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Record corporate defaults in 2001; Improvement seen by year's end. (Communique).

Annual corporate defaults exceeded 200 for the first time, with 211 issuers defaulting on approximately $115.4 billion of debt through Dec. 31, 2001, according to the latest data compiled by Standard & Poor's. This dwarfs the previous record set in 2000, when 132 issuers defaulted on $42.3 billion of debt. Significantly, 3.99 percent of all issuers defaulted during 2001, equaling the record of 4.01 percent set in 1991, when the universe of issuers was much smaller, and far surpassing 2000's global default rate of 2.56 percent.

In particular, 8.57 percent of issuers with speculative-grade ratings at the beginning of 2001 defaulted during the year, compared with 5.68 percent in 2000. "This is by far the highest speculative default rate since the record level of 10.87 percent set in 1991," said Brooks Brady, associate director for Standard & Poor's Risk Solutions and author of the forthcoming default study. "In a typical cycle, defaults peak six months after an economic bottom," said Diane Vazza, head of Global Fixed Income Research. "Standard & Poor's believes the U.S. economy will bottom in the first quarter of this year and then improve gradually. We would expect to see continued high default rates, with defaults peaking at the beginning of the summer, when speculative-grade default rates could reach 11 percent, and then trailing off at year end."

Some 0.27 percent of issuers with investment-grade ratings at the beginning of 2001 defaulted last year, far surpassing 199 l's 0.19 percent and 2000's 0.15 percent. The record level of investment-grade defaults, 0.28 percent, was set in 1982. However, only 10.0 percent of issuers defaulting in 2001 were originally rated investment grade, well below the 20-year average of 13.1 percent. Defaults of issuers that were rated investment grade at the start of 2001 represented 5.06 percent of issuers defaulting during the year, less than the 20-year average of 5.24 percent.

The year began and ended with quarters marked by several very large defaults: Southern and Pacific in the first quarter and Enron in the fourth quarter. In dollar terms, these three issuers alone accounted for approximately 20 percent of all defaults in 2001 The defaults were concentrated in the telecom sector which accounted for 18.5 percent of all defaults. "However," noted Brady, telecom defaults began to ease at "In 2002, we expect defaults to be more broad-based than they were in 2001," said Vazza, "although we'll see some concentrated weakness in certain areas of. consumer products and retail."

One hundred sixty-two defaults took place in the U.S.; Argentina had 15; Canada, nine; the U.K., five; Australia, four; Poland, three; and Mexico, two. One default each took place in Bermuda, Germany, Greece, Indonesia, Korea, the Netherlands, Norway, the Philippines, Russia, Thailand and Venezuela.

In Argentina, 10 banks defaulted due to government-imposed limits on bank account withdrawals. "In 2002, the risk of additional defaults in Argentina will remain high as the economic turmoil runs its course," said Brady.

Source: PRNew swire/Standard & Poor's Risk Solutions

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Title Annotation:Standard and Poor's Corp. report
Publication:Business Credit
Article Type:Brief Article
Geographic Code:00WOR
Date:Feb 1, 2002
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