Moody's sees fewer US media defaults but more overseas


Media companies led the tally for speculative grade (junk) debt defaults in 2010, according to Moody’s Investors Service. That’s expected to improve stateside in 2011, while European media defaults are still a risk. 

The trailing 12-month global speculative-grade default rate finished at 3.1% in the fourth quarter of 2010, down from 4.0% in the previous quarter, Moody’s said in a new report. That was close to the ratings agency’s forecast of 3.3% made a year ago. The global default rate stood much higher in the fourth quarter of 2009 – at 13.1%.

“The story of 2010 is how few defaults were actually recorded,” said Albert Metz, Managing Director of Credit Policy Research. “Our baseline expectations call for continued stability in 2011. But that baseline assumes that additional significant sovereign and financial sector problems do not develop in Europe.”

The ratings agency’s default rate forecasting model now predicts that the global speculative-grade default rate will fall to 1.9% in 2011 under a stable baseline scenario. In a pessimistic scenario, which incorporates a renewed liquidity freeze and further economic contractions, the global default rate could finish at 6.1%, while in an optimistic scenario, the rate could dip even further to 1.2%.

A total of 19 Moody’s-rated corporate debt issuers defaulted in the fourth quarter, which sent the 2010 default total to 59. In comparison, there were 269 defaults in 2009, of which 32 were recorded in the fourth quarter.

The largest number of 2010 defaults came from the Media: Advertising, Printing, & Publishing industry in 2010, with six companies in that sector defaulting. [RBR-TVBR note: One, of course, being Regent Communications.] This was followed by the Capital Equipment sector; the Hotel, Gaming, & Leisure sector; and the Retail sector, each of which contributed five defaults.

Across industries over the coming year, Moody’s said default rates are expected to be highest in the Consumer Transportation sector in the US and the Media: Advertising, Printing, & Publishing sector in Europe.

RBR-TVBR observation: The economy is improving, advertising spending is rising and media company balance sheets are improving as a result. That’s why the bond markets have been embracing new issues from media companies.