Company defaults hit $37 bln in qtr-S&P
By Jonathan Stempel
NEW YORK, April 23 (Reuters) - Companies defaulted on $37 billion of
debt between January and March, their fastest rate ever, and are on pace to
smash last year's record for defaults by nearly two-thirds, Standard &
Poor's said on Monday.
Forty-eight companies, including 41 U.S. companies with
$30.5 billion of debt, contributed to the surge. Leading the
way, S&P said, were California utilities Pacific Gas & Electric
Co. (NYSE:PCG - news), which defaulted on $8.4 billion, and
Southern California Edison (NYSE:EIX - news), which
defaulted on $5.7 billion.
In dollar terms, corporate defaults are approaching full-year
records set in 2000, in just one-fourth the time. Last year, 117
companies worldwide defaulted on $42.3 billion of debt, while
106 U.S. companies defaulted on $33.4 billion, S&P said.
Indeed, those records may have already been broken, S&P
said, after last week's bankruptcy filing by Winstar Communications Inc. (NasdaqNM:WCIEQ - news).
S&P estimates the telecommunications services provider has at least $2 billion of debt that will count
toward the year's totals.
S&P expects the global junk bond default rate to reach 8.3 percent by year end, the worst since the 10.9
percent all-time high set in 1991. The default rate among investment grade-rated companies should be 0.3
percent this year, S&P said.
``The only way to minimize risk is to invest in more highly rated companies,'' said Leo Brand, S&P's
director of risk solutions and author of the report, in an interview.
CREDIT MARKETS TIGHTEN
Most of the defaulting companies, though not the California utilities, carried ``junk'' grades before they
defaulted. Junk, or high-yield, bonds carry low ratings because of their risks.
Many of these companies sold bonds between 1997 and 1999, when credit was much easier to obtain,
and are defaulting now because they either need more cash to grow and can't get it, or are unable to
refinance their existing debt on easier terms.
``For the individual investor, it would be dangerous at this point for them to invest in very weak, marginal
players with the lowest rated debt,'' said Brand. ``For many bonds rated 'single-B' or 'triple-C,' they may
want to be very cautious.''
Based on first-quarter data, S&P projects 192 companies will default this year, dwarfing last year's record
by 64 percent.
S&P doesn't think the year will end that badly, because the first quarter was exceedingly rough. ``How
bad things will get will depend on how severe the current (U.S.) economic slowdown turns out to be,''
Brand wrote in the report.
Still, the agency expects about 170 corporate defaults this year, 45 percent more than last year.
Other first-quarter defaults included $4.1 billion each from Indonesia's Asia Pulp & Paper Co.
(NYSE:PAP - news) and a unit of business lender Finova Group Inc. (NYSE:FNV - news), $1.5 billion
from mobile satellite phone company Globalstar LP (NasdaqNM:GSTRF - news), and $1 billion from
movie theater operator Loews Cineplex Entertainment Corp. (OTC BB:LCPFQ.OB - news).
S&P's forecast is actually less pessimistic than that of a leading rival, Moody's Investors Service. That
rating agency expects the global junk bond default rate to top 9.5 percent by year end, with the U.S. rate
soaring to near 11 percent. |
