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Moody's: Global corporate defaults slowed down in 2011, facing upward pressure in 2012

 The document has been translated in other languages

Global Credit Research - 01 Mar 2012

New York, March 01, 2012 -- Despite great uncertainties surrounding the European sovereign debt crisis in 2011, corporate defaults were surprisingly few, says Moody's Investors Service in its twenty-fifth annual default study that updates defaults and recovery rates for global corporate issuers.

"Only 35 Moody's-rated corporate issuers defaulted on a total of $36 billion of debt in 2011, the lowest in four years," said Sharon Ou, author of the report. "This modest default number stemmed mostly from ample liquidity, low interest rates and the recent surge of refinancing that addressed looming maturities."

The 2011 defaults were led by the Transportation sector, accounting for seven defaults including American Airlines. By region, defaults remained concentrated in North America with 25 issuers default on $26 billion of debt and the remaining 10 from Europe, with $10 billion of debt affected.

After a more positive start to 2011, the second half of the year saw greater turbulence in the financial markets as Greece hovered near default and Moody's placed the United States' Aaa rating on watch for downgrade, notes the report.

The increasing risk deriving from the European crisis is reflected in Moody's quarterly ratings drift—which fell from -2.6% to -5.1% in the last quarter of 2011—with credit quality deterioration much more severe in Europe than in North America. Quarterly ratings drift is measured by the rating upgrade rate minus the rating downgrade rate.

Moody's global speculative-grade default rate ended 2011 at 1.8%, down from 2010's year-end level of 3.2%. The default rate for all Moody's-rated corporate issuers fell to 0.8% at the end of 2011 from 1.3% at year-end 2010. Both results correspond closely with the rating agency's one-year-ago forecasts of 1.9% and 0.8%, respectively.

Looking ahead, Moody's default rate forecasting model predicts a modest rise in the global default rate this year, under the baseline macroeconomic scenario. The default rate is anticipated to rise to 2.8% by December 2012, a level below the historical average of 4.8%.

"The declining trend in high yield default rate, which has lasted for over two years, has probably ended," says Albert Metz, Managing Director of Credit Policy Research. "The current weak macroeconomic climate, falling consumer confidence, and deteriorating corporate credit quality are expected to put upward pressure on the default rate," adds Metz.

In a more pessimistic scenario, which assumes that the sovereign debt problem materialize and turn the global economy into a double dip recession, the default rate can rise to 8.1%, still below the 2008-2009 peak of 13.6%, says Moody's.

For more information please see the full report "Annual Default Study: Corporate Default and Recovery Rates, 1920-2011" on www.moodys.com.

************

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Sharon Ou
Asst Vice President - Analyst
Credit Policy
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Albert Metz
MD - Credit Policy Research
Credit Policy
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: Global corporate defaults slowed down in 2011, facing upward pressure in 2012
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

 


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