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Moody's: Global Default Rate Fell to 7.5% in May 2010
London, 07 June 2010 -- The global speculative-grade default rate continued its downward path in May, sliding to 7.5% in May from 9.0% in April, said Moody's Investors Service in its latest monthly default report. The current default rate is 44% down from its peak of 13.5% in November 2009. A year ago, the global default rate stood at 9.8%.
Moody's default rate forecasting model now predicts that under the baseline scenario, the global speculative-grade default rate will finish this year at 2.4% and then fall to 1.9% a year from now. "This baseline scenario assumes that high yield spread will continue to tighten considerably while the unemployment rate is expected to increase only modestly in the coming year," said Moody's Director of Credit Policy Research Albert Metz.
"Under the pessimistic scenario of a second economic downturn and renewed liquidity pressures, the global default rate may land at 5.6% in December 2010 and return to 10.0% by May 2011," added Metz.
In the U.S., the speculative-grade default rate dropped from 9.5% in April to 7.9% in May. The U.S. default rate peaked at 14.5% six months ago and stood at 10.9% at this time last year. Meanwhile, the comparable European default rate ended at 6.8% in May, also down from April's level of 7.8% and November 2009's peak of 11.8%.
Among U.S. speculative-grade issuers, Moody's forecasting model foresees the default rate falling to 2.7% in December 2010 under the baseline scenario. In Europe, the forecasting model projects the speculative-grade default rate will decline to 1.5%. If the pessimistic scenario unfolds, the U.S. and European default rate is expected to finish the year at 5.8% and 5.7%, respectively.
Only one company defaulted in May, lifting the year-to-date default count slightly up to 23. In comparison, 145 defaults were recorded in the first five months in 2009, 30 of which were May defaults.
Overall, 21 of this year's defaults were by North American issuers while the rest were from Europe and Asia.
Across industries over the coming year, default rates are expected to be highest in the Hotel, Gaming, & Leisure sector in both Europe and the U.S.
Measured on a dollar volume basis, the U.S. speculative-grade bond default rate ended at 7.4% in may, down from April's level of 9.1%; while in Europe, the comparable rate edged lower from 3.9% in April to 3.4% in May. Globally, the dollar-weighted bond default rate experienced a decline from 8.1% to 6.6%.
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Moody's speculative-grade corporate distress index -- which measures the percentage of rated issuers that have debt trading at distressed levels -- came in at 14.9% at the end of May, up from 14.1% in April. A year ago, the index was much higher at 46.7%.
In the leveraged loan market, a total of 13 Moody's-rated loan defaulters were recorded year to date, all by North American issuers. The trailing 12 month U.S. leveraged loan default rate fell from 8.8% in April to 7.2% in May. A year ago, the loan default rate was 7.8%.
Moody's "May Default Report" is now available -- as are Moody's other default research reports -- in the Ratings Analytics section of Moodys.com.
Moody's: Global Default Rate Fell to 7.5% in May 2010
London, 07 June 2010 -- The global speculative-grade default rate continued its downward path in May, sliding to 7.5% in May from 9.0% in April, said Moody's Investors Service in its latest monthly default report. The current default rate is 44% down from its peak of 13.5% in November 2009. A year ago, the global default rate stood at 9.8%.
Moody's default rate forecasting model now predicts that under the baseline scenario, the global speculative-grade default rate will finish this year at 2.4% and then fall to 1.9% a year from now. "This baseline scenario assumes that high yield spread will continue to tighten considerably while the unemployment rate is expected to increase only modestly in the coming year," said Moody's Director of Credit Policy Research Albert Metz.
"Under the pessimistic scenario of a second economic downturn and renewed liquidity pressures, the global default rate may land at 5.6% in December 2010 and return to 10.0% by May 2011," added Metz.
In the U.S., the speculative-grade default rate dropped from 9.5% in April to 7.9% in May. The U.S. default rate peaked at 14.5% six months ago and stood at 10.9% at this time last year. Meanwhile, the comparable European default rate ended at 6.8% in May, also down from April's level of 7.8% and November 2009's peak of 11.8%.
Among U.S. speculative-grade issuers, Moody's forecasting model foresees the default rate falling to 2.7% in December 2010 under the baseline scenario. In Europe, the forecasting model projects the speculative-grade default rate will decline to 1.5%. If the pessimistic scenario unfolds, the U.S. and European default rate is expected to finish the year at 5.8% and 5.7%, respectively.
Only one company defaulted in May, lifting the year-to-date default count slightly up to 23. In comparison, 145 defaults were recorded in the first five months in 2009, 30 of which were May defaults.
Overall, 21 of this year's defaults were by North American issuers while the rest were from Europe and Asia.
Across industries over the coming year, default rates are expected to be highest in the Hotel, Gaming, & Leisure sector in both Europe and the U.S.
Measured on a dollar volume basis, the U.S. speculative-grade bond default rate ended at 7.4% in may, down from April's level of 9.1%; while in Europe, the comparable rate edged lower from 3.9% in April to 3.4% in May. Globally, the dollar-weighted bond default rate experienced a decline from 8.1% to 6.6%.
.
Moody's speculative-grade corporate distress index -- which measures the percentage of rated issuers that have debt trading at distressed levels -- came in at 14.9% at the end of May, up from 14.1% in April. A year ago, the index was much higher at 46.7%.
In the leveraged loan market, a total of 13 Moody's-rated loan defaulters were recorded year to date, all by North American issuers. The trailing 12 month U.S. leveraged loan default rate fell from 8.8% in April to 7.2% in May. A year ago, the loan default rate was 7.8%.
Moody's "May Default Report" is now available -- as are Moody's other default research reports -- in the Ratings Analytics section of Moodys.com.