High yield defaults cost investors $43.8 billion in 2001, Fitch says

New York, Jan. 14 - Defaults of high yield bonds cost investors $43.8 billion in 2001 thanks to high volume and low recovery rates, according to Fitch.

The rating agency said the weighted average recovery rate for traditional high yield issuers - excluding fallen angels - was 15 cents on the dollar last year. That means on the $51.3 billion par value of defaulted bonds, investors recovered just $7.6 billion, Fitch added.

Of the losses, more than half was on defaulted telecom bonds where the average recovery rate of 12 cents on the dollar led to $25 billion of losses.

For all credits, the weighted average recovery rate was 30 cents on the dollar.

Overall default volume for the year was $78.2 billion for a record default rate of 12.9%, Fitch said. The number of issuers defaulting increased 50% to 173 in 2001 from 115 for 2000.

The previous record volume was in 2000 when $27.9 billion defaulted for a rate of 5.1%.

Fitch noted that the $28.2 billion of telecom defaults in 2001 exceed the total for all industry sectors in 2000.

Similarly the $24 billion of fallen angel defaults was not far short of 2000's total. Among the names in this group were Southern California Edison, Pacific Gas and Electric, Finova, Comdisco and Enron.

Excluding these two groups - telecom and fallen angels - the 2001 default rate would have been just 5.9%, Fitch noted.

By industry sector, again excluding fallen angels, the biggest defaulting industry was automotive at 28.3%, followed by telecom at 23.9%, leisure and entertainment at 17.8% and metals and mining at 16.4%.

During 2001, two of Fitch's 25 industry sectors saw zero defaults, insurance and real estate.

With Classic Cable, the cable sector had its first default since 1994 but still has the lowest long-term rate at 0.3% average per year for 1980 to 2001.

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