Junk bond defaults almost hit record levels in 2001, says MoodyÕs Investors Service. The 2001 global default rate for speculative-grade corporate bonds hit 10.2%, falling just short of the post-Depression calendar-year record of 10.5% reached in 1991, MoodyÕs says in a report released today. MoodyÕs forecasting model indicates that the global speculative-grade corporate bond default rate will settle to 7.2% in 2002.

“The spec-grade default rate is not expected to rise significantly from its current level,” says David Hamilton, director of Default Research at MoodyÕs, adding that “the themes that framed 2001Õs credit picture will also apply in 2002, but in reverse.”

“The slowdown in economic growth last year helped push some firms into default, particularly those having not only high leverage and fragile financial structures, but also dependence on continued credit access,” he says. “What weÕre left with is a stronger pool of credits with lower future default risk. In 2002, we also expect general credit quality to recuperate as the US economy stabilizes.” Hamilton also attributes the brightening credit outlook for 2002 to improved ratings for new bond issuers entering the capital markets.

In 2001, MoodyÕs reports that 253 corporations worldwide defaulted on a total of US$110.2 billion of bonds, a 124% increase in the value of defaulted debt from 2000. Including the two sovereign debt defaulters for 2001, Argentina and Moldova, last yearÕs defaulted bond total rose to US$192.6 billion.

Last yearÕs fourth quarter marked two of the largest defaults in history. Enron Corporation filed in December for protection under Chapter 11 of the U.S. Bankruptcy Code, defaulting on US$9.7 billion of bonds. Earlier in the year, Finova Capital Corporation, defaulted on US$6.3 billion of bonds in February.

“Although we expect the default rate to decline over 2002, rating downgrades and defaults will still occur and we wonÕt see default rates fall back to historical averages until 2003.”