Lines of Debt Defaulters Keeps Shrinking in 2003

December 17, 2003 ( - In yet another sign of an economic recovery, the corporate debt default rate across all ratings should be down dramatically this year off of its 2002 total, according to Standard & Poor's Risk Solutions.

According to S&P, the 2003 global debt default rate is expected to be 1.7%, down from 2002’s total of 3.7% and 3.6% in 2001. Specifically, speculative corporate default rate in 2003 is expected to come in at 5.2%, down from 7.4% in 2002 and 9.8% in 2001. The EU speculative-grade default rate will be near 3%, compared with last year’s record default rate of 13.9%, S&P said, while the emerging-market 2003 speculative-grade default should come in at about 2.4%, compared with 14.8% in 2002, when 43 Argentine companies defaulted.

Only two companies that S&P rated investment grade at the beginning of the year defaulted during 2003, compared with 17 investment-grade defaulters in 2002. German reinsurer Gerling-Konzern Globale Rueckversicherungs-AG defaulted in August and Australian mining company Newmont Yandal Operations Ltd., took the step in June.

Year to date as of December 16, 2003, 120 rated or formerly rated have defaulted in 2003, compared with 235 in 2002. Ninety-three of those companies defaulting were in the US; six were in Mexico; five in Canada; four in the UK, two each in Argentina and Germany; and one each in Australia, Brazil, Colombia, the Dominican Republic, Japan, Luxembourg, Norway, and Venezuela.

Of the $52.9 billion that has defaulted so far this year, US companies defaulted on $39.9 billion and EU firms accounted for $7.2 billion. There were 12 companies that defaulted on more than $1 billion of rated debt during 2003, compared with 36 in 2002.

The five largest defaulters this year have been:

  • Mirant Corp. ($5.6 billion)
  • HEALTHSOUTH Corp. ($4.4 billion)
  • Fleming Cos. Inc. ($2.8 billion)
  • Marconi PLC ($2.8 billion)
  • iesy Hessen GmbH ($1.5 billion).

S&P predicted that 2004 would bring more of the same, as many world economies formerly hit by the downturn will increasingly find their footing. “Expectations for greater economic strength, continued favorable financing conditions, and improving corporate profitability imply a more optimistic outlook for default in the near term,” said Managing Director Diane Vazza of Standard & Poor’s Global Fixed Income Research, in a statement.