Defaults by EU companies outpace global and US counterparts, says S&P

The default rate in the European Union (EU) continued to outpace its global and US counterparts during the third quarter, according to rating agency Standard & Poor's (S&P). A total of 20 rated EU entities have defaulted on rated debt worth $8.7 billion in the first nine months of 2002, already exceeding the total number of companies that have defaulted since 1990, when S&P started to monitor European defaults

The EU recorded a quarterly default rate of 2.03% of issuers in the third quarter, compared with a rate of 1.50% in the US and a global rate of 1.39%, S&P said in a report. A quarter earlier, the EU default rate came in at 6.12% compared with 2.52% for the US and 2.73% globally.

"A spurt of speculative-grade issuance in previous years combined with continued challenging conditions for telecommunications issuers kept EU default rates high," said Barbara Ridpath, chief credit officer in Europe at S&P. "The creditworthiness of European firms remains under pressure from increased liquidity risk, since bond markets are inaccessible for many issuers at a time when banks are increasingly selective in their lending decisions."

The report notes that continued pressure on credit quality in the third quarter suggests that EU default rates will probably remain high for the remainder of the year, but moderate next year, since many of the weaker companies have defaulted.

Last week, S&P said in a report that 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.