Corporate debt defaults running in line with expectations


An economic recovery won’t make every business solvent, but Moody’s Investors Service reports that speculative grade defaults are in line with expectations. Also, the default rate is down a lot from a year ago.

The global speculative-grade default rate finished at 2.4 % in May, Moody’s said in its monthly default report. This is consistent with Moody’s forecast of 1.9% made a year ago. For April the rate was 2.3% and a year ago it stood significantly higher at 7.6%.

Moody’s forecasting model predicts that the global speculative-grade default rate will decline to 1.5% by the end of 2011 and finish at 1.7% by May 2012.

There were two debt defaults in May; bringing the year-to-date default count to 10. By comparison, 23 companies defaulted in 2011.

“Spreads have widened slightly and the fundamental economic news is weakening. But many corporate fundamentals remain good. Absent a liquidity freeze, we continue to expect few defaults among corporate in the US and Europe,” said Albert Metz, Moody’s Director of Credit Policy Research.

Moody’s expects default rates to be highest in the Wholesale sector in the US and the Media: Advertising, Printing & Publishing sector in Europe.

RBR-TVBR observation: We’ve noted repeatedly in recent months that the credit markets – both bank and especially bond – have improved significantly for broadcasters. Moody’s confirms that default rates are dropping, which can only be good news for companies that need to borrow or refi.