Moody’s global speculative-grade default rate falls to 3.3% in May

By Caroline Salls

Pittsburgh, June 13 – Moody’s Investors Service’s global speculative-grade default rate fell to 3.3% for the trailing 12-month period ended May 31, down from 3.7% in April, the rating agency said in a global default report.

Moody’s said it expects the rate to continue to decline this year and beyond, to reach 2.5% by December and 2.2% by May 2018.

“With high-yield spreads tightening and unemployment at low levels, we expect the global default rate to trend lower over the next 12 months,” Moody’s Sharon Ou said in the report.

“The continued recovery in commodity sectors should also help keep defaults low.”

However, as the commodity sector’s woes continue to recede, Ou said the retail sector is taking over the spotlight.

In the United States, 22 Moody’s-rated retailers are currently rated Caa or lower, up from 19 in February, with department stores and specialty retailers facing the most stress.

The ratings agency said it expects the retail sector to have the highest default rate in the United States in the next 12 months and to have the second-highest rate in Europe, behind the media: advertising, printing and publishing sector.

In May, there were seven defaults among Moody’s-rated speculative-grade companies, including the bankruptcy filing of rue21 Inc., which marked the second default in the retail sector this year.

Moody’s said no new defaults were recorded in the commodity sectors in May, although that sector remains the biggest contributor to the year’s tally so far, accounting for 11 of the 39 defaults.

Thus far in 2017, Moody’s said defaults have been concentrated in the United States, where 23 companies have been unable to make their debt repayments, filed for bankruptcy protection or restructured debt via distressed exchanges. Nine companies have defaulted so far this year in Europe.

While the U.S. speculative-grade default has fallen to 3.9% in May from 4.7% in April, in Europe, Moody’s said the comparable rate has held steady at 2.5% for the past two months.

In addition, Moody’s recorded defaults by five issuers in the leveraged loan market in May, with three of these in the United States.

The issuer-weighted U.S. loan default rate declined to 1.5% in May from 2.1% in April, the report said.

© 2015 Prospect News.
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