High yield defaults fall to 8.7% in November, expected to end 2002 near 8.5%, Moody's says

New York, Dec. 11 - The global high-yield default rate fell to 8.7% in November from 9.1% in October, the ninth decline in the last 11 months, according to Moody's Investors Service.

During November, eight rated issuers defaulted on $4.7 billion of bonds.

The largest defaults were TXU Eastern Funding Co. at $2.1 billion, PG&E National Energy Group, Inc. at $1 billion and Alestra at $570 million.

In addition, the global dollar-volume-weighted high-yield default rate fell to 16.1% from 17.2% in October, its third consecutive decline.

Moody's expects the gap between the dollar-volume and issuer-weighted default rates to fall as the average size of defaults continues to ebb.

The average dollar value of defaults by speculative-grade rated issuers - which does not include extremely large fallen angel defaults such as WorldCom - exceeds $800 million in 2002 compared to an average of $250 million between 1980 and 1997, Moody's said.

Moody's said it expects the speculative-grade default rate to end 2002 near 8.5% with the level continuing to fall to 7.1% at the end of 2003.

"The decline in the default rate is being driven largely by technical factors," said David T. Hamilton, Moody's director of default research, in a release. "Monthly default counts are coming off a peak set in the first quarter of 2002 and are being replaced by relatively lower default-count months. Consequently the default rate has fallen rather sharply recently. That trend is expected to continue into early 2003."

However Moody's said that fundamental credit quality remains under pressure and default activity in 2003, though low relative to 2002, will continue to be high in absolute terms.

The expected 7% rate in 2003 is roughly double the long-run historical average.

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