Corporate issuers defaulted on a total of US$238.6 billion of bonds and US$42.7 billion of loans in 2008, according to Moody’s Investors Service.

“The financial industry was the most troubled sector in 2008 as measured by default volume,” says Kenneth Emory, Moody’s director of corporate default research.

“In 2009, the number of defaulters is expected to triple to roughly 300 companies from 101 companies in 2008. And, because recovery rates are negatively correlated with default rates, recovery rates on defaulted debt are likely to decline in 2009 as default rates continue to increase.”

Moreover, recoveries are likely to be below historical averages as a result of strong loan issuance in recent years, says Moody’s.

Moody’s global speculative-grade default rate ended 2008 at 4.1%, more than quadrupling 2007’s year-end level of 0.9%. The default rate for all Moody’s-rated corporate issuers rose to 1.9% at the end of 2008 from 0.3% at year-end 2007.

For the first time since 2003, rating downgrades in 2008 surpassed rating upgrades, says Emery. The upgrade-to-downgrade ratio fell significantly from 2.0 in 2007 to 0.3 in 2008.

Measured on a dollar volume basis, Moody’s global speculative-grade bond default rate ended 2008 at 5.8%, up from 2007’s level of 0.6%. Among all Moody’s-rated issuers, the volume-weighted default rate increased from 0.1% in 2007 to 2.2% in 2008.

In addition, Moody’s formal forecasting model indicates that the global issuer-weighted speculative-grade default rate will decline from a peak of 16.4% in November to reach 16.0% at the end of the year. “If this forecast materializes, the speculative-grade default rate will have almost quadrupled from the level of 4.1% at the end of 2008,” says Emery.

Across regions, 84 of 2008’s defaulters were North American issuers — 74 in the United States and 10 in Canada — with defaulted debt volumes totaling US$226.2 billion. In Europe, 12 Moody’s-rated corporate issuers defaulted on US$53.4 billion in debt. The remaining defaulters were Latin-American and Asian issuers.

IE