Moody’s: Corporate Default Rate Closes at 1.9% in October

In the U.S., the speculative-grade default rate remained unchanged at 2.0% from September to October. At this time last year, the U.S. default rate was 3.6%. In Europe, the default rate rose to 2.6% in October, from 1.4% in September. In addition to a new default in Greece, the rise in the European default rate was also caused by three Irish defaulters which were included in the investment-grade default rate in September but entered the speculative-grade rate in October as these companies were downgraded from investment-grade to speculative-grade 12 months ago. All of these Irish companies put through distressed exchanges on their junior debt only while their senior debt remains current.

Based on its forecasting model, Moody’s expects the global speculative-grade default rate to fall to 1.4% by the end of the year, but to rise to 2.2 % by October 2012. Moody’s expects it will decline to 1.4% in the U.S. and to 2.2% in Europe, by the end of 2011.

"Corporate defaults continue to track our expectations quite closely," said Albert Metz, Moody’s Director of Credit Policy Research. "Defaults in Europe are beginning to pick up a bit but they still remain few and far between, by historical standards."

There were four defaults of Moody’s-rated corporate debt issuers in October, three in the U.S. and one in Europe: Greece-based glassworks manufacturer Yioula Glassworks S.A. So far this year there have been 21 defaults, compared to the 45 defaults between January and October 2010.

By dollar volume, the global speculative-grade bond default rate rose to 1.7% in October, from 1.2% in September. Last year, the rate was 1.4%.

In the US, the dollar-weighted speculative-grade bond default rate remained unchanged at 1.1% from September to October. The comparable rate was also at 1.1% in October 2010. In Europe, the rate came in at 3.7%, more than doubling September’s rate of 1.5%. Last year, the rate was 2.4%.

Moody’s expects the Media: Advertising, Printing & Publishing sector to have the highest default rates in both Europe and the US.

Moody’s distressed index arrived at 29.5% in October, up from 24.6% in September. A year ago, the index stood at 14.1%. The distressed index is a measure of the percentage of high-yield issuers that have debt trading at distressed levels.

In the leveraged loan market, no Moody’s-rated loan issuers defaulted in October. The trailing 12-month US leveraged loan default rate ended October at 1.2%, unchanged from September. In October last year, the loan default rate was higher, at 3.6%.

Moody’s "October Default Report" is now available, as are Moody’s other default research reports, in the Ratings Analytics section of Moodys.com.