Moody's: Amount of defaulted debt rises in Asia; US default rate remains benign

The number of Moody's-rated corporate issuers that defaulted declined in 2014, although the amount of defaulted debt was up compared to 2013, according to Moody's Investors Service in the report "Corporate Default and Recovery Rates, 1920-2014." The report -- Moody's 28th annual default study covers financial institutions, corporates and regulated utilities that have long-term debt ratings.

"In 2014, we saw diverging trends in global corporate defaults," said Sharon Ou, a Moody's vice president and lead author of the report. "Although credit performance in the US and Europe improved, Asia's default picture was a bit more grim compared with 2013."

Corporate credit performance remained benign in 2014, owing to healthy corporate fundamentals and a fertile primary market, despite a weak global economic recovery. Globally, defaults by corporate issuers rated by Moody's declined to 53 in 2014 from 69 in 2013. However, the amount of defaulted debt rose to $68.9 billion ($41.4 billion in bonds and $27.5 billion in loans), compared with $55.5 billion ($37.6 billion in bonds and $17.9 billion in loans) in 2013.

A large portion of the $52.8 billion (up from $21.5 billion) in defaulted debt in the US was attributable to just one default, Energy Future Holdings, the second largest defaulter in history among rated non-financial issuers. Defaults among European corporate issuers declined more than 50%, to 11 from 24, and amounted to just $7.9 billion, down from $23.8 billion in 2013. Besides the 11 defaulting issuers in Europe, 31 defaults were from North America, five each from Latin America and Asia-Pacific and one from Africa.

The default rate for Moody's-rated corporate issuers was 1.0%, down from 1.4% in 2013. By sector, Energy & Environment had the bulk of the default volume, accounting for 58% by amount but just 11% by number. Capital Industries accounted for 20% of defaults by amount and 38% by number, followed by Technology, which accounted for 9% by amount and 17% by number. The types of defaults were generally evenly distributed among distressed exchanges (36%), bankruptcies (34%), and payment defaults (30%).

The global speculative-grade default rate declined to 2.0% in 2014 from 3.0% in 2013, the fifth consecutive year of below average rates. By dollar volume, the global speculative-grade default rate rose to 1.8% from 1.2%, primarily because of a couple of sizable defaults, not just Energy Future's but also that of Momentive Performance Materials. For all of the Moody's-rated issuers, the volume-weighted default rate rose slightly, to 0.4% from 0.3%.

"For 2015, we expect that the default rate will rise slightly but remain low by historical standards, following an improving US economy, healthy corporate earnings and manageable maturity profiles," said Albert Metz, a Moody's managing director. "According to our Credit Transition Model, the speculative-grade default rate will end the year at 2.7%, well below the historical average of 4.5%."