Moody's: Global speculative-grade default rate continues to rise

Moody's Investors Service forecasts that the global speculative-grade default rate will rise to 4.7% in one year from the current 3.7%, a sign that the corporate default cycle has turned.

Moody's also forecasts that the global speculative-grade default rate will reach 4.3% in July 2016, surpassing its long-term average for the first time since August 2010.

Low commodity prices continue to fuel defaults, with the Oil & Gas and Metals & Mining sectors fueling the rise in the default rate.

"Of the 18 defaults since the start of the year, half have been in commodity sectors," said Sharon Ou, a Moody's Vice President and Senior Credit Officer. "There were only 11 defaults during the same period in 2015, with only one in commodity sectors."

Moody's expects the default rates in these sectors to remain high among Moody's-rated issuers in the US, to 14.0% for Metals & Mining sector and 9.1% for the Oil & Gas sector over the next 12 months. Although Moody's forecasts lower default rates in Europe, those sectors will continue to drive the default rate, according to the report "Global speculative-grade default rate to surpass its long-term average in five months."

"Two of the 10 defaults in February were of sizable amounts," said Ou. "Pacific Exploration and Production Corp defaulted on $3.7 billion in debt, and Paragon Offshore plc defaulted on $2.3 billion."

The rise in defaults has also led to an increase in the trailing 12-month global speculative-grade default rate, which rose to 3.7% in February from 3.5% in January and 2.1% a year ago. The overall default rate also increased year over year in the US and Europe.

Three out of the five leveraged loan defaults in February were in the US, pushing the issuer-weighted US loan default rate to 2.4% in February from 2.2% in January.

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