Moody’s estimates that global default rate will hit 4.6% in one year

By Caroline Salls

Pittsburgh, April 11 – Moody’s Investors Service estimates the global trailing-12-month speculative-default rate will rise to 4.6% in one year from the current 3.8% level, according to a report released Monday.

Moody’s said this estimate affirms the view “that the corporate default cycle has turned and is on the rise.”

Moody’s said it also forecasts that the global speculative-default rate will reach 4.3% in the next quarter, surpassing its long-term average for the first time since August 2010.

The ratings agency said stress in the commodity sector has deepened, leading to a further deterioration in credit conditions, with the oil and gas and metals and mining sectors leading the rise in the default rate.

“Thirty-three Moody’s-rated issuers have defaulted in the first quarter, roughly two thirds of which were from oil and gas and metals and mining,” Moody’s Sharon Ou said in the release.

“As a result, the trailing 12-month global speculative-grade default rate rose to 3.8% in the first quarter from 3.5% in the prior quarter, an increase of more than 70% from the global speculative-grade default rate of 2.2% in the first quarter of 2015.”

Moody’s said these two sectors’ default rates are very likely to remain at significantly high levels in the coming year, with a forecasted rate of 12.6% for metals and mining and 10% for oil and gas for Moody’s-rated issuers in the United States.

In Europe, default rates are expected to be highest for oil and gas and media: advertising, printing and publishing.

According to the report, Moody’s most recent defaults were Foresight Energy LLC, Venoco Inc., Rex Energy Corp., Southcross Holdings Borrower LP and Cliffs Natural Resources Inc., with each defaulting on more than $500 million in debt.

In addition, Moody’s said 13 of the 18 leveraged loan defaults in the first quarter were from the United States, pushing the issuer-weighted U.S. loan default rate to 2.8% in the first quarter compared with 2% in the fourth quarter of 2015.

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