Global Speculative-grade Default Rate Quadrupled in 2008

PR Log (Press Release) – Mar 06, 2009 – Defaults by speculative-grade companies quadrupled in 2008, as economic growth slowed and the credit availability tightened, according to a new report from Moody’s Investors Service. About 101 Moody’s-rated corporate issuers defaulted on a total of $238.6 billion of bonds and $42.6 billion of loans in 2008. The credit-rating agency has forecasted that the business outlook is likely to worsen as the downturn continues.

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.

The battered financial industry was the most troubled as measured by default volumes last year. The bankruptcy of investment bank Lehman Brothers Inc. in September amounting to $120.2-billion in debt was the largest default in history, according to the report. Default volume in 2008 was at a record high, while the number of defaulted issuers was the highest since 2002.

From a geographic perspective, 84 of the total 101 defaulters were North American - 74 in the United States and 10 in Canada. Defaulted debt amounted to 226.6 billion in North America. Twelve European issuers defaulted on $53.4-billion of debt. The remaining defaulters were from Latin America and Asia.

“In 2009, the number of defaulters is expected to triple to roughly 300 companies from 101 in 2008,” noted Kenneth Emery, director of corporate default research for Moody's Investors Service. Recovery rates are also expected to decline.

The global speculative-grade default rate will jump sharply to 16.4% in the fourth quarter of 2009, Moody forecasts. Such a level of default would exceed the peaks reached in 1991 and 2001, if it materializes.