Moody's: Global speculative-grade default rate unchanged in December, projected to continue downward path in 2018

Moody's global speculative-grade default rate closed the final quarter of 2017 at 2.9%, unchanged from the prior quarter, the rating agency says in its latest global default report. The global rate is set to fall below 2% this year, while in the US it is projected to decline to 2.4%, and in Europe to 1.2%, by year's end.

"Under our baseline scenario, we expect the global speculative-grade default rate to continue its downward path this year and to close it at 1.9%," said Sharon Ou, a Moody's Vice President and Senior Credit Officer. "This forecast aligns to the pick-up in global economic momentum and narrow option-adjusted high-yield spreads and generally good liquidity and low refinancing risk among Moody's-rated speculative-grade issuers."

Overall, 90 defaults were recorded in 2017, compared with 143 in 2016, Ou says. In the fourth quarter, 24 Moody's-rated corporate issuers defaulted, up from 15 in the third, but down from 29 in the second. By region, 58% of last quarter's defaults occurred in North America and 29% in Europe, while the largest defaulter was Petroleos de Venezuela SA, which missed an interest payment on more than $20 billion of debt.

Oil and gas companies accounted for nine of the final quarter's defaults, the largest number among sectors. Even so, Moody's analysts anticipate the default risk for US-domiciled oil and gas firms to continue subsiding this year, with a projected default rate of 2.2%. The retail sector came in a distant second, accounting for three of the fourth quarter's 24 defaults.

Moody's expects Durable Consumer Goods to be the most troubled sector in the US in 2018, while Media: Advertising, Printing & Publishing will remain the most challenged in Europe. Retail stands in the third place in both regions, with default rate forecasts of 5.5% and 2.1%, respectively.

Meanwhile, in the leveraged loan market, 16 loan defaults were recorded in the fourth quarter, with nine of these from the US. The issuer-weighted US leveraged loan default rate closed at 2.3% last quarter, up from 1.6% in the third. On a dollar volume basis, the global speculative-grade default rate ended 2017's final quarter at 1.6%, up slightly from 1.5% in the third.

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