Debt in Default by munificent Blog entry

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Debt in Default

GW's term won't end before his poor fiscal policy becomes evident. Default, Decline. Dance Step of Delusion

Date: 10/15/2005 9:11:19 AM ( 19 y ) ... viewed 1369 times

Junk Default Rate Rises in Third Quarter

Although the rate climbed to 2 percent in the third quarter from 1.8 percent in the second quarter, however, a Moody's analyst thinks that's no reason to worry about a sharp drop in credit quality next year.

Stephen Taub, CFO.com
October 14, 2005

Although the global default rate for junk bonds has apparently started to inch up, at least one rating agency doesn't seem too concerned.

The global speculative-grade corporate default rate climbed to 2 percent in the third quarter from 1.8 percent in the second quarter, according to Moody's Investors Service. The increase, however, is relatively small, the firm noted. That's because the total defaulted bond volumes jumped tenfold, to $14 billion, in the third quarter from $1.4 in the second quarter, as a result of defaults in the telecommunications and airlines sectors.

Moody’s doesn't seem alarmed by the current trends. The rating agency's forecasting model predicts that the issuer-weighted global speculative-grade default rate will stay close to its present 2 percent level for the remainder of 2005, increasing to 3.2 percent by the end of September 2006.

"The pendulum is set to swing toward higher default rates, but in a manner that's consistent with where we are in the credit cycle," said David T. Hamilton, Moody's director of corporate default research. "There are no obvious signs of a sharp deterioration in credit quality coming in the next year."

In the first quarter 2005, the global speculative-grade corporate default rate default rate was 2.2 percent, and at the end of the third quarter of 2004, the rate stood at 2.4 percent, Moody’s noted. Meanwhile, the speculative-grade default rate among U.S. issuers rose to 2.4 percent in the third quarter from an eight-year low of 2.1 percent in the second quarter. But the U.S. default rate is down from 2.6 percent in the first quarter and from 3 percent in the third quarter of 2004.

At the same time, as a percentage of dollar volume, the global rate jumped to 3.9 percent in the third quarter, more than double the prior quarter's 1.9 percent level. The global default rate by dollar volume was 2.1 percent in the first quarter and 1.8 percent in the third quarter of 2004, according to Moody’s.

The third quarter witnessed 11 corporate defaults, all by U.S.-domiciled issuers. There were nine and three defaults in the first and second quarter, respectively.

Of the third-quarter defaults, five occurred in September, led by Charter Communications Holdings LLC. The telecom company completed a distressed debt exchange in which holders of about $6.9 billion of senior notes tendered their bonds for new debt securities with an aggregate amount of $6.1 billion.

September's second-largest and third-largest defaults were airlines that filed for bankruptcy: Delta Air Lines, Inc. ($3.9 billion) and Northwest Airlines Corp. ($1.7 billion, including bonds issued by its Norwest Airlines Inc. subsidiary).