Defaults drop to 5.2% in 2003, seen at 3.4% in 2004, Moody's says

By Peter Heap

New York, Jan. 12 - The global high-yield default rate fell to 5.2% in 2003 from 8.4% in 2002 and is expected to fall further to 3.4% in 2004, Moody's Investors Service said Monday.

The predicted additional decline in the 12 months ahead would take the rate below its 4.9% long-term average for the first time since 1999.

"The decline in credit rating downgrades relative to upgrades in 2003 supports lower expected default rates in 2004," said David T. Hamilton, Moody's director of corporate default research.

"The ratio of downgrades to upgrades fell from four to one in 2002 to under two to one in 2003."

He added: "Additional help is coming from growth in U.S. industrial production, which is correlated with future credit quality, and a steep Treasury yield curve, which has historically been a harbinger of economic growth."

The global issuer-weighted high-yield default rate dropped to 5.2% in December from 5.3% in November, according to Moody's data.

The rating agency noted that the decline came despite an increase in the number of defaults. During December eight issuers defaulted on $1.7 billion of debt compared with just one default in November and two in October.

By dollar value, 2003 saw defaults decline to 5.5% in 2003 from 21% in 2002.

In total 77 issuers rated by Moody's defaulted on $33.5 billion of debt in 2003 compared to 141 issuers with $163 billion of debt in 2002.

By region, the default rate for U.S. high-yield issuers fell to 5.4% in 2003 from 7.3% in 2002.

Moody's observed that defaults outside the United States declined faster, especially in Europe. December was the eighth consecutive month with no defaults by rated issuers in Europe.

Telecommunications was the top sector for defaults for the third consecutive year, accounting for 13 issuers and $6.4 billion of debt.

Healthcare and energy were second and third respectively.

The largest default in 2003 was HealthSouth Corp. with $3.4 billion.

Moody's noted that no issuers with investment-grade ratings at the start of the year defaulted during 2003, leading to an investment-grade default rate of zero.

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