Turnaround Possible as Corporate Defaults Decelerate

Corporate defaults continued to decelerate in the first half of 2003, according to Standard & Poor’s Risk Solutions. Globally, 69 companies have defaulted on $34.1 billion of rated debt during 2003. This compares with 235 companies that defaulted on $181.7 billion of rated debt during all of 2002. Standard & Poor’s expects default rates to remain near average levels through the end of the year and continue to decrease in 2004. Despite the recent decline in defaults, the 1.8 per cent of U.S. speculative-grade companies that defaulted in the second quarter of 2003 remains above the average level of 1.3 per cent. ‘To put in perspective the current corporate default behavior, about 2.5 per cent of speculatively rated companies defaulted each of the six quarters from the first quarter of 2001 through the second quarter of 2002,’ said Brooks Brady, associate director for default research with Standard & Poor’s Risk Solutions. ‘Since mid-2002, quarterly default rates in the United States have hovered around 1.5 per cent, and they show no sign of decreasing significantly by the end of the year. In 2004, default rates may return to average or below average levels for the first time since 1998.’


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