The global default rate for speculative-grade corporate bonds in the first six months of 2002 was 10.3%. The rate has stayed at this level since March 2002. This reflects a high pace of defaults primarily within the telecommunications sector, says Moody’s Investors Service. Excluding telecommunications defaults, the dollar volume-weighted speculative grade default rate ending June 2002 is 10%.

Worldwide, 42 issuers defaulted on more than US$42.6 billion of debt in the second quarter of 2002. The number of issuers defaulting in the second quarter failed to surpass the quarterly record of 58 set in the first quarter 2001, says Moody’s. The second quarter’s defaulted bond dollar volume, however, was nearly double the first quarter’s amount of $21.4 billion and represents the highest quarterly total ever.

“The severity of the telecommunications sector collapse is fully appreciated by looking at the default statistics for the industry,” says David Hamilton, director of Default Research. “Through the first half of 2002, 55% of defaults by volume and 37% as a percentage of issuers have been telecommunications firms.”


Moody’s continues to predict a decline in the default rate by the end of 2002. However, considering the higher than anticipated default rates in the second quarter, Moody’s has revised the year-end 2002 default rate forecast from 7% to 8.8%. Moody’s forecast through the end of June 2003 indicates that the default rate may turn back up before it begins to decline again. Over the next 12 months, most of the decline in the default rate is predicted to occur in the last two quarters of 2002, says Moody’s. Thereafter, the default rate is forecast to hover in its year-end 2002 8.8% range through the second quarter of 2003.

“We continue to see a relatively high ratio of credit rating downgrades to upgrades, which suggests that near-term default risk has not completely subsided,” said Hamilton. “A significant decline in the default rate will not occur until credit quality shows some signs of sustained mprovement.”