We wondered whether corporate defaults had peaked towards the end of last year after Moody’s reported the first decrease in the speculative-grade default rate since January 2008, down from 12.9 per cent in November to 12.5 per cent in December.
Well there’s more evidence now that that really is the case. From Moody’s on Thursday:
The trailing 12-month global speculative-grade default rate fell to 11.6% in February, down from January’s level of 12.5%, said Moody’s Investors Service in its latest default report. A year ago, the global default rate stood at only 5.8%.
What’s more, the rating agency has revised (upwards) the speed of the decline, predicting a speculative-grade default rate of 2.9 per cent by the end of the year. Two months ago it was predicting 3.3 per cent for end-2010.
More from the Moody’s release:
Overall, only two of Moody’s-rated corporate debt issuers defaulted in February, which sends the year-to-date default count to 10. Both of the February defaulters were based in the U.S. In comparison, there were 45 defaults in the first two months of last year…
In the leveraged loan market, only one Moody’s-rated loan issuer – Penton Media, Inc.- defaulted in February. The trailing 12 month U.S. leveraged loan default rate fell from 11.4% in January to 10.9% in February. A year ago, the loan default rate stood at 4.5%.
Rival rating agency Standard & Poor’s also released default rate data this week. According to an S&P note published on Tuesday, the US corporate default rate declined slightly to 10.5 per cent in February compared with 10.9 per cent a month prior.
As S&P noted:
…credit metrics in the U.S. are showing indications of strengthening credit quality, albeit at a cautious pace.
Although the default rate exceeds 10%, far fewer issuers are defaulting each month. In February, three companies defaulted, compared with 25 at the same time in 2009.
Still, there may be some evidence of the sovereign debt crisis spreading to other credit markets, albeit slowly.
Related links:
Brace yourselves for record corporate defaults in 2009 – FT Alphaville
Gillian Tett: Why corporate default rates will matter in 2008 – FT Alphaville
Annals of totally unsurprising defaults, RH Donnelly edition – FT Alphaville