Global defaults fall for first time in two years, says S&P

Global default rates fell in the third quarter for the first time in two years, signalling that the flood of corporate defaults that began in the late 1990s has peaked, according to ratings agency Standard & Poor’s.

S&P said in a report today that 37 companies around the world defaulted on $46.3 billion of rated debt during the third quarter of 2002, compared with $48.2 billion in the second quarter. It is the first period since the third quarter of 2000 that fewer than 40 companies have defaulted. A record 94 companies defaulted in the first quarter of this year, 38 of which were Argentinian.

But default volumes for the year as a whole do not look so good. S&P said the total amount of defaulted debt so far recorded for 2002 – $135.9 billion – already exceeds the $117.4 billion total for 2001. “The lower rate of corporate defaults across all geographic regions, including Europe, during the third quarter signals a gradual decrease from the record defaults experienced in the previous quarters," said Brooks Brady, New York-based associate director for corporate default research at S&P. "However, this is not to say that a dramatic drop in default rates is expected any time soon, because the economy remains weak and credit quality continues to deteriorate.”

At the end of the second quarter S&P listed 48 issuers on its weakest rating – CCC or lower and on 'credit watch negative' or 'with a negative outlook'. There are now 58 issuers with such a low rating, said S&P.

Communications company Worldcom’s $31.9 billion default was responsible for most of the third quarter default volume. US companies accounted for 27 of the third-quarter defaults.