Defaults likely to surpass long-term average – Moody’s

Ratings agency Moody’s is forecasting that the default rate will surpass its long term average for the first time since 2010.

In its February research report the agency says the default rate on junk bonds will rise above its long term average in one year’s time, saying that it is “a sign that the corporate default cycle has turned.”

Low commodity prices are likely to continue to lead to defaults in the oil and gas and metals and mining sectors, the ratings agency says.

“Of the 18 defaults since the start of the year, half have been in commodity sectors,” said Sharon Ou, a Moody’s Vice President and Senior Credit Officer. “There were only 11 defaults during the same period in 2015, with only one in commodity sectors.”

“Two of the 10 defaults in February were of sizable amounts,” said Ms Ou. “Pacific Exploration and Production Corp defaulted on $3.7 billion in debt, and Paragon Offshore plc defaulted on $2.3 billion.”

The backward looking 12-month default rate increased to 3.7 per cent in this February compared to 2.1 per cent in the same period in the previous year.