S&P says corporate defaults smash records
By Jonathan Stempel
Thursday April 11, 2:47 pm Eastern Time
NEW YORK, April 11 (Reuters) - Corporate bond defaults worldwide smashed records in the first quarter of 2002 and the pace of defaults will likely fall only moderately this year, Standard & Poor's said on Thursday.
From January through March, 94 companies defaulted on $33.6 billion of rated bonds worldwide, S&P said. Forty-one came from the United States, where corporate credit quality sank for the 15th straight quarter, and 38 came from Argentina, where companies can no longer make foreign currency interest payments.
Concern over the scope of any U.S. economic recovery, the prospect that Middle East unrest may lead to rising energy prices, and weakness in the telecommunications sector -- especially in Europe -- will keep defaults high this year, the rating agency said.
``Investors need to realize there remain significant risks in the high-yield market,'' said Brooks Brady, associate director for corporate default research at S&P Risk Solutions, in an interview. ``We aren't out of the woods yet.''
Most companies that default on bonds carry ``junk,'' or high-yield, credit ratings.
The old record for total defaults was set in the fourth quarter of 2001, when 55 companies defaulted, S&P said. The record quarterly dollar amount for defaults is $36.9 billion, set in the first and fourth quarters of 2001, S&P said.
S&P said four companies -- telecom Global Crossing Ltd. (Other OTC:GBLXQ.PK - news), retailer Kmart Corp. (NYSE:KM - news), telecom McLeodUSA Inc. (NasdaqNM:MCLDQ - news) and UnitedGlobalCom Inc., the parent of ailing cable TV operator United Pan-Europe Communications NV -- accounted for $16.6 billion, or nearly half, of bond defaults worldwide.
Global Crossing was responsible for $5.4 billion of defaulted bonds, McLeodUSA for $4.6 billion, Kmart for $3.4 billion and UnitedGlobalCom for about $3.2 billion, S&P said.
ARGENTINA DRIVES RATE HIGHER
Worldwide, a record 4.16 percent of all ``junk'' bond issuers defaulted in the quarter. The old record was 3.4 percent, set in the first quarter of 1991, S&P said.
Excluding Argentina, the default rate for the quarter was 2.25 percent, which translates into an annual default rate slightly higher than last year's 8.9 percent, Brady said.
``Defaults can tend to lag changes in the economic cycle, so even as other parts of the economy rebound, some companies may remain at significant risk of default,'' he said. The United States last officially exited a recession in March 1991.
The quarter's other defaults included three in the United Kingdom, two each in Bermuda, Brazil, Canada, and Indonesia, and one each in Australia, China, the Netherlands and Switzerland, S&P said.
S&P's quarterly default data exclude preferred stock, and bonds on which companies have missed interest payments but have not been officially declared in default. |
