July Junk Defaults Jump, Set Record

August 14, 2001 (PLANSPONSOR.com) - Junk bonds lived up to their name in July, with the default rate rising to 8.29% - the highest level since February 1992.

According to Moody’s Investors Service, the 12-month junk bond default rate rose from a revised 7.85% in June, as eighteen issuers defaulted on $7.7 billion in debt.   That pushed the total defaults in 2001 to $61.8 billion, according to the rating agency.   That is already well above last year?s record default volume of $49.1 billion.

For US issuers, the junk bond default rate rose to 8.82% in July from 8.22% the month before.   Moody’s expects defaults to peak at 10.1% in February and to begin falling by April.

The record global default rate is 13.1% – set in July 1991.

Credit rating agency Fitch noted that 15 companies defaulted on 40 bond issues totaling $6 billion, lifting year-to-date defaults to $51.6 billion.   Year-to-date, 8.8% of the junk bonds Fitch tracks have gone into default, while the 12-month default rate is now 10.7%, according to Reuters.

The biggest default last month was $2.8 billion by information technology firm Comdisco.

Junk bonds carry ratings of “BB-plus’ or lower from Fitch and Standard & Poor’s, and “Ba1′ or lower from Moody’s Investors Service.