Corporate Defaults Down Sharply in 2003; Drop to Continue in 2004

Corporate defaults receded dramatically during 2003 due to an improving economy and liberal lending conditions, according to a report by Standard & Poor’s. The drop in default rates during 2003 is expected to continue through 2004 and credit quality deterioration should also continue to slow. ‘Expectations for greater economic strength, continued favorable financing conditions, and improving corporate profitability imply a positive outlook for defaults,’ said Diane Vazza, Managing Director of Global Fixed Income Research at Standard & Poor’s. During 2003, 126 companies that were rated by Standard & Poor’s defaulted globally on $62.5 billion of debt, down sharply from the record 236 and $190.1 billion that defaulted in 2002. The global default rate in 2003 was 1.84 per cent, compared with the peak of 3.76 per cent in 2002. The percentage of speculative-grade companies that defaulted globally in 2003 was 4.71 per cent, approximately a 50 per cent decline from 2002 when 9.49 per cent defaulted. Telecommunications defaults remained high with 9.9 per cent defaulting in 2003, which was an improvement from the 18.6 per cent reached in 2002. Industries that experienced an increase in default rates in the past year included health care, chemicals, high technology, computers, and office equipment.


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