Bonds News

Global bond defaults hit 25-year low - Moody's

LONDON, Feb. 22 (Reuters) - Global corporate default rates fell to a 25-year low in 2006 as ample liquidity in the market helped companies make their debt payments, credit ratings agency Moody’s Investors Service said.

But the agency said defaults on speculative grade bonds were expected to rebound this year as liquidity becomes less abundant.

Speculative grade corporate default rates fell to 1.57 percent in 2006, from 1.8 percent in the previous year, the fifth consecutive annual decline and the lowest year-end level since 1981, Moody’s said in a report published on Thursday.

Among all Moody’s-rated companies, the default rate fell to a decade-low of 0.54 percent in 2006, from 0.65 percent in 2005.

“Relatively low interest rates, tight corporate bond yield spreads, ample liquidity and robust debt issuance helped keep corporate defaults near historic lows in 2006,” Moody’s said.

About 33 companies defaulted on $7.8 billion of bonds and $3.1 billion of loans in 2006. The U.S. was home of 26 defaults, while Europe accounted for five, and Latin America, for two.

The auto sector performed worst, with its borrowers defaulting on $2.8 billion of debt, about one third of the total amount of defaults. Dana Corp. was the year’s largest default at about $1.9 billion, Moody’s said.


The ratings agency said speculative-grade defaults are expected to double this year to 3.07 percent as companies become more leveraged, although this figure will still be below the long-term average of 4.9 percent.

“The credit quality pendulum appears set to swing the opposite direction in 2007,” Moody’s said.

“Weak initial credit quality and a market that is unlikely to provide the same abundance of liquidity, corporate defaults appear poised for a rebound.”

Reporting by Elena Moya, Editing by Richard Hubbard; Reuters Messaging: rm:// Email: Telephone: +44 207 542 2515