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Moody’s February default rate rises to 3.7%, global increase expected
By Caroline Salls
Pittsburgh, March 8 – Moody’s Investors Service expects the global speculative-grade default rate to rise to 4.7% in one year from the current 3.7%, a sign that the corporate default cycle has turned, according to a Tuesday news release.
In addition, Moody’s said it forecasts that the global speculative-grade default rate will reach 4.3% in July, surpassing its long-term average for the first time since August 2010.
Low commodity prices continue to fuel defaults, with the oil and gas and metals and mining sectors fueling the rise in the default rate, the ratings agency said.
“Of the 18 defaults since the start of the year, half have been in commodity sectors” Moody’s Sharon Ou said in the release. “There were only 11 defaults during the same period in 2015, with only one in commodity sectors.”
Moody’s said it expects the default rates in these sectors to remain high among Moody’s-rated issuers in the United States, going to 14% for the metals and mining sector and 9.1% for the oil and gas sector over the next 12 months.
Although it forecasts lower default rates in Europe, Moody’s said those sectors will continue to drive the default rate.
“Two of the 10 defaults in February were of sizable amounts,” Ou said. “Pacific Exploration and Production Corp defaulted on $3.7 billion in debt, and Paragon Offshore plc defaulted on $2.3 billion.”
Moody’s said the rise in defaults has also led to an increase in the trailing 12-month global speculative-grade default rate, which rose to 3.7% in February from 3.5% in January and 2.1% a year ago. The overall default rate also increased year over year in the United States and Europe, according to the release.
The agency said three out of the five leveraged loan defaults in February were in the United States, pushing the issuer-weighted U.S. loan default rate to 2.4% in February from 2.2% in January.
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