Outlook 2014: Moody's expects defaults to 'change little' in 2014; S&P predicts increase

By Aleesia Forni

Virginia Beach, Dec. 31 - Two major rating agencies are split in their predictions for the default rate in the upcoming year.

Standard & Poor's expects the U.S. corporate trailing 12-month speculative-grade default rate to increase to 3.1% by June 2014 from 2.3% as of September 2013.

This is lower than the long-term average of 4.5%.

Moody's Investors Service expects the trailing 12-month global speculative-grade default rate to range from 2.2% to 2.7% in 2014, following a November that saw a default rate of 2.7%.

Additionally, the agency believes the default rate will rise to 2.8% to close 2013.

Moody's: Little change ahead

Moody's expects the global speculative-grade default rate "will change little in December" and finish 2013 at 2.8%.

Furthermore, the agency predicts the default rate will finish this year at 2.3% in the United States and at 3.3% in Europe.

The agency expects the rate to shrink to 2.7% by November 2014.

"Ample credit market liquidity along with stable, if not robust, economic growth have put defaults in 2013 on the same pace as what we saw in 2012," according to a report.

"We expect this trend to continue in 2014."

The agency expects default rates to be highest in the consumer services sector in the United States and the retail sector in Europe in the year ahead.

In November, the trailing 12-month global speculative-grade default rate closed the month at 2.7%, down from October's revised rate of 2.9%.

In the United States specifically, the default rate finished November at 2.4%, a decrease from 2.5% in October.

No leveraged loan defaults

For a second consecutive month through November, Moody's saw no defaults in the leveraged loan market.

The trailing 12-month U.S. leveraged loan default rate decreased to 2.2% in November from 2.4% in October.

In November 2012, the rate was 3.0%.

Meanwhile, the global default rate came in at 1.6% in November among high-yield bond issuers when measured on a dollar volume basis. The rate decreased from 1.7% in October.

S&P: Defaults to rise

Standard & Poor's expects the U.S. corporate trailing-12-month speculative-grade default rate will rise to 3.1% by June 2014 compared to 2.3% as of September 2013.

This projection is lower than the long-term average of 4.5%.

In order for this projection to become a reality, a total of 52 speculative-grade-rated issuers would need to default between June 2013 and June 2014.

In comparison, 40 speculative-grade entities defaulted in the 12 months ended June 2013.

Default tally reaches 70

In November, Standard & Poor's saw three defaults, bringing the global corporate default tally to 70 issuers, according to a report.

Of those three, two were confidentially rated issuers and the third was not rated at the time of its default.

Forty of the year's defaults were companies based in the United States, 15 are from emerging markets, 12 are from Europe, while the remaining three are based in other developed regions.

For the second consecutive year, the highest number of defaults during the year was due to missed interest, principal or cash payments, with 31 issuers citing this reason.

Meanwhile, 18 resulted from bankruptcy filings, 11 were due to distressed exchanges and six were confidential.

One default was due to a failure to refinance or pay off a revolving credit facility, another due to subpar bond buybacks, while two were due to regulatory supervision.

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