Moody's global junk default rate declines to 2.6% in fourth quarter

By Caroline Salls

Pittsburgh, Jan. 9 - Moody's Investors Service's trailing 12-month global speculative-grade default rate came in at 2.6% in the final quarter of 2012, down from 3.2% in the previous quarter, according to the ratings agency's monthly default report.

A total of 58 Moody's-rated corporate debt issuers defaulted in 2012, with 10 defaulting in the fourth quarter.

"Default rates remain low, consistent with our expectations," Moody's Albert Metz said in the report.

"While European spreads are at a five-year low, we nevertheless expect a slight increase in defaults going forward."

In the United States, Moody's speculative-grade default rate dropped to 3.2% in December, down from 3.6% in the previous quarter.

At this time last year, the U.S. rate was 1.9%. In Europe, the rate declined to 1.8% from 3.1% in the previous quarter. Last year, the European default rate stood at 3.3% at the end of December.

Moody's said it now expects the global speculative-grade default rate to rise modestly to 3.0% by the end of 2013. The agency said that rate would be below the average of 4.8% since 1983.

By region, Moody's predicts that the rate will be 3.0% in the United States and 3.3% in Europe by the end of this year.

Across industries, Moody's said it continues to expect default rates to be highest in the media: advertising, printing and publishing sector in the United States and the hotel, gaming and leisure sector in Europe.

By dollar volume Moody's global speculative-grade bond default rate dropped to 1.7% in the fourth quarter from 2.0% in the third.

In the United States, the dollar-weighted speculative-grade bond default rate came in at 1.5% in December, down slightly from 1.6% in the third quarter.

Meanwhile, in Europe, Moody's said the dollar-weighted speculative-grade bond default rate came in at 2.3% in the fourth quarter, down from the third quarter's 3.3%.

In the leveraged-loan market, there were three Moody's-rated defaulters during the final quarter of 2012, including CoActive Holdings LLC, which completed a distressed exchange on both its first-lien and second-lien loans in December.

Moody's said its trailing 12-month U.S. leveraged loan default rate closed 2012 at 2.9%, up from 2.6% in the previous quarter and 0.6% a year ago.

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