U.S. junk default rate down to 7.3% in May from 8.9%, Fitch says

New York, June 19 - The U.S. high yield default rate fell to 7.3% in the 12 months ending in May from 8.9% the previous month, according to Fitch Ratings. The figure is down from 12.4% at the end of 2002.

Including fallen angels, the default rate was 11.8% for the 12 months to May, down from 13.5% in April, Fitch added. That is the fifth consecutive monthly decline, the rating agency noted.

May saw 13 defaults for $3.2 billion, the largest being Amerco.

So far this year there has been $15.6 billion in defaults, down 66% from $46.1 billion in the same period of 2002. The number of defaults is 47, down 50% from 93 in the year-earlier period.

Fitch also said the weighted average recovery rate has improved, ending May at 33% of par compared to 22% for all of 2002. The weighted average recovery rate is the par weighted average trading price of defaulted issues 30 days after default. The weighted average trading price of defaulted issues at the beginning of 2003 was 43% of par so losses have been a further 10%. That compares to 20% in 2002.

Fitch's default index is based on the U.S., dollar denominated, non-convertible, speculative grade bond market (the rating equivalent of BB+ and below, rated by Fitch or one of the two other major rating agencies). Fitch includes rated and non-rated, public bonds and private placements with Rule 144A registration rights. Defaults include missed coupon or principal payments, bankruptcy, or distressed exchanges. Default rates are calculated by dividing the volume of defaulted debt by the average principal volume outstanding for the period under observation.

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