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The global default rate for speculative-grade debt rose slightly in February, signalling a possible turning point in the trend for credit quality, Moody’s Investors Service, the credit rating company, said.
The default rate rose from 2.3 per cent in January to 2.5 per cent in February after five issuers defaulted on a total of $1.2bn of bonds. So far this year, nine issuers, including six in the US, have defaulted on $2.1bn of bonds.
“For several months now, Moody’s has been predicting that default rates would reach a cyclical low near the second quarter of this year,” said David Hamilton, director of default research. “February’s rise may indicate that we are near to the turning point.”
Moody’s expects the default rate to increase gradually during the first half of 2005 and then rise at a faster pace until it reaches 3.2 per cent by the end of next February. But despite this expected increase, the rate would still be below its 4.9 per cent historical annual average.
The largest default in February – on $453m of debt – prompted the filing by RJ Tower, an auto parts supplier, for reorganisation under Chapter 11 of the US bankruptcy code. Winn-Dixie Stores defaulted on $300m of debt. The only non-US based defaulter was Concordia Bus of Sweden, which missed an interest payment on $207m of bonds.
The European default rate rose to 1.8 per cent in February from 0.6 per cent in January. In the US, the default rate rose to 3 per cent in February from 2.8 per cent.
In the leveraged loan market, Moody’s issuer-weighted speculative grade loan default rate was unchanged at 1.4 per cent in February.
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