defaults in 2006, according to Moody’s Investors Service’s fifth annual report on the default, recovery and credit loss experience of Canadian corporate issuers.

This is only the second time in the last 18 years there have been no recorded defaults in a year, Moody’s reported. The last year to pass without any defaults was 1996.

“In addition to the lack of defaults, the aggregate trend in credit quality among Canadian corporate issuers was favorable last year, with rating upgrades outnumbering downgrades in 2006 for the first time since 2000,” says, Sharon Ou, analyst of Moody’s Investors Service and author of the report.

Between 1989 and 2006, 73 rated and unrated Canadian issuers have defaulted on a total of $32.6 billion of bonds and $12 billion of loans, says Moody’s. The default count peaked at 14 in 2000, while default volume reached its highest level of $18.4 billion two years later in 2002.

Among the 73 defaulters, 27% were issuers from Canada’s basic industries, including the metal/mining and forest/paper product sectors. Measured by default volume, however, nearly half of the defaulted debt was contributed by telecom issuers, led by AT&T Canada, which defaulted on $4.6 billion of bonds and $0.9 billion of loans in September 2002.

During the 18-year period of the study, the average default rate for Canadian issuers has been 1.5% over a one-year horizon and 6.3% over a five-year horizon. “The fact that multi-year average default rates for Canadian issuers have been lower than the comparable rates for U.S. issuers is in large part because the risk of Canadian issuers is in aggregate lower than that of US borrowers,” says Donald Carter, managing director of Moody’s Canada.

Defaulted bond recovery rates by lien position have been roughly the same for Canadian and U.S.-based defaults, reports Moody’s. For example, the senior unsecured bond recovery rate for Canadian issuers has averaged 35.6% of par, compared to 38.9% in the U.S.