Improved Corporate Default Rate Reflects Economic Recovery

The one-year global default rates for corporates have declined, while Asia Pacific corporates compare well to their global peers, despite seeing their first defaults since 2012, reports Moody’s Investors Service.

“After an exceptional year in 2012, in which none of the Asia Pacific corporates rated by Moody’s defaulted, 2013 saw corporate default rates in the region edging back towards historical averages,” said Michael Taylor, a Moody’s managing director and chief credit officer for Asia Pacific.

Taylor was speaking on the credit ratings agency’s (CRA) newly-released special comment, titled
‘The Performance of Moody’s Corporate Debt Ratings’
. The publication is a quarterly update on the performance of Moody’s global corporate debt ratings.

As a sign that the global economy continues to recover following the 2008-09 global financial crisis, the one-year global default rate was 0.76% for the 12-month period ended 31 March 2014, compared to 0.96% for the 12 months to 31 March 2013. A peak default rate of 4.33% was observed for the 12-month period ended 30 September 2009.

However, for Asia Pacific, the one-year corporate default rate edged up to 0.42% for the 12-month period ended 31 March 2014, compared to 0% for the 12-month period ended 31 March 2013.

As a further sign of the relative health of the Asia Pacific corporate sector, 12.67% of issuers were either on review for downgrade or held a negative outlook, while 8.12% of issuers were either on review for upgrade or held a positive outlook, as of 1 April 2014.

This compares favorably with the global situation where, as of 1 April 2014, 15.1% of issuers were either on review for downgrade or held a negative outlook, while only 5.9% of issuers were either on review for upgrade or held a positive outlook.

Rating volatility also dropped off significantly in the corporate universe since peaking in Q212, and this has continued to be the case through Q114, when the three-month rating volatility rate for Asia Pacific issuers was 3.60 notches per hundred issuers compared to a global rate of 7.72 notches per hundred issuers.

The volatility rates have declined since Q212 when it was 13.51 notches per hundred issuers in Asia Pacific compared to 22.01 notches per hundred issuers globally.

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