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

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.