The rate of global defaults in 2003 will remain high, descending slowly through year-end, with a more perceptible improvement in the default rate seen in 2004, Standard & Poor’s Ratings Services claims.
Currently, the global 12-month moving average speculative and investment-grade default rates are 8.33% and 0.47%, respectively. As of
- February 7, 2003, there were 60 weakest rated global issuers, representing US$35bn in rated bonds with a concentration in the telecommunications and media and entertainment industries. This count is up from the 37 identified one year ago and is an increase of one issuer and US$2bn in rated bonds from one month ago. These weakest-rated issuers, with Standard & Poor’s credit rating designations of ‘CCC’ or lower and either a CreditWatch with negative implications or a negative outlook, have the near-term potential to default.
Standard & Poor’s CreditWatch indicates the potential direction of a credit rating change, dependent on identifiable events and short-term trends, and is typically resolved within 90 days. A rating outlook indicates the potential direction of a credit rating change within six months to two years.
Ended January 30, 2003, the rolling 12-month US speculative-grade default rate fell to 6.56% from the previous month’s revised rate of 7.24%. This rate hit a record high in July 1991 at 12.40%. The 12-month rolling EU speculative-grade default rate fell slightly to 13.01%, down from December’s 13.48% rate. Due to limited population size, comparisons to previous highs are invalid for the EU. The EU rolling 12-month investment-grade default rate was flat at 0.39% compared to the previous month’s 0.40%. Similarly, the US investment-grade default rate was relatively flat at 0.55% compared to the previous month’s 0.60%, a match of its previous record high set in July 2001.
A concentration of issuer weakness exists in the telecommunications and media and entertainment sectors, together representing 38.3% of the weakest issuer list.
“The prominence of telecommunications on the lists is due in large part to wireless carriers facing challenges to improve cash flow and significantly lower debt leverage in the midst of a weak economy and higher US wireless penetration,” claims Diane Vazza, head of Standard & Poor’s Global Fixed Income Research. “The volume of media and entertainment companies on the lists stems from a weak travel and lodging environment, as well as lackluster spending on advertising.”
These top two areas of sector weakness maintained their relative position on the list. Capital goods, high technology, and oil and gas exploration and production contributed an additional 23.3% to the list. The country distribution is predominantly in the US, accounting for 82% of issuers.