As the turmoil in the resources sectors dissipates, the global default rate for speculative-grade companies continues to decline, says Moody’s Investors Service Inc.
The credit-rating agency reports that the global speculative-grade default rate fell to 4.2% in February, down from 4.7% in January. It forecasts that the default rate will continue to decline over the coming year, reaching 2.6% over the next 12 months, “as defaults and downgrades within the embattled commodity sectors have subsided.”
“The precipitous decline in the projected default rate forecast is underpinned by several factors,” said Sharon Ou, vice president and senior credit officer at Moody’s, “including the recent peak in the global default rate, recovery in the commodity sectors and moderate growth in the global economy.
“Such a low global default rate forecast is not surprising,” she added, “given that the main drivers for defaults over the past two years — namely defaults and downgrades in the commodity sectors — have finally receded.”
North American issuers have made up the majority of defaults (69%) so far this year. Nevertheless, Moody’s said, the U.S. speculative-grade default rate declined to 5.4% in February, down from 5.9% in January. Europe’s default rate also crept lower, reaching 2.2% in February, down from 2.3% in the previous month.
Over the next 12 months, Moody’s said, the default rate for U.S. issuers is expected to be highest in the media sector, followed by the retail sector. In Europe, the retail sector is expected to be the most troubled in the year ahead.