US defaults down, recoveries up, says Fitch

The default rate in the United States has fallen 69%, while recovery rates went up by 50% in the first half of 2003, according to Fitch Ratings.

The defaulted issuer count through to June of this year totalled 57, down 47% from 108 during the comparable period in 2002. Fitch calculated a year-to-date default rate for the first half of 2003 of 2.8%, a significant reduction from the 9.5% rate recorded in the first half of 2002.

The defaults through June were concentrated in the telecommunications sector ($4 billion); health care and pharmaceuticals ($3.8 billion); transportation ($2 billion); metals and mining ($1.2 billion); food beverage and tobacco ($1.2 billion); and textiles ($1.1 billion).

The weighted average recovery rate moved up to 33% of par for defaulted issues through June compared with 22% of par for the full year of 2002. Fitch attributes the improvement to fewer low-value telecommunication defaults.

Fitch’s default index is based on the US dollar-denominated, non-convertible, speculative grade bond market (the rating equivalent of ‘BB+’ and below, rated by Fitch or one of the two other major rating agencies).