Moody’s Sees Rise in Corporate Default

The global default rate is at its lowest level in over two decades, but a sharp rise is expected this year, according to Moody’s. The global speculative-grade default rate drifted lower closed 2007 at 0.9% – lowest since December 1981 – down from 1.7% a year ago, Moody’s says. “We believe December 2007 likely marks the low point of the current default rate cycle as several issuers have missed interest payments in recent weeks, which should translate into upward pressure on default rates as the 30-day grace periods on these issuers’ bonds expire and they become actual defaulters” says Moody’s director of corporate default research Kenneth Emery. The agency predicts that the global speculative-grade default rate will jump to 4.8 % by the end of 2008. By end-2009, the model forecasts that the global default rate will reach its’ historical average of 5%. “Both weaker macroeconomic fundamentals and a modest worsening in the ratings mix of Moody’s speculative-grade issuers are contributing to recent increases in forecasted default rates for year-end 2008,” adds Emery. Low rated corporate bond issuance, which picked up pace in 2007, might start to present problems.