Fitch Ratings: 6.3% High Yield Default Rate Through April.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 15, 2002

April produced $8.2 billion in defaults, for a year to date default rate of 6.3%, according to Fitch Ratings. Defaults for the first four months of 2002 totaled $34.5 billion, surpassing the $33.3 billion recorded in the first four months of 2001. The trailing twelve month default rate was 13.3% in April, remaining in a range of 13% to 14% where it has firmly resided since December. The trailing twelve month default rate excluding fallen angels was 12.3% in April, a peak default level for traditional high yield defaults.

While the first four months of 2001 included nearly $17 billion in fallen angel defaults (defined as issuers rated investment grade one year prior to default), so far 2002 defaults have consisted predominantly of original issue speculative grade companies, with telecom defaults, in particular, already reaching $18 billion through April compared to $28.2 billion for all of 2001. The metals and mining sector suffered the next largest concentration of defaults through April. Defaults in that troubled industry totaled $2.6 billion, far less that the telecom level, but nonetheless representing a 19% year to date default rate for the sector. In total, telecom, metals and mining, cable, and retail have contributed 75% of defaults through April.

In April, the default rate for high yield telecom hit 20.4%. This was due both to the high volume of defaults and also due to the rapidly shrinking size of the sector. As of the end of April, the outstanding par value of performing telecom bonds was only $63 billion, approximately 13% of the overall high yield market, compared to a par value in excess of $100 billion at the beginning of 2001, then approximately 20% of the overall market size. The sector's dramatic size reduction is due entirely to the impact of defaults. In fact, the same is true of the high yield market overall. The excessive level of defaults in the past several years (an astonishing $113 billion since January 2001) has actually caused the size of the performing high yield bond market as a whole to shrink. This despite strong issuance in 2001 and in the first months of 2002. This smaller base combined with high default levels has added upward pressure to Fitch's par based default rate.

Prominent defaults in April included telecom service providers Call-Net Enterprises, Williams Communications, and Flag Telecom, mining company Doe Run Resources, and manufacturer Anchor Glass Container. In total, sixteen issuers defaulted on 27 bond issues. The total number of issuer defaults so far into 2002 is 71 compared to 59 in the first four months of 2001. Fitch anticipates that May will add close to $10 billion to the year's default count, the bulk of that volume due to defaults by Metromedia Fiber Network and British cable company, NLT. Of note, defaults on yankee issues by companies domiciled in Argentina totaled $2.4 billion through April.

Overview of the Fitch U.S. High Yield Default Index

Fitch's default index is based on the U.S., dollar denominated, non-convertible, speculative grade bond market (the rating equivalent of 'BB+' and below). Fitch includes rated and non-rated, public bonds and private placements with 144A registration rights. Defaults include missed coupon or principal payments, bankruptcy, or distressed exchanges. Default rates are calculated by dividing the volume of defaulted debt by the average principal volume outstanding for the period.

Fitch's high yield default studies are available on the Fitch Ratings web site at 'www.fitchratings.com'.