Moody’s Investors Service is now predicting that the global speculative-grade issuer-weighted corporate default rate will climb to 4.2% by the end of this year and rise sharply to 10.4% a year from now.

“Corporate default rates will likely climb sharply throughout 2009 as the ongoing credit crisis leaves few options for companies needing to refinance maturing debt or amend loan agreements that move out of compliance with covenants,” says Moody’s director of Corporate Default Research, Kenneth Emery. “Moody’s expects distressed debt exchanges to comprise a growing share of total defaults as they remain one of the few available options for companies to reduce debt service burdens.”

Moody’s global speculative-grade default rate edged higher to 3.1% in November, from October’s revised level of 2.9% and 0.9% a year ago. Measured on a dollar volume basis, the default rate rose to 2.5% in November from 2.4% in October. A year ago, the global dollar-weighted bond default rate stood at 0.6%.

For both U.S. and European speculative-grade issuers, Moody’s forecasting model foresees default rates increasing to 4.6% and 2.6%, respectively, by the end of this year, and 10.7% and 12.5% a year from now.

Across industries over the coming year, Moody’s default rate forecasting model indicates that the consumer transportation sector will be the most troubled in the U.S. and the durable consumer goods sector will have the highest default rate in Europe.

Moody’s speculative-grade corporate distress index — which measures the percentage of rated issuers that have debt trading at distressed levels — closed at 51.8% in November, up from 48.5% in October. The index is now at its highest level since it began in 1996. A year ago, the index was at just 8.0%.

In the year to date, a total of 80 Moody’s-rated corporate issuers have defaulted this year, compared with 17 defaults for the same period last year. Of the 80 defaulters, 66 are from the U.S. and Canada and nine are from Europe.

IE