Speculative debt defaults rise in 2nd qtr -Moody's

By Elena Moya

LONDON, July 8 (Reuters) - The rate of defaults in speculative-grade debt rose to 2.0 percent in June from 1.5 percent at the end of the first quarter, as the credit crunch means companies struggle to pay interest, a report said on Tuesday.

The global default rate has also climbed from 1.4 percent a year ago, the report from credit rating agency Moody's Investors Service (MCO.N: Quote, Profile, Research, Stock Buzz) said.

In the United States the speculative-grade default rate ended the second quarter at 2.4 percent, up from 1.8 percent in the first quarter, the agency said, while in Europe the rate remained unchanged at 0.7 percent.

Default rates in Europe have remained low as so-called covenant-lite deals and loose bank covenants have helped companies avoid default, analysts have said.

However, default rates are set to rise as the global credit crunch bites into economies in Europe as well as the United States. The credit agency forecasts a global speculative-grade default rate of 4.6 percent by the end of this year and 6.1 percent a year from now.

"Deteriorating economic conditions and continued tough credit market conditions signal that distressed issuers will face building pressures over the next year and that default rates will move up sharply," said Moody's Director of Corporate Default Research Kenneth Emery.

The consumer transport sector will be the most troubled in the United States, while companies in the durable consumer goods sector in Europe will have the highest default rate, Moody's said.

Of the 35 companies which have defaulted so far in 2008, 31 are based in the United States and three in Canada. The only defaulter outside North America was Kremikovtzi AD, in Bulgaria. (Editing by David Holmes)