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U.S. junk defaults fall to 6.14% in May, S&P says
New York, June 5 - The default rate for U.S. speculative-grade issuers fell to 6.14% for the 12 months to May, Standard & Poor's said Thursday.
That is down from the previously reported rate of 6.21% for the 12 months to April and compares to 7.3% at the end of 2002.
Europe saw a steeper fall to 8.11% for the 12 months ending in May compared to 10.00% in April and 13.5% at the end of 2002.
Globally the speculative-grade default rate for the 12 months to May was 5.78%, down from 6.22% in April and 9.2% at the end of 2002.
S&P said the figures confirm that global default rates have already begun their "gradual downward descent" although the rating agency does not expect a more meaningful deceleration until 2004.
But S&P also noted that underlying economic fundamentals appear shakier. Industrial production - generally regarded as a fairly good leading indicator of the speculative-grade default rate - dipped back into negative territory in both the U.S. and Europe after several months of positive year-over-year growth. This recent dip is most likely due to the impact of the Iraq war.
"If this trend were to be sustained over a longer period of time, fears of a renewed deterioration in credit quality and the default rate could surface," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research group, in a news release.
Positively, the borrowing environment for bank loans has eased somewhat, more so in the U.S. than in Europe.
S&P also reported that its list of "weakest links" declined to 50 as of June 5 from 56 a month earlier. Issuers on the list are rated CCC or lower and have either a negative outlook or are on CreditWatch negative. Five new issuers were added to the list in the month, four defaulted, one was upgraded, three are no longer rated and three are now listed as developing rather than negative.
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