Moody’s global speculative-grade default rate closes out 2017 at 2.9%

By Caroline Salls

Pittsburgh, Jan. 10 – Moody’s Investors Service’s global speculative-grade default rate closed the final quarter of 2017 at 2.9%, unchanged from the previous quarter, according to a global default report released Wednesday.

Moody’s said the global rate is set to fall below 2% this year, while in the United States it is projected to decline to 2.4%, and in Europe to 1.2%, by the end of the year.

“Under our baseline scenario, we expect the global speculative-grade default rate to continue its downward path this year and to close it at 1.9%,” Moody’s Sharon Ou said in the release.

“This forecast aligns to the pick-up in global economic momentum and narrow option-adjusted high-yield spreads and generally good liquidity and low refinancing risk among Moody’s-rated speculative-grade issuers.”

Overall, 90 defaults were recorded in 2017, compared with 143 in 2016, Ou said. In the fourth quarter, 24 Moody’s-rated corporate issuers defaulted, up from 15 in the third quarter, but down from 29 in the second.

By region, Moody’s said 58% of last quarter’s defaults occurred in North America and 29% in Europe, while the largest defaulter was Petroleos de Venezuela SA, which missed an interest payment on more than $20 billion of debt.

The ratings agency said oil and gas companies accounted for nine of the final quarter’s defaults, the largest number among sectors.

Even so, Moody’s said its analysts expect the default risk for U.S.-based oil and gas firms to continue subsiding this year, with a projected default rate of 2.2%.

The retail sector came in a distant second, accounting for three of the fourth quarter’s 24 defaults, according to the report.

Moody’s said it expects durable consumer goods to be the most troubled sector in the United States in 2018, while media: advertising, printing and publishing will remain the most challenged in Europe. Retail stands in the third place in both regions, with default rate forecasts of 5.5% and 2.1%, respectively.

In the leveraged loan market, Moody’s said 16 loan defaults were recorded in the fourth quarter, with nine of these from the United States.

The issuer-weighted U.S. leveraged loan default rate closed at 2.3% last quarter, up from 1.6% in the third quarter.

On a dollar volume basis, the global speculative-grade default rate ended 2017’s final quarter at 1.6%, up slightly from 1.5% in the third quarter.

© 2015 Prospect News.
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