Global defaults continued their record-setting pace during the second quarter of 2002 with 60 companies defaulting on a record US$52.6 billion of rated debt, according to a preliminary analysis of data by Standard & Poor’s.

The second quarter defaults beat the record set in the first quarter of 2002, when a record 95 companies defaulted on US$38.4 billion of rated debt. At least 50 companies have defaulted each quarter for the past year-and-a-half, according to Brooks Brady, associate director for corporate default research at S&P’s Risk Solutions.

“This quarter’s high volume of defaults means that 10.7% of speculative-grade issuers have defaulted in the past 12 months, which is the highest percentage of defaults since the second quarter of 1992, when the default rate reached 12.5%,” Brady said. “Although the annual default rate for 2002 will most likely exceed the default rate for 2001, quarterly default rates should begin to decrease by the end of this year,” he predicted.

“Standard & Poor’s expects default rates to decrease somewhat in the U.S. during the third and fourth quarters of this year, while European default rates may reach a peak in the third quarter,” said Diane Vazza, managing director of S&P’s Global Fixed Income Research. “Assuming the U.S. economy continues to improve and the markets continue to require high credit quality from issuers, we expect default rates to decrease over the next two to three years. We expect continued weakness in the telecom, media, and entertainment sectors over the next several months.”

The quarterly default rate for speculatively rated issuers for the second quarter reached 2.7%, which is less than the record high of 4.1% reached in the first quarter. This puts 2002 on pace to exceed 2001’s annual default rate of 8.8%. Even when Argentina is removed from these figures, the year-to-date global speculative-grade default rate is 4.7%, which is greater than the 4.3% recorded last year at this time.

The second quarter defaults with the largest dollar value of rated debt were Adelphia Communications Corp. (with US$14.3 billion), NTL Inc. (US$9.3 billion), Williams Communications Group Inc. (US$3.5 billion), and Teleglobe Inc. (US$2.5 billion). Teleglobe Inc. was the only investment-grade company that defaulted during the second quarter. Of all issuers globally, both investment and speculative-grade, 2.4% have defaulted since the beginning of the year.

During the second quarter, 34 companies defaulted in the U.S., followed by four each in Argentina and Germany, three each in Bermuda, Canada, Mexico, and the Netherlands, two in the U.K, and one each in Brazil, Italy, Russia, and Switzerland.