Moody's: Global speculative-grade default rate down again in January as strong liquidity, economic growth keep defaults at bay

Moody's global speculative-grade default rate closed at 2.8% for the trailing 12-month period ending 31 January, down from 2.9% at the end of 2017 and 4.6% a year ago, the rating agency says in its latest global default report. Moody's expects the default rate to reach 1.7% by the end of 2018, well below its long-term average of 4.2% since 1983, and the comparable rate to end the year at 2.2% in the US and 1.0% in Europe.

"The new year opened with seven defaults, with three from the oil and gas sector," said Sharon Ou, a Moody's Vice President and Senior Credit Officer. "Nevertheless, we expect energy company defaults to continue to slow in the year ahead, with the sector's default rate expected to fall to 2.0% in the US by next January, as recovery from the oil price slump further stabilizes the sector."

 

Five of January's seven defaults were by US issuers, Ou says. Oil refiner Philadelphia Energy, which filed for bankruptcy with more than $540 million of debt, was the month's largest default. In Europe, UK health and social care services company Elli Investments Limited was the sole defaulter.

By this time next year, Moody's expects the oil and gas sector to rank 11th among its 35 industry groupings in terms of default rates. In the US, the rating agency expects Media: Advertising, Printing & Publishing to be the most troubled sector in the coming 12 months, followed by Durable Consumer Goods and Retail, while in Europe, the Cargo Transportation will carry the highest risk of default, followed by Media: Advertising, Printing & Publishing and Retail.

Meanwhile, in the leveraged loan market, two defaults were recorded in January, with loan defaulter Philadelphia Energy Solutions R&M LLC sending the issuer-weighted US loan default rate to 2.2% in January, against 2.3% in December. And in the high-yield market, the global default rate closed at 1.2% in January on a dollar-volume basis, down from 1.5% in December.

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