LatAm Defaults Down In 2010

Default rates in LatAm have decreased sharply compared to 2009, and are expected to continue to drop, says Moody’s in a report. While in 2009 there were 21 defaults totaling $4.4bn, so far this year there have been just 2 defaults, for a value of $1.2bn. The default rate in 2009 was the highest since 2002, peaking at 10.6% on speculative-grade debt, lower than the global rate of close to 13.5% in H2. Moody’s default rate forecasting model predicts that 1-year LatAm and global speculative default rates will drop to 1.3% and 2.6%, respectively, at the end of 2010. The default rates are expected to decline further to 0.7% and 1.8%, respectively, by the end of July 2011. “There has been a marked reduction in the volatility of rating changes in the Latin American region over the past couple of years and speculative default rates have fallen rapidly from the elevated levels in 2009,” says Steffen Sorensen, Moody’s senior analyst. The report adds that 405 of LatAm issuers were investment grade at the end of July 2010. This is 40% of the total, down slightly year-on-year, but nearly twice as many as at the end of 2000. “Despite lower speculative-grade default rates in Latin America during the recent global recession, Latin American issuers have historically carried lower average ratings and correspondingly higher average default rates relative to global issuers,” says Sorensen. “Latin American corporate credit ratings have performed on par with global ratings,” he adds. The study examines the rating histories and default experience of 434 Latin American corporate issuers which have had Moody’s-rated local and/or foreign currency debt outstanding between January 1990 and July 2010.