Despite December Recovery, Junk Defaults Set Annual Record

January 8, 2003 ( - The junk bond default rate fell in December, but 2002 defaults set a record, Moody's Investors Service reported.

The credit rating agency said the default rate, which measures the preceding 12 months, fell to 8.1% in December from 8.7% in November, according to a Reuters report. The rate had reached an 11-year high of 10.7 % in  January .

Defaults have set records because of the slow US economy, corporate fraud, and lenders’ increasing unwillingness to lend, among other factors, the Moody’s report said.

Moody’s, said $22.8 billion of bonds went into default in December. More than half, $12.9 billion, came from a finance arm of phone company Qwest Communications International Inc., and another $3.6 billion came from United Air Lines, which sought bankruptcy protection, Reuters reported.

December defaults sent the year’s total above $170 billion, easily surpassing the $110.2 billion record set in 2001.

Moody’s projects that the junk bond default rate will fall to 7% by the end of 2003. according to the Reuters story.