The global speculative-grade default rate finished 2011 at 1.7% in the fourth quarter of 2011, according to Moody’s Investors Service, but it expects the rate will rise in the year ahead.
The rating agency notes that the year end rate was very close to Moody’s forecast of 1.9% from one year ago. For the year ahead, Moody’s now expects the global speculative-grade default rate to rise to 2.9% by the end of 2012, noting that the rate is probably at the bottom of default cycle right now.
“The story of 2011 is how few defaults occurred, despite weak fundamental macroeconomics and despite credit spreads more typically associated with distress,” notes Albert Metz, managing director of credit policy research at Moody’s. “We are expecting somewhat higher default rates in 2012, but rates which are still low by historic standards.”
A total of 19 Moody’s-rated corporate debt issuers defaulted in the fourth quarter, bringing the 2011 default total to 36. In 2010, there were 61 defaults of which 21 occurred in the last quarter of the year.
The two industries contributing the largest number of defaults in 2011 were the banking and the energy (oil & gas sectors) with five defaults in each. The five banks that defaulted were based in Europe and defaulted on junior debt via distressed exchanges. North America was the base for 26 of the defaults with the remainder from Europe.
Looking ahead, Moody’s expects the highest default rates to be in the consumer services sector in the U.S. and the business services sector in Europe.
By dollar volume, the global speculative-grade bond default rate finished the fourth quarter at 1.7%, up from 1.2% in the previous quarter. Last year, the rate also ended the year at 1.7%
Moody’s distressed index, which is a measure of the percentage of high-yield issuers that have debt trading at distressed levels, stood at 24.1% in the last quarter of 2011, down from 24.6% the previous quarter. A year ago, the index stood at 10.5%.