January Junk Default Dip Won't Last: S&P

February 10, 2003 (PLANSPONSOR.com) - The global junk bond default may have dipped to open the new year, but investors should expect it to stay high through most of 2003.

That was the sobering assessment from credit rating agency Standard & Poor’s (S&P) who warned that sluggish global economies and tight credit markets won’t make it any easier for some ailing companies to meet their debt obligations in coming months, according to a Reuters news report.   Investors shouldn’t expect a “more perceptible improvement” until 2004, S&P said.

The credit agency said the 12-month global junk bond default rate fell to 8.33% in January from 9.2% in December. The US rate fell to 6.56% from 7.24%, while the rate for the European Union fell to 13.01% from 13.48%, it said.

Last year, more than $178 billion of bonds worldwide went into default, led by such issuers as WorldCom and Adelphia Communications.   S&P said 60 issuers; up from 37 a year ago, have an elevated potential to default. These issuers, with $35 billion of bonds, have ratings of “CCC” or lower, and either have a “negative” outlook or may bit hit with a downgrade within three months.