Corporate Defaults Highest in a Decade

July 16, 2001 (PLANSPONSOR.com) - Corporate bond investing has been treacherous this year, with more corporate bond defaults in the first six months than in all of 2000, "by far the largest in recent memory," according to Standard & Poor's.

S&P says that if that pace continues, defaults will account for 3.81% of the companies rated by S&P, compared with 1991’s all-time high of 3.96%. Roughly 10% were by companies that had held investment-grade ratings at one time.

Debt Sweat

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Worldwide, 101 companies defaulted on $57.9 billion worth of debt in the first six months, compared with 117 defaults and $42.3 billion in debt defaulted in all of 2000.

Most of the 101 companies that defaulted during the first six months were American (83). Other countries represented were

  • Canada (8)
  • Australia (2)
  • United Kingdom (2)
  • Bermuda
  • Greece
  • Indonesia
  • The Netherlands
  • Philippines
  • Thailand

Telecommunications companies accounted for 20.8% of the business failures, according to S&P.

Junk “Pile”

Things are no better with junk bonds, whose default rate has soared to 10% over the past 12 months according to credit rating agency Fitch. It’s the first time that the high-risk, high-yield category has reached double digits since the early 1990s.

Fitch identified $45.5 billion of defaults in the first half of the year, more than triple the $14.2 billion of defaults in the same period last year.

Fitch said $15.5 billion of telecom debt has slid into default this year – and cautioned that another $4.5 billion remains at “high risk” of default by year-end.

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