Moody’s: U.S. junk defaults return to 4.7% average in first quarter

By Caroline Salls

Pittsburgh, May 1 – Moody’s Investors Service reported Monday that defaults among U.S. speculative-grade, non-financial companies continued to abate in the first three months of this year, and the default rate for these companies has returned to its historical average of 4.7%.

According to a Moody’s release, steady economic growth, significant recent refinancing activity and a slowly improving commodity sector bode well for the U.S. default rate’s further descent to 3% a year from now.

“The number of U.S. speculative-grade defaults slipped to a two-year low in the first quarter of 2017,” Moody’s John Puchalla said in the release.

“Recent refunding activity is helping to mitigate the effect of higher interest rates, alongside continued easing of strains in the commodities sector, even as oil and gas defaults remain elevated relative to other sectors.”

Moody’s said the tally of U.S. non-financial corporate defaults slipped to 10 in the first quarter from 15 the previous quarter, the smallest count since the beginning of 2015.

Four of the first quarter’s defaulters were energy firms, down from a peak of 17 in the second quarter of 2016. Exploration and production companies accounted for three of the recent defaults, though Moody’s said liquidity and rating trends indicate that the default risk is higher for oilfield service companies in the year ahead.

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