The trailing 12-month global speculative-grade default rate edged up to 12.4% in October from a revised level of 12.3% in September 2009, breaking the post-depression record high of 12.2% reached in July 1991, says Moody's Investors Service in its latest monthly default report. A year ago, the global default rate stood at only 3.0%.
The ratings agency's default rate forecasting model now predicts that the global speculative-grade default rate will peak at 12.5% next month and then decline sharply to 4.2% by October 2010.
"The global default rate is now likely near its cyclical peak as indicated by a rapidly slowing pace of defaults in recent months," says Moody's Director of Corporate Default Research Kenneth Emery. "Our baseline forecast for a 4.2% global default rate one year from now implies approximately 8-10 defaulters per month on average over the coming year, down from the 20 defaulters per month experienced during the past year."
The U.S. speculative-grade default rate increased to 13.4% in October from a revised 13.2% in July, while in Europe, the default rate rose to 9.4% from 9.3% in September. At this time last year, the U.S. and European default rates stood at 3.5% and 1.4%, respectively.
In all, a total of 8 Moody's-rated corporate debt issuers defaulted in October, the lowest monthly default count so far this year. Six of the eight default events were distressed exchanges. Year to date, 79 of the total 235 (or 34%) defaults are distressed exchanges, a considerably higher share than the historical average of 13%.
Measured on a dollar volume basis, the global speculative-grade bond default rate closed at 18.5% in October, up from September's revised level of 18.2%. Last year, the global dollar-weighted default rate was much lower at 2.6%.
For U.S. speculative-grade issuers, Moody's forecasting model predicts that the default rates will reach its peak of 13.6% in November 2009 and then fall to 4.4% a year from now. In Europe, the speculative-grade default rate is expected to rise to 10.2% at the end of this year before dropping to 4.3% in October next year.
Overall, default rates are expected to be highest in the Consumer Transportation sector in the U.S. and the Wholesale sector in Europe. Across regions, six of October's defaults were by North American issuers. The remaining defaulters were from Europe.
Moody's speculative-grade corporate distress index -- which measures the percentage of rated issuers that have debt trading at distressed levels -- stood at 23.2% in October, down from September's revised level of 29.0%. A year ago, the index was noticeably higher at 49.4%.
In the leveraged loan market, only three Moody's-rated loan defaulters defaulted in October, all based in the U.S. In comparison, no loan issuers defaulted in October last year. The trailing 12 month U.S. leveraged loan default rate increased from a revised 10.4% in September to 10.8% in October. A year ago, the loan default rate was 3.0%.