Corporate Default Spike Predicted

Moody’s predicts that the global speculative-grade issuer-weighted corporate default rate will climb to 4.3% by the end of this year, leaping to 10.4% a year from now. “Speculative-grade corporate default rates are expected to climb sharply throughout 2009 as our baseline forecast now incorporates a deep and protracted US recession. Corporate default rates in this cycle will likely match or exceed the peak levels reached in the previous two US recessions of 1990-91 and 2000-01,” says Moody’s director of corporate default research Kenneth Emery. The default rate edged higher to 2.8% in October, from September’s revised level of 2.7% and 1.1% a year ago. Measured on a dollar volume basis, the default rate remained unchanged at 2.4% from September’s revised level. A year ago, the global dollar-weighted bond default rate stood at 0.7%, says Moody’s. The agency’s speculative-grade corporate distress index – which measures the percentage of rated issuers that have debt trading at distressed levels – rose more than 60% from September’s 29.7% to 48.5% in October, marking the highest level since Moody’s launched the index in 1996. A year ago, the index was 4.6%. There were a total of 10 rated corporate debt defaulters in October, including one from Mexico.