Moody's: Global speculative-grade default rate ends at 2.1% in fourth quarter

The trailing 12-month global speculative-grade default rate finished the fourth quarter of 2014 at 2.1%, down from 2.2% in the third quarter, Moody's Investors Service says in its latest monthly default report. The latest reading came in close to the rating agency's year-ago forecast of 2.3%.

In the US, the speculative-grade default rate increased to 1.9% in the fourth quarter from 1.7% in the third. In Europe, the default rate fell to 1.6% from 2.2% during the same period. A year ago, the rate was 2.2% in the US and 4.4% in Europe.

Based on its forecasting model, Moody's now expects the global speculative-grade default rate to increase modestly, to 2.7%, in 2015. By region, Moody's expects the default rate to rise to 2.8% in the US and increase to 2.3% in Europe.

"Looking ahead, widening high-yield spreads, geopolitical concerns and weak economic growth outside the US may put some upward pressure on the global default rate. However, an improving US economy, together with ample liquidity and manageable maturity profiles should keep the default rate low by historical standards," says Albert Metz, Managing Director of Moody's Credit Policy Research.

A total of 54 Moody's-rated corporate debt issuers defaulted in 2014, with five of these in December. Nine companies defaulted in the fourth quarter of 2014. Of the nine defaults, four were from North America, three were from Asia pacific, with the remainder from Europe.

By dollar volume, the global speculative-grade bond default rate ended the fourth quarter at 1.7%, down from 1.8% in the prior quarter. A year ago, the comparable rate was lower, at 1.2%.

In the US, the dollar-weighted speculative-grade bond default rate remained unchanged at 1.9% from the third quarter to the fourth. In Europe, the rate fell to 1.0% in the fourth quarter from 1.5% in the third. At this time last year, the dollar-weighted bond default rate stood at 0.4% in the US and 3.7% in Europe.

Across industries, Moody's expects default rates to be highest in the Consumers Services sector in the US and the Aerospace & Defense sector in Europe in the next 12 months.

Moody's global distressed index, which measures the percentage of high-yield issuers whose debt is trading at distressed levels, more than doubled to 18.1% in the fourth quarter from 8.3% in the third. At this time last year, the index was 7.4%.

In the leveraged loan market, only one Moody's-rated company defaulted on its loan in the fourth quarter of 2014. The US leveraged loan default rate held steady at 0.9% from the third quarter to the fourth. A year ago, the rate stood at 2.4%.

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