Even if the U.S. economy suffers another severe recession, corporate defaults won’t get nearly as bad as they did during the recent credit crisis, says a new study from Moody’s Investors Service.

In a new report, the rating agency says that while defaults would rise in the event of another major recession, they would not get close to the levels they attained during the credit crisis. Its default prediction model suggests that, in a severe recession, where the U.S. unemployment rate rises to over 13%, the North American speculative-grade default rate would peak at 9.4% in February 2013, significantly below the 14.5% level it achieved in November 2009.

Moody’s baseline forecast continues to assume a sluggish economic recovery in the US, which is expected to result in a North American speculative-default rate to just 2.2% a year from now.

“The lower forecasted default rate is no surprise, given that corporate bond issuers are better positioned in terms of credit quality than they were before the credit crisis,” says Kenneth Emery, a Moody’s senior vice president commenting on the study. “Over the last year there have been fewer downgrades, fewer issuers on negative outlook, and fewer issuers on watch for downgrade.” And, he notes, many weak issuers defaulted in 2008-09, so “the credit quality of those that remain is higher.”

Industries that would likely have a default rate greater than 10% during a deep recession would be hotel/gaming/leisure, consumer and business services, advertising/printing/publishing and containers/packaging/glass, it says.

Moody’s also says that during a severe recession there would be surprisingly few issuers downgraded from investment to speculative grade. It identifies only two issuers at the lowest investment-grade rating as having a more than 25% chance of being downgraded even in a severe recession.

IE